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FTC?s Amazon suit discourages future innovation: DMA

A suit filed by the Federal Trade Commission against Amazon yesterday points to how the agency is targeting leading American technology companies and could discourage innovation from these companies going forward, according to an executive with the Direct Marketing Association.

The FTC did not waste any time in answering Amazon?s refusal to settle over allegations regarding in-app purchasing, filing a lawsuit in federal court yesterday that seeks to permanently ban the ecommerce giant from billing consumers for in-app purchases without their consent. The suit also seeks to mandate Amazon refund what it claims are millions of dollars in unauthorized in-app charges placed by children on their parents? accounts.

"The FTC should be encouraging innovation in the growing mobile industry, which benefits consumers and competition," said Peggy Hudson, senior vice president of government affairs at the Direct Marketing Association, in a statement responding to the FTC announcement. "Instead, the Commission seems focused on using novel legal theories and scarce enforcement resources to go after America's leading tech companies in court.  

"Amazon reportedly has already done the right thing by enhancing its app market and providing consumer refunds, so consumers have nothing to gain and plenty to lose from the Commission's lawsuit.  Nothing will discourage future innovation faster than punishing good deeds."

Freemium pressure
The suit is the latest example of how the FTC?s focus has narrowed in on in-app charges as the app ecosystem has grown, with the agency having previously settled with Apple over similar charges.

The suit also exemplifies how freemium apps ? those that users download for free but then have to pay to access additional digital content ? are increasingly being viewed suspiciously by regulators and consumers thanks to a lack of standardized best practices for how to address in-app purchases (see story). 

According to the suit, when Amazon introduced in-app charges the Amazon Appstore in November 2011, there were no password requirements for in-app charges. As a result, children were able to make in-app purchases from Amazon devices without the use of a password or other indication of parental consent. As is customary in the app world, Amazon reportedly kept 30 percent of those charges.

As adoption of Amazon?s Kindle Fire tablet has taken off, the number of apps available in the Amazon Appstore for Android has also grown. This includes a number of children?s apps enabling users to pay for virtual items such as coins, stars and other digital content. 

The suit also highlights internal communications among Amazon employees reflecting that they understood that allowing charges without any password requirement was causing a problem for customers.

Parental consent
While Amazon reportedly updated its in-app charge system in March 2012 to require a password for in-app charges over $20, this did not address how children were making an unlimited number of purchases of less than $20 without parental consent.

Additional changes were reportedly made in early 2013 that required password entry for some charges. However, even once a parent entered a password, there was often an undisclosed window of time during which additional charges could be made without the need for further authorization. 

The FTC says it was not until June of this year that Amazon made the changes that require informed consent for all in-app charges.

Amazon said earlier this month that it was prepared to go to court with the FTC over this matter as it claims to already have refunded money to parents who have complained and that its parental controls go beyond those required by the FTC from Apple in a $32.5 million settlement reached earlier this year.

However, the FTC asserts that many consumers who have tried to get refunds from Amazon have not been able to do so because the process is so confusing. 

Falling through the cracks
The DMA?s sentiments are in line with those expressed by attorneys focused on this area earlier this year in reference to Apple?s settlement with the FTC. 

Those comments, which came during a session at Mobile FirstLook: Strategy 2014 conference, addressed how regulators in the United States are reactionary when it comes to technology, which could lead to problems (see story). 

?Mobile can fall through the cracks because the legislature doesn?t always get it,? said Christopher Loeffler, associate at Kelley Drye & Warren, Washington, DC, during the event. ?We?re not looking at the leading technology thought leaders when we?re talking about members of congress.

?Mobile is done differently, and I think that?s going to leave some problems if the U.S. continues this reactive approach to regulations,? he said.

Final Take
Chantal Tode is senior editor on Mobile Marketer, New York