Hot Docs: Facebook may need to issue refunds for in-app purchases by minors

November 8, 2012

$ Facebook LogoLast year, I wrote about a lawsuit against Apple claiming that the company was inducing minors into racking up huge bills on in-app purchases.

This practice was facilitated by a provision in Apple’s operating systems that opened a 15-minute window after one’s Apple ID and password were entered for a purchase that the password didn’t need to be reentered to make additional purchases.

In a lawsuit filed earlier this year, two sets of parents are suing Facebook for essentially the same reason: that Facebook is inducing minors to make in-app purchases.

What’s worse, the lawsuit also alleged that Facebook stored credit card and other payment information on the minor user’s account indefinitely.

In other words, once an underage Facebook user makes an in-app purchase (or a purchase for Facebook credits), Facebook stores and associates that payment information with that users account indefinitely.

According to the lawsuit, this has led to unauthorized purchases by the children of the plaintiffs, with one set of parents claiming that their child charged over $1,000 over a roughly two month period.

The lawsuit stated a slew of causes of action against Facebook, but, luckily, I don’t have to spend time gauging how successful they will be because a judge has already ruled on Facebook’s numerous motions to dismiss them all.

First of all, what the parents sought was the disaffirming of their kids’ contracts with Facebook.

Here’s why the contracts are voidable.

Under California law, “one who provides a minor with goods and services does so at her own risk” because “a contract of a minor may be disaffirmed by the minor before majority or within a reasonable time afterwards.”

Worse yet for those who enter into contracts with minors, the minor can keep any benefit of the contract after disavowal.

In this case, this means that, should the court grant the disavowal of the minor’s contract with Facebook, the minor can keep all of his or her in-app purchases and Facebook credits, but Facebook must issue a full refund.

You can see why entering into a contract with a minor is “at your own risk” in California.

Hot Doc: I.B. ex rel. Fife v. Facebook Inc.

Source: Thomson Reuters News & Insight – National Litigation

The court dismissed the plaintiff parents’ claims to disaffirm the minors’ contracts.

This wasn’t because the court believed that the minor’s contracts couldn’t be disaffirmed (i.e. voided), but because the parents don’t have a separate cause of action when they aren’t suing on behalf of the minors.

Other than that claim, the numerous others – including several unfair business practice allegations – were either dismissed with leave to amend (“go back and try again”) or left standing.

First and foremost among the claims left standing is the minors’ claims – not their parents’ – to disaffirm their contracts with Facebook.

The court seemed to agree clearly with the plaintiffs’ arguments that the minors’ contracts with Facebook were voidable, even though the minors had already fully reaped the benefits of the contract.

With such a low figure for damages, why is Facebook fighting this so strongly?

First, because the lawsuit is seeking class action status.

Second (which is somewhat related to the first), Facebook probably generates quite a bit of income from in-app game purchases by users under eighteen years old.

If it suddenly had to issue refunds for all of these purchases, that would spell quite a bit of trouble for Facebook.

If the court’s opinion on these motions to dismiss is of any indication to the suit’s future success, however, Facebook may want to rethink its practices in regards to purchases by minors.