Amazon Intends to Fight FTC Lawsuit over Minors’ In-App Purchases

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The Federal Trade Commission (FTC) may soon be taking legal action against Amazon, but the Seattle-based online retailer has indicated it will be prepared to go to trial to defend itself from allegations that it failed to take adequate measures to prevent children from making unauthorized in-app purchases through their parents’ accounts.

The FTC is taking issue with apps that are downloaded onto a smartphone or tablet for free, but which charge users for digital goods and services. In-app purchases can include game levels, new characters and virtual goods. These in-app purchases typically cost between $1 and $5, but in some cases can be much higher. The app store owners such as Amazon, Apple and Google generally keep 30 percent of the purchase price. However, these app store operators have increasingly come under fire for failing to prevent unauthorized purchases, especially when they are made by children without their parents’ consent.

In its proposed lawsuit, the FTC alleges that Amazon “often has failed to obtain parents’ or other account holders’ informed consent to in-app charges incurred by children” since it started offering in-app purchases in 2011. According to the FTC, thousands of customers have complained about in-app purchases made by their children. In some cases, the children reportedly racked up hundreds of dollars in in-app charges. The FTC is urging Amazon to refund customers for unauthorized in-app purchases, give up any profits made from unauthorized purchases and to compensate the FTC for its costs.

Last week, Amazon sent a letter to the FTC indicating that it was prepared to “defend our approach in court” instead of agreeing to fines and disclosure requirements over a span of two decades. Amazon argues that it has refunded the disputed charges and that its app store clearly notifies consumers in real time about every in-app purchase. However, the FTC alleges that consumers seeking refunds face “significant hurdles” and that the process of obtaining a refund for in-app purchases is confusing.

Amazon insists that it improved its parental controls based on the requirements the FTC imposed on Apple related to in-app purchases earlier this year.

In January, Apple agreed to a $32.5 million settlement with the FTC over allegations it failed to take adequate measures to prevent kids from making in-app purchases without their parents’ authorization. Apple also reached a class action settlement in California over children’s in-app purchases. These Apple in-app purchase settlements require Apple to provide refunds to customers and to update its practices to make sure customers provide authorization for the in-app purchases.