It’s early, but the Federal Trade Commission is going to be hard to beat for the regulatory overreach of the year. Last month the agency approved a $32.5 million settlement with Apple in a case that the dissenting commissioner, Joshua Wright, says boils down to this question: “Do you really want a regulatory agency designing your iPad?”
He isn’t exaggerating. Mr. Wright’s fellow commissioners pursued Apple over what they decided was poor design of the iPad. This critique may be a first for Apple, which is renowned for superb design, including ease of use. But Washington knows best.
The case arose when some parents complained that their children had ordered virtual goods, such as digital currencies within game apps, without their consent. Like many other online services, Apple’s iTunes store does not make users retype passwords every time they want to make a purchase. Once a password is entered, purchases can be made for 15 minutes without having to sign in again.
Apple had issued refunds when parents complained their children made purchases during that window. The company was sued anyway and settled the lawsuit last year. After Apple contacted all 28 million people who had made in-app purchases in a game designed for kids, some 37,000 parents applied for refunds—a tiny percentage of total sales for games, never mind the 50 billion apps downloaded onto various Apple devices.
Apple added new steps in its purchasing process and more prominently displays information on how parents can prevent purchases by children. That was the end of the matter until the FTC decided to extract its own settlement. Apple CEO Tim Cook sent company employees a memo calling the commission’s case “double jeopardy,” but he said the company settled anyway to “avoid a long and distracting legal fight.” The FTC ruled that any money left over from the $32.5 million settlement would go to the agency—which raises conflict-of-interest and fairness issues.
In his dissent Mr. Wright, an expert in law and economics formerly with George Mason University, said the FTC majority ignored the legal requirement that the agency find a “substantial injury to consumers which is not reasonably avoidable” and that regulators conduct a cost-benefit analysis to ensure that any damage caused by the alleged unfair practice is “not outweighed by countervailing benefits to consumers or competition.” He estimated the rate of unauthorized purchases at 0.08% of sales—in his view, not enough harm to warrant regulatory action.
“Apple has apparently determined that most consumers do not want to experience excessive disclosures or to be inconvenienced by having to enter their passwords every time they make a purchase,” Mr. Wright observed.
In the majority opinion, FTC Chairman Edith Ramirez and Commissioner Julie Brill brushed off the objection: “Nor do we believe the required disclosure would detract in any material way from a streamlined and seamless user experience.” The commissioners could at least have asked Apple’s chief designer, Jony Ive, why he designed the process the way he did.
“With complex technology products such as computing platforms, firms generally find and address numerous problems as experience is gained with the product,” Mr. Wright wrote in his dissent. “Virtually all software evolved this way.” He noted that the FTC’s directive, which spells out how Apple’s buying process must work for the next 20 years, “is very likely to do more harm to consumers than it is to protect them.” For example, Apple already uses fingerprints to unlock its mobile phones and could do the same to authorize payments—except that would violate the terms of the FTC order, which didn’t anticipate this innovation.
In an interview, Mr. Wright called this opinion the “most problematic agency action I have seen in terms of the potential to cause harm to consumers. He added that “it demonstrates a distinct lack of regulatory humility. . . . This is a product-design case brought in the guise of alleged unfairness to consumers.”
The FTC risks ridicule for its micromanaging. “In my day, when a kid spent his parents’ money when he wasn’t supposed to, a form of indentured servitude ensued to pay off the debt,” wrote a wry reporter for Engadget.com. “These days, courtrooms and federal agencies are the parentally preferred sources of remuneration.”
Google‘s Android apps operate in a similar way to Apple’s. Banks allow customers to make multiple transactions online without re-entering passwords. So do many online retailers. Will the FTC review all their product designs, too?
Redesigning Apple products redefines regulatory arrogance. Humility from government? Too bad there’s no app for that.