January 15, 2014
Earlier today, the U.S. Federal Trade Commission (FTC) announced that Apple Inc. had agreed to refund consumers USD $32.5 million, under a proposed consent order, in relation to alleged failures to adequately disclose kids’ mobile app charges.
More specifically, the case involved FTC allegations that Apple had failed to tell parents that, by entering a password, they were approving single and in some cases unlimited in-app purchases, such as virtual items or virtual currency, that children could make without further parental action (i.e., non-disclosed additional charges).
Consumers reported that additional charges ranged from about $500 in the apps “Dragon Story” and “Tiny Zoo Friends” to some $2,600 in the app “Tap Pet Hotel”. Not bad business for “virtual items” and “virtual currency”.
According to the FTC, Apple will be required as part of the settlement to revise its billing practices to ensure that it has obtained express, informed consent from consumers prior to charging for items sold in mobile apps.
This case highlights an issue that has been a focus of a number of recent U.S. and Canadian cases – namely, the distinction between upfront advertising disclosure (i.e., what is said, advertised, etc. before a purchase is made, contract entered, etc.) and what may be in the full contract or complete terms and conditions (which may be available on a sub-page, other website, from the supplier, etc.). Or, to put it another way, in the advertising law world, it often doesn’t matter what is available (or in boilerplate) if a consumer doesn’t know before they buy the product, take significant steps, etc. Upfront and clear, particularly with key terms, is king in advertising law.
Somewhat coincidentally, a similar type of case was settled in New Zealand today (or is that tomorrow?) involving a promotional “Broadband Lite” mobile Internet offer by Vodafone, in which the New Zealand Commerce Commission (“ComCom”) raised concerns about additional charges and sufficiency of opt-out disclosure after an initial free period. In this case, Vodafone NZ Limited has agreed to pay customers about NZ $268,000 to settle the ComCom’s concerns (see: Commission settles with Vodafone over ‘Broadband Lite’ promotion).
In Canada, like other major jurisdictions such as the U.S. and New Zealand, misleading advertising can include not only false or misleading claims but also a failure to adequately disclose additional charges and other key terms upfront. When I talk to industry groups about this point, I typically emphasize that clear disclosure relating to price (e.g., additional fees), performance (such as limitations or conditions) and key aspects of service are top of the list for a little extra attention.
Some good advertising practices in this regard include: full price disclosure up-front, whether any additional fees/charges apply and clearly disclosing any key limitations or conditions. It’s also a good practice to take reasonable steps to ensure that key disclosure is in close proximity to headline claims or other main claims, in legible and intelligible font and made before consumers make a purchase or otherwise take onerous steps (such as contacting the retailer, visiting a retail outlet, wading through scroll-down terms or sub-pages, etc.).
For a copy of the FTC’s news release and proposed consent order see: here and here.
For more about Canadian misleading advertising law, which has many parallels to U.S. rules, see: Misleading Advertising.
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I am a Toronto competition and advertising lawyer offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law. I also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.
My experience includes advising clients in Toronto, Canada and the US on the application of Canadian competition and regulatory laws and I have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal, pricing and distribution, Investment Canada Act and merger matters. For more information about my competition and advertising law services see: competition law services.
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