Software industry braces for new phone app rules

In his office at his home in Charlotte, N.C., on Saturday, Dan Russell-Pinson demonstrates how to play Stack the States, a cellphone game about U.S. geography he created for kids. 

Associated Press

In his office at his home in Charlotte, N.C., on Saturday, Dan Russell-Pinson demonstrates how to play Stack the States, a cellphone game about U.S. geography he created for kids. 

WASHINGTON — Stack the States, a cellphone game for kids about U.S. geography, gets rave reviews from parents. Its creator, Dan Russell-Pinson, considered making the 99-cent app better by adding a feature to allow children to play online against one another. But with the Federal Trade Commission issuing more stringent online privacy rules for children, he's not even pursuing the idea.

"It would require all kinds of data sharing," said Russell-Pinson, the founder and sole employee of Freecloud Design in Charlotte, N.C. "I would be kind of afraid to do that."

The software industry is bracing for new regulations that it says will stifle creativity and saddle small businesses with legal and technical costs to ensure that their cellphone apps don't run afoul of the rules. The changes, which the FTC will announce today, would update a 14-year-old law prohibiting the collection of personal information from preteens. That raises these questions: What is the value of a child's privacy on the Internet, and who should pay for it?

Businesses said they fear that under the commission's proposal, routine transfers of data that pose no threat to a child's safety will be treated the same as the improper gathering of information that can be used to create detailed user profiles that are highly valued by advertisers. Responsible software developers will err on the side of caution, and the result will be less kid-friendly content available on the Internet, they say.

The FTC's chairman, Jon Leibowitz, defended the government's approach. "When you are talking about children, you have to give the benefit of the doubt to privacy," he said last week.

The cost of the changes to developers selling just educational apps for kids on Apple's iTunes store could be as high as $271 million — nearly 100 times what the FTC has projected for all of the businesses it expects to be newly covered, according to the Association for Competitive Technology, a Washington-based trade group that represents small and mid-sized software development companies. The FTC's estimate is "laughable," said Morgan Reed, the group's executive director.

An outlay of several thousand dollars to design the required privacy policy for an app is small change for larger, established companies. But for the bulk of developers, that's a lot of money. Most have only a few employees and operate on tight profit margins, Reed said.

The technological shift from desk-bound personal computers to wireless devices is driving the FTC's push for major revisions to the 1998 Children's Online Privacy Protection Act, known as COPPA.

The push for tougher online safeguards is supported by parents concerned about the abundance of apps and the easy access kids have to them.

As evidence of what it said is the need for updated rules, the FTC announced last week that it is investigating an unspecified number of app developers who may have violated the law by gathering information from kids without their parents' consent. The agency examined 400 apps directed at kids that it purchased from Apple's iTunes store and Google's apps store, Google Play. The majority failed to inform parents about the types of data the app could gather and who could access it, the FTC said.

The FTC has estimated that 500 existing operators of websites and online services and 125 newly formed businesses would be covered by the rule changes.

Software industry braces for new phone app rules 12/18/12 [Last modified: Tuesday, December 18, 2012 9:37pm]

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