FTC sues Amazon over kids’ app purchases in showdown over agency’s power

The Federal Trade Commission on Thursday said it is suing Amazon(s amzn) over the way the retail giant lets kids use real money to buy “coins,” “acorns” and other digital goods on devices like the Kindle Fire.
The lawsuit, filed in Seattle, comes after Amazon defiantly stated that it would take its chances in federal court rather than agree to a settlement, which would likely have involved a multi-million dollar penalty and a 20-year consent decree.
According to the FTC, Amazon employees stated in internal emails that unexpected kids’ purchases were “clearly causing problems for a large percentage of our customers” and that the situation was a “near house on fire.” The agency also alleges that one mother claims her daughter racked up $358 in unauthorized charges, and that children too young to read had bought goods by “randomly pushing buttons.”
Amazon allegedly addressed the situation by changing its policy in 2012 in order to require users to enter a password for purchases over $20 because, in the words of an employee, “it’s much easier to get upset about Amazon letting your child purchase a $99 product without any password protection than a $20 product.”
The accusations against Amazon are similar to those leveled against Apple(s appl) and Google(s goog), which have also drawn fire over kids’ purchase policies and so-called “bait apps,” from which the companies earn a commission. Since the outcry, all three companies have tightened their rules to require passwords for purchases.
Amazon’s decision to fight is perhaps surprising given that Apple agreed to a $32 million settlement after the FTC investigated it over similar allegations; Google also appears to be under investigation. In a letter reported by  the Wall Street Journal last week, Amazon’s lawyers wrote the FTC:

“When customers told us their kids had made purchases they didn’t want, we refunded those purchases. [The app store includes] prominent notice of in-app purchasing, effective parental controls and real-time notice of every in-app purchase.”

The upshot is that the debate has become a test of strength between Amazon and the FTC. The company, which can certainly afford whatever fine is at stake, appears to be fighting in order to keep the regulator at arm’s length — any settlement would have involved extra scrutiny and record-keeping. Meanwhile, for the agency, its power and credibility are at stake — if it loses in court, it may become more difficult to extract settlements and concessions from other big companies.