Monetisation of Mobile Apps in Europe – 2014 Round-Up

The free-to-play model for mobile games has seen major growth in recent years and continues to expand internationally. However, its proliferation has led to concern from consumer groups and regulators. Specific areas of concern have been unauthorised purchases being made by children and how such games are marketed. 2014 has seen a number of developments in this area, and Thomas Spanyol from Osborne Clarke’s London office looks back at some of the key events:

Co-ordinated action from the European Commission

In December 2013, consumer protection regulators from EU member states (the Consumer Protection Cooperation (“CPC”) Network) agreed a common position on how in-app purchases should be presented to consumers:

• Games advertised as “free” should not mislead consumers about the true costs involved;
• Games should not contain direct exhortation to children to buy items in a game or to persuade an adult to buy items for them;
• Consumers should be adequately informed about the payment arrangements for purchases and should not be debited through default settings without consumers’ explicit consent;
• Traders should provide an email address so that consumers can contact them in case of queries or complaints.

The CPC Network then held talks on this common position with Apple, Google and industry body the Interactive Software Federation.

Following discussions, an EU press release in July this year revealed that Google had decided to make changes to how apps were advertised on its Google Play store, so that no app which contained in-app purchases would be labelled as “free”. Apple has apparently also proposed to address the regulators’ concerns, but it was reported that it had not yet provided any concrete commitment or timing to doing so. The European Commission and Member States have indicated that they will continue to monitor the issue and in particular the extent to which the common position is being adhered to.

United States: Federal Trade Commission takes action, issues fines

The issue of children’s purchases was also a hot topic in the United States this year. Settlements were reportedly paid by Apple in January ($32.5 million) and by Google in September ($19 million) refunding customers whose children had made in-app purchases (“IAP”) without the customer’s permission. The FTC’s view was that app-store owners had taken insufficient technical steps to prevent this happening when in-app purchases were introduced in 2011. While app-store owners have subsequently tightened up purchase mechanics (for example by requiring passwords and verification of identity), the FTC’s action was launched on the basis of “tens of thousands” of complaints by consumers regarding children’s unauthorised payments during the period following IAP’s introduction. A similar case has been brought by the FTC against Amazon, which announced in July that it is contesting the charges.

UK: OFT/CMA Principles for online and app-based games

In January the United Kingdom’s Office of Fair Trading (“OFT”) published a set of eight Principles for online and app-based games. These Principles (which, although not legally binding, reflect the regulator’s view of how the relevant consumer law applies) have now been adopted by the Competition and Markets Authority (“CMA”) following the OFT’s closure in April. The Principles provide illustrative examples of what the CMA would consider to be good and poor practice in a number of areas, including in-app purchases. We understand that the CMA is currently actively monitoring compliance, and may look to take enforcement action against developers and/or platform owners whose practices run contrary to the Principles.

UK: ASA guidance on “free” claims for free to play games

In August, the UK’s Advertising Standards Authority (“ASA”) ruled against advertising for EA Games’ reboot of classic game Dungeon Keeper, which was released on mobile platforms. A number of reviews of the game were critical of how IAPs had been used in the new game, specifically regarding the length of the countdown timers for certain actions which players could pay to skip.

Following a complaint to the ASA about advertising for the game, the ASA took issue with the new version of Dungeon Keeper being advertised as “free”, and considered that the gameplay portrayed in the advertising was not an accurate depiction of the experience of the non-paying user. The regulator told EA that it was not permitted to continue describing the game as free in its advertising.

Some general guidance from the ASA for advertisers was published shortly after this adjudication, highlighting that in-app purchases for games advertised as “free” should not be an essential component of satisfactory gameplay. Such games should offer a “meaningful game experience” without purchases being made. Specifically, games monetised by countdown timers which payments could be made to skip should carry a disclaimer along the lines of “in-app purchases can be made to speed up gameplay and skip timers”.

Possibility of big fines in Italy for lack of information on IAPs, targeting children

Italy’s competition authority the AGCM launched an investigation in May against Google, Amazon, Apple and a developer of mobile games distributed on the Play Store, and the Apple and Amazon App Stores. The AGCM’s investigation centres on the possibility that the companies might have misled consumers by advertising the game as free when the game reportedly requires in-app purchases in order to keep playing.
The regulator’s concerns include an apparent failure to give consumers clear information about the fact that the game contained in-app purchases, or information on how in-app purchases could be limited through the payment system associated with a Google, Amazon or iTunes account.

The AGCM is also investigating the possibility that the game may include in-game messages that incite children to make purchases or to persuade their parents to do so. Investigations are ongoing, and may conclude in early 2015. The AGCM has the power to impose fines of between €5k and €5m.

Germany – “Runes of Magic” case: reasoning published

In September, the German Federal Court of Justice confirmed its earlier default judgment that the operator of the popular online role-playing game “Runes of Magic” had been engaging in illegal commercial practices in advertising in-game items.

The operator was found to have been directly exhorting children to make in-app purchases through an advert which included the line “seize the advantageous opportunity and add that certain something to your armour & weapons”. The court’s final reasoning for this finding against the games provider has very recently been made available. While it leaves some questions open and can be criticized on a number of legal issues, it has already led to increased enforcement activity in Germany. Developers whose games are popular with a younger audience should be watching with interest.

What does the future hold?

The mobile games market continues to be extremely healthy, and in-app purchases play a significant part in this. One market research report by Applift and NewZoo predicts that total global mobile games revenue will top $35 billion by 2017 . Another, by app-tracking site Distimo, states that IAPs in free-to-play games made up a reported 76% of all revenue in the UK Apple App Store in January this year .

As the market continues to thrive it seems inevitable that regulators will continue to take an active interest in this area. This year has shown that the penalties for non-compliance can be significant, so platforms and developers would therefore be well advised to continue to monitor the regulatory position across all of their markets to ensure that they remain on the right side of the law.