(Updates with Cook e-mail to employees in 11th paragraph.)
Jan. 15 (Bloomberg) -- Apple Inc. said it would refund at least $32.5 million to consumers to settle a U.S. Federal Trade Commission complaint that it billed for mobile application purchases made by children without their parents’ consent.
Under the terms of the settlement, Apple also agreed to change its billing practices to make sure that it has obtained “express, informed consent” from consumers before charging them for items sold in mobile apps.
“Consumers should not have to sacrifice basic consumer protections to enjoy the benefits of mobile technology,” FTC Chairwoman Edith Ramirez said at a press conference in Washington today to announce the settlement. Ramirez said the $32.5 million figure is just a floor and that consumers will get full refunds to cover purchases from March 2011.
The FTC deal is Apple’s latest entanglement with the U.S. government, which has stepped up its scrutiny of the Cupertino, California-based company. The iPhone maker also is battling with the U.S. Justice Department over a court-appointed monitor assigned to review the company’s compliance with an antitrust lawsuit it lost last year regarding e-book sales. A Senate committee last year also released a report criticizing the company for policies that allow it to avoid paying billions of dollars in U.S. taxes.
Apple, the world’s biggest company by market value, should expect the attention to continue, said David Balto, a Washington-based attorney who was previously a policy director at the FTC.
The government “knows perfectly well that a case against Apple sets rules for the road,” he said. “If they are willing to go against Apple it shows they are willing to go against anybody.”
Today’s FTC settlement stems from the billing mechanism within Apple’s App Store that made it easy for children to ring up charges while playing games without the parent being aware. Many games in the App Store use what’s called “in-app purchases” in which a player can pay to get more features or advance more quickly.
Apple’s App Store is the digital marketplace for buying games, productivity tools, picture-taking and social-networking tools and other software for the iPhone and iPad. The company said earlier this month that customers spent $10 billion on the App Store in 2013, with almost 3 billion apps downloaded during December. Developers who make the software applications have earned $15 billion by selling their software through the Apple Store. Apple takes a 30 percent cut of App Store purchases.
“Protecting children has been a top priority for the App Store from the very beginning, and Apple is proud to have set the gold standard for online stores by making the App Store a safe place for customers of all ages,” Apple said in a statement. The agreement with the FTC “extends our existing refund program for in-app purchases which may have been made without a parent’s permission.”
Apple’s deal with the FTC comes after the company settled a similar class-action lawsuit in California last year, resolving claims that the company induced children to make game-related purchases on iPhones and iPads without their parents’ knowledge or permission.
The agreement with the FTC doesn’t require Apple to do anything it wasn’t already doing, Chief Executive Officer Tim Cook wrote in an e-mail to employees. As part of the class- action settlement, Cook said Apple reached out to 28 million App Store customers last year to refund potential overcharges and is reimbursing 37,000 claims.
While the FTC’s lawsuit “smacked of double jeopardy,” Apple agreed to a settlement to avoid “a long and distracting legal fight,” Cook said.
The FTC said today its complaint alleged that Apple didn’t inform account holders that entering a password would open a 15- minute window in which children can incur unlimited charges, even if the account holder takes no action. Apple also often showed a screen that didn’t explain that a password entry would finalize a purchase, the FTC said. The company’s actions violated federal law prohibiting unfair practices by companies, the commission said.
Apple received “at least tens of thousands of complaints about unauthorized in-app purchases by children,” the FTC said. That included one consumer who reported that her daughter spent $2,600 in the app “Tap Pet Hotel,” according to the FTC.
The $32.5 million minimum that Apple has agreed to pay under the FTC settlement is a tiny amount for the iPhone maker. In its last fiscal year, Apple generated $171 billion in revenue, or about $19.5 million per hour.
--With assistance from Joel Rosenblatt in San Francisco. Editors: Pui-Wing Tam, Reed Stevenson