Last week the FTC announced it had settled with mobile advertising platform Tapjoy regarding allegations that it failed to provide in-game rewards that users were promised for completing advertising offers. Commissioners Rohit Chopra and Rebecca Kelly Slaughter also issued a Joint Statement on the settlement, criticizing mobile app "gatekeepers" for excessive "rent extraction" from mobile gaming apps, which they believe has forced developers to adopt alternative - and often harmful - means of generating revenue, such as loyalty offers and loot boxes. The settlement, and particularly the separate concurrence written by Democratic Commissioners Rohit Chopra and Rebecca Slaughter, highlights the increased scrutiny over the entire mobile gaming ecosystem and the various businesses that operate within it.
Tapjoy operates a mobile advertising platform, acting as a middleman between advertisers, gamers, and game developers. The platform integrates "offers" into mobile games, promising users in-game currency and other rewards for completing the offers and promising developers a percentage of Tapjoy's advertising revenue. Advertisers pay Tapjoy for each consumer who is induced to complete an offer, which often requires users to submit personal information or spend money, for example, by purchasing a product, enrolling in a continuity program, or completing a survey. Other offer requirements may include downloading an additional app or watching a short video.
According to the FTC's complaint, however, Tapjoy failed to issue promised rewards to consumers and failed to pay developers promised advertising revenue. Specifically, the complaint alleges that Tapjoy's representations that consumers would receive a reward of virtual currency upon completion of a specific action were false and misleading and constituted a deceptive act or practice in violation of Section 5(a) of the Federal Trade Commission Act. Instead, the complaint indicates, while Tapjoy received hundreds of thousands of complaints concerning its failure to issue promised rewards - and even recognized (in internal emails) that complaints were "out of control" - the company "continued to prominently and falsely claim that it [would] always issue rewards to consumers who simply submit personal information or perform other actions."
Furthermore, the FTC found, Tapjoy adopted policies to discourage consumers from contacting Tapjoy about missing rewards. The complaint states that many consumers could not contact Tapjoy, that Tapjoy often did not respond to communications, and that Tapjoy wrongfully closed complaints as solved without action.
The FTC's proposed settlement, which was approved unanimously by all five FTC Commissioners, requires Tapjoy to more clearly and conspicuously state the terms of its offers (and require its advertisers to do so), more closely monitor consumer complaints, and more diligently track advertising partners that deliver (and fail to deliver) promised rewards. Tapjoy is prohibited from misrepresenting that consumers will receive a reward, the terms and requirements to receive a reward, or when consumers will receive a reward. Tapjoy must also provide an easy-to-use method for consumers to submit support requests. Tapjoy must also clearly and conspicuously disclose in close proximity to applicable offers that the advertiser determines whether a reward shall be issued and when consumers are likely to receive the reward. Moreover, Tapjoy must promptly investigate patterns of consumer support requests and promptly cease a promotion or offer if it is found to be noncompliant with the terms of the settlement and promptly and permanently cease to do business with any advertiser if the findings of the investigation indicate that the advertiser has committed fraud.
Commissioners Rohit Chopra and Rebecca Kelly Slaughter issued a Joint Statement criticizing Tapjoy's practices, describing them as both unfair and deceptive under the Federal Trade Commission Act. However, the two commissioners also used the settlement as a broader opportunity to discuss the mobile gaming industry and their belief that more FTC enforcement is needed in the space. In particular, Chopra and Slaughter took issue with the outsized role of mobile app "gatekeepers" in the mobile gaming industry, saying app store companies stifle innovation and "enjoy vast power to impose taxes and regulations" on the mobile gaming industry. The Joint Statement also criticized the practice of gatekeepers in barring developers from "trying to avoid this tax through offering alternative payment systems." Commissioners Chopra and Slaughter blame these practices for forcing developers to implement alternative and harmful monetization schemes that rely on surveillance, manipulation, and other harmful practices. The statement points to the rise of loot boxes and in-game surveillance to allow for "intrusive behavior advertising" as options that developers have turned to as alternative monetization models. The statement concludes with a call for broader enforcement action by the FTC to address deeper structural problems with the marketplace.
The FTC has ramped up its investigation of and study of mobile games and loot boxes in recent years, releasing a staff report in August 2020 and holding a workshop in August 2019. We wrote about these developments previously here and here. You can also read more about the regulatory risks of digital currency, loot crates, and other video game monetization strategies in our write-up here. The FTC is quickly ramping up its enforcement activity in this space. Last year, for example, the FTC brought an action against Hyperbeard, a developer of child-directed games, for allowing ad networks to surveil its users - including children - in violation of the Children's Online Privacy Protection Act. The FTC will continue to closely monitor monetization strategies in mobile games, and we will report on these developments as they occur.
Thus, the key takeaways from the Tapjoy settlement go far beyond the typical lessons as to how to properly advertise loyalty offers in the mobile gaming context or the fact that the mobile platform will be held liable for offers and rewards when it acts as a middleman between developers, advertisers, and consumers when they fail to fulfill those offers. Rather, as they have done in the past, Commissioners Chopra and Slaughter have used the Tapjoy case to advocate for a more meaningful structural examination of the monetization and reward strategies used by the mobile gaming industry.
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