The last five years have seen huge growth in the app market. According to VisionMobile it was worth $68 billion globally in 2013, and is projected to grow to $143 billion globally in 2016.
Where the market goes, regulators will inevitably follow. In the UK, recent guidance published by the OFT and enforcement action taken by the Advertising Standards Agency (ASA) should serve as a reminder to app developers that they are being watched.
Changes introduced in the Consumer Contracts Regulations 2013 also impact directly on the app market.
Regulators have expressed concern with a number of issues, from companies marketing them as "free", to the way users are charged for accessing in-app content.
Marketing "free" apps
The June 2014 ASA adjudication against Electronic Arts' Dungeon Keeper game is a good example of the pitfalls when advertising "free" apps.
The game was free to download and could be played to completion without a player having to make a single payment to EA.
So what was the problem? The ASA took issue with the 'in-game currency' (called gems) which players could buy. The gems could be used to speed up in-game progress and avoid long and boring waiting periods during which the player was unable to progress. It wasn't possible to avoid those periods without making a payment.
The ASA took the view that in order to fully enjoy the game, payments were needed. As such, it was misleading to market the game as "free" without further qualification.
How to market "free" apps
The ASA has always tightly regulated use of the word "free", so the decision of the adjudication panel against EA was not a surprise.
It is important to remember that the ASA's problem with the EA app was not with the free-to-play platform in itself.
The problem was with the way EA marketed the game. Companies should not market products as "free" if they involve any hidden costs.
EA's mistake was not making clear the costs that players were likely to incur while playing the game.
When marketing a free-download app, companies need to think about what their objectives are. If an app is just a promotional tool and is truly free to use, then it is acceptable to use the term "free".
However, if an app is only made available to download for free because a company envisages that users will eventually want to (or have to) spend money, then the company should be cautious about using the word "free".
It is important to remember that these rules don't just apply to games. The principles apply equally to non-game apps, for example social network or fitness apps, where users have to pay to enjoy all the functions on offer.
Digital transactions and consumer protection legislation
App developers also need to be aware of the Consumer Contracts Regulations 2013, which came into force in June 2014.
The new Regulations have introduced special provisions for 'digital content' and generally allow consumers to cancel any digital transactions within 14 days of payment.
App developers need to consider the implications of this 14-day statutory cooling-off period.
A key problem here is that if a user exercises the right to cancel the transaction, how can the company 'get back' the digital content it has supplied? This is especially the case where a user makes payments to buy 'in-app currency' and then immediately uses it up.
There are also issues for companies that charge customers a fee to download an app. One issue is that customers could enjoy an app for 14 days (and in doing so use up its novelty value) only to then cancel the contract and demand a full refund. Companies need to protect themselves against customers who attempt to exploit the law for their benefit.
Ensuring compliance with the Consumer Contract Regulations
There are provisions which allow consumers to waive their cancellation rights when they download apps (or other digital content). To take advantage of these, companies must ensure that they have taken the correct steps to inform the consumer about the waiver before the consumer downloads the app.
The purchase process for an app will also need to be set up to supply consumers with certain information defined in the Consumer Contracts Regulations (such as the right to cancel the contract) before they complete a purchase. Failure to comply is a criminal offence.
It is important to consider consumer protection legislation at any early stage in an app's development to make sure consumers receive information at the right point in the purchase process, and in-app transactions themselves operate in a compliant way.
Another area for app developers to be aware of is that the OFT, in one of its last acts before handing over its consumer protection regulatory functions to the Competition and Markets Authority (CMA), published guidance for online and app-based games.
App developers should seek to comply with the guidance which covers a number of areas, including the types of games it considers "aggressively" target children with in-app charges and therefore require special attention.
Companies that unfairly mislead or aggressively target consumers through apps need to be aware that they can be prosecuted and fined by local authorities or the CMA for breaching consumer protection legislation.
The ASA also has wide-ranging enforcement powers to punish non-compliant advertisers. These include working with Google to remove paid-for 'sponsored' links or even placing notices that show-up on search engine results emphasising the advertiser's non-compliance.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2015. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.
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