On January 7, the Federal Trade Commission (“FTC”) reached a proposed settlement with Tapjoy, a California-based company that operates an advertising platform within mobile gaming applications.  According to its complaint, the FTC alleges that Tapjoy deceived consumers by failing to provide in-game rewards it promised for completing actions associated with third-party advertisements.

Tapjoy’s platform offers virtual currency to consumers for completing various activities, which include purchasing in-game items, watching videos, and completing surveys.  Consumers can then spend the currency on in-app content from publishers.  Consumers frequently incur charges or divulge personal information, including contact information and sensitive health information, to the third-party advertisers through this system.

The FTC’s complaint alleges that Tapjoy deceived consumers about the rewards they could earn for completing the advertising offers.  The company received hundreds of thousands of complaints from consumers who said they never obtained their promised rewards despite having completed the required actions.  Tapjoy was allegedly aware as far back as July 2016 that “too many users [were] simply not getting rewarded.”  Moreover, many users allegedly discovered that the information they divulged was sold by Tapjoy’s advertisers to third-party marketers.  This deceptive conduct allegedly violates Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.”

The FTC further alleges that the company did not take adequate steps to address the problems or stop making deceptive claims.  Instead, Tapjoy adopted policies to actively discourage customer service inquiries, including prohibiting consumers from submitting a complaint within 24 hours of completing an offer.  Tapjoy also failed to respond to many customers who were able to submit a complaint.

The proposed consent order prohibits Tapjoy from misrepresenting the rewards it offers and requires the company clearly and conspicuously display the terms under which consumers can receive them.  Additionally, Tapjoy must specify to consumers that the third-party advertisers are the ones that determine if rewards should be issued.  And it must monitor its advertisers to ensure they actually deliver the promised rewards.

Tapjoy is also required to provide an easy-to-use method by which consumers can submit support requests and promptly investigate any complaints it receives.  If Tapjoy learns through an investigation that an advertiser has committed fraud or that there is a pattern of failures with the delivery of rewards, Tapjoy must cease doing business with that advertiser.

Finally, Tapjoy is subject to compliance and recordkeeping obligations for a period of 10 years.

The FTC voted 5-0 to issue the proposed administrative complaint and accept the consent agreement.  The agreement is subject to public comment for 30 days following publication in the Federal Register, after which the Commission will decide whether to make the proposed consent order final.

Commissioners Rohit Chopra and Rebecca Kelly Slaughter issued a joint statement discussing the current scrutiny of the mobile gaming industry and the potential downstream harms to consumers.  Notably, they emphasized the importance of holding “middlemen” like Tapjoy liable for practices that can harm consumers and developers.

More information on Tapjoy’s settlement with the FTC can be found here.