Markets Wired

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 Federal Trade Commission allegations.

In a complaint filed by the Department of Justice on behalf of the FTC, the Commission alleges that HyperBeard, Inc. violated the Children’s Online Privacy Protection Act Rule (COPPA 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 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 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 Alexander Kozachenko and Managing Director Antonio Uribe.

The COPPA Rule 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 directed to children, including Axolochi, BunnyBuns, Chichens, Claberta, Clawbert, KleptoCats, KleptoCats 2, KleptoDogs, MonkeyNauts, and NomNoms, according to the FTC complaint. 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.” For example, users of the KleptoCats apps send a cartoon cat out on a mission and the cat returns with surprises that users collect in a virtual room. The apps also allow users to pet, groom, feed, and dress their virtual cats.

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, it promoted its apps on the kids’ entertainment website YayOMG. It also 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, HyperBeard, Kozachenko, and Uribe 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 includes a $4 million penalty, which will be suspended upon payment of $150,000 by HyperBeard due to its inability to pay the full amount. The full amount will be due if either the company or Kozachenko are found to have misrepresented their finances.

The Commission voted 4-1 to authorize the Department of Justice to file the complaint and stipulated final order. FTC Chairman Joe Simons issued a statement. Commissioner Noah Joshua Phillips voted no and issued a dissenting statement.

The complaint and proposed consent decree were filed in the U.S. District Court for the Northern District of California.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. Consent decrees have the force of law when approved and signed by the district court judge.

The FTC would like to thank the Better Business Bureau Children’s Advertising Review Unit and Digital Advertising Accountability Program for their referral on this matter.