App Games – OFT Investigation

April 11, 2013

The OFT has launched an investigation into whether children are being unfairly pressured or encouraged to pay for additional content in ‘free’ web and app-based games, including upgraded membership or virtual currency such as coins, gems or fruit. Typically, players can access only portions of these games for free, with new levels or features, such as faster game play, costing money.

As part of the investigation, the OFT has written to companies offering free web or app-based games, seeking information on in-game marketing to children. The OFT is also asking for parents and consumer groups to contact it with information about potentially misleading or commercially aggressive practices they are aware of in relation to these games.

The OFT investigation is exploring whether these games are misleading, commercially aggressive or otherwise unfair. In particular, the OFT is looking into whether these games include ‘direct exhortations’ to children – a strong encouragement to make a purchase, or to do something that will necessitate making a purchase, or to persuade their parents or other adults to make a purchase for them. This is unlawful under the Consumer Protection from Unfair Trading Regulations 2008.

As part of the investigation, the OFT will also consider whether the full cost of some of these games is made clear when they are downloaded or accessed, potentially leading children and parents to make decisions they may not have made if prices were more transparently advertised at the start of the purchasing process.

Cavendish Elithorn, OFT Senior Director for Goods and Consumer, said:

‘We are concerned that children and their parents could be subject to unfair pressure to purchase when they are playing games they thought were free, but which can actually run up substantial costs. The OFT is not seeking to ban in-game purchases, but the games industry must ensure it is complying with the relevant regulations so that children are protected. We are speaking to the industry and will take enforcement action if necessary.’

The OFT expects to publish its next steps by October 2013.

The OFT states that it cannot identify the companies that are subject to this investigation and no assumption should be made that any companies being investigated have broken the law.

On 9 April 2013, 80 of the 100 top-grossing Android apps in the UK were free to install and raised revenue through in-app purchases. Single purchases of virtual currency typically range from a few pence to £70 or more. According to Ofcom, home internet use for five- to seven-year olds is 67%,  for eight- to 11-year olds it is 82% and for 12- to 15-year olds it is 90 per cent. In 2012, 28 per cent of children aged five to 15 owned smartphones, an increase from 20 per cent in the previous year. 

The Consumer Protection from Unfair Trading Regulations 2008 prohibit unfair commercial practices. Under reg 3, a commercial practice is unfair if it: contravenes the requirements of professional diligence and materially distorts or is likely to materially distort the economic behaviour of the average consumer with regard to the goods or services; is a misleading action; is a misleading omission; or is aggressive.  Schedule 1, para 8 prohibits including 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.

Jas Purewal, an interactive entertainment lawyer at Osborne Clarke, commented:

This investigation is coming at an uncertain time for the free to play business model in the games industry. While it has achieved considerable business success (the majority of the most successful mobile apps are free to play) there has been lively debate for some time now within the industry about the policy and practice of free to play games – including in relation to children. The UK industry was in the early stages of discussing steps towards self-regulation. However, any regulation model faces real difficulties: the absolute legal and practical necessity of platform involvement (such as Apple or Facebook), the need to understand how the business models actually work (as opposed to how it may have been reported in the media), the problems inherent in creating a UK regulatory system in a world where online and mobile games are distributed worldwide by default, and finally the danger of hasty precedent negatively impacting games, one of the UK’s largest creative industries, more widely. This is the scene that the OFT has stepped into.

Vanessa Barnett, Technology and Media Specialist at Charles Russell LLP, commented:

The OFT this morning announced that it was launching an investigation into app based games (games rather than gambling) to see if children were being unduly pressured into buying items within games.  We have all heard those heart stopping stories from friends about suddenly being stuck with a very large bill because their children have been buying things in apps – coins, swords, etc.  The apps world is the epitome of the freemium business model, where you download something for free but to make progress (or make progress faster!) you need to buy things. The OFT is investigating whether the design of these freemium games is contrary to the Consumer Protection from Unfair Trading Regulations.

These regulations prohibit unfair practices in marketing and trading with consumers. The OFT is looking to see if the in app purchases are misleading, commercially aggressive or otherwise unfair. In particular, the OFT is looking into whether these games ‘include ‘direct exhortations’ to children – a strong encouragement to make a purchase, or to do something that will necessitate making a purchase, or to persuade their parents or other adults to make a purchase for them’. This is something the games industry is already aware of and consumers have already put pressure on Apple to put in place better controls for iPhone based games, including the need to enter the Apple password for each purchase.  Of course, we all know what kids and passwords are like!

The investigation by the OFT is welcome, because this is clearly an economic and social issue in relation to such games.  However, we must be careful that the OFT does not march down the route of over prescriptive reform of regulation in the area.  Ultimately, this area is a mix of parenting, education and responsible game design – and we need to make sure we balance those out from an obligations perspective.  If the OFT ultimately wants more regulation in the area, this could be detrimental to a flourishing, and growing, UK industry.’