The Federal Trade Commission (“FTC”) announced its latest Children’s Online Privacy Protection Act (“COPPA”) settlement with California-based app developer HyperBeard and its individual principals. According to the FTC, since at least 2016, HyperBeard has offered a number of child-directed mobile apps, with names like BunnyBuns, KleptoCats and NomNoms that featured brightly colored, animated characters, such as cats, dogs, bunnies, chicks, monkeys and other cartoon characters, and that are described in child-friendly terms like “super cute” and “silly.” These apps are free to download and play, but they generate revenue through in-app advertising and purchases. The FTC alleges that the defendants were aware that children were using their apps, and that they promoted them to child audiences on a kids’ entertainment website, through children’s books and through the merchandizing of officially licensed plush stuffed animals and toys. Defendants allowed third-party ad networks to collect persistent identifiers from children in order to serve them with interest-based ads without parental notice or consent, in violation of COPPA.
The FTC’s settlement requires the defendants to notify and obtain verifiable parental consent for any child-directed app or online service they operate that collects personal information from children under age 13. They also are prohibited from using or benefitting from any data previously collected from children, and must destroy such data. In addition, the settlement levies a $4 million civil penalty, a large portion of which is suspended upon payment of $150,000 but will be reinstated if the defendants are found to have misrepresented their financial condition.
The Commission voted 4-1 to accept the agreement, with Commissioner Noah Phillips dissenting. Commissioner Phillips argued that the $4 million penalty was too large, and that from a standpoint of harm, “HyperBeard app users (children, we presume) viewed advertisements based on the collection of persistent identifiers. Under the COPPA Rule, that is something but it is not everything.” FTC Chairman Joe Simons countered that “the goal of the civil penalty should be to make compliance more attractive than violation. Said another way, violation should not be more profitable than compliance.” He added, “[c]ivil penalties will be an ongoing discussion here at the FTC as we attempt to do justice and achieve meaningful relief for consumers.”