Apple has been hit with a class-action lawsuit alleging that applications and games for iPhone, iPod touch and iPad with in-app purchasing for virtual goods or premium features are part of a ?bait-and-switch scheme? targeting children.

The lawsuit was filed by Seeger Weiss LLP in the United States District Court in California, with the plaintiffs named as Philadelphia-based plaintiff GarenMeguerian 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.? The suit alleges that the freemium model is ?unlawful exploitation in the extreme? and that the addictive nature of the games encourages in-app purchasing.

?In a way, this latest class action suit on ?in-app purchases? stands to benefit smaller, less well known marketing companies,? said Michael Hazzard, partner at Arent Fox LLP, Washington. ?If Apple is susceptible to this type of suit, then any company is.

?I suspect any judge will be skeptical of plaintiff lawyer hyperbole leveled at Apple, and my hope is that this helps smaller companies too,? he said.?In every industry, there are fringe players that push the envelope?the vast majority of companies here, as elsewhere, want to deliver consumers value.

?My hope is that the industry can work with regulators to develop workable standards that will promote innovation and protect consumers.?

Is the freemium model above board?
The class-action lawsuit against Apple alleges that games for iOS devices have generated a substantial amount of revenue by selling ?game currency? to children.

In the exact language of the suit, ? 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.?

Even though Apple recently ramped up the password protection related to in-app purchasing with the goal of preventing unknowing iTunes charges, the suit claims that Apple continues to sell game currency to minors.

The lead plaintiff, Mr. Meguerian, claims that his nine-year-old daughter spent approximately $200 in two weeks on in-app purchases made without his knowledge or consent.

In-app purchasing is an area that has attracted the attention of the Federal Trade Commission, and this suit will not reduce the current level of scrutiny.

That said, the freemium model of app monetization and in-app purchasing continue to grow, and that trend shows no signs of slowing down.

Content producers and distributors must follow best-practice guidelines and self-regulate to avoid ruining those models for everyone.

?Although the plaintiff refers to Apple?s business model with loaded phrases such as ?bait-and-switch scheme? and ?unlawful exploitation in the extreme,? there is nothing unlawful about the business model itself,? said Gonzalo Mon, partner at Kelley Drye& Warren LLP, Washington.

?It is generally fine to offer a free application and allow consumers to purchase additional benefits, as long as the costs associated with those benefits are clearly disclosed,? he said.

?If this case proceeds to trial, the decision may turn largely on how clearly the disclosures were made.?

Entering into a contract with a minor?such as a contract to purchase in-app content?poses some additional complications, per Kelley Drye& Warren.

With some exceptions, because a minor does not have the legal capacity to enter into a contract, a contract made by a minor is voidable.

Mr. Mon said that does not mean it is automatically void, but rather that the minor can back out of the contract.

?To a certain extent, that is a risk that all companies take by dealing with minors,? Mr. Mon said.?In some cases, companies can mitigate that risk by dealing with a minor?s parent, but that isn?t always practical.

?Given the recent focus on how easily minors can rack up bills on mobile services, content providers should at least take steps to ensure that any costs are clearly disclosed, and that the disclosures are made in language that the target audience can understand,? he said.?It pays to be clear, especially if you are dealing with kids.

?Content providers should also consider whether it?s possible to get billing consent from adults and, if not, explore options to mitigate the potential risks of complaints?or lawsuits?from parents.?

Final Take
AccuTerra