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In Amazon’s Appstore, many apps geared toward kids prompted them to use fictitious currency, like a “boatload of doughnuts” or a “can of stars,” as part of game play. But a federal district court recently agreed with the FTC that Amazon’s practice of charging cold, hard cash for those imaginary items and billing parents and account holders without their express informed consent violates Section 5 of the FTC Act. The Court granted summary judgment on the FTC’s claim that Amazon unfairly billed consumers for unauthorized in-app charges incurred by children.

You’ll want to take a look at the 23-page opinion, portions of which remain redacted, but here are some sentences we marked with a yellow highlighter on our initial read-through.

“While accusing the FTC of adopting an expanded version of the FTC Act, it is Amazon that advocates for a new, more searching, definition of ‘unfair’ practices. The three-part test for whether a practice is ‘unfair’ under the FTC Act, found in the statute itself, is followed without embellishment by courts in this Circuit.”  In applying the established definition of unfairness – “Acts or practices are considered unfair if (1) they cause or are likely to cause substantial injury to consumers, (2) the injury is not reasonably avoidable by consumers, and (3) the injury is not outweighed by any countervailing benefits to consumers or competition” – the Court declined Amazon’s invitation to create a different standard.

“Courts have repeatedly held that billing customers without permission causes injury for the purposes of asserting a claim under Section 5 of the FTC Act.”  That is the bedrock of the FTC’s cause of action against Amazon and the opinion cites numerous cases affirming that principle.

“The words, ‘In-App Purchasing’ are smaller than the remainder of the text on the screen and in the same font and color. Notably, though the words ‘In-App Purchasing’ represented a clickable hyperlink which users could click on to learn more about in-app charges, the lettering is not presented in such a way as to make that obvious, such as setting the words in a different color or underlining them.” Those are some of the factors the Court used to evaluate Amazon’s purported disclosure. The ruling suggests that design choices aren’t necessarily just a matter of esthetics. They can have a substantial impact on consumer perception – and thus legal ramifications, too. (Consider the Court’s illustrated analysis on pp. 19-20 of the opinion. For more on that topic, read the FTC staff guidance publication, .com Disclosures: How to Make Effective Disclosures in Digital Advertising.)

“An act or practice may cause substantial injury either by doing ‘small harm to a large number of people, or if it raises a significant risk of concrete harm.’ Consumer injury can occur in ‘a variety of ways.’ While courts should look to any deception on the part of businesses, 'the absence of deceit is not dispositive.' Nor is actual knowledge on the part of the consumer a requirement to establish substantial harm. Injury can be shown where consumers are ‘injured by a practice for which they did not bargain.’  That’s what the Court held in applying the first prong of the unfairness test: substantial injury. The Court based its reasoning on the United States Court of Appeals for the Ninth Circuit’s decision in FTC v. Neovi.  (We omitted the case citations within the quote.)

“Amazon argues that because of its liberal practices around providing refunds, its customers were not injured. Amazon’s argument conflates complaints with the total universe of injury. However, given the design of the Appstore and procedures around in-app purchases, it is reasonable to conclude that many customers were never aware that they had made an in-app purchase.  The Court found that Amazon’s practice of granting refunds for in-app charges was not enough. What’s more, “the time spent seeking refunds for those charges constitutes additional injury to Amazon’s customers.” (Read page 20 of the opinion for details about what Amazon told customers about its refund policies.)

“Amazon argues that a reasonable consumer would preemptively ‘identify and sidestep a potential injury.’ However, evidence establishes that, when in-app purchases were introduced, most consumers were unaware of their existence. Accordingly, it is unreasonable to expect customers to be familiar with the potential to accrue in-app purchases while using apps labeled as ‘FREE.’ Many of Amazon’s arguments improperly assume a familiarity with in-app purchases on the part of consumers.”  That was the Court’s rationale in evaluating the second prong of the unfairness test: whether the injury was reasonably avoidable. Under the FTC Act, it’s wise to view your transactions from the perspective of a reasonable consumer, not a customer already familiar with your products and billing practices.

“First, even accepting as true the notion that consumers prefer a seamless and efficient experience, the ‘benefit’ of ensuring a streamlined experience is not incompatible with the practice of affirmatively seeking a customer’s authorized consent to a charge. In fact, a clear and conspicuous disclaimer regarding in-app purchases and request for authorization on the front-end of a customer’s process could actually prove to better inform customers about their risk of accruing in-app purchases and be more seamless than the somewhat unpredictable password prompt formulas rolled out by Amazon.”  The third part of the unfairness test is whether there are countervailing benefits. Amazon argued that “consumers prefer a seamless, efficient mobile experience” or – to use the Court’s description – “essentially, that failing to require a password was a benefit.” The ruling emphasizes that it’s possible both to offer consumers a streamlined experience and to obtain informed consent for charges.

The order calls for more from the FTC and Amazon regarding the amount of monetary relief Amazon owes consumers as a result of its unlawful practices. In addition, the order granted Amazon’s motion for partial summary judgment regarding injunctive relief requested by the FTC.


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