[author: Jessica John Bowman]

When an app is purchased, a contractual relationship is created between the company selling the app and the user, even when the app is “sold” for free. But does that mean that the company selling the app also creates contractual relationships with those who subsequently use the app? According to a recent opinion by the U.S. District Court for the Northern District of California, the answer may be yes.

The case before the California court, styled In re Apple In-app Products Litigation, concerned Apple’s relationship with individuals who made “in-app” purchases. An in-app purchase means a purchase opportunity offered and authorized within an application (usually a game). The application provides the user with the option of authorizing the purchase of virtual items—such as Smurfberries that can be used as currency in the popular Smurfs’ Village game—for use within the app.

Ordinarily, to purchase an app or in-app product through Apple, a user must provide his iTunes account information, a password, and a valid credit card number. Until recently, however, a second password entry was not required for app or in-app purchases made within 15 minutes of the most recent password entry. As a result, users could make in-app purchases without the knowledge, consent, or authorization of the iTunes account holder being charged for the purchase.

The plaintiffs in In re Apple were parents whose children had purchased thousands of dollars of in-app products without the parents’ knowledge during the 15-minute window during which their iTunes accounts remained “active” after a password entry. The plaintiffs argued that, by selling first the app and then the related in-app products, Apple had in essence entered into a series of separate app-related contracts, which are voidable at the option of the minors who agreed to the sale.

The question at the heart of this lawsuit is, do the terms and conditions governing the initial purchase of the app cover all subsequent sales within the app, or are in-app purchases independent sales contracts? For the time being, the court has permitted the parents to proceed on their separate-contract theory. If the court ultimately concludes that separate contracts existed between Apple and the minor purchasers, Apple could face a significant financial loss, as the minor purchasers will have unique contractual defenses and remedies unavailable to their adult parents.

This case could have serious implications for companies that develop and sell apps with built-in future-purchase opportunities. App developers should carefully consider the way in-app purchases are presented to the user, and the manner in which a user may agree to a purchase, particularly where apps are designed for use by minors. For example:

• Consider the price of the in-app purchase, and the relative appeal that the item would have to a minor child.
• Evaluate when, during the course of the game, an app will prompt a decision with monetary impact: Is it easy for the child to reach that point? Is the purchase presented as the only means of continuing the game without restarting?
• Avoid exhortative language like “buy this now” or “only 2 left” if the app is created to appeal to children.
• Create in-app parental controls, notify purchasers of in-app purchase opportunities at the time the app is initially downloaded, and remind parents that they may prevent unauthorized purchases by utilizing “airplane mode” on their mobile devices.

By taking care to clearly define the contractual relationship and build in procedural safeguards prior to each transaction, a company may protect itself from future claims that in-app purchases are voidable or invalid based on the identity of the user.