Fortnite Maker to Pay $520 Million in FTC Probe

Epic Games, developer of the popular online game Fortnite, has agreed to pay $520 million in penalties and consumer refunds to settle allegations by the U.S. Federal Trade Commission (FTC) that the game violated children's privacy protections and duped players into making unintended in-game purchases.

Epic will pay a record $275 million penalty for alleged violations of the Children's Online Privacy Protection Act (COPPA) under the settlement. The company also agreed to refund $245 million to consumers allegedly tricked into making unintended purchases while playing Fortnite.

According to the FTC, Epic executives knew within months of Fortnite's 2017 launch that the game's default voice and privacy settings risked enabling harassment and exploitation of children by adults, yet refused to modify them, leading to numerous "reports of predators blackmailing, extorting, or coercing children and teens they met through Fortnite into sharing explicit images or meeting offline for sexual activity." The game also exposed children to "dangerous and psychologically traumatizing issues, such as suicide and self-harm," the FTC said.

The agency also alleged Fortnite illegally collected personal data on children under the age of 13 without the permission of their parents. As part of a settlement, Epic agreed to adopt new privacy protections for children and teens playing Fortnite, including turning off their voice and text communications by default, according to the FTC.

Fortnite is among the most popular online multiplayer games, with more than 350 million registered users and 80 million monthly active users as of 2020, and millions playing the game online simultaneously. Epic was valued at $31.5 billion in its last funding round in April, which raised $2 billion. The North Carolina-based company has received investment from the likes of Sony (SNE), Walt Disney (DIS), and Tencent.

"No developer creates a game with the intention of ending up here, " Epic said in a statement addressing the settlement. "The old status quo for in-game commerce and privacy has changed, and many developer practices should be reconsidered." At the same time, "the practices referenced in the FTC’s complaints are not how Fortnite operates," Epic said.

The FTC alleged that "Fortnite’s counterintuitive, inconsistent, and confusing button configuration led players to incur unwanted charges based on the press of a single button," and that players who disputed charges had their accounts locked, and were warned that any future charge disputes could result in a permanent ban. The company also allowed children to rack up charges on their parents' credit cards for in-game purchases without authorization. Consumers who suffered such abuses can seek refunds from the settlement after signing up on a dedicated FTC page.

Epic's $275 million fine for children's privacy violations tops the $170 million penalty Alphabet (GOOG, GOOGL) subsidiary YouTube agreed to pay in 2019. Earlier in 2019, TikTok agreed to pay a $5.7 million fine over similar allegations. Last month, the FTC announced a $100 million settlement with internet phone service provider Vonage over "junk" fees and obstacles placed in the way of consumers trying to cancel the service.

Under FTC Chair Lina Khan, the agency has taken an increasingly active role in regulating large tech companies. On Dec. 8, the commission said it would seek to block Microsoft's (MSFT) pending acquisition of games publisher Activision Blizzard (ATVI) because it would harm competition.