Earlier today the FTC announced a $32.5 million decree against Apple over the way it handles in-app purchases. The FTC says that Apple failed to inform parents when their kids might run up huge bills in in-app purchases, and needs to do a better job. The FTC also wants Apple to pay out claims for those in-app purchases to the tune of (at least) $32.5 million.
Quite frankly, that's chump change for Apple.
Apple's revenue for its fiscal 2013 was $37.5 billion. That means that in 2013, Apple made more than $102 million per day. At that rate, Apple can afford to settle with the FTC three times a day and still come out ahead.
Obviously no company wants to be put under federal scrutiny - it's a public relations minefield and Apple doesn't want to be in the crosshairs of regulators any more than is absolutely necessary. But in the context of Apple's earnings and even its revenue from the App Store, $32.5 million still isn't a lot of money.
Last year Apple settled a class action lawsuit over the same thing; in June customers received notifications by e-mail that they were entitled to refunds. 37,000 customers have already stepped up for refunds that way, and I don't expect that they're entitled to double-dip. But it sounds like Apple may be worried about that very thing.
Tim Cook got a bit snarky in an e-mail he sent to employees immediately before the FTC announcement was made. Quoting Tim from the letter via Re/code:
It doesn’t feel right for the FTC to sue over a case that had already been settled. To us, it smacked of double jeopardy. However, the consent decree the FTC proposed does not require us to do anything we weren’t already going to do, so we decided to accept it rather than take on a long and distracting legal fight.
In other words, Apple doesn't like the principle of the thing. They've already atoned for this past sin, but this is little more than a nuisance claim. Apple wants it out of its hair so it can focus on more important stuff. And everything the FTC wants Apple to do, Apple was going to do anyway, so there!
Success breeds scrutiny
Whether the stakes are wrist-slaps or fundamental changes to the way Apple does business, the company is having an increasingly hard time maneuvering around federal regulators.
Compare and contrast the situation Apple's in with federal appeals court judge Denise Cote over its iBooks licensing deal. Part of Cook's snarky attitude may stem from the skirmishes between the judge and the company.
In June Cote ruled that Apple conspired to raise e-book pricing with different publishers, a charge Apple vehemently denies. Cote then turned down Apple's request to suspend her own ruling pending appeal.
More recently, Apple's been upset with the bills they've been getting from the overseer appointed by Cote, former inspector general Michael Bromwich.
It's ironic and, at least to an outsider, appears a bit hypocritical. A company that can brush off a $32.5 million settlement as a nuisance claim loses its mind over a $138,000 legal bill. But that's just a sideshow.
Apple's publishing model for iBooks has entirely different stakes: For Apple, it's about business in the future. The iPad is a huge seller. iBooks represents a huge market opportunity for Apple.
Apple has a tough competitor in Amazon's Kindle, and it's the death of a thousand cuts by cheap Android tablets that can read e-books too. Like any business in the same position, Apple wants as much of that revenue as it can get.
E-books: a business that Apple isn't ready to concede any ground on, at least not yet. Ultimately it's not about what Apple pays today. It's about how much revenue they'll make tomorrow.
Reader comments
DOJ vs. FTC: Apple knows when to hold 'em, when to fold 'em
The Cote/Bromwich thing seriously reeks. I'm thinking there's a whole lot of shady going on there that no one knows about. Really hope someone does some digging around into those two.
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Great piece. FTC does smell of double jeopardy, but like you said, it's not a lot of money to Apple, and the conditions are pretty much what they're doing already.
DOJ is different. It's onerous to Apple. They're just picking their fights.
It is not double jeopardy at all. The earlier settlement imposed a cap on damages recoverable by parents, and did not require any changes to store policies. Cook said today they were "already going to do" these things, but somehow in two years never managed to communicate publicly or to the FTC what those changes were going to be. The FTC saw the caps and the lack of behavioral change as inadequate consumer protection, and so pursued further actions -- like they are supposed to do.
As for the DoJ, the ebook suit is an odd one for Apple to stand their ground. Inducing competitors to cooperate, and leveraging your position in one market to demand terms in another are 2 of the big 5 things you simply cannot do in US law, and Apple did both, leaving a gleeful, brazen paper trail. Moreover, the ebook market is small potatoes; the only reason for Apple to continue to battle for pennies is if they feel they should be allowed to do the same illegal things in other, bigger contexts.
I'm not sure you understand what "Double Jeopardy" is. Just because Apple settled a class action lawsuit does not mean they are immune to the FTC (all it means is that class of participants cannot sure them over the same matter). I also find it convenient that Apple had plans to fix this problem just as the FTC files the lawsuit. typical apple.
No it's not typical, apple has been working on this for sometime. I work there and I should know! It isn't fair to be slammed time and time again! How would you like to be fined, then fined again every hour because you haven't paid a speeding ticket yet?
just because you tell the police you plan on reducing your speeding doesn't mean they should not ticket you for continuing to speed.
Double Jeopardy applies only to criminal cases, not civil cases.
If you don't deal with your speeding ticket by the court deadline, you will be paying more.
This whole attitude of "big deal, we make plenty of profit, this doesn't hurt us" is counter productive for Apple. Crowing that, and thumbing your nose at civil authorities will not bode well for Apple in the long run.
Btw, I also own Apple products. And Android. And Windows.
When he spoke about double jeopardy, he wasn't speaking in literal terms. He was speaking in metaphorical terms. Wow, give him a break! There is no criminal anything related to this case. There are other things that double jeopardy means.
It's not a matter of paying by a deadline, I said that it looks as if Apple is paying a fine then having more tacked on to it every hour just because they haven't paid it ((yet)), before this mystical conjured up deadline that you have defined. It's not a matter of planning on reducing your speed or touting out that plan either. They have already made corrections within IOS and the App Store to fix this. IOS (Settings - General - Restrictions) there are a lot of things that you can affect in the OS right in there. More changes are coming though, so they are NOT continuing to "speed". "Last year Apple settled a class action lawsuit over the same thing; in June customers received notifications by e-mail that they were entitled to refunds. 37,000 customers have already stepped up for refunds."
Apple doesn't have a demeanor towards civil authority like you believe. Apple doesn't believe that they have plenty of money and it is a big deal, or rather a screw you attitude. That's not what Apple stands for. Apple has cooperated well with the authorities and they wanted to focus more on important things. Tim didn't stray away from that in his internal memo. They paid it so they wouldn't have to fight this off for years. There last case regarding this type of issue was really just settled as they were working on the iOS 7 betas. However they worked on better restrictions and other policies in the App Store and so forth back when iOS 6 was still kicking.
While I seem to defend Apple, believe me that is not the case. I believe in what is true. Apple has said that it wasn't perfect and since they know that and believe it, people should respect it or at least acknowledge it and move forward.
Btw, I love all tech. Not just apple android and windows. Shh.... Don't tell anyone.
They had a lot in REVENUE, cash moving around in the company, actual profit is different! With respect, read the definition people!
Interesting story. Glad to see this is settled!
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Apple has done more than just planned to do some of these things, they have instituted changes to lock out unwanted purchases. Look at how the in-app framework has evolved since they launched back in 2010. At launch there was no security for in-app purchases. Any kid could take the ipad/iphone/ipod touch to mom or dad and have them enter in the password to download a freemium app, like Smurfs Village, and then the password was in there. There was no mention of In-app purchases on the App store back then either to alert parents.
The kid could go off to play the game and just click away and make purchases without ever being asked for a password. Apple quickly took steps to change this. All apps show that they offer in-app purchases on their download screens in the app store. In app purchases can be locked out completely on any device, or set so the require a password every time. Last but not least, Apple has been aggressively evangelizing about how in-app purchases work and how to prevent unauthorized purchases. Tim Cook shouldn't have said "we plan on doing this" he should have pointed out that they have done it, without being told to, because it was good business. $10 billion dollars good business.
The FTC is being a bit overzealous. I could see expecting a full refund versus the $5.00 limit the civil suit set, to those aggrieved in the early days of the in-app purchases, but to extend it to all purchases till March 2014 is a bit extreme. Apple is choosing their battles wisely though, because the ebook case is complete BS and has higher & longer range stakes. In the end most of the money they refund will probably end up getting spent back in the app store.
Apple made more than $102 million per day last 2013? Wow. Just wow.
I think this is a sound move from Apple. And regarding IAPs, can't Apple do something about some apps that offers IAPs amounting to more than $ 50 apiece. I mean what's up with those absurd amounts.
No they didn't make that much money every day, revenue, yes, actual money that they can hold in there hands and pay bills with, no. Revenue is different; they made an average of 102 million per day in revenue.
I agree that Apple should do something about IAPs. But they do think devs should define there own pricing and experiment with that.