FTC Sues Amazon Over In-App PurchasesFTC Sues Amazon Over In-App Purchases

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Ten days ago, Amazon.com penned a letter to Federal Trade Commission Chairwoman Edith Ramirez that defied the FTC's demand that Amazon enter into a consent agree similar to Apple's to govern its handling of in-app transactions.

"The Commission's unwillingness to depart from the precedent it set with Apple despite our very different facts leaves us no choice but to defend ourselves in court," wrote Andrew DeVore, VP and Assistant General Counsel at Amazon.com.

The FTC has accepted Amazon's challenge. The agency on Thursday filed a complaint against the company in the Western District of Washington alleging unfair trade practices for Amazon's failure to prevent children from making unauthorized in-app purchases through Amazon Appstore apps.

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The agency claims that it has received complaints from thousands of parents about transactions amounting to millions of dollars.

"Amazon’s in-app system allowed children to incur unlimited charges on their parents' accounts without permission," said Ramirez in a statement. "Even Amazon's own employees recognized the serious problem its process created. We are seeking refunds for affected parents and a court order to ensure that Amazon gets parents' consent for in-app purchases."

The FTC complaint cites comments by an Amazon Appstore manager who said back in 2011 that "we’re clearly causing problems for a large percentage of our customers" and twice over the course of seven months likened the situation to a "house on fire." It also points to multiple complaints from parents about purchases made by their children and a reply from an Amazon customer service representative that acknowledges the problem: "It's not a hack, but nearly as bad: it's an in-game purchase. A user, such as a child, can easily misinterpret the option to spend actual money as just part of the game."

Though Amazon revised its in-app purchasing framework last month to ensure in-app purchases are made with informed consent, the FTC is seeking full refunds for all affected customers, disgorgement of ill-gotten gains, a court order ensuring permission is obtained before in-app transactions, and possible contractual changes.

The FTC notes that, while Amazon's policy states in-app sales are final and non-refundable, the company made exceptions for parents who sought refunds. DeVore mentioned such refunds in his letter. An FTC spokesman said courtroom negotiations will determine whether the agency seeks to make Amazon formalize a refund path through a policy revision.

On Wednesday, US Senator Deb Fischer (R-NE) sent a letter to the FTC questioning the agency's reported plan to take legal action against Amazon.com. "To pursue enforcement against [technology] companies for specific policies in place at the market's nascent state would constitute a de facto tax on innovation that threatens future growth and opportuntiy," Fischer wrote, echoing the increasingly frequent denunciations of regulatory meddling coming from Silicon Valley companies and technology groups such as the Direct Marketing Association (DMA).

In response to the lawsuit, the DMA issued a statement chiding the FTC for discouraging innovation by "punishing good deeds" -- presumably this is a reference to Amazon's benevolent flouting of its own refund policy when convenient.

"The FTC should be encouraging innovation in the growing mobile industry, which benefits consumers and competition," said Peggy Hudson, DMA SVP of government affairs. "Instead, the Commission seems focused on using novel legal theories and scarce enforcement resources to go after America's leading tech companies in court."

The law under which the FTC is seeking redress isn't all that novel: The FTC Act, which authorized the agency to curb unfair trade practices, dates back to 1914.

In January, Apple settled a similar claim with the FTC, at which point the company urged the agency to look into Google's in-app system.

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