iPhone in-game purchases targeted in class action suit

A new class action lawsuit targets purchases within iPhone and iPad applications, alleging that Apple (NASDAQ:AAPL) is complicit in a "bait-and-switch scheme" that attracts children with free games "designed to induce purchases" of virtual goods, game add-ons and other premium features.

The suit, filed in U.S. District Court in California on behalf of Philadelphia-based plaintiff Garen Meguerian and "other parents and guardians who permitted their minor children to download a free application and then incurred charges for game-related voidable purchases that the minor was induced by Apple to make," contends that iOS games like Bakery Story, Tap Zoo and Sundae Maker have generated millions of dollars by selling "Game Currency" to children. Calling the freemium model "unlawful exploitation in the extreme," the suit states "These games are highly addictive, designed deliberately so, and tend to compel children playing them to purchase large quantities of Game Currency, amounting to as much as $100 per purchase or more." 

The suit acknowledges that Apple recently upgraded password protection around in-app purchases in an attempt to prevent consumers (particularly children) from unwittingly racking up substantial iTunes charges. "Nevertheless, Apple continues to sell Game Currency to minors," the suit adds, noting that Meguerian's nine-year-old daughter spent roughly $200 in two weeks on in-app purchases all made without Meguerian's knowledge or consent.

The Federal Trade Commission is presently reviewing potentially deceptive practices connected to in-app purchases within iOS titles. Rep. Edward J. Markey (D-Mass.) and Sens. Amy Klobuchar (D-Minn.) and Mark Pryor (D-Ark.) first alerted FTC chairman Jon Leibowitz to the issue, writing letters urging the consumer watchdog to investigate the in-app transaction model.

"We fully share your concern that consumers, particularly children, are unlikely to understand the ramifications of these types of purchases," Leibowitz replied in a letter to Markey. "Let me assure you we will look closely at the current industry practice with respect to the marketing and delivery of these types of applications."

Markey wrote that the in-app purchase model may be deceptive, explaining that when parents download titles geared for their children, they do not anticipate the application will include virtual items available for sale. In February, The Washington Post reported multiple parent complaints tied to in-app transactions across the iOS platform--one child playing the Smurfs Village game spent a reported $1,400 acquiring batches of Smurfberries priced at $99 each.

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

For more:
- read this Ars Technica article

Related articles:
FTC confirms probe into iPhone in-app purchases
Lawmakers urge FTC to probe iPhone in-app purchases
Distimo: In-app purchases now half of iPhone developer revenues
Gartner: App store revenues to surpass $15 billion in 2011