Last week, California became the 50th state to join the multistate settlement with Western Union over its alleged complicity in fraud-induced wire transfers. This followed Western Union’s $5 million agreement with 49 state and the District of Columbia for costs and fees in January, not to mention a whopping $586 million in settlement agreements
Federal Court Finds Amazon Liable for Kids’ In-App Purchases
Yesterday, a federal judge ruled that Amazon is liable for permitting unauthorized in-app purchases incurred by children. Amazon is the last in a series of actions brought by the FTC against third-party platforms related to kids’ in-app charges (we previously blogged about the other two actions against Apple and Google here and here, which resulted in refunds to consumers totaling over $50 million).
FTC Allegations
The FTC first filed its complaint against Amazon in district court in July 2014, alleging that the billing of parents and other account holders for in-app purchases incurred by children “without having obtained the account holders’ express informed consent” violated Section 5 of the FTC Act. Many of the apps offering in-app purchases were geared towards children and offered as “free” with no indication of in-app purchases. These in-app charges generally ranged from $0.99 to $99.99, but could be incurred in unlimited amounts. The FTC alleged that, while the app developers set the price for apps and in-app purchases, Amazon retained 30% of the revenue from every in-app sale.
The complaint alleged that when Amazon first introduced in-app charges in November 2011, the default setting initially permitted in-app purchases without a passcode, unless this setting had been enabled by the user in the parental controls. Following a firestorm of complaints by parents surprised to find these in-app charges, Amazon introduced a password prompt feature for in-app charges of $20 or more in March 2012. This initial step, however, did not include charges that, in combination, exceeded $20. In August 2012, the FTC notified Amazon that it was investigating its in-app billing practices.
Amazon began to require password prompts more frequently beginning in February 2013, only if the purchase initiated was over $20, a second in-app purchase was attempted within five minutes of the first, or when parental controls were enabled. Even so, once a password was entered, in-app purchases were often authorized for the next hour. Amazon continued to refine its in-app purchase process over the next few months, identifying that “In-App Purchasing” was available on an app’s description page, and adding a password requirement for all first-time in-app purchases, among other things.
The Court’s Order
The FTC moved for summary judgement in February 2016. In it April 27 order, the court granted the FTC’s summary judgement motion finding that: (1) the FTC applied the proper three-prong legal test for determining unfair business practices (e.g., a substantial injury that is not reasonable to consumers, and not otherwise outweighed by countervailing benefits); (2) the FTC’s witness used to calculate money damages was timely disclosed, even though she was identified after the discovery cut-off date since the FTC made its intentions to seek monetary relief known from the beginning; and (3) Amazon’s business practices around in-app purchases violated Section 5.
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Scalia’s Death Leaves High Court in Limbo on Three Key Consumer Class Actions
While the sudden death of Supreme Court Justice Antonin Scalia creates an immediate vacancy on the bench, it also likely leaves the high court’s docket in limbo on a number of key consumer class actions awaiting the Court’s decision.
Many predict that President Obama will not be able to replace Scalia before the 2016 Presidential election, meaning that the seat may be vacant for the remainder of the term. Democrats have been urging the President to immediately nominate a successor, with Republicans imploring the President to give that right to the next Commander-in-Chief. Senate Majority Leader Mitch McConnell has stated that the Senate should not confirm a replacement until after the 2016 election.
Until a successor is confirmed, it means that the Supreme Court will be comprised of four reliable liberals, three reliable conservatives, and one Justice Kennedy, who typically leans to the right but has often acted as the Court’s swing vote. With only eight justices, it is likely that we will see a number of important cases end in a 4-to-4 split this year, including several key cases relating to consumer class actions. In the case of a tie, the appeals court decision will be upheld, no precedent will be set, and the Supreme Court traditionally will not issue an opinion.
Here’s a brief rundown of how Scalia’s passing may affect three key consumer class actions in front of the Court this term.
Case: Spokeo Inc. v Robins (Docket No. 13-1339)
Issue: Whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm, but alleges a private right of action based on a bare violation of a federal statute.
Outcome in a split: Plaintiff’s win – would make a bare violation of a federal statute sufficient to confer Article III standing, thereby making it easier for plaintiffs to move forward in litigating cases alleging statutory violations.
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App Developers Settle COPPA Violations Relating to Third-Party Ad Network Practices
This week, the FTC announced settlements with two mobile app developers – LAI Systems, LLC and Retro Dreamer (including two of its principals) – concerning allegations that their apps collected childrens’ personal information without obtaining parental consent in violation of COPPA. These cases are the first in which the FTC has held a company liable
Cookies, Promises, and California: Why the 3rd Circuit Revived Privacy Claims Against Google
Last week, the U.S. Court of Appeals for the Third Circuit revived several privacy claims against Google pertaining to the Internet company’s practice of side-stepping “cookie blockers” on Microsoft’s Internet Explorer and Apple’s Safari browsers.
The Third Circuit found that Google intentionally circumvented “cookie blockers” on Internet browsers by exploiting loopholes found in the cookie
Will the FTC Have Access to Your Electronic Communications?
Amending the Electronic Communications Privacy Act (ECPA) has long been under consideration in Congress, but recent testimony indicates that ECPA reform may have deeper implications for companies subject to FTC investigations.
The ECPA, passed almost 30 years ago, generally prohibits the unauthorized access to communications systems and the disclosure of the contents of wire and electronic communications by a service provider. The ECPA Amendments Act of 2015 (S.356/H.R. 283) is intended to “bring privacy protections for the digital world in line with those in the physical world.”
Since its introduction in Congress, several stakeholders have raised concerns that the current bill could hamper civil investigations by regulatory agencies, such as the FTC or SEC, since these agencies – like all others – must have a warrant to obtain emails and other electronic communications. On September 16, 2015, the Senate Judiciary Committee held a hearing entitled “Reforming the Electronic Communications Privacy Act” to provide stakeholders the opportunity to provide additional insight.
In testimony by Daniel Salsburg, FTC’s Chief Counsel in the Office of Technology, Research and Investigation, Salsburg explained that although the Commission does not currently seek the content of electronic communications from ECPA service providers, he believes that in the future, as more electronic communication moves to the cloud, the effectiveness of the FTC’s fraud prevention program may be hampered if the proposed legislation is not appropriately modified. Where the target is a fraudulent marketer, for example, obtaining the electronic communications through a civil investigative demand (“CID”) to the marketer may not be a viable option, and the FTC should be able to obtain this information through warrantless means.
Notably, Salsburg requested the ECPA be modified to:
- Allow the FTC to obtain copies of previously public commercial content that advertises or promotes a product or service directly from the service provider, without a warrant; and
- Provide a judicial mechanism that would authorize the FTC to seek a court order directing the service provider to produce the content if the FTC establishes it has sought to compel it directly from the target, but the target has failed to produce it.
So what does this mean for your business?
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“Green” Certifications and Seals Do Not Have FTC Approval
On September 14, FTC staff sent warning letters to five providers of environmental certification seals and 32 businesses that display them online, alerting them to the agency’s concerns that the seals may be deceptive and may not comply with the FTC’s Green Guides. Although the warning letters do not identify which certifiers, seals, or businesses
California Bill Would Complicate Labeling Requirements for Children’s Products
California state law bill SB 763 has stayed relatively under the radar since its introduction in February 2015. However, with recent traction in the state legislature – including passage in the Senate in June and passage in three Assembly Committees in July – this bill is definitely worth a second look.
SB 763 would require manufacturers of “juvenile products” sold in California to include a statement on the product’s label whether or not the product contains added flame retardant chemicals. A “juvenile product” would be defined as a product subject to California’s Home Furnishings and Thermal Insulation Act,[1] and intended for use by infants and children under 12. Covered products would include not only bassinets, floor play mats, crib mattresses, infant bouncers, and infant and booster seats which are used by infants and children, but also products intended for use by adults which the child or infant may come in contact with. This includes, for example, nursing pads, nursing pillows, infant carriers, and changing table pads.
The bill would require manufacturers to affix the following lengthy labeling statement on covered juvenile products sold in California, and indicate the absence or presence of added flame retardant chemicals by marking a “X” in the applicable space below:
The State of California has determined that this product does not pose a serious fire hazard. The state has identified many flame retardant chemicals as being known to, or strongly suspected of, adversely impacting human health or development.
The fabric, filling, and plastic parts of this product:
_____contains added flame retardant chemicals
_____contains NO added flame retardant chemicals
Additionally, the bill imposes recordkeeping requirements, allows the CA Department of Toxic Substances Control to test products labeled as containing no added flame retardant chemicals for compliance, and permits fines ranging from $2,500 to $15,000 for mislabeling and other violations.
In the past few years, flame retardant chemicals have been highly scrutinized by consumer advocates. According to the bill’s author, “[g]rowing evidence show(s) that many fire retardant chemicals have serious human and environmental health impacts, including cancer, decreased fertility, hormone disruption, lower IQ, and hyperactivity.”
Although the bill’s intentions are honorable – i.e., to provide parents with information needed to choose safe and healthy products for their children – the reality is that the bill would impose additional requirements on products already regulated by the CPSC, impose costly and burdensome labeling requirements on businesses, and may actually undermine consumer confidence in covered products.
As noted by Anne Northup, Former Congresswoman and Former U.S. CPSC Commissioner, “[i]magine the confusion from expectant parents shopping for needed items when they see that the high chair is labeled as being free of flame-retardants and the crib mattress being labeled as containing them. What are they to conclude about which product is safe?”
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Wet Wipes Manufacturer Must Back Up Its Flushing Claims (And Not Consumers’ Plumbing)
On May 18, 2015, the FTC announced a settlement with Nice-Pak Products, Inc., concerning claims that its moist wipes are “flushable,” “break apart after being flushed,” and are “safe” for sewer and septic systems. Nice-Pak marketed and sold its flushable wipes primarily through private label brands, such as Costco’s Kirkland Signature Moist Flushable Wipes, CVS’s
Google to Refund at Least $19 Million Over Kids’ In-App Purchases
On September 4, 2014, the FTC announced a settlement with Google Inc., which requires the search giant to pay at least $19 million in refunds to consumers that the Commission alleges were billed for unauthorized in-app charges incurred by kids. The settlement follows a similar settlement in January with Apple (which required Apple to pay a minimum of $32.5 million in refunds), and a recent complaint filed by the FTC in federal court against Amazon.
The FTC’s complaint against Google alleges that the company offered free and paid apps through its Play store. Many of these apps are rated for kids and offer “in-app purchases” ranging from $0.99 to $200, which can be incurred in unlimited amounts. The FTC alleges that many apps invite children to obtain virtual items in a context that blurs the line between what costs virtual currency and what costs real money.
At the time Google introduced in-app charges in March 2011, users were notified of an in-app charge with a popup containing information about the virtual item and the amount of the charge. A child, however, could clear the popup simply by pressing a button labeled “CONTINUE.” In many instances, once a user had cleared the popup, Google did not request any further action before billing the account holder for the corresponding in-app charge.
It was not until mid- to late-2012 that Google begin requiring password entry in connection with in-app charges. The complaint alleges, however, that once a password was entered, it was stored for 30 minutes, allowing a user to incur unlimited in-app charges during that time period. Regardless of the number or amount of charges incurred, Google did not prompt for additional password entry during this 30 minute period.
Google controls the billing process for these in-app charges and retains 30 percent of all revenue. For all apps, account holders can associate their Google accounts with certain payment mechanisms, such as a credit card, gift card, or mobile phone billing. The complaint highlights that Google received thousands of complaints related to unauthorized in-app charges by children and that unauthorized in-app purchases was the lead cause of chargebacks to consumers.
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