Federal Register / Vol. 79, No. 15 / Thursday, January 23, 2014 / Notices 3801 

operator to respond to a proper request 

for information by the local franchising 

authority. An operator may appeal to 

the Commission a local franchise 

authority’s information request if the 

operator seeks to challenge the 

information request as unduly or 

unreasonably burdensome. If the local 

franchising authority finds that the 

operator does not qualify for 

deregulation, its notice shall state the 

grounds for that decision. The operator 

may appeal the local franchising 

authority’s decision to the Commission 

within 30 days. 

Federal Communications Commission. 

Marlene H. Dortch, 

Secretary, Office of the Secretary, Office of 

Managing Director. 

[FR Doc. 2014–01170 Filed 1–22–14; 8:45 am] 

BILLING CODE 6712–01–P 

FEDERAL RESERVE SYSTEM 

Change in Bank Control Notices; 

Acquisitions of Shares of a Bank or 

Bank Holding Company 

The notificants listed below have 

applied under the Change in Bank 

Control Act (12 U.S.C. 1817(j)) and 

§ 225.41 of the Board’s Regulation Y (12 

CFR 225.41) to acquire shares of a bank 

or bank holding company. The factors 

that are considered in acting on the 

notices are set forth in paragraph 7 of 

the Act (12 U.S.C. 1817(j)(7)). 

The notices are available for 

immediate inspection at the Federal 

Reserve Bank indicated. The notices 

also will be available for inspection at 

the offices of the Board of Governors. 

Interested persons may express their 

views in writing to the Reserve Bank 

indicated for that notice or to the offices 

of the Board of Governors. Comments 

must be received not later than February 

6, 2014. 

A. Federal Reserve Bank of 

Minneapolis (Jacqueline K. Brunmeier, 

Assistant Vice President) 90 Hennepin 

Avenue, Minneapolis, Minnesota 

55480–0291: 

1. The Ardath K. Solsrud 2012 

Irrevocable Trust dated December 28, 

2012, Robb B. Kahl, as trustee, and The 

Glenn A. Solsrud 2012 Irrevocable Trust 

dated December 28, 2012, Robb B. Kahl, 

as trustee, all of Monona, Wisconsin; to 

each acquire voting shares of Augusta 

Financial Corporation, and thereby 

indirectly acquire voting shares of Unity 

Bank, both in Augusta, Wisconsin. 

2. The Ardath K. Solsrud 2012 

Irrevocable Trust dated December 28, 

2012, Robb B. Kahl, as trustee, and The 

Glenn A. Solsrud 2012 Irrevocable Trust 

dated December 28, 2012, Robb B. Kahl, 

as trustee, all of Monona, Wisconsin; to 

each voting shares of Caprice 

Corporation, Augusta, Wisconsin, and 

thereby indirectly acquire voting shares 

of Unity Bank North, Red Lake Falls, 

Minnesota. 

Board of Governors of the Federal Reserve 

System, January 17, 2014. 

Michael J. Lewandowski, 

Associate Secretary of the Board. 

[FR Doc. 2014–01279 Filed 1–22–14; 8:45 am] 

BILLING CODE 6210–01–P 

FEDERAL RESERVE SYSTEM 

Formations of, Acquisitions by, and 

Mergers of Bank Holding Companies 

The companies listed in this notice 

have applied to the Board for approval, 

pursuant to the Bank Holding Company 

Act of 1956 (12 U.S.C. 1841 et seq.) 

(BHC Act), Regulation Y (12 CFR part 

225), and all other applicable statutes 

and regulations to become a bank 

holding company and/or to acquire the 

assets or the ownership of, control of, or 

the power to vote shares of a bank or 

bank holding company and all of the 

banks and nonbanking companies 

owned by the bank holding company, 

including the companies listed below. 

The applications listed below, as well 

as other related filings required by the 

Board, are available for immediate 

inspection at the Federal Reserve Bank 

indicated. The applications will also be 

available for inspection at the offices of 

the Board of Governors. Interested 

persons may express their views in 

writing on the standards enumerated in 

the BHC Act (12 U.S.C. 1842(c)). If the 

proposal also involves the acquisition of 

a nonbanking company, the review also 

includes whether the acquisition of the 

nonbanking company complies with the 

standards in section 4 of the BHC Act 

(12 U.S.C. 1843). Unless otherwise 

noted, nonbanking activities will be 

conducted throughout the United States. 

Unless otherwise noted, comments 

regarding each of these applications 

must be received at the Reserve Bank 

indicated or the offices of the Board of 

Governors not later than February 14, 

2014. 

A. Federal Reserve Bank of St. Louis 

(Yvonne Sparks, Community 

Development Officer) P.O. Box 442, St. 

Louis, Missouri 63166–2034: 

1. Cabool State Bank Employees Stock 

Ownership Plan, Cabool, Missouri; to 

acquire up to an additional 2.13 percent, 

for control of 31.30 percent of the voting 

shares of Cabool Bancshares, Inc., and 

thereby indirectly acquire additional 

voting shares of Cabool State Bank, both 

in Cabool, Missouri. 

Board of Governors of the Federal Reserve 

System, January 16, 2014. 

Michael J. Lewandowski, 

Associate Secretary of the Board. 

[FR Doc. 2014–01177 Filed 1–22–14; 8:45 am] 

BILLING CODE 6210–01–P 

FEDERAL TRADE COMMISSION 

[File No. 112 3108] 

Apple Inc.; Analysis of Proposed 

Consent Order To Aid Public Comment 

AGENCY: Federal Trade Commission. 

ACTION: Proposed Consent Agreement. 

SUMMARY: The consent agreement in this 

matter settles alleged violations of 

federal law prohibiting unfair or 

deceptive acts or practices or unfair 

methods of competition. The attached 

Analysis of Proposed Consent Order to 

Aid Public Comment describes both the 

allegations in the draft complaint and 

the terms of the consent order— 

embodied in the consent agreement— 

that would settle these allegations. 

DATES: Comments must be received on 

or before February 14, 2014. 

ADDRESSES: Interested parties may file a 

comment at https://

ftcpublic.commentworks.com/ftc/

appleconsent online or on paper, by 

following the instructions in the 

Request for Comment part of the 

SUPPLEMENTARY INFORMATION section 

below. Write ‘‘Apple Inc.—Consent 

Agreement; File No. 112 3108’’ on your 

comment and file your comment online 

at https://ftcpublic.commentworks.com/

ftc/appleconsenthttps://

ftcpublic.commentworks.com/ftc/

fidelitynationalconsent by following the 

instructions on the web-based form. If 

you prefer to file your comment on 

paper, mail or deliver your comment to 

the following address: Federal Trade 

Commission, Office of the Secretary, 

Room H–113 (Annex D), 600 

Pennsylvania Avenue NW, Washington, 

DC 20580. 

FOR FURTHER INFORMATION CONTACT: 

Duane Pozza, Bureau of Consumer 

Protection, (202–326–2042), 600 

Pennsylvania Avenue NW, Washington, 

DC 20580. 

SUPPLEMENTARY INFORMATION: Pursuant 

to Section 6(f) of the Federal Trade 

Commission Act, 15 U.S.C. 46(f), and 

FTC Rule 2.34, 16 CFR 2.34, notice is 

hereby given that the above-captioned 

consent agreement containing consent 

order to cease and desist, having been 

filed with and accepted, subject to final 


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3802 Federal Register / Vol. 79, No. 15 / Thursday, January 23, 2014 / Notices 

1 In particular, the written request for confidential 

treatment that accompanies the comment must 

include the factual and legal basis for the request, 

and must identify the specific portions of the 

comment to be withheld from the public record. See 

FTC Rule 4.9(c), 16 CFR 4.9(c). 

approval, by the Commission, has been 

placed on the public record for a period 

of thirty (30) days. The following 

Analysis to Aid Public Comment 

describes the terms of the consent 

agreement, and the allegations in the 

complaint. An electronic copy of the 

full text of the consent agreement 

package can be obtained from the FTC 

Home Page (for January 15, 2014), on 

the World Wide Web, at http://

www.ftc.gov/os/actions.shtm. A paper 

copy can be obtained from the FTC 

Public Reference Room, Room 130–H, 

600 Pennsylvania Avenue NW, 

Washington, DC 20580, either in person 

or by calling (202) 326–2222. 

You can file a comment online or on 

paper. For the Commission to consider 

your comment, we must receive it on or 

before February 14, 2014. Write ‘‘Apple 

Inc.—Consent Agreement; File No. 112 

3108’’ on your comment. Your 

comment—including your name and 

your state—will be placed on the public 

record of this proceeding, including, to 

the extent practicable, on the public 

Commission Web site, at http://

www.ftc.gov/os/publiccomments.shtm. 

As a matter of discretion, the 

Commission tries to remove individuals’ 

home contact information from 

comments before placing them on the 

Commission Web site. 

Because your comment will be made 

public, you are solely responsible for 

making sure that your comment does 

not include any sensitive personal 

information, like anyone’s Social 

Security number, date of birth, driver’s 

license number or other state 

identification number or foreign country 

equivalent, passport number, financial 

account number, or credit or debit card 

number. You are also solely responsible 

for making sure that your comment does 

not include any sensitive health 

information, like medical records or 

other individually identifiable health 

information. In addition, do not include 

any ‘‘[t]rade secret or any commercial or 

financial information which . . . is 

privileged or confidential,’’ as discussed 

in Section 6(f) of the FTC Act, 15 U.S.C. 

46(f), and FTC Rule 4.10(a)(2), 16 CFR 

4.10(a)(2). In particular, do not include 

competitively sensitive information 

such as costs, sales statistics, 

inventories, formulas, patterns, devices, 

manufacturing processes, or customer 

names. 

If you want the Commission to give 

your comment confidential treatment, 

you must file it in paper form, with a 

request for confidential treatment, and 

you have to follow the procedure 

explained in FTC Rule 4.9(c), 16 CFR 

4.9(c).1 Your comment will be kept 

confidential only if the FTC General 

Counsel, in his or her sole discretion, 

grants your request in accordance with 

the law and the public interest. 

Postal mail addressed to the 

Commission is subject to delay due to 

heightened security screening. As a 

result, we encourage you to submit your 

comments online. To make sure that the 

Commission considers your online 

comment, you must file it at https://

ftcpublic.commentworks.com/ftc/

appleconsent by following the 

instructions on the web-based form. If 

this Notice appears at http://

www.regulations.gov/#!home, you also 

may file a comment through that Web 

site. 

If you file your comment on paper, 

write ‘‘Apple Inc.—Consent Agreement; 

File No. 112 3108’’ on your comment 

and on the envelope, and mail or deliver 

it to the following address: Federal 

Trade Commission, Office of the 

Secretary, Room H–113 (Annex D), 600 

Pennsylvania Avenue NW, Washington, 

DC 20580. If possible, submit your 

paper comment to the Commission by 

courier or overnight service. 

Visit the Commission Web site at 

http://www.ftc.gov to read this Notice 

and the news release describing it. The 

FTC Act and other laws that the 

Commission administers permit the 

collection of public comments to 

consider and use in this proceeding as 

appropriate. The Commission will 

consider all timely and responsive 

public comments that it receives on or 

before February 14, 2014. You can find 

more information, including routine 

uses permitted by the Privacy Act, in 

the Commission’s privacy policy, at 

http://www.ftc.gov/ftc/privacy.htm. 

Analysis of Proposed Consent Order To 

Aid Public Comment 

The Federal Trade Commission 

(‘‘Commission’’) has accepted, subject to 

final approval, an agreement containing 

a consent order from Apple Inc. 

(‘‘Apple’’). 

The proposed consent order has been 

placed on the public record for thirty 

(30) days for receipt of comments by 

interested persons. Comments received 

during this period will become part of 

the public record. After thirty (30) days, 

the Commission will again review the 

agreement and the comments received, 

and will decide whether it should 

withdraw from the agreement and take 

appropriate action or make final the 

agreement’s proposed order. 

Apple bills consumers for charges 

related to activity within software 

applications (‘‘apps’’) that consumers 

download to their iPhone, iPod Touch, 

or iPad devices from Apple’s App Store. 

This matter concerns Apple’s billing for 

charges incurred by children in apps 

that are likely to be used by children 

without having obtained the account 

holders’ express informed consent. 

The Commission’s proposed 

complaint alleges that Apple offers 

thousands of apps, including games that 

children are likely to play, and that in 

many instances, children can obtain 

virtual items within a game app that 

cost money. Apple bills parents and 

other adult account holders for items 

that cost money within an app—‘‘in-app 

charges.’’ In connection with billing for 

children’s in-app charges, Apple 

sometimes requests a parent’s iTunes 

password. In many instances, Apple 

‘‘caches’’ (that is, stores) the iTunes 

password for fifteen minutes after it is 

entered. During this process, Apple in 

many instances has not informed 

account holders that password entry 

will approve a charge or initiate a 

fifteen-minute window during which 

children using the app can incur 

charges without further action by the 

account holder. The Commission’s 

proposed complaint alleges that, 

through these practices, Apple often 

fails to obtain parents’ informed consent 

to charges incurred by children, which 

constitutes an unfair practice under 

Section 5 of the FTC Act. 

The proposed order contains 

provisions designed to prevent Apple 

from engaging in the same or similar 

acts or practices in the future. Part I of 

the proposed order requires Apple to 

obtain express, informed consent to inapp charges before billing for such 

charges, and to allow consumers to 

revoke consent to prospective in-app 

charges at any time. As defined in the 

proposed order, express, informed 

consent requires an affirmative act 

communicating authorization of an inapp charge (such as entering a 

password), made proximate to both an 

in-app activity for which Apple is 

billing a charge and a clear and 

conspicuous disclosure of material 

information about the charge. Under the 

definition, the act and disclosure must 

be reasonably calculated to ensure that 

the person providing consent is the 

account holder (as opposed to the 

child). The proposed order would 

require the disclosure to appear at least 

once per mobile device. Apple must 

come into compliance with the Part I 

requirements by March 31, 2014. 


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Federal Register / Vol. 79, No. 15 / Thursday, January 23, 2014 / Notices 3803 

1 15 U.S.C. 45(n). 

2Any sum below $32.5 million that is not 

returned to account holders is to be paid to the FTC. 

Part II of the proposed order requires 

Apple to provide full refunds to Apple 

account holders who have been billed 

by Apple for unauthorized in-app 

charges incurred by minors. Apple will 

refund no less than $32.5 million for 

these in-app charges in the year 

following entry of the order, and if such 

refunds total less than $32.5 million, 

Apple will remit any remaining balance 

to the Commission to be used for 

informational remedies, further redress, 

or payment to the U.S. Treasury as 

equitable disgorgement. To effectuate 

refunds, Apple must send an electronic 

notice to its consumers that clearly and 

conspicuously discloses the availability 

of refunds and instructions on how to 

obtain such refunds. Within 30 days of 

the end of the one-year redress period, 

Apple must provide the Commission 

with records of refund requests, refunds 

paid, and any refunds denied. 

Parts III through VII of the proposed 

order are reporting and compliance 

provisions. Part III of the proposed order 

requires Apple to maintain and upon 

request make available certain 

compliance-related records, including 

certain consumer complaints and refund 

requests, for a period of five years. Part 

IV is an order distribution provision that 

requires Apple to provide the order to 

current and future principals, officers, 

and corporate directors, as well as 

current and future managers, 

employees, agents, and representatives 

who participate in certain duties related 

to the subject matter of the proposed 

complaint and order, and to secure 

statements acknowledging receipt of the 

order. 

Part V requires Apple to notify the 

Commission of corporate changes that 

may affect compliance obligations 

within 14 days of such a change. Part VI 

requires Apple to submit a compliance 

report 90 days after March 31, 2014, the 

date by which Apple is required to 

come into full compliance with Part I of 

the order. It also requires Apple to 

submit additional compliance reports 

within 10 business days of a written 

request by the Commission. Part VII is 

a provision ‘‘sunsetting’’ the order after 

twenty (20) years, with certain 

exceptions. 

The purpose of this analysis is to aid 

public comment on the proposed order. 

It is not intended to constitute an 

official interpretation of the complaint 

or proposed order, or to modify in any 

way the proposed order’s terms. 

By direction of the Commission, 

Commissioner Wright dissenting. 

Donald S. Clark, 

Secretary. 

Statement of Chairwoman Edith 

Ramirez and Commissioner Julie Brill 

The Commission has issued a 

complaint and proposed consent order 

to resolve allegations that Apple Inc. 

unfairly failed to obtain informed 

consent for charges incurred by children 

in connection with their use of mobile 

apps on Apple devices in violation of 

Section 5 of the Federal Trade 

Commission Act. Consistent with prior 

application of the Commission’s 

unfairness authority, our action today 

reaffirms that companies may not charge 

consumers for purchases that are 

unauthorized—a principle that applies 

regardless of whether consumers are in 

a retail store, on a Web site accessed 

from a desktop computer, or in a digital 

store using a mobile device. 

As alleged in the Commission’s 

complaint, Apple violated this basic 

principle by failing to inform parents 

that, by entering a password, they were 

permitting a charge for virtual goods or 

currency to be used by their child in 

playing a children’s app and at the same 

time triggering a 15-minute window 

during which their child could make 

unlimited additional purchases without 

further parental action. As a 

consequence, at least tens of thousands 

of parents have incurred millions of 

dollars in unauthorized charges that 

they could not readily have avoided. 

Apple, however, could have prevented 

these unwanted purchases by including 

a few words on an existing prompt, 

without disrupting the in-app user 

experience. As explained below, we 

believe the Commission’s allegations are 

more than sufficient to satisfy the 

standard governing the FTC Act’s 

prohibition against ‘‘unfair acts or 

practices.’’ 

I. Overview of In-App Purchases on 

Apple Mobile Devices 

Apple distributes apps, including 

games, that are likely to be used by 

children on Apple mobile devices 

through its iTunes App Store. While 

playing these games, kids may incur 

charges for the purchase of virtual items 

such as digital goods or currency 

(known as ‘‘in-app charges’’) at prices 

ranging from $.99 to $99.99. These inapp charges are billed to their parents’ 

iTunes accounts. Apple retains thirty 

percent of the revenues from in-app 

charges. As part of the in-app 

purchasing process, Apple displays a 

general prompt that calls for entry of the 

password for the iTunes account 

associated with the mobile device. 

Apple treats this password entry as 

authorizing a specific transaction and 

simultaneously allowing additional inapp purchases for 15 minutes. 

While key aspects of the in-app 

purchasing sequence have changed over 

time, as described in the Commission’s 

complaint, one constant has been that 

Apple does not explain to parents that 

entry of their password authorizes an inapp purchase and also opens a 15- 

minute window during which children 

are free to incur unlimited additional 

charges. We allege that, since at least 

March 2011, tens of thousands of 

consumers have complained about 

millions of dollars in unauthorized inapp purchases by children, with many 

of them individually reporting hundreds 

to thousands of dollars in such charges. 

As a result, we have reason to believe, 

and have alleged in our complaint, that 

Apple’s failure to disclose the 15- 

minute window is an unfair practice 

that violates Section 5 because it has 

caused or is likely to cause substantial 

consumer injury that is neither 

reasonably avoidable by consumers nor 

outweighed by countervailing benefits 

to consumers or competition.1

The proposed consent order resolves 

these allegations by requiring Apple to 

obtain informed consent to in-app 

charges. The order also requires Apple 

to provide full refunds, an amount no 

less than $32.5 million, to all of its 

account holders who have been billed 

for unauthorized in-app charges 

incurred by minors.2

II. Application of the Unfairness 

Standard 

Importantly, the Commission does not 

challenge Apple’s use of a 15-minute 

purchasing window in apps used by 

kids. Rather, our charge is that, even 

after receiving at least tens of thousands 

of complaints about unauthorized 

charges relating to in-app purchases by 

kids, Apple continued to fail to disclose 

to parents and other Apple account 

holders that entry of a password in a 

children’s app meant they were 

approving a single in-app charge plus 15 

minutes of further, unlimited charges. 

In asserting that Apple violated 

Section 5’s prohibition against unfair 

practices by failing to obtain express 

informed consent for in-app charges 

incurred by kids, we follow a long line 

of FTC cases establishing that the 

imposition of unauthorized charges is 


sroberts on DSK5SPTVN1PROD with NOTICES
3804 Federal Register / Vol. 79, No. 15 / Thursday, January 23, 2014 / Notices 

3See, e.g., FTC v. Willms, No. 2:11–CV–828 MJP, 

2011 WL 4103542, at *9 (W.D. Wash. Sept. 13, 

2011); FTC v. Inc21.com Corp., 745 F. Supp. 2d 975 

(N.D. Cal. 2010), aff’d, 475 Fed. Appx. 106 (9th Cir. 

Mar. 30, 2012); FTC v. Crescent Publ’g Grp., Inc., 

129 F. Supp. 2d 311, 322 (S.D.N.Y. 2001); see also 

Complaint, FTC v. Jesta Digital, LLC, No. 1:13-cv01272 (D.D.C. filed Aug. 20, 2013). 

4The FTC need not prove intent to establish a 

violation of the FTC Act. See, e.g., Orkin 

Exterminating Co. v. FTC, 849 F. 2d 1354, 1368 

(11th Cir. 1988); Federal Trade Commission Policy 

Statement on Unfairness, appended to Int’l 

Harvester Co., 104 F.T.C. 949, 1070 (1984) (‘‘FTC 

Unfairness Statement’’). 

5See FTC v. Neovi, Inc., 604 F.3d 1150, 1157 (9th 

Cir. 2010), amended, 2010 WL 2365956 (9th Cir. 

June 15, 2010); Orkin, 849 F.2d at 1365; FTC 

Unfairness Statement n.12. 

6Likewise, there is research indicating consumers 

do not register the vast majority of their complaints 

about problems with goods and services. See Amy 

J. Schmitz, Access to Consumer Remedies in the 

Squeaky Wheel System, 39 Pepp. L. Rev. 279, 286 

(2012). 

7 Dissenting Statement of Commissioner Joshua D. 

Wright (‘‘Wright Dissent’’) at 1. 

8See id. at 6. 

9 Id. (citation and internal quotation marks 

omitted). 

10See, e.g., Orkin, 849 F.2d at 1365 (substantial 

injury demonstrated by small injury to large 

number of customers); FTC v. Neovi, Inc., 598 F. 

Supp. 2d 1104, 1115 (S.D. Cal. 2008) (substantial 

consumer injury resulted from unauthorized 

charges to tens of thousands of consumers), aff’d, 

604 F.3d 1150 (9th Cir. 2010); FTC v. Global Mktg. 

Group, Inc., 594 F. Supp. 2d 1281, 1288–89 (M.D. 

Fla. 2008) (millions of dollars in unlawful charges 

demonstrated substantial injury); FTC v. Windward 

Mktg., Inc., No. 1:96–CV–615F, 1997 WL 33642380, 

at *11 (N.D. Ga. Sept. 30, 1997) (harm to large 

number of consumers sufficient to establish 

substantial injury). 

11Neovi, 598 F. Supp. 2d at 1115. 

12See, e.g., Facebook, Inc., No. C–4365, at 4 

(F.T.C. July 27, 2012) (consent order) (requiring 

‘‘clear and prominent’’ disclosure of certain 

information material to privacy protections 

‘‘separate and apart from’’ the detailed privacy 

policy or terms of use); Google Inc., No.C–4336, at 

3–4 (F.T.C. Oct. 13, 2011) (consent order) (setting 

similar requirements). 

13Wright Dissent at 10. 

an unfair act or practice.3 This basic 

tenet applies regardless of the 

technology or platform used to bill 

consumers and regardless of whether a 

company engages in deliberate fraud. 

Indeed, there is nothing in the 

unfairness authority we have been 

granted by Congress or in the 

Commission’s Unfairness Policy 

Statement to suggest that our power is 

in any way constrained or should be 

applied differently depending on the 

technology or platform at issue, or the 

intentions of the accused party.4

Our task here, as in all instances in 

which we assert jurisdiction over unfair 

acts or practices, is to determine 

whether the alleged unlawful conduct 

causes or is likely to cause substantial 

injury that is not reasonably avoidable 

by consumers and is not outweighed by 

countervailing benefits to consumers or 

competition. After a full investigation, 

we have reason to believe that Apple’s 

conduct constitutes an unfair practice. 

A. Substantial Injury to Consumers 

We begin by addressing the issue of 

harm. It is well established that 

substantial injury may be demonstrated 

by a showing of either small harm to a 

large number of people or large harm in 

the aggregate.5 Both are present here. As 

alleged in the complaint, in many 

individual instances, Apple customers 

paid hundreds of dollars in 

unauthorized charges while thousands 

of others incurred lower charges that 

together totaled large sums. We allege 

that, in the aggregate, at least tens of 

thousands of consumers have 

complained of millions of dollars of 

unauthorized in-app charges by 

children. Moreover, we have reason to 

believe that, for a variety of reasons, 

many more affected customers never 

complained. Some, for example, were 

undoubtedly deterred by Apple’s stated 

policy that all App Store transactions 

are final. Others who incurred low 

charges likely did not protest because of 

the relatively small dollar value at issue. 

Indeed, extensive Commission 

experience teaches that consumer 

complaints typically represent only a 

small fraction of actual consumer 

injury.6

In his dissent, Commissioner Wright 

expresses the view that the harm alleged 

by the Commission involves ‘‘a 

miniscule percentage of consumers’’ 

and is therefore insubstantial.7 We 

respectfully disagree. We find it of little 

consequence that the number of 

complainants is a small fraction of all 

app downloads, as Commissioner 

Wright asserts.8 As an initial matter, our 

complaint focuses on conduct affecting 

Apple account holders whose children 

may unwittingly incur in-app charges in 

games likely to be played by kids. The 

proportion of complaints about 

children’s in-app purchases as 

compared to total app downloads, 

revenue from the sale of Apple mobile 

devices, or Apple’s total sales revenue 

sheds no light on the extent of harm 

alleged in this case. More 

fundamentally, the FTC Act does not 

give a company with a vast user base 

and product offerings license to injure 

large numbers of consumers or inflict 

millions of dollars of harm merely 

because the injury affects a small 

percentage of its customers or relates to 

a fraction of its product offerings. 

It is also incorrect that ‘‘in order to 

qualify as substantial, the harm must be 

large compared to any offsetting 

benefits.’’ 9 This conflates the third 

prong of the unfairness test, calling for 

a weighing of countervailing benefits 

against the relevant harm, with the 

substantial injury requirement. As 

shown above, the allegations in the 

complaint are more than sufficient to 

establish substantial injury.10

B. Injury Not Reasonably Avoidable by 

Consumers 

We also have reason to believe that 

consumers could not reasonably avoid 

the alleged injury. An injury is not 

reasonably preventable by consumers 

unless they had an opportunity to make 

a ‘‘free and informed choice’’ to avoid 

the harm.11 Before billing parents for inapp charges by children, Apple 

presented parents with a generic 

password prompt devoid of any 

explanation that password entry 

approves a single charge as well as all 

charges within the 15 minutes to follow. 

We do not think parents acted 

unreasonably by not averting harm from 

a 15-minute window that was not 

disclosed to them. Consumers cannot 

avoid or protect themselves from a 

practice of which they are not made 

aware, and companies like Apple 

cannot impose on consumers the 

responsibility for ferreting out material 

aspects of payment systems, as FTC 

enforcement actions in a variety of 

contexts make clear.12 Apple’s 

disclosure of the 15-minute window in 

its Terms and Conditions was not 

sufficient to provide consumers with 

adequate notice. 

Over time, through experience, some 

parents may infer that entry of a 

password opens a 15-minute window 

during which unlimited purchases can 

be made. The receipt of an invoice with 

unauthorized charges may be sufficient 

to alert some parents about the 

unwanted charges. But that does not 

relieve Apple of the obligation to take 

reasonable steps to inform consumers of 

the 15-minute window before the user 

opens that window and before Apple 

places charges on a bill. In light of 

Apple’s failure to disclose the 15- 

minute purchasing window, it was 

reasonable for parents not to expect that 

when they input their iTunes password 

they were authorizing 15 minutes of 

unlimited purchases without the child 

having to ask the parent to input the 

password again. There was nothing to 

suggest this and thus no ‘‘obligation for 

them to investigate further’’ as 

Commissioner Wright suggests.13


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14 Id. at 4. 

15See Proposed Order ¶¶ 3, 5 (defining ‘‘Clear 

and Conspicuous’’ and ‘‘Express, Informed 

Consent’’). 

16For this reason alone, it was unnecessary for 

the Commission to undertake a study of how 

consumers react to different disclosures before 

issuing its complaint against Apple, as 

Commissioner Wright suggests. We also note that 

the Commission need only determine that it has a 

‘‘reason to believe’’ that there has been an FTC Act 

violation in order to issue a complaint. 15 U.S.C. 

§ 45(b). 

17Wright Dissent at 15 (emphasis in original). 

18See, e.g., Cecilia Kang, In-app purchases in 

iPad, iPhone, iPod kids’ games touch off parental 

firestorm, Wash. Post, Feb. 8, 2011, available at 

http://www.washingtonpost.com/wp-dyn/content/

article/2011/02/07/AR2011020706073.html; 

Associated Press, Apple App Store: Catnip for FreeSpending Kids?, CBS News, Dec. 9, 2010, available 

at http://www.cbsnews.com/news/apple-app-storecatnip-for-free-spending-kids/. 

19Wright Dissent at 14. 

1For the reasons given in the Statement of 

Chairwoman Ramirez and Commissioner Brill, I 

believe the complaint meets the requirements of 15 

U.S.C. 45(n) and the Commission’s Unfairness 

Statement. 

C. Injury Not Outweighed by Benefits to 

Consumers or Competition 

Finally, we also have reason to 

believe that the harm alleged outweighs 

any countervailing benefits to 

consumers or competition from Apple’s 

practices. This is not a case about 

Apple’s ‘‘choice to integrate the fifteenminute window into Apple users’ 

experience on the platform,’’ as 

Commissioner Wright implies.14 What 

is at issue is Apple’s failure to disclose 

the 15-minute window to parents and 

other account holders in connection 

with children’s apps, not Apple’s use of 

a 15-minute window as part of the inapp purchasing sequence. 

Under the proposed consent order, 

Apple is permitted to bill for multiple 

charges within a 15-minute window 

upon password entry provided it 

informs consumers what they are 

authorizing, allowing consumers to 

make an informed choice about whether 

to open a period during which 

additional charges can be incurred 

without further entry of a password.15

The order gives Apple full discretion to 

determine how to provide this 

disclosure. But we note that the 

information called for, while important, 

can be conveyed through a few words 

on an existing prompt. 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.16 Nor do we believe the 

required disclosure would detract in 

any material way from a streamlined 

and seamless user experience. In our 

view, the absence of such minimal, 

though essential, information does not 

constitute an offsetting benefit to 

Apple’s users that even comes close to 

outweighing the substantial injury the 

Commission has identified. 

Moreover, we are confident that our 

action today fully preserves the 

incentive to innovate and develop 

digital platforms that are user-friendly 

and beneficial for consumers. In this 

respect, we emphasize that we do not 

expect companies ‘‘to anticipate all 

things that might go wrong’’ when 

designing a complicated platform or 

product.17 Our action against Apple is 

based on its failure to provide any 

meaningful disclosures about the 15- 

minute window in the purchase 

sequence, despite receiving at least tens 

of thousands of complaints about 

unauthorized in-app purchases by 

children and despite having the issue 

flagged in high-profile media reports in 

late 2010 and early 2011.18 We 

recognize that Apple did make certain 

changes to its in-app purchase sequence 

in an attempt to resolve the issue. Most 

notably, Apple added a password 

prompt to the in-app purchase sequence 

in March 2011. But for well over twoand-a-half years after that point, the 

password prompt has lacked any 

information to signal that the account 

holder is about to open a 15-minute 

window in which unlimited charges 

could be made in a children’s app. 

The extent and duration of the 

unauthorized in-app charges alleged in 

the complaint support our conclusion 

that, while Apple has strong incentives 

to cultivate customer goodwill in order 

to encourage the purchase of in-app 

goods and currency and promote the 

sale of its mobile devices, these 

incentives may not be sufficient to 

produce the necessary disclosures. 

Because customers are often unaware of 

the way in-app charges work, let alone 

the possibility of Apple disclosing its 

practices, we do not think that 

Commissioner Wright’s belief that 

Apple ‘‘has more than enough 

incentives to disclose’’ 19 is justified. 

Indeed, his argument appears to 

presuppose that a sufficient number of 

Apple customers will respond to the 

lack of adequate information by leaving 

Apple for other companies. But 

customers cannot switch suppliers 

easily or quickly. Mobile phone and 

data contracts typically last two years, 

with a penalty for early termination. In 

addition, the time and effort required to 

learn another company’s operating 

system and features, not to mention the 

general inertia often observed for 

consumers with plans for cellular, data, 

and Internet services, could very well 

mean that Apple customers may not be 

as responsive to Apple’s disclosure 

policies as seems to be envisioned by 

Commissioner Wright. 

* * * * * 

We applaud the innovation that is 

occurring in the mobile arena. Today, 

parents have access to an enormous 

number and variety of apps for use by 

their children. We firmly believe that 

technological innovation and 

fundamental consumer protections can 

coexist and, in fact, are mutually 

beneficial. Such innovation is 

enhanced, and will only reach its full 

potential, if all marketplace participants 

abide by the basic principle that they 

must obtain consumers’ informed 

consent to charges before they are 

imposed. 

Statement of Commissioner Maureen K. 

Ohlhausen 

I voted to accept for public comment 

the accompanying proposed 

administrative complaint and consent 

order, settling allegations that Apple 

Inc. engaged in unfair acts or practices 

by billing iTunes account holders for 

charges incurred by children in apps 

that are likely to be used by children 

without the account holders’ express 

informed consent.1 I write separately to 

emphasize that our action today is 

consistent with the fundamental 

principle that any commercial entity, 

before billing customers, has an 

obligation to notify such customers of 

what they may be charged for and when, 

a principle that applies even to 

reputable and highly successful 

companies that offer many popular 

products and services. 

In his dissent, Commissioner Wright 

lauds the iterative software design 

process of rapid prototyping, release, 

and revision based on market feedback; 

this approach has proven to be one of 

the most successful methods for 

balancing design tradeoffs. He also notes 

that it can be difficult to forecast 

problems that may arise with 

complicated products across millions of 

users and expresses concern that our 

decision today requires companies to 

anticipate and fix all such problems in 

advance. 

I agree with Commissioner Wright 

that we should avoid actions that would 

chill an iterative approach to software 

development or that would unduly 

burden the creation of complex 

products by imposing an obligation to 

foresee all problems that may arise in a 


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2 I am concerned about any action that this 

agency takes that is likely to have adverse effects 

on firms’ incentives to innovate. For example, in 

the antitrust context, I voted against the 

Commission’s complaints in Bosch and Google/MMI 

based in significant part on my concern that those 

enforcement actions would hamper intellectual 

property rights and innovation more generally. See 

In re Motorola Mobility LLC & Google Inc., FTC File 

No. 121–0120, Dissenting Statement of 

Commissioner Maureen K. Ohlhausen (Jan. 3, 

2013), available at http://www.ftc.gov/sites/default/ 

files/documents/cases/2013/01/

130103googlemotorolaohlhausenstmt.pdf; In re 

Robert Bosch GmbH, FTC File No. 121–0081, 

Statement of Commissioner Maureen K. Ohlhausen 

(Nov. 26, 2012), available at http://www.ftc.gov/

sites/default/files/documents/cases/2013/04/

121126boschohlhausenstatement.pdf. 

3The complaint challenges harm that occurred 

since March 2011, after Apple changed its process 

to require the entry of the account holder’s iTunes 

password before incurring any in-app charges 

immediately after installation. Previously, the entry 

of the password to install an app also opened a 

fifteen-minute window during which charges could 

be incurred without again entering a password. 

4 It is also important to note that the 

Commission’s proposed order does not prohibit the 

use of the fifteen-minute window nor require that 

the account holder input a password for each 

purchase. 

5 Dissenting Statement of Commissioner Joshua D. 

Wright at 5. 

6 ‘‘The Commission shall have no authority under 

this section or section 57a of this title to declare 

unlawful an act or practice on the grounds that such 

act or practice is unfair unless the act or practice 

causes or is likely to cause substantial injury to 

consumers which is not reasonably avoidable by 

consumers themselves and not outweighed by 

countervailing benefits to consumers or to 

competition.’’ 15 U.S.C. 45(n). 

1Complaint, Apple, Inc., FTC File No. 1123108, 

at para. 28–30 (Jan. 15, 2014) [hereinafter Apple 

Complaint]. 

2As 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. 

3Apple Complaint, supra note 1, at para. 4, 20, 

28. 

4Statement of Chairwoman Ramirez and 

Commissioner Brill at 1. 

5 15 U.S.C. 45(a). 

6 15 U.S.C. 45(n). 

widely-used product.2 I do not believe, 

however, that today’s action implicates 

such concerns. First, Apple’s iterative 

approach was not the cause of the harm 

the complaint challenges. In fact, 

Apple’s iterative approach should have 

made it easier for the company to 

update its design in the face of heavy 

consumer complaints. Second, we are 

not penalizing Apple for failing to have 

anticipated every potential issue in its 

complex platform.3 The complaint 

challenges only one billing issue of 

which Apple became well aware but 

failed to address in subsequent design 

iterations. By March 2011, consumers 

had submitted more than ten thousand 

complaints to Apple stating that its 

billing platform for in-app purchases for 

children’s apps was failing to inform 

them about what they were being billed 

for and when. Although Apple adjusted 

certain screens in response and offered 

refunds, it still failed to notify account 

holders that by entering their password 

they were initiating a fifteen-minute 

window during which children using 

the app could incur charges without 

further action by the account holder. 

Even if Apple chose to forgo providing 

this information—the type of 

information that is critical for any 

billing platform, no matter how 

innovative, to provide—in favor of what 

it believed was a smoother user 

experience for some users, the result 

was unfair to the thousands of 

consumers who subsequently 

experienced unauthorized in-app 

charges totaling millions of dollars.4

Commissioner Wright also argues that 

under our unfairness authority 

‘‘substantiality is analyzed relative to 

the magnitude of any offsetting 

benefits,’’ 5 and concludes that 

compared to Apple’s total sales or inapp sales, injury was not substantial and 

that any injury that did occur is 

outweighed by the benefits to 

consumers and competition of Apple’s 

overall platform. The relevant statutory 

provision focuses on the substantial 

injury caused by an individual act or 

practice, which we must then weigh 

against countervailing benefits to 

consumers or competition from that act 

or practice.6 Thus, we first examine 

whether the harm caused by the practice 

of not clearly disclosing the fifteenminute purchase window is substantial 

and then compare that harm to any 

benefits from that particular practice, 

namely the benefits to consumers and 

competition of not having a clear and 

conspicuous disclosure of the fifteenminute billing window. It is not 

appropriate, however, to compare the 

injury caused by Apple’s lack of clear 

disclosure with the benefits of the entire 

Apple mobile device ecosystem. To do 

so implies that all of the benefits of 

Apple products are contingent on 

Apple’s decision not to provide a clear 

disclosure of the fifteen-minute 

purchase window for in-app purchases. 

Such an approach would skew the 

balancing test for unfairness and 

improperly compare injury ‘‘oranges’’ 

from an individual practice with overall 

‘‘Apple’’ ecosystem benefits. 

Dissenting Statement of Commissioner 

Joshua D. Wright 

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 fifteenminute 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 fifteen-minute 

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 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


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Federal Register / Vol. 79, No. 15 / Thursday, January 23, 2014 / Notices 3807 

7FTC Policy Statement on Unfairness, appended 

to Int’l Harvester Co., 104 F.T.C. 949, 1070 (1984), 

available at http://www.ftc.gov/ftc-policystatement-on-unfairness [hereinafter Unfairness 

Statement]. 

8ABA 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/ftcs-useunfairness-authority-its-rise-fall-and-resurrection 

[hereinafter Beales’ Unfairness Speech]. 

9Unfairness Statement, supra note 7, at 1073. 

10See, 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). 

11Complaint 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 Web site failing to 

disclose the point at which a ‘‘free tour’’ ended and 

a monthly membership would begin). 

12By 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 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. 

13See 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-inapp-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.’’). 

14Nigel 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-marketinggenius-hint-its-not-marketing/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-business-case-for-investingin-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/applesresearch-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. 

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. 

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 fifteenminute 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 fifteenminute window.12 For example, when 

Apple began receiving 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 


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15 Int’l Harvester Co., 104 F.T.C. 949, 1070 (1984); 

Beales’ Unfairness Speech, supra note 8, § III. 

16Beales’ 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. 

19Unfairness Statement, supra note 7, at n.12. 

20Beales’ 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.’’). 

21Apple Complaint, supra note 1, at para. 24. 

22Press 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-MarksHistoric-50-Billionth-Download.html. 

23Apple Complaint, supra note 1, at para. 25–26. 

24Beales’ Unfairness Speech, supra note 8, § III. 

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 

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 fifteenminute 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. 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 

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 onehundredths 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). 


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Federal Register / Vol. 79, No. 15 / Thursday, January 23, 2014 / Notices 3809 

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-in-2009/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. 


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25Unfairness Statement, supra note 7, at 1074. 26Unfairness Statement, supra note 7, at n.19. 

27 Indeed, there are many financial, banking, and 

retail apps and Web sites 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. 28See Foresman, supra note 13. 

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 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 fifteen-minute 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 in-app 

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 


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Federal Register / Vol. 79, No. 15 / Thursday, January 23, 2014 / Notices 3811 

29Furthermore, 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/. 

30To 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/

wp-content/uploads/2011/06/2011.06.09-iTunesTerms-and-Conditions-June-2011-Update-withHighlighting.pdf (cached copy of what appears to be 

its Terms and Conditions as of June 2011). 

31The 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 fifteenminute window. 

32Unfairness Statement, supra note 7, at 1073– 

74. 

33Compare 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. 

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/

Continued 

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. 

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 fifteenminute 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. 

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 inapp 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 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


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2661211346x0xS1193125-12-444068/320193/

filing.pdf. 

35The $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 asked for returns 

were reimbursed for the charges as Apple attests, 

and that obtaining a reimbursement takes half an 

hour. 

36Let 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) × 

(Refund Time Cost) ¥ (% Not Cancelling) × 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. 

37Commissioner 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. 

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). 

39Spence, supra note 38. 

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 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. 

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 inapp 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 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 


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Federal Register / Vol. 79, No. 15 / Thursday, January 23, 2014 / Notices 3813 

40This 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. 

41Unfairness Statement, supra note 7, at 1073– 

74. 

42The 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. 

43Unfairness Statement, supra note 7, at 1073– 

74. 

44See Foresman, supra note 13. 

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 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 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. 

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. 

[FR Doc. 2014–01197 Filed 1–22–14; 8:45 am] 

BILLING CODE 6750–01–P 

FEDERAL TRADE COMMISSION 

Revised Jurisdictional Thresholds for 

Section 8 of the Clayton Act 

AGENCY: Federal Trade Commission. 

ACTION: Notice. 

SUMMARY: The Federal Trade 

Commission announces the revised 

thresholds for interlocking directorates 

required by the 1990 amendment of 

Section 8 of the Clayton Act. Section 8 

prohibits, with certain exceptions, one 

person from serving as a director or 

officer of two competing corporations if 

two thresholds are met. Competitor 

corporations are covered by Section 8 if 

each one has capital, surplus, and 

undivided profits aggregating more than 

$10,000,000, with the exception that no 

corporation is covered if the competitive 

sales of either corporation are less than 

$1,000,000. Section 8(a)(5) requires the 

Federal Trade Commission to revise 

those thresholds annually, based on the 

change in gross national product. The 

new thresholds, which take effect 

immediately, are $29,945,000 for 

Section 8(a)(1), and $2,994,500 for 

Section 8(a)(2)(A). 

DATES: Effective January 23, 2014. 

FOR FURTHER INFORMATION CONTACT: 

James F. Mongoven, Bureau of 

Competition, Office of Policy and 

Coordination, (202) 326–2879. 

Authority: 15 U.S.C. 19(a)(5). 

By direction of the Commission. 

Donald S. Clark, 

Secretary. 

[FR Doc. 2014–01284 Filed 1–22–14; 8:45 am] 

BILLING CODE 6750–01–P 


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