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Amazon & FTC Tied Up in Court

Recently, a Seattle judge denied the FTC’s request for $26.5 million in damages against Amazon, for charging customers for their kids’ unauthorized in-app purchases, stating that a “notice-and-claims procedure was the proper way to determine the scope of damages.”

The ruling by Judge John C. Coughenour comes seven months after the FTC won its first ruling in a suit which alleged that Amazon Inc. charged customers for unknown in-app purchases made by children in violation of a provision of the FTC Act that prohibits unfair or deceptive acts affecting commerce.

The FTC argues that $26.5 million was appropriate, as this number was generated by calculating an unauthorized charge rate based upon the rate of password failures as a portion of total password prompts provided, however the judge said this amount was too high and that Amazon’s proposed reductions were far “too speculative.”

Judge Coughenour wrote in his order that: “The court concludes Amazon has demonstrated that a notice-and-claims procedure is the more appropriate form of monetary relief than a lump sum payment because it removes the uncertainty of the proper lump sum amount that the parties have vigorously disputed,”

After viewing and weighing each side’s proposals under a notice-and-claims procedure, Coughenour adopted and rejected suggestions from both. He eventually concluded that monetary relief should cover, among other things, 99-cent in-app purchases made on the first-generation Kindle Fire devices from Dec. 2, 2014, through May 5, 2016, excluding the relevant purchases that had already been refunded to customers.

Law 360 reports that the judge also excluded from that pool any late-night purchases made between 11 pm and 3 am PST, given that children are generally asleep during those hours. He also rejected Amazon’s proposal that purchases made by children over age 13 be excluded from consideration, saying “this case deals with all unauthorized in-app purchases made by children,” including those between 13 and 17.

The FTC proposed a lump sum amount of $26.5 million, and as reported above, the judge rejected this number and Amazon’s proposal for reductions for failure to arrive at a precise calculation of the harm incurred.

Amazon’s proposal for a notice-and-claims process included issuing Amazon gift cards in the form of refunds plus a process for the company to investigate refund requests to screen for fraud. This was denied as that would allow the company to “undoubtedly recapture some of the profits that are at issue.”

The FTC’s proposal argued against this gift card idea and proposed a mandatory floor of $12.2 million in damages. The proposal for investigating fraudulent refund requests was reasonable and rejected the FTC’s proposed minimum recovery as speculative and “arbitrary.”

For reference, the case is Federal Trade Commission v. Amazon.com Inc., case number 2:14-cv-01038, in the U.S. District Court for the Western District of Washington.

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