Dr. Andreas Leupold LL. M. (UT)
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Dr. Andreas Leupold LL. M. (UT)
German Lawyer / Business Mediator
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Google settles complaint on in-game purchases by children and agrees to pay at least 19 million U.S. Dollars

September 11, 2014

According to a press release published by the U.S. Federal Trade Commission (FTC) (http://www.ftc.gov/news-events/press-releases/2014/09/google-refund-consumers-least-19-million-settle-ftc-complaint-it), Google agreed to refund consumers for in-game charges that amount to at least 19 Million U.S. Dollars incurred by children from purchases they made without prior authorization of their parents. The agreement settles a complaint filed by the FTC in which the Commission criticized Google´s failure to inform its customers and notably minors about the costs of in-app purchases.  While Google´s current sales process includes the presentation of a pop up box that asks the account holder for his/her password before in-app purchases are actually billed, the pop up does not contain any information on the prices charged and does not reveal the fact that entering the password opens up a 30-minute window in which unlimited purchases can be made without the need to re-enter the password. According to complaints received by the FTC, this resulted in charges of several hundred Dollars for in-game purchases made by children who were unaware of their spending.

Google is not the first and it will not be the last

The Google settlement may only be the tip of the iceberg as other major players of the e-commerce industry already faced similar complaints earlier this year and more cases will certainly follow. Considering the fact that Apple settled for an even higher amount of 32.5 Million US Dollars (http://www.ftc.gov/news-events/press-releases/2014/01/apple-inc-will-provide-full-consumer-refunds-least-325-million) and the complaint against amazon is still pending in the District Court of Washington (http://www.ftc.gov/system/files/documents/cases/140710amazoncmpt1.pdf), the gaming industry should take heed of these warning shots to prevent over-regulation of video games in general and free to play games in particular.

The rules for in-game purchases in Europe

In Europe, the EU Commission only recently joined forces with national authorities to protect consumers from unintended in-game purchases and started to enforce the common position reached in December 2013 (see http://europa.eu/rapid/press-release_IP-14-847_en.pdf and http://ec.europa.eu/consumers/enforcement/docs/common_position_on_online_games_en.pdf). This agreement requires that Games advertised as "free" are not misleading consumers about the true costs involved, games do not contain direct exhortation to children to buy items in a game or to persuade an adult to buy items for them, that consumers are adequately informed about the payment arrangements for purchases that must not be debited through default settings without consumers’ explicit consent and that consumers are provided with an email address so that they can contact the distributor of a game in case of queries or complaints. The current legal developments with regard to free to play games and in-game purchases in the U.S. and the EU are therefore very similar and further prove the known fact that gaming business models must not ignore the protection of minors or even be based on the premise that children´s lack of business experience shall be exploited without regard to the costs to parents and society.

Unlike U.S. law that only prohibits unfair or deceptive acts or practices in 15 U.S.C. § 45(a), the EU´s Consumer Right´s Directive contains a set of specific rules that are based on lessons learned from so called “subscription traps” on the internet. Article 8 para (2) of the Directive provides that if a distance contract to be concluded by electronic means places the consumer under an obligation to pay, the trader shall make the consumer aware in a clear and prominent manner, and directly before the consumer places his order, of the total price of the goods or services inclusive of taxes. In the UK, the Directive has been implemented by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/265898/consumer-contracts-information-cancellation-and-additional-payments-regulations-2013.pdf) which must be complied with by gaming companies as by any other e-commerce ventures since June 2014. Besides, the Office of Fair Trading (OTF) published its principles for online and app-based games in January 2014 following an investigation into the ways in which online and app-based games encourage children to make purchases (see https://www.gov.uk/cma-cases/children-s-online-games). The first of these principles requires that information about the costs associated with a game are to be provided clearly, accurately and prominently up-front, before the consumer begins to play, download or sign up to it or agrees to make a purchase. Similarly, in  Europe´s largest video gaming market Germany (see http://www.gtai.de/GTAI/Navigation/EN/Invest/Service/publications,did=452246.html for facts & figures), the acceptance of any in-game offers for purchasing virtual goods or enhancements by the consumer only result in an obligation to pay if the order is placed by clicking on  a button bearing the inscription “binding order with payment obligation”(“jetzt zahlungspflichtig bestellen”, Section 312j of the German Civil Code). Any game manufacturer or provider of gaming services that ignores this provision will not only have serious difficulties in enforcing any orders for in-game purchases but is also likely to face cease and desist letters from consumer protection agencies and/or court proceedings that can result in injunctions.

The gaming industry and parents must each do their part

Despite these efforts of supervisory authorities and lawmakers, the problem of untransparent in-game purchases still persists. A current search in the “Apps & Games” category on amazon.co.uk with the keyword “kids” shows over 26.000 results and the game that triggered the FTC´s complaint against amazon (“Ice Age Village”) is still among them. In this game, virtual items can be acquired with play money but coins are offered for real money and can result in charges of up to 60 GBP for the largest quantity available and play money purchases are virtually indistinguishable from real money purchases. Other game makers resort to much more aggressive means to cause children to spend considerable amounts of money on in-game purchases by sending them personalized short messages that alert them to the fact that “your pony will die if you don´t feed it now” and asking the recipient to buy virtual hay or other fodder with in-game currency that must be acquired in exchange for real-money. The challenge of undesired in-game purchases by minors will not be solved by simple information obligations or buttons that alert consumers to the fact that they are about to order products or services for money, since minors can still ignore such hints and incur payment obligations that they are unable to fulfill. To avoid this, it is not advisable to regulate in-game purchases or free to play games even more restrictively as this would result in undue burdens on legitimate business models that do not target children specifically and advertise their products responsibly and in line with current information obligations. Rather than waiting for law makers to tighten the rules on in-game purchases, both the gaming industry and parents are required to take action and fulfill their part to prevent lawmakers from overreaching the aim of efficient consumer protection and instead maintain a balance between a safe but accessible gaming environment and the freedom to play. The technical means for enabling parents to regain control over their kid´s in-game purchases are already in place, as services such as oink (www.oink.com) enable parents to create dedicated accounts for their offspring and monitor their children´s spending habits closely so responsible parents must only make use of them. And game makers who cooperate with such services and follow a clear advertising policy that ensures full compliance with the new EU rules will surely distance themselves from their competition in the future by offering “fair play” in the growing games industry.

Six do´s and don’t´s any game provider must know to be compliant

The lesson that can be drawn from the ongoing settlements of unwanted in-game purchases by minors is simple and can be summarized in the following best practices:
  1. Do not market games as ”free to play” if players are forced to make in-game purchases to advance to the next level without investing an undue amount of time and effort or virtual labor.
  2. Inform players up front about any costs involved in playing the game. Be specific: Display the total price with all optional costs and taxes and follow the “transparency by design” rule by making sure that players cannot start playing without taking note of this information.
  3. Do not charge players for any in-game purchases unless they ordered them deliberately and agreed to have all costs charged to their account by their payment method of choice. Design a check out process for in game purchases that models best practices for purchases on the leading e-commerce market places and allow the player to cancel or rectify an order during the process.
  4. Explain in a clear and comprehensible manner what the consumer can expect to get if he/she makes an in-game purchase; describe virtual goods as accurately as you would describe any other merchandise that is sold on or offline.
  5. Resist the temptation to exhort children to make in-game purchases and refrain from enticing them to such purchases to stay in the game or for example keep virtual livestock or other animals alive.
  6. Do not disguise in-game advertisements as being part of the gameplay.
  7. Make sure that your game contains clear instructions on whom to contact for any queries about the in  game purchases you offer, the payment process or requests for refunds. Make it hassle free for parents to recoup any losses from in game purchases made by their offspring without their prior consent.
Providers of games that adhere to these best practices will have little to fear if their offerings are scrutinized by their supervisory authority or consumer advocates and in the long run they will also enjoy more satisfied customers and leave their competition in the dust as “fair play” is a great marketing tool for parents deciding on which games their offspring may purchase.

 

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