The Law and Business of Social Media
June 11, 2013 - E-Commerce, Ethics

Playing Fair? UK’s OFT Investigates Online and App-Based Games

Playing Fair? UK’s OFT Investigates Online and App-Based Games

On April 12, 2013, the UK’s Office of Fair Trading (OFT), the UK regulator for consumer affairs and competition, announced that it was launching an investigation into children’s web- and app-based games. In particular, the OFT is looking into whether such games comply with the Consumer Protection from Unfair Trading Regulations 2008 (“Regulations”), and are not misleading or aggressive (for example, directly encouraging children to buy something or to pester their parents or other adults to buy something on their behalf). The investigation is expected to take six months to complete, and will take into account views from mobile app platform operators and other businesses operating in this market, together with the views of parents and consumer groups.

The investigation was launched in response to reports of children racking up substantial bills on so-called “free” online and app-based games. For example, in March 2013, it was reported that a 5-year-old boy amassed a bill of £1,700 in just 15 minutes via add-ons while playing the “free” game “Zombies vs Ninja.” There are thousands of games like this that are marketed as being free to download but, once the user starts playing, present advertising encouraging the user to pay to get access to extra levels or to receive in-game extras such as virtual coins, gems or other tokens.

The OFT estimates that, as of April 9, 2013, 80 of the 100 top-grossing Android apps were free to download, yet raised revenue through these kinds of in-app purchases. Although platforms will often enable password protection to restrict in-app purchases, such measures will not prevent purchases by children who know their parents’ password or by parents who, at the request of their children, insert their password without appreciation of the risks.

The Regulations, which implement the Unfair Commercial Practices Directive 2005/29/EC, state that unfair commercial practices are prohibited. A commercial practice is deemed to be unfair if it contravenes the requirements of professional diligence and materially distorts, or is likely to materially distort, the economic behavior of the consumer with regard to the product. Aggressive commercial practices are those that impair the average consumer’s freedom of choice or conduct through the use of harassment, coercion or undue influence, and that thereby cause, or are likely to cause, the consumer “to take a transactional decision he would not have taken otherwise.” Undue influence includes exploiting a position of power in relation to the consumer.

The Regulations clearly provide that it is unfair to include in an advertisement a direct exhortation to children to buy advertised products, or persuade their parents or other adults to buy advertised products for them. Breach of the Regulations can lead to criminal penalties such as a fine or imprisonment for up to two years.

The OFT has made it clear that no company that is included in its investigation should be assumed to have broken the Regulations. In addition, the OFT has stated that it does not wish to ban in-app purchases, but rather to determine whether they are compliant with the Regulations in order to ensure that children are protected. Nevertheless, the OFT has indicated that it will take enforcement action against offending companies if necessary. The outcome of the OFT’s investigation is expected to be published in October 2013.

In the meantime, a number of guides have appeared providing advice to parents on how to block in-app purchases (including guidance published by the UK communications regulator, Ofcom), and at least one major app distributor has added in-app purchase warnings to its app store listings. This could be the key to future settings: allowing users to filter out in-app purchase applications when downloading them.

It will be interesting to see what approach the OFT decides to take as a result of its investigation, and where it believes responsibility should lie. Should parents be expected to take more control over their children’s gaming activities or should providers be required to do more, e.g., by providing more information warning users on the nature of these “freemium” apps contained within their stores?

Lastly, note that this investigation may have consequences for game providers operating elsewhere in Europe. Because the Regulations are based on EU law, other EU regulators will be watching the progress of the OFT investigation closely to consider whether they, too, need to scrutinize games providers’ compliance with the equivalent laws in their territories.