Amazon ends appeal on kids’ purchases, will refund $70 million

Posted by David J. SteeleApr 18, 20170 Comments

A fundamental principle of contract law is that both parties have to have agreed or there simply is no contract. Consent, or a “meeting of the minds,” has traditionally been a required element of contracts. It doesn't protect you from making a bad bargain; it simply ensures you made a bargain you understood and agreed to.

While the protections of the consent doctrine have arguably been eroded over the decades, one bright-line rule that still remains is that each party to a contract has to be capable of consent. Moreover, one group that is considered incapable of consent is children under 18.

Kids can't make legal contracts. A company with the resources of Amazon ought to know that.

Well, it does now. In fact, it was found guilty last year of illegally billing parents for in-app purchases — electronic gifts useful only within a specific game or app — made without their consent by their children. The case was so clear that a trial wasn't even held — the judge found Amazon guilty at the earliest possible stage, summary judgment.

Amazon appealed, but the Federal Trade Commission, which brought the case, persisted in its claim that Amazon had no reasonable defense for its actions. It has agreed to stop trying to appeal.

Instead, Amazon has now agreed to refund over $70 million in the unlawful charges. Covered are those in-app purchases made by children between November 2011 and May 2016.

As the FTC strenuously pointed out, Amazon had set up its in-app purchase program in a way so beneficial to itself that it had virtually no motivation to follow the law. In-app purchases are easy to make and non-refundable, so parents had no way to resolve the issue directly with Amazon. The company gets to keep 30 percent of in-app purchases, which cost them virtually nothing.

It's a gargantuan and growing business. Studies have shown people are more prone to make in-app purchases than to purchase the apps themselves, and last year, more than $36 billion was spent on in-app purchases.