The FTC’s in-app purchasing complaint against Amazon reflects its flawed, per se approach to unfairness

Geoffrey Manne —  10 July 2014

Today the FTC filed its complaint in federal district court in Washington against Amazon, alleging that the company’s in-app purchasing system permits children to make in-app purchases without parental “informed consent” constituting an “unfair practice” under Section 5 of the FTC Act.

As I noted in my previous post on the case, in bringing this case the Commission is doubling down on the rule it introduced in Apple that effectively converts the balancing of harms and benefits required under Section 5 of the FTC Act to a per se rule that deems certain practices to be unfair regardless of countervailing benefits. Similarly, it is attempting to extend the informed consent standard it created in Apple that essentially maintains that only specific, identified practices (essentially, distinct notification at the time of purchase or opening of purchase window, requiring entry of a password to proceed) are permissible under the Act.

Such a standard is inconsistent with the statute, however. The FTC’s approach forecloses the ability of companies like Amazon to engage in meaningful design decisions and disregards their judgment about which user interface designs will, on balance, benefit consumers. The FTC Act does not empower the Commission to disregard the consumer benefits of practices that simply fail to mimic the FTC’s preconceived design preferences. While that sort of approach might be defensible in the face of manifestly harmful practices like cramming, it is wholly inappropriate in the context of app stores like Amazon’s that spend considerable resources to design every aspect of their interaction with consumers—and that seek to attract, not to defraud, consumers.

Today’s complaint occasions a few more observations:

  1. Amazon has a very strong case. Under Section 5 of the FTC Act, the Commission will have to prevail on all three elements required to prove unfairness under Section 5: that there is substantial injury, that consumers can’t reasonably avoid the injury and that any countervailing benefits don’t outweigh the injury. But, consistent with its complaint and consent order in Apple, the Amazon complaint focuses almost entirely on only the first of these. While that may have been enough to induce Apple to settle out of court, the FTC will actually have to make out a case on reasonable avoidance and countervailing benefits at trial. It’s not at all clear that the agency will be able to do so on the facts alleged here.
  2. On reasonable avoidance, over and above Amazon’s general procedures that limit unwanted in-app purchases, the FTC will have a tough time showing that Amazon’s Kindle Free Time doesn’t provide parents with more than enough ability to avoid injury. In fact, the complaint doesn’t mention Free Time at all.
  3. Among other things, the complaint asserts that Amazon knew about issues with in-app purchasing by December of 2011 and claims that “[n]ot until June 2014 did Amazon change its in-app charge framework to obtain account holders’ informed consent for in-app charges on its newer mobile devices.” But Kindle Free Time was introduced in September of 2012. While four FTC Commissioners may believe that Free Time isn’t a sufficient response to the alleged problem, it is clearly a readily available, free and effective (read: reasonable) mechanism for parents to avoid the alleged harms. It may not be what the design mavens at the FTC would have chosen to do, but it seems certain that avoiding unauthorized in-app purchases by children was part of what motivated Amazon’s decision to create and offer Free Time.
  4. On countervailing benefits, as Commissioner Wright discussed in detail in his dissent from the Apple consent order, the Commission seems to think that it can simply assert that there are no countervailing benefits to Amazon’s design choices around in-app purchases. Here the complaint doesn’t mention 1-Click at all, which is core to Amazon’s user interface design and essential to evaluating the balance of harms and benefits required by the statute.
  5. Even if it can show that Amazon’s in-app purchase practices caused harm, the Commission will still have to demonstrate that Amazon’s conscious efforts to minimize the steps required to make purchases doesn’t benefit consumers on balance. In Apple, the FTC majority essentially (and improperly) valued these sorts of user-interface benefits at zero. It implicitly does so again here, but a court will require more than such an assertion.
  6. Given these lapses, there is even a chance that the complaint will be thrown out on a motion to dismiss. It’s a high bar, but if the court agrees that there are insufficient facts in the complaint to make out a plausible case on all three elements, Amazon could well prevail on a motion to dismiss. The FTC’s approach in the Apple consent order effectively maintains that the agency can disregard reasonable avoidance and countervailing benefits in contravention of the statute. By following the same approach here in actual litigation, the FTC may well meet resistance from the courts, which have not yet so cavalierly dispensed with the statute’s requirements.

Geoffrey Manne

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http://laweconcenter.org/

Trackbacks and Pingbacks:

  1. Joshua Wright, Martin Gaynor and Past FTC Officials to Speak at ICLE Event on Apple and Amazon Cases « Truth on the Market - July 28, 2014

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    […] Some commentators believe the “express informed consent” standard is too rigid and deprives an app designer of the ability to make its own design choices in deciding how to fairly engage with consumers. […]