Dissenting Statement of Commissioner Joshua D. Wright

In the Matter of Apple, Inc.

FTC File No. 1123108

January 15, 2014

Today, through the issuance of an administrative complaint, the Commission

alleges that Apple, Inc. (“Apple”) has engaged in “unfair acts or practices” by billing 

parents and other iTunes account holders for the activities of children who were 

engaging with software applications (“apps”) likely to be used by children that had

been downloaded onto Apple mobile devices.1 In particular, the Commission takes 

issue with a product feature of Apple’s platform that opens a fifteen-minute period 

during which a user does not need to re-enter a billing password after completing a first 

transaction with the password.2 Because Apple does not expressly inform account 

holders that the entry of a password upon the first transaction triggers the fifteenminute window during which users can make additional purchases without once again 

entering the password, the Commission has charged that Apple bills parents and other 

iTunes account holders for the activities of children without obtaining express informed 

consent.3 

Today’s action has been characterized as nothing more than a reaffirmance of the 

concept that “companies may not charge consumers for purchases that are 

unauthorized.”4 I respectfully disagree. This is a case involving a miniscule percentage 

of consumers – the parents of children who made purchases ostensibly without their 

authorization or knowledge. There is no disagreement that the overwhelming majority 

of consumers use the very same mechanism to make purchases and that those charges 

are properly authorized. The injury in this case is limited to an extremely small – and 

arguably, diminishing – subset of consumers. The Commission, under the rubric of 

“unfair acts and practices,” substitutes its own judgment for a private firm’s decisions 

as to how to design its product to satisfy as many users as possible, and requires a 

company to revamp an otherwise indisputably legitimate business practice. Given the 

apparent benefits to some consumers and to competition from Apple’s allegedly unfair 

practices, I believe the Commission should have conducted a much more robust 

 1 Complaint, Apple, Inc., FTC File No. 1123108, at para. 28-30 (Jan. 15, 2014) [hereinafter Apple Complaint]. 2 As indicated in the complaint, initially the fifteen-minute window was triggered when an app was downloaded. Id.

at para. 16. Apple changed the interface in March 2011 and subsequently the fifteen-minute window was triggered 

upon the first in-app purchase. Id. at para. 17. See also infra note 13. 3 Apple Complaint, supra note 1, at para. 4, 20, 28. 4 Statement of Chairwoman Ramirez and Commissioner Brill at 1. 
2

analysis to determine whether the injury to this small group of consumers justifies the 

finding of unfairness and the imposition of a remedy. 

Section 5 of the FTC Act prohibits, in part, “unfair . . . acts or practices in or 

affecting commerce.”5

 As set forth in Section 5(n), in order for an act or practice to be 

deemed unfair, it must “cause[] or [be] likely to cause substantial injury to consumers 

which is not reasonably avoidable by consumers themselves and not outweighed by 

countervailing benefits to consumers or competition.”6

The test the Commission uses to evaluate whether an unfair act or practice is 

unfair used to be different. Previously the Commission considered: whether the 

practice injured consumers; whether it violated established public policy; and whether 

it was unethical or unscrupulous.7 Only after an aggressive enforcement initiative that 

culminated in a temporary rulemaking suspension and Congressional threats of 

stripping the Commission of its unfairness authority altogether, was the current 

iteration of the unfairness test reached.8 Importantly, this articulation, as set forth in the 

FTC Policy Statement on Unfairness (“Unfairness Statement”), not only requires that 

the alleged injury be substantial, it also includes the critical requirements that such 

injury “must not be outweighed by any countervailing benefits to consumers or 

competition that the practice produces” and “it must be an injury that consumers 

themselves could not reasonably have avoided.”9

As set forth in more detail below, I do not believe the Commission has met its 

burden to satisfy all three requirements in the unfairness analysis. In particular, 

although Apple’s allegedly unfair act or practice has harmed some consumers, I do not 

believe the Commission has demonstrated the injury is substantial. More importantly, 

any injury to consumers flowing from Apple’s choice of disclosure and billing practices 

is outweighed considerably by the benefits to competition and to consumers that flow 

from the same practice. Accordingly, I respectfully dissent from the issuance of this 

administrative complaint and consent order.

 5 15 U.S.C. § 45(a).

6 15 U.S.C. § 45(n).

7 FTC Policy Statement on Unfairness, appended to Int’l Harvester Co., 104 F.T.C. 949, 1070 (1984),

available at http://www.ftc.gov/ftc-policy-statement-on-unfairness [hereinafter Unfairness Statement]. 8 ABA SECTION OF ANTITRUST LAW, CONSUMER PROTECTION LAW DEVELOPMENTS, 57-59 (2009); J. Howard 

Beales, III, Director, Bureau of Consumer Protection, Fed. Trade Comm’n, The FTC’s Use of Unfairness Authority: 

Its Rise, Fall, and Resurrection at 9 (May 2003), available at http://www.ftc.gov/public-statements/2003/05/ftcsuse-unfairness-authority-its-rise-fall-and-resurrection [hereinafter Beales’ Unfairness Speech]. 9 Unfairness Statement, supra note 7, at 1073.
3

Introduction

This case requires the Commission to analyze consumer injury under the 

unfairness theory in a novel context: an allegation of a failure to disclose a product 

feature to consumers that results in some injury to one group of consumers but that 

generates benefits for another group. 

The circumstances surrounding Apple’s decision to forgo disclosing during the 

transaction the fifteen-minute window to its users – and according to the Commission’s 

complaint, thereby failing to obtain express informed consent – are distinguishable 

from any other prior Commission case alleging unfairness. The economic 

consequences of the allegedly unfair act or practice in this case – a product design 

decision that benefits some consumers and harms others – also differ significantly from 

those in the Commission’s previous unfairness cases.

The Commission commonly brings unfairness cases alleging failure to obtain 

express informed consent. These cases invariably involve conduct where the defendant 

has intentionally obscured the fact that consumers would be billed. Many of these cases 

involve unauthorized billing or cramming – the outright fraudulent use of payment 

information.10 Other cases involve conduct just shy of complete fraud – the consumer 

may have agreed to one transaction but the defendant charges the consumer for 

additional, improperly disclosed items. 11 Under this scenario, the allegedly unfair act 

or practice injures consumers and does not provide economic value to consumers or 

competition. In such cases, the requirement to provide adequate disclosure itself does 

not cause significant harmful effects and can be satisfied at low cost. 

However, the particular facts of this case differ in several respects from the above 

scenario. First, there is no evidence Apple intended to harm consumers by not 

disclosing the fifteen-minute window.12 For example, when Apple began receiving 

 10 See, e.g., Complaint at 6, FTC v. Jesta Digital, LLC, Civ. No. 1:13-cv-01272 (D.D.C. Aug. 20, 2013) (alleging 

that “Jesta charged consumers who did not click on the subscribe button and charged consumers for products they 

did not order.”); Complaint, FTC v. Wise Media, LLC, Civ. No. 1:13-CV-1234 (N.D. Ga. Apr. 16, 2013) (alleging 

that defendants charge consumers for purported services without consumers ever knowingly signing up for such 

services).

11 Complaint at 15-16, FTC v. JAB Ventures, LLC, Civ No. CV08-04648 (RZx) (C.D. Cal. July 8, 2008) (alleging 

unauthorized billing when defendants charged consumers who had cancelled their enrollment or who had not been 

adequately informed about negative option features); FTC v. Crescent Publ’g Group, Inc., 129 F. Supp. 2d 311 

(S.D.N.Y. 2001) (pornography website failing to disclose the point at which a “free tour” ended and a monthly 

membership would begin). 12 By distinguishing the facts of this case from other unfairness cases brought by the Commission alleging the failure 

to obtain express informed consent, I do not imply that intent is a required element of the analysis. However, I think 
4

complaints about children making unauthorized in-app purchases on their parents’

iTunes accounts, the company took steps to address the problem.13 In addition, Apple 

has an established relationship with its customers and its business model depends upon 

customer satisfaction and repeat business. 

Second, rather than an unscrupulous or questionable practice, the nature of 

Apple’s disclosures on its platform is an important attribute of Apple’s platform that 

affects the demand for and consumer benefits derived from Apple devices and services. 

Disclosures made on the screen while consumers interact with mobile devices are a

fundamental part of the user experience for products like mobile computing devices. It 

is well known that Apple invests considerable resources in its product design and 

functionality.

14 In streamlining disclosures on its platform and in its choice to integrate 

the fifteen-minute window into Apple users’ experience on the platform, Apple has 

apparently determined that most consumers do not want to experience excessive 

disclosures or to be inconvenienced by having to enter their passwords every time they 

make a purchase.

The Commission has long recognized that in utilizing its authority to deem an 

act or practice as “unfair” it must undertake a much more rigorous analysis than is 

necessary under a deception theory.15 As a former Bureau Director has noted, “the 

primary difference between full-blown unfairness analysis and deception analysis is 

that deception does not ask about offsetting benefits. Instead, it presumes that false or

misleading statements either have no benefits, or that the injury they cause consumers 

 

drawing the distinction informs the discussion. Furthermore, I am unaware that the Commission has ever exercised 

its unfairness authority where it has alleged only that the defendant inadvertently charged consumers. 13 See Chris Foresman, Apple facing class-action lawsuit over kids’ in-app purchases, arstechnica, Apr. 15, 2011, 

http://arstechnica.com/apple/2011/04/apple-facing-class-action-lawsuit-over-kids-in-app-purchases/ (“After entering 

a password to purchase an app from the App Store, the password now has to be reentered in order to make any initial 

in-app purchases.”). 14 Nigel Hollis, The Secret to Apple's Marketing Genius (Hint: It's Not Marketing), The Atlantic, July 11, 2011, 

http://www.theatlantic.com/business/archive/2011/07/the-secret-to-apples-marketing-genius-hint-its-notmarketing/241724/ (in discussing Apple’s functionality, “[u]sing an Apple product feels so natural, so intuitive, so 

transparent, that sometimes, even people paid to know what makes products great completely miss the cause of their 

addiction to Apple products. It's the natural, intuitive transparency of the technology. The superlative product 

experience comes from an unusual combination of human and technical understanding, and it creates the foundation 

of all the other positive aspects of the brand.”); Peter Eckert, Dollars And Sense: The Business Case For Investing In 

UI Design, Fast Company, Mar. 15, 2012, http://www.fastcodesign.com/1669283/dollars-and-sense-the-businesscase-for-investing-in-ui-design (“As we have seen with Apple’s success, creating products that offer as much 

simplicity as functionality drives market share and premium pricing.”). See also Neil Hughes, Apple's research & 

development costs ballooned 32% in 2013 to $4.5B, Apple Insider, Oct. 30, 2013, 

http://appleinsider.com/articles/13/10/30/apples-research-development-costs-ballooned-32-in-2013-to-45b; Cliff 

Kuang, The Six Pillars of Steve Jobs’ Design Philosophy, Fast Company, Nov. 7, 2011, 

http://www.fastcodesign.com/1665375/the-6-pillars-of-steve-jobss-design-philosophy. 15 Int’l Harvester Co., 104 F.T.C. 949, 1070 (1984); Beales’ Unfairness Speech, supra note 8, § III.
5

can be avoided by the company at very low cost.”16 It is also well established that one 

of the primary benefits of performing a cost-benefit analysis is to ensure that 

government action does more good than harm.17 The discussion below explains why I 

believe the Commission’s action today fails to satisfy the elements of the unfairness 

framework and thereby conclude that placing Apple under a twenty-year order in a 

marketplace in which consumer preferences and technology are rapidly changing is 

very likely to do more harm to consumers than it is to protect them. 

I. The Evidence Does Not Support a Finding of Substantial Injury as 

Required by the Unfairness Analysis

Apple’s choice to include the fifteen-minute window in its platform design, and 

its decision on how to disclose this window, resulted in harm to a small fraction of 

consumers. Any consumer harm is limited to parents who incurred in-app charges that 

would have been avoided had Apple instead designed its platform to provide specific

disclosures about the fifteen-minute window for apps with in-app purchasing 

capability that are likely to be used by children. That harm to some consumers results 

from a design choice for a platform used by millions of users with disparate preferences 

is not surprising. The failure to provide perfect information to consumers will always 

result in “some” injury to consumers. The relevant inquiry is whether the injury to the 

subset of consumers is “substantial” as contemplated by the Commission’s unfairness 

analysis. 

Consumer injury may be established by demonstrating the allegedly unfair act or 

practice causes “a very severe harm to a small number”18 of people or “a small harm to 

a large number of people.”19 While it is possible to demonstrate substantial injury 

occurred as a result of an act or practice causing a small harm to a large number of 

consumers, substantiality is analyzed relative to the magnitude of any offsetting 

benefits.20 This is particularly critical when the allegedly unfair practice is not a

fraudulent activity such as unauthorized billing or cramming, where there are no 

offsetting benefits.

By reasonable measures of the potential harms and benefits available to the 

Commission, the injury is relatively small and not necessarily substantial in this case. 

 16 Beales’ Unfairness Speech, supra note 8, § III. 17 Int’l Harvester, 104 F.T.C. at 1070. 18 Int’l Harvester, 104 F.T.C. at 1064.

19 Unfairness Statement, supra note 7, at n.12. 20 Beales’ Unfairness Speech, supra note 8, § III (“relative to the benefits, the injury may still be substantial” and 

“[t]o qualify as substantial, an injury must be real, and it must be large compared to any offsetting benefits.”).
6

The complaint alleges Apple has received “at least tens of thousands of complaints 

related to unauthorized in-app charges by children”21 while playing games acquired on 

Apple’s platform, which supports all music, books, and applications purchased for use 

with Apple mobile devices (e.g., iPhone, iPad, iPod, hereinafter “iDevices”). Although 

“tens of thousands” sounds like a large number, the unfairness inquiry requires this 

number be evaluated in an appropriate context. Apple announced its 50 billionth app 

download in May 2013.

22 Even 200,000 complaints in 50 billion downloads would 

represent only four complaints in a million, which is quite a small fraction.

In addition, the complaint presents a few examples in which children made 

unauthorized in-app purchases that were relatively large, some greater than $500, and 

one bill as high as $2,600.

23 There is undoubtedly consumer harm in these instances, 

assuming the purchases are correctly attributed to the alleged failure to disclose, but 

again, in order to qualify as substantial, the harm “must be large compared to any 

offsetting benefits.”24 

The relevant economic context required to understand substantiality of injury in 

this case includes the proportions of populations potentially harmed and benefitted by 

the failure to disclose product features in this case. A measure of harm that gives 

weight to both the number of consumers harmed and the size of the individual harms is 

the ratio of the value of unauthorized purchases to the total sales affected by the 

practice. We can construct such a measure as follows. The $32.5 million in consumer 

refunds required by the consent decree presumably relates in some way to the harm

arising from Apple’s disclosure practices. Recognizing that monetary amounts

emerging from consent decrees are a product of compromise and an assessment of 

litigation risk, suppose that the value of unauthorized purchases is ten times higher 

than the negotiated settlement amount. This assumption gives a conservatively high 

estimate of $325 million in unauthorized purchases since the inception of the App Store. 

The total sales affected by Apple’s disclosure practices likely include not only the 

sale of apps and in-app purchases, but also the sale of iDevices. This is likely because

the benefits from using apps and making in-app purchases are components of the 

stream of benefits generated by iDevices, and a customer’s decision to purchase an 

iDevice will depend upon the stream of benefits derived from the device. Indeed, the 

 21 Apple Complaint, supra note 1, at para. 24. 22 Press Release, Apple, Inc., Apple’s App Store Marks Historic 50 Billionth Download (May 16, 2013), available 

at http://www.apple.com/pr/library/2013/05/16Apples-App-Store-Marks-Historic-50-Billionth-Download.html. 23 Apple Complaint, supra note 1, at para. 25-26. 24 Beales’ Unfairness Speech, supra note 8, § III.
7

degree of integration across all components of Apple’s platform is remarkably high, 

suggesting that Apple’s disclosure practices may affect all Apple’s sales. For 

completeness, Charts 1 and 2 below measure the estimated harm as a fraction of all 

three variants of Apple’s sales – App Store sales, iDevice sales, and total sales. These 

data are available from Apple’s Annual Reports and press releases.

Chart 1 shows that the estimated value of the harm is a miniscule fraction of both

Apple total sales (about six one-hundredths of one percent) and iDevice sales (about

eight one-hundredths of one percent) over the five-year period from the inception of the 

App Store to September 2013. This measure of harm, a conservatively high estimate, is 

also a relatively small fraction of App Store sales (about 4.6 percent). 

Sources: Apple, Inc., Annual Reports for 2009-2013 (Form 10-K); Marin Perez, Apple App Store A $1.2 

Billion Business In 2009, InformationWeek, June 11, 2008, available 

at http://www.informationweek.com/mobile/mobile-devices/apple-app-store-a-$12-billion-business-in2009/d/d-id/1068794; Apple Complaint, supra note 1 (for the $32.5 million settlement amount).

Chart 2 illustrates the same relationship with respect to Apple sales growth over 

the last 13 years. 

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Chart 1 

Apple Sales Versus Estimated Unauthorized 

Purchases 

2009-2013

Total Sales

iDevices (iPod, iPhone, iPad)

App Store Sales

Estimated Unauthorized Purchases
8

Sources: Same as Chart 1, plus Apple, Inc., Annual Reports for 2002-2008 (Form 10-K). Calculations assume the 

App Store sales and estimated unauthorized purchases grew at a constant percentage growth rate from 2009 through 

2013. 

Taking into account the full economic context of Apple’s choice of disclosures 

relating to the fifteen-minute window undermines the conclusion that any consumer 

injury is substantial. 

II. At Least Some of the Injury Could Be Reasonably Avoided by 

Consumers

The Unfairness Statement provides that the “injury must be one which 

consumers could not reasonably have avoided.”25 In explaining that requirement the 

 25 Unfairness Statement, supra note 7, at 1074.

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

2001200220032004200520062007200820092010201120122013

Chart 2

Apple Sales Growth

2001-2013 ($ millions)

Total Sales

iDevices (iPod, iPhone, iPad)

App Store Sales

Estimated Unauthorized Purchases
9

Commission noted, “[i]n some senses any injury can be avoided – for example, by 

hiring independent experts to test all products in advance, or by private legal actions 

for damages – but these courses may be too expensive to be practicable for individual 

consumers to pursue.”26 The complaint does not allege that the undisclosed fifteenminute window is an unfair practice as to any consumer other than parents of children 

playing games likely to be played by children that have in-app purchasing capability.27 

In the instant case, it is very likely that most parents were able to reasonably avoid the 

potential for injury, and this avoidance required nothing as drastic as hiring an 

independent expert, but rather common sense and a modicum of diligence. 

The harm to consumers contemplated in the complaint involves app 

functionality that changed over time. In the earliest timeframe, the harm occurred 

when a parent typed in their Apple password to download an app with in-app 

purchase capability, handed the Apple device to their child, and then unbeknownst to 

the parent, the child was able to make in-app purchases by pressing the “buy” button 

during the fifteen-minute window in which the password was cached. This was 

apparently an oversight on Apple’s part. When it came to the company’s attention, 

Apple implemented a password prompt for the first in-app purchase after download.28

During the later timeframe, after being handed the Apple device, a child again 

would press the “buy” button to make an in-app purchase. At this point, the child 

would have needed to turn the device back over to the parent for entry of the password. 

Alternatively, some children may have known their parent’s password and entered it 

themselves. In either case, the fifteen-minute window was opened and additional inapp purchases could be made without further password prompts.

Under the first scenario, account holders received no password prompt for the 

first in-app purchase and thus the injury experienced by some consumers arguably may 

not have been reasonably avoidable. Because the opening of the fifteen-minute window 

in this context does not appear to be a product design feature, but rather an unintended 

oversight, I will focus my attention upon the harm experienced by consumers in the 

latter scenario and discuss their ability to reasonably avoid it.

 26 Unfairness Statement, supra note 7, at n.19. 27 Indeed, there are many financial, banking, and retail apps and websites that allow consumers to conduct a series of 

transactions after entering a password only once. These services usually only require re-entry of a password after a 

certain amount of time has elapsed, or the session expires because of inactivity on the user’s part. It is doubtful that 

the Commission would bring an unfairness case because these services do not disclose this window. 

28 See Foresman, supra note 13.
10

Irrespective of the existence of the fifteen-minute window, a user can only make 

an in-app purchase by pressing a “buy” button while engaging with the app. In other 

words, the user must decide to make an in-app purchase. To execute the first in-app 

purchase, the user must enter a password. The fifteen-minute window eliminates the 

second step of verification – entering a password – only after the user has made the first 

in-app purchase by clicking the “buy” button and entering the password. 

By entering their password into the Apple device – an action that is performed in 

response to a request for permission – parents were effectively put on notice that they 

were authorizing a transaction.29 Although the complaint alleges that the fifteen-minute 

window was not expressly disclosed to parents, regular users of Apple’s platform

become familiar with the opportunity to make purchases without entering a password 

every time.30 Even if some parents were not familiar with the fifteen-minute window, 

the requirement to re-enter their password to authorize a transaction arguably triggered 

some obligation for them to investigate further, rather than just to hand the device back 

to the child without further inquiry.31

III. Any Consumer Injury Caused by Apple’s Platform is Outweighed by 

Countervailing Benefits to Consumers and Competition

Assuming for the moment there is at least some harm that consumers cannot 

reasonably avoid, the question turns to whether the harms are substantial relative to 

any benefits to competition or consumers attributable to the conduct. In performing 

this balancing, the Commission must also take “account of the various costs that a 

remedy would entail. These include not only the costs to the parties directly before the 

agency, but also the burdens on society in general in the form of increased paperwork, 

increased regulatory burdens on the flow of information, reduced incentives to 

innovation and capital formation, and similar matters.”32 I now turn to that question. 

 29 Furthermore, Apple sends an email receipt to the iTunes account holder after a purchase has been made in the 

either the iTunes or App Store. See e.g., http://www.apple.com/privacy/. 30 To the extent that users read the Apple Terms and Conditions when they opened their iTunes accounts, consumer 

injury would also have been avoided. The Terms and Conditions explain the fifteen-minute window and other 

aspects of how Apple’s platform works, including the App Store. It appears that Apple has included these 

explanations since at least June 2011. See http://www.apple.com/legal/internet-services/itunes/us/terms.html#SALE

(Apple’s current Terms and Conditions) and http://www.proandcontracts.com/wpcontent/uploads/2011/06/2011.06.09-iTunes-Terms-and-Conditions-June-2011-Update-with-Highlighting.pdf

(cached copy of what appears to be its Terms and Conditions as of June 2011). 31 The Terms and Conditions also explain how to use the parental control settings to control how the App Store 

works. See http://support.apple.com/kb/HT1904 and http://support.apple.com/kb/HT4213. These parental control 

settings allow users to disable in-app purchasing capability as well as establish settings that require a password each 

time a purchase is made, thereby eliminating the fifteen-minute window. 32 Unfairness Statement, supra note 7, at 1073-74.
11

A. Apple’s Platform as a Benefit to Consumers and Competition

Unfairness analysis requires an evaluation and comparison of the benefits and 

costs of Apple’s decision not to increase or enhance its disclosure of how Apple’s

platform works, including the fifteen-minute window. The fifteen-minute window is a

feature of Apple’s platform that applies to purchases of songs, books, apps, and in-app 

purchases. This feature has long been a part of the iTunes Store for downloading 

music, and regular users of iTunes apparently value it. In the context here, disclosure is 

perhaps better thought of as a product attribute—guidance—that Apple provides to the 

customer through on-screen and other explanations of how to use Apple’s platform.33 

In deciding what guidance to provide and how to provide it, firms face two 

important issues. First, since it is generally not possible to customize guidance for 

every individual customer, the optimal guidance inevitably balances the needs of 

different customers. In drawing this balance, the potential for harm from 

misinterpretation is likely important in deciding which customer on the sophistication 

spectrum might represent the least common denominator for directing the guidance. 

For any given degree of guidance, some customers will get it immediately, while others 

will have to work harder. If the potential for harm is very large, e.g., harm from a drug 

overdose, then both the firm and consumers want obvious, strong disclosures about 

dosage, and perhaps other steps like childproof caps. If the potential for harm is small, 

then strong guidance (or caps that are hard to open in the drug context) may make it 

more costly for consumers to use the product. Platform designers clearly face such 

tradeoffs in their decision-making regarding guidance and disclosures. Apple clearly 

faces the same tradeoff with respect to its decisions concerning the fifteen-minute 

window. This tradeoff is relevant for evaluating the benefit-cost test at the core of 

unfairness analysis.

Second, because it is difficult to anticipate the full set of issues that might benefit 

from guidance of various types, the firm must decide how much time to spend 

researching, discovering, and potentially fixing possible issues ex ante versus finding 

and fixing issues as they arise. With complex technology products such as computing 

platforms, firms generally find and address numerous problems as experience is gained 

 33 Compare the disclosure contemplated here with disclosure in the mortgage context, for example. Here, the 

disclosure itself – or the guidance offered while the user is interacting with the product – is an intrinsic part of the 

product’s value. Indeed, Apple’s business model is built on offering an integrated platform with a clean design that 

customers find intuitive and easy to use. The way the platform is presented, including disclosures or guidance 

offered during use, is a critically important component of value. In the mortgage context, the disclosures signed at 

closing are not a significant component of the value of the mortgage.
12

with the product. Virtually all software evolves this way, for example. This tradeoff—

between time spent perfecting a platform up front versus solving problems as they 

arise—is also relevant for evaluating unfairness.

Apple presumably weighs the costs and benefits to Apple of different ways to 

provide guidance. In doing so, Apple must consider: (i) the benefit to Apple of greater 

sales of mobile devices, music, books, apps, and in-app components to customers who 

benefit from the additional guidance and make more purchases; (ii) the cost to Apple of 

fewer sales of mobile devices, music, books, apps, and in-app components by customers 

who find that more real-time guidance hampers their experience; and (iii) the cost to 

Apple of developing and implementing more guidance. In weighing (i) and (ii), Apple 

is particularly concerned about the effects on the sales of mobile devices that use 

Apple’s platform, as they constitute the bulk of Apple’s business, as indicated in Charts 

1 and 2.34

The relevant universe for assessing unfairness of Apple’s guidance provision, 

including disclosures relating to the fifteen-minute window, is the set of users to whom 

the guidance is directed. This includes all users of Apple’s platform who might make 

online purchases through the platform.

The ratio of estimated unauthorized purchases in this case to all purchases made 

by users of Apple’s platform is miniscule, as Charts 1 and 2 illustrate. This fact, by 

itself, does not establish that the benefits of Apple’s decision to forgo additional 

guidance of the type required by the consent order outweigh its costs. However, the 

remarkably low ratio does provide perspective on the following question: How much 

would the average non-cancelling customer need to be harmed by a requirement of 

additional guidance in order to outweigh the benefit of preventing harm to other 

consumers? Suppose the fraction of customers that would benefit from additional 

guidance is approximated by the ratio of estimated unauthorized purchases to total 

sales of iDevices. The analysis in Charts 1 and 2 indicates that estimated unauthorized 

purchases have been about 0.08 percent of iDevice-related sales since the App Store was 

launched. Suppose that customers that make unauthorized purchases cancel them and 

seek a refund. Suppose also that the time cost involved in seeking a refund return is 

$11.95.35 Then, if the average harm to non-cancelling customers from additional 

 34 In 2012, sales of the iPhone, iPad, and iPod accounted for over 76 percent of Apple’s $157 billion in sales. See

Apple, Inc., Annual Report (Form 10-K), at 73 (Oct. 31, 2012), available at

http://files.shareholder.com/downloads/AAPL/2661211346x0xS1193125-12-444068/320193/filing.pdf. 35 The $11.95 figure represents the seasonally adjust average earnings per half hour across all employees on private 

nonfarm payrolls, as reported by the Bureau of Labor and Statistics in May 2013. See 

http://www.bls.gov/news.release/empsit.t19.htm for the most recent report. The assumption is that customers that 
13

guidance sufficient to prevent cancellations is more than about a penny per transaction, 

the additional guidance will be counter-productive.36 

To be clear, the sales of iDevices are not an estimate of consumer benefits but 

rather they approximate the total universe of economic activity implicated by the 

Commission’s consent order. Similarly, estimated unauthorized purchases merely 

approximate the total universe of consumers potentially harmed by Apple’s 

practices. The harm from Apple’s disclosure policy is limited to users that actually 

make unauthorized purchases. However, the potential benefits from Apple’s disclosure 

choices are available to the entire set of iDevice users because these are the consumers 

capable of purchasing apps and making in-app purchases. The disparity in the relative 

magnitudes of these universes of potential harms and benefits suggests, at a minimum, 

that further analysis is required before the Commission can conclude that it has 

satisfied its burden of demonstrating that any consumer injury arising from Apple’s 

allegedly unfair acts or practices exceeds the countervailing benefits to consumers and 

competition. 37

Nonetheless, the Commission effectively rejects an analysis of tradeoffs between 

the benefits of additional guidance and potential harm to some consumers or to 

competition from mandating guidance by assuming that “the burden, if any, to users 

who have never had unauthorized charges for in-app purchases, or to Apple, from the 

provision of this additional information is de minimis” and that any mandated 

disclosure would not “detract in any material way from a streamlined and seamless 

user experience.” I respectfully disagree. These assumptions adopt too cramped a view 

of consumer benefits under the Unfairness Statement and, without more rigorous 

analysis to justify their application, are insufficient to establish the Commission’s 

burden.

 

asked for returns were reimbursed for the charges as Apple attests, and that obtaining a reimbursement takes half an 

hour. 

36 Let Y be the harm to non-cancelling customers from additional guidance sufficient to prevent cancellations. This 

harm will just equal the benefit of avoiding cancellations if (% Cancelling) x (Refund Time Cost) - (% Not

Cancelling) x Y = 0. Assuming (% Cancelling) is .0008, (Refund Time Cost) is $11.95, and (% Not Cancelling) is 

.9992, solving for Y gives Y = $.009. In other words, if the harm to non-cancelling customers from additional 

guidance is more than roughly one cent for each transaction, then then the costs of the additional guidance will 

outweigh the benefits. 37 Commissioner Ohlhausen suggests that our unfairness analysis compares inappropriately the injury caused by 

Apple’s lack of clear disclosure with the benefits of Apple’s disclosure policy to the entire ecosystem. She argues 

that this approach “skew[s] the balancing test for unfairness and improperly compare[s] injury ‘oranges’ from an 

individual practice with overall ‘Apple’ ecosystem benefits.” Statement of Commissioner Ohlhausen at 3. For the 

reasons discussed, this analysis misses the point.
14

B. The Costs and Benefits to Consumers and Competition of Apple’s Product 

Design and Disclosure Choices

To justify a finding of unfairness, the Commission must demonstrate the 

allegedly unlawful conduct results in net consumer injury. This requirement, in turn,

logically implies the Commission must demonstrate Apple’s chosen levels of guidance 

are less than optimal because consumers would benefit from additional disclosure.

There is a considerable economic literature on this subject that sheds light upon the 

conditions under which one might reasonably expect private disclosure levels to result 

in net consumer harm.38 

To support the complaint and consent order the Commission issues today 

requires evidence sufficient to support a reason to believe that Apple will undersupply 

guidance about its platform relative to the socially optimal level. Economic theory 

teaches that such a showing would require evidence that “marginal” customers – the 

marginal consumer is the customer that is just indifferent between making the purchase 

or not at the current price – would benefit less from the consent order than the 

“inframarginal” customers who are willing to pay significantly more for the product 

than the current price and therefore would purchase the product irrespective of a small 

adjustment in an attribute. Nobel Laureate Michael Spence points out in his seminal 

work on the subject that this analysis generally requires information on the valuations 

of inframarginal consumers.39 Here, marginal consumers are those who would not 

have made in-app purchases if Apple would have disclosed the fifteen-minute window. 

Inframarginal consumers are those Apple customers who would not change their 

purchasing behavior in response to a change in Apple’s disclosures. 

Staff has not conducted a survey or any other analysis that might ascertain the 

effects of the consent order upon consumers. The Commission should not support a 

case that alleges that Apple has underprovided disclosure without establishing this

through rigorous analysis demonstrating – whether qualitatively or quantitatively –

that the costs to consumers from Apple’s disclosure decisions have outweighed benefits 

to consumers and the competitive process. The absence of this sort of rigorous analysis 

is made more troublesome in the context of a platform with countless product attributes 

and where significant consumer benefits are intuitively obvious and borne out by data 

 38 Disclosure in this context is analogous to a quality decision that may affect different customers differently. A. 

Michael Spence, Monopoly, Quality and Regulation, 6 BELL J. OF ECON. 417-29 (1975); Eytan Sheshinski, Price, 

Quality and Quantity Regulation in Monopoly Situations, 43 ECONOMICA 127-37 (1976). The analysis of this issue 

is also explained in JEAN TIROLE, THE THEORY OF INDUSTRIAL ORGANIZATION § 2.2.1 (MIT Press 1988). 39 Spence, supra note 38.
15

available to the Commission. We cannot say with certainty whether the average 

consumer would benefit more or less than the marginal consumer from additional 

disclosure without empirical evidence. This evidence might come from a study of how 

customers react to different disclosures. However, given the likelihood that the average 

benefit of more disclosure to unaffected customers is less than the benefit to affected

customers who are likely to be customers closer to the margin, I am inclined to believe 

that Apple has more than enough incentive to disclose.40

C. Other Considerations When Examining the Costs and Benefits of 

Platforms and other Multi-Attribute Products 

Unfairness analysis also requires the Commission to consider the impact of 

contemplated remedies or changes in the incentives to innovate new product features 

upon consumers and competition.41 I close by discussing some additional dimensions 

of an economic analysis of the costs and benefits of product disclosures in the context of 

complicated products and platforms with many attributes, like Apple’s platform, where 

such disclosures are a critical component of the user experience and have considerable 

impact upon the value consumers derive from the product. 

For complicated products – for example, a web-based platform for purchasing 

and interacting with potentially millions of items using a mobile device – there are 

many things that can negatively impact user experience. The number of potential issues 

for products that involve hardware, software, and a human interface is large. This is 

the nature of technology. When designing a complex product, it is prohibitively costly

to try to anticipate all the things that might go wrong. Indeed, it is very likely 

impossible. Even when potential problems are found, it is sometimes hard to come up 

with solutions that that one can be confident will fix the problem. Sometimes proposed 

solutions make it worse. In deciding how to allocate its scarce resources, the creator of 

a complex product weighs the tradeoffs between (i) researching and testing to identify 

and determine whether to fix potential problems in advance, versus (ii) waiting to see 

 40 This argument does not, as Chairwoman Ramirez and Commissioner Brill suggest, “presuppose that a sufficient 

number of Apple customers will respond to the lack of adequate information by leaving Apple for other 

companies.” Statement of Chairwoman Ramirez and Commissioner Brill at 5-6. Nor does the economic logic 

require any belief about the magnitude of switching costs. Rather, the analysis relies only upon the standard 

economic assumption that Apple chooses disclosure to maximize shareholder value, weighing how customers react 

to different disclosure policies. If Apple behaves this way, the average benefit of more disclosure to unaffected

customers is less than the benefit to affected customers, and affected customers are more likely to be on the margin 

than unaffected customers, then economic theory implies that Apple is likely to have more than enough incentive to 

disclose.

41 Unfairness Statement, supra note 7, at 1073-74.
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what problems arise after the product hits the marketplace and issuing desirable fixes 

on an ongoing basis. We observe the latter strategy in action for virtually all software. 

The relevant analysis of benefits and costs for allegedly unfair omissions requires 

weighing of the benefits and costs of discovering and fixing the issue that arose in 

advance versus the benefits and costs of finding the problem and fixing it ex post. These 

considerations fit comfortably within the unfairness framework laid out by the 

Commission.42 The Commission also takes account of the various costs that a remedy 

would entail. These include not only the costs to the parties directly before the agency, 

but also the burdens on society in general in the form of increased regulatory burdens 

on the flow of information, reduced incentives to innovate and invest capital, and other 

social costs.43

Here, Apple did not anticipate the problems customers would have with 

children making in-app purchases that parents did not expect. When the problem arose 

in late 2010, press reports indicate that Apple developed a strategy for addressing the 

problem in a way that it believed made sense, and it also refunded customers that 

reported unintended purchases.44 This is precisely the efficient strategy described 

above when complex products like Apple’s platform develop problems that are difficult 

to anticipate and fix in advance. Establishing that it is “unfair” unless a firm anticipates

and fixes such problems in advance – precisely what the Commission’s complaint and 

consent order establishes today – is likely to impose significant costs in the context of 

complicated products with countless product attributes. These costs will be passed on 

to consumers and threaten consumer harm that is likely to dwarf the magnitude of 

consumer injury contemplated by the complaint. 

This investigation began largely because of complaints that arose when in-app 

purchases were first introduced into the marketplace and Apple had not had enough 

experience with the platform to recognize how parents and children would use the App 

Store. In late 2010, complaints began to emerge. In March 2011, Apple first altered its 

platform to address complaints about unauthorized in-app purchases. It is not

unreasonable to surmise that as Apple has modified its policies based on experience,

and customers have learned more about how to use the platform, unauthorized in-app 

purchases by children have most likely steadily declined. 

 42 The Commission must take “account of the various costs that a remedy would entail” including “reduced 

incentives to innovation and capital formation, and similar matters.” Unfairness Statement, supra note 7, at 1073-

74. 43 Unfairness Statement, supra note 7, at 1073-74. 44 See Foresman, supra note 13.
17

The Commission has no foundation upon which to base a reasonable belief that 

consumers would be made better off if Apple modified its disclosures to confirm to the 

parameters of the consent order. Given the absence of such evidence, enforcement 

action here is neither warranted nor in consumers’ best interest.