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Italy Investigates Internet Companies’ Mobile App Practices

May 16, 2014

MILAN — Google Inc., Apple Inc. and Amazon.com Inc. are being investigated by an Italian regulator to determine whether the Internet giants mislead people to make purchases in mobile phone apps that are initially free to download.

The move by Italy’s Antitrust and Competition Authority comes after the European Union earlier this year called on companies to reform their use of the “freemium” model in which apps are free to download, but then later require payments that often get charged to credit cards by default. The EU says consumer confusion with the freemium model threatens the long-term health of the continent’s booming “app economy” that employs more than one million people and is forecast to produce €63 billion in total revenue in 2018, more than triple last year’s level.

The Italian regulator said Friday it is investigating whether the three U.S. Internet companies—which run stores to download apps—andGameloft, a French game developer, are misleading consumers with their use of the freemium model, which accounts for more than half of the EU online games market.

Purchases in freemium apps can include access to new levels in a game or virtual objects, such as a sword, to make the player more powerful.

“Consumers could be led to think, contrary to reality, that a game is completely free and therefore they don’t know ahead of time the game’s true cost,” the regulator said in a statement. “It appears also that there is a lack of information regarding how to exclude or limit the possibility of making a purchase inside the app.”

The EU Friday said it had been in touch with the Italian authorities and that it is continuing to work for a coordinated response to the issue.

Google, Apple and Amazon declined to comment. Gameloft didn’t respond to multiple calls seeking comment.

Europe’s app market is buoyed by large and small developers that have created such blockbusters as Angry Birds, Clash of Clans, and Candy Crush, which are all freemium apps. The app-developer workforce in the EU is expected to almost triple in the next five years to 2.8 million people, according to a study commissioned by the EU. Another two million people will be employed by 2018 in support and marketing roles.

While the €5 million maximum fine Italy’s Antitrust Authority can slap on each of the companies if they are found at fault is relatively small considering their total revenue, the regulator has had success in the past getting foreign companies to change business practices considered damaging to consumers. The regulator initially fined Apple €900,000 in 2011 for misleading consumers into paying for extended warranty plans for products that were already covered. Apple received another smaller fine before eventually changing the way it marketed its warranty plans. Apple declined to comment on that dispute.

The investigation into the practices of the four companies is likely to be concluded before the end of the year, the Italian regulator said.

(By Eric Sylvers)