Privacy Alert: Class Action Targets Facebook for In-App Purchases by Kids, May Fuel Interest in Mobile App Regulation

Date: Apr 19, 2012

A class action lawsuit has been filed against Facebook alleging that the company improperly made money off in-app "credits" that were purchased by minors. In Bohannon, et al. v. Facebook, Inc., No. 12-cv-01894 (N.D. Cal., March 8, 2012), the Plaintiff alleges that she gave her son permission to spend $20 on his Facebook account using her credit card in exchange for $20 in cash. He used the money to purchase Facebook "credits" for use in the "Ninja Saga" app. The credit card information was stored by Facebook. Thinking he was spending virtual in-game currency, the son spent hundreds of dollars on the credit card for in-app purchases. The mother complained to Facebook, but alleges that the company never responded or refunded her money.

The Plaintiff alleges that Facebook:

  • Violated California's Consumer Legal Remedies Act for concealing the characteristics, use, benefit or quality of the goods by actively marketing and promoting its in-app purchases and virtual goods without disclosing certain material facts.
  • Violated California's Unfair Competition Law by actively advertising, marketing, and promoting in-app games and other content with the statement that "all sales are final" when Facebook knew that minors were making such purchases.
  • Was unjustly enriched by wrongfully collecting and retaining money for virtual goods and in-app purchases paid by minor children.

Plaintiff seeks a declaratory judgment that the contract is voidable, arguing that by purchasing goods in the app, her minor son accepted an offer by Facebook, thereby creating a contract by exchanging these virtual goods for consideration. Under California law, minors have the right to disaffirm such contract, notwithstanding Plaintiff's acknowledgement that she did give permission for use of the credit card initially.

On April 17, 2012, the case was removed to the District Court for the Northern District of California, where a similar case is pending against Apple, Inc. for selling in-app credits and goods to minors without parental knowledge or consent (see Meguerian et al v. Apple Inc., Case No. 11-cv-1758 (N.D. Cal., Apr. 11, 2011)).

Consumer concern regarding in-app purchases by minors was sparked early last year following a Washington Post article reporting that an 8-year old girl racked up $1,400 in in-app fees while playing the "Smurfs Village" app for iPad. The game charged real money for purchasing in-app content, including $4.99 for a bucket of Smurfberries, $19 for a bucket of snowflakes, and $99 for a wheelbarrow. Capcom Interactive, the creator of the app, agreed to refund the fees and post a warning about the additional costs for purchasing in-app content.

The article prompted Representative Edward Markey (D-MA) and several other Congressman to contact the Federal Trade Commission (FTC). FTC Chairman Jon Leibowitz responded that the Commission will be looking closely at industry practices in this area, particularly with respect to the marketing and delivery of these types of apps. In the FTC's recent report, Mobile Apps for Kids: Current Privacy Disclosures are Disappointing, the Commission renewed its commitment in this area, stating that "parents need consistent, easily accessible, and recognizable disclosures regarding in-app purchase capabilities so that they can make informed decisions about whether to allow their children to use apps with such capabilities."

As the National Telecommunications and Information Administration ("NTIA") evaluates facets of a "multi-stakeholder process" for developing enforceable codes of conduct, as recommended in the White House's framework, Consumer Data Privacy in a Networked World: A Framework for Protecting Privacy and Promoting Innovation in the Global Digital Economy (click here for our summary of the White House framework), there is a good chance that the primary focus will be on codes of conduct for mobile apps.

For more information on privacy and data security issues, please contact:

Sheila Millar (+1 202.434.4143, millar@khlaw.com),
Tracy Marshall (+1 202.434.4234, marshall@khlaw.com)