The Federal Trade Commission said Thursday it has settled with mobile advertising company Tapjoy over claims it used false advertising offers for the promise of in-game rewards that weren't given.
But regulators also said Apple and Google helped create the environment that squeezes mobile gaming industry players and incentivizes them to find other monetization models that may have unsavory consequences for consumers.
Tapjoy runs a platform that lets users complete activities, like signing up for a free trial or downloading and running an app, in exchange for in-game virtual currency. It earns commissions from third-party advertisers who want to entice users to perform these tasks.
The FTC said in a statement that hundreds of thousands consumers complained they had never received promised awards. Some spent "significant [amounts] of money completing various Tapjoy offers" or revealed sensitive information like medical history or contact information.
Democratic Commissioners Rohit Chopra and Rebecca Kelly Slaughter said in a statement they sought to address the conduct of Tapjoy against the backdrop of massive growth of the mobile gaming market.
"It appears that Tapjoy amplified false offers by its business partners, who baited gamers with big rewards only to cheat them when it was time to pay up," they wrote. "Tapjoy did little to clean up the mess, even when hundreds of thousands of gamers filed complaints. This also harmed developers of mobile games, who were cheated of advertising revenue they were entitled to."
But the commissioners widened their criticism in their statement, saying Tapjoy was "a minnow next to the gatekeeping giants of the mobile gaming industry, Apple and Google."
"By controlling the dominant app stores, these firms enjoy vast power to impose taxes and regulations on the mobile gaming industry, which was generating nearly $70 billion annually even before the pandemic," they said.
The commissioners added that those "gatekeepers" can harm developers and innovation, and that under "heavy taxation" from those major players, developers have been pushed to "alternative monetization models that rely on surveillance, manipulation, and other harmful practices."
Both Apple and Google charge up to 30% for sales through their platforms, with a few exceptions.
"By offering a platform connecting advertisers, gamers, and game developers, Tapjoy allows these developers to generate advertising revenue that Apple and Google do not tax," the statement reads. "But this monetization model also creates opportunities for fraud…"
Both companies have faced legal action over their mobile app store fees, which outspoken developers have complained are exorbitant. One such developer is Epic Games, which filed suit against both companies, claiming they engage in anticompetitive practices. Apple filed a countersuit. Google also faces separate antitrust suits from the Justice Department and several coalitions of states.
Apple pointed to CEO Tim Cook's congressional testimony last year, where he said, "for the vast majority of apps on the App Store, developers keep 100 percent of the money they make. The only apps that are subject to a commission are those where the developer acquires a customer on an Apple device and where the features or services would be experienced and consumed on an Apple device."
Google declined to comment.
The proposed settlement bans Tapjoy from misrepresenting the rewards and terms it offers, and must also monitor its advertisers to ensure they're following through on promised rewards. The FTC said when it issues a consent order on a final basis, it carries the force of law for future actions, and said each violation of such orders can result in penalties of up to $43,280.
In a statement, Tapjoy's CEO Jeff Drobick said the FTC had raised concerns about its reward delivery back in 2017.
"Over the past 3 years, we have enhanced the rewarding process and customer interaction, and worked to reach a resolution that we believe benefits consumers, Tapjoy's partners, and our business overall," he said in an emailed statement. "In accordance with our agreement with the FTC, we will further increase our efforts with advertisers to improve the clarity and transparency of their offers, and we will add enhancements to our offer testing and reward monitoring processes."
The commission voted 5-0 in favor of the settlement with Tapjoy, but the statement targeting Apple and Google included only the Democratic commissioners' names. Those commissioners will soon have more sway in the agency when a third Democrat is confirmed to the panel.
It's unclear when exactly that would happen, though it's common for FTC chairs to vacate their posts around presidential transitions. While a new chair or commissioner (if one of the current Democrats is elevated to the chairmanship) will need to be confirmed by the Senate, that process may be smoother than initially expected as Democrats are projected to secure a slim majority in the chamber.