FTC confirms probe into iPhone in-app purchases

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The Federal Trade Commission stated Tuesday it will review potentially deceptive practices connected to in-application purchases within children's games optimized for Apple (NASDAQ:AAPL)'s iOS platform. Two weeks after Rep. Edward J. Markey (D-Mass.) and Sens. Amy Klobuchar (D-Minn.) and Mark Pryor (D-Ark.) first wrote letters to FTC chairman Jon Leibowitz urging the consumer watchdog to investigate the in-app transaction model, Leibowitz responded with a letter to Markey agreeing that consumers may not fully grasp the monetary realities of virtual goods sales within iPhone, iPod touch and iPad game downloads. "We fully share your concern that consumers, particularly children, are unlikely to understand the ramifications of these types of purchases," Leibowitz wrote. "Let me assure you we will look closely at the current industry practice with respect to the marketing and delivery of these types of applications."

Markey quickly responded to the Leibowitz letter. "What may appear in these games to be virtual coins and prizes to children result in very real costs to parents," he said in a statement. "I am pleased that the FTC has responded, and as the use of mobile apps continues to increase, I will continue to actively monitor developments in this important area."

The FTC probe follows after after The Washington Post reported multiple parent complaints tied to in-app transactions across the iOS platform--one child playing the Smurfs Village game spent a reported $1,400 acquiring batches of Smurfberries priced at $99 each. Although iOS in-app transactions cannot be conducted without a password, parents and public interest groups maintain Apple's safeguards must be made stronger. In his initial letter to Leibowitz, Markey wrote that the in-app purchase model may be deceptive, explaining that when parents download titles geared for their children, they do not anticipate the application will include virtual items available for sale.

App store analytics firm Distimo reports that between June 2010 and December 2010, revenues generated by in-app purchases in free applications more than doubled across both the iPhone and iPad. In-app transactions across free and premium apps now account for 49 percent of iPhone developer revenues and 29 percent of iPad developer income.

Beyond the in-app purchase inquiry, the FTC and the Justice Department also have started looking at the terms behind Apple's new subscription service for all content-based apps in its App Store. However, the inquiry is just preliminary and no formal investigation has been launched, according to the Wall Street Journal, which cited people familiar with the matter. Regulators apparently are looking at whether Apple is breaching U.S. antitrust laws, with a focus on the computing giant's decision to funnel media companies' customers into the payment system used for its iTunes store while taking a 30 percent cut of the subscription revenues.

For more:
- read this Washington Post article

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