On July 1, 2013, the Federal Trade Commission (“FTC”) will begin enforcement of new regulations pertaining to the Children’s Online Privacy Protection Act of 1998 (“COPPA”). For two years, regulator’s had sought to update COPPA “with the times” by expanding the law beyond its original intent – to prevent web-based companies from obtaining personal information of children without their parents’ consent. Tablet and smartphone devices have propelled the app industry into a multi-billion dollar market, but it is the mechanics of how the app industry makes its money that has regulators concerned. The business model for most app development firms is to build a product that consumers can download for free on their mobile device, and in exchange, the consumer allows software embedded into the app to be sent to a third-party data aggregator who then returns the aggregated data back to the developers for their discretional use.
Software Application firms are weary of the new rules because they fear regulatory fallout from developing a game, like Angry Birds, and being classified as a “kid app” under the new COPPA rules. Such a designation would subject the game designer to strict regulatory requirements or face civil penalties. The FTC has signaled that it will look to define what constitutes a “kids’ app” broadly, and suggests that all software firms know the law if they plan on building an app with a cartoon character in it. Enter the lessons learned in Big Tobacco…
In the mid-1990’s, Big Tobacco faced an onslaught of class action and regulatory (i.e. FTC) lawsuits that would end up changing the way the industry fundamentally advertises its products to the general public. On or about September 12, 1997, the Tobacco Industry was informed that “Joe Camel in California is dead.” The makers of the Joe Camel marketing campaign, R.J. Reynolds, repeatedly denied that it was targeting smoking to minors, and stated that the Joe Camel campaign was directed at “adults in their 20’s who choose to smoke.” However, R.J. Reynolds agreed to settle the numerous lawsuits by agreeing to a cash settlement payout and dropping the ads that depict Joe Camel.
Now one would logically ask how in the world do kid apps and the targeting of smoking to minors belong in the same discussion? The answer to that question lies in a minors’ ability to make an intelligible informed decision. For years Big Tobacco lawsuits addressed the health, safety and public welfare issues related to minors smoking, but it was not until Joe Camel was literally put on trial, that the issue of a minors’ informed consent was raised. How possible is it for a minor to distinguish between a simple cartoon character and the message that cartoon character is sending?
Similarly, App Industry advocates suggest that in order to offer free software apps, data collection about the user, like time spent on the device, is needed to ensure its long-term ability to offer targeted advertising (which is where their money is made). Additionally, app providers fear losing important third-party data aggregators, because the data aggregators don’t want to deal with the regulatory headache of COPPA. Online privacy advocates, like their predecessor anti-smoking advocates, state that the lucrative children’s technology market needs basic fundamental safeguards in place to prevent minors from being preyed upon by Big Data advertisers. Is it incredulous for app development firms to know when your child goes to sleep, eat, bathroom, etc., based on their login/logout time? Is there an expectation that a minor has the capacity to fully understand that their location may be accessed remotely via the mobile device they are walking around with? In that sense, a seven year-old boy/girl will login to Angry Birds expecting to smash pigs and hippos, and not fully comprehend the impact of his/her actions.
Stagnation is the worst thing that could happen to any organization, and never being satisfied with the status quo is what sets successful organizations apart. Application firms need to change the development process to make regulatory compliance a core part of their design programs – but is that necessarily a bad thing? Big Tobacco companies have survived now for almost 15 years without Joe Camel by adapting the strict regulatory requirements into their advertising campaigns. In this vein, software application firms are no different – at least the innovative ones. The future of the software application industry depends upon its ability to develop a product that is adaptable to emerging trends.