Tuesday, October 20, 2020

FTC Alleges App Developer Violated COPPA by Allowing Ad Networks to Collect PI of Child-Directed Users

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Richard B. Newmanhttp://www.hinchnewman.com
Richard B. Newman is an Internet Lawyer at Hinch Newman LLP focusing on advertising law, Internet marketing compliance, regulatory defense and digital media matters. His practice involves conducting legal compliance reviews of advertising campaigns across all media channels, regularly representing clients in high-profile investigative proceedings and enforcement actions brought by the Federal Trade Commission and state attorneys general throughout the country, advertising and marketing litigation, advising on email and telemarketing best practice protocol implementation, counseling on eCommerce guidelines and promotional marketing programs, and negotiating and drafting legal agreements.

The Federal Trade Commission has announced that a developer of apps that are popular with children has agreed to pay $150,000 and to delete personal information it illegally collected from children under 13 to settle FTC allegations.

In a complaint filed on June 3, 2020 by the Department of Justice on behalf of the FTC, the FTC alleges that HyperBeard, Inc. violated the Children’s Online Privacy Protection Act Rule by allowing third-party ad networks to collect personal information in the form of persistent identifiers to track users of the company’s child-directed apps, without notifying parents or obtaining verifiable parental consent.

The ad networks allegedly used the identifiers to target ads to children using HyperBeard’s apps.

“If your app or website is directed to kids, you’ve got to make sure parents are in the loop before you collect children’s personal information,” said FTC lawyer Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “This includes allowing someone else, such as an ad network, to collect persistent identifiers, like advertising IDs or cookies, in order to serve behavioral advertising.”

The FTC complaint also names HyperBeard’s CEO and Managing Director.

COPPA requires that child-directed websites, apps and online services provide notice of their information practices and obtain parental consent prior to collecting personal information from children under 13, including the use of persistent identifiers for targeted advertising.

Many of the apps that HyperBeard offers are allegedly directed to children.  According to the FTC, these kids’ apps contain brightly colored, animated characters such as cats, dogs, bunnies, chicks, monkeys and other cartoon characters, and are described in child-friendly terms like “super cute” and “silly.” 

The FTC alleges that HyperBeard was aware that children were using its kids’ apps and promoted those same apps to children.  From early 2017 through 2019, the FTC alleges, it promoted its apps on a kids’ entertainment website, and that it published children’s books and licensed other products, including stuffed animals and block construction sets, based on its apps’ characters.

As part of the proposed settlement, the defendants are required to notify and obtain verifiable consent from parents for any child-directed app or website they offer that collects personal information from children under 13.  They are also prohibited from using or benefitting from personal data they collected from children under 13 in violation of COPPA, and must destroy that data.

The settlement also includes a judgment in the amount of $4,000,000) against the corporate defendant and individual defendant Kozachenko, jointly and severally, as a civil penalty.  The corporate defendant is ordered to pay to the FTC $150,000.  Upon such payment, the remainder of the judgment is suspended, premised upon the truthfulness, accuracy and completeness of defendants’ sworn financial statements and related documents.  The suspension of the judgment will be lifted as to corporate defendant and defendant Kozachenko if, upon motion by the FTC, the court finds that either failed to disclose any material asset, materially misstated the value of any asset, or made any other material misstatement or omission in the financial representations.

FTC Chairman Joe Simons issued a statement.  “In my opinion, an appropriate starting point for the civil penalty was HyperBeard’s gain from behavioral advertising over the relevant time period adjusted upwards by a factor to account for the likelihood of detection.  I further believe that the additional factors we consider, including the proposed defendants’ degree of culpability, history of prior related conduct, prior law enforcement actions, timeliness of corrective action, ability to pay, willfulness, and threat posed to consumers; the effect on the proposed defendants’ ability to continue to do business; and “such other matters as justice may require,” such as, cooperation with our investigation, past approaches to similar violations, and expectations of businesses and consumers, warrant the $4 million civil penalty,” Chairman Simons states.

Commissioner Noah Joshua Phillips voted no and issued a dissenting statement.  “Given the violations at issue, the harm to consumers and how we have approached other COPPA cases, my view is that the fine imposed today is too much,” Commissioner Phillips states.  “The recent push to heighten financial penalties—even where the law permits only equitable relief— has been relentless, without clear direction other than to maximize the amount in every case.  That may create the appearance of being “tough”, but it runs the risk also of being inconsistent and, in some cases, unfair or even counterproductive.”

Richard B. Newman is an FTC defense lawyer at Hinch Newman LLP.  Follow him on Twitter @FTC defense lawyer.

Informational purposes only. Not legal advice. May be considered attorney advertising.

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