Amazon, the FTC and the dark art of corporate secrecy in court

April 28, 2016

(Reuters) – The court system in this country is supposed to be open to the public. That’s a core principle, codified in the First Amendment and centuries of common law. Yet American corporations constantly push to restrict access to court records. Once in a while, media organizations or public interest groups get involved and orders to seal turn into First Amendment blowouts, but those cases are increasingly likely to be exceptions. Far more often, no one stands up in opposition when a corporation asks to seal or redact court filings.

A summary judgment opinion issued Wednesday in a Federal Trade Commission case against Amazon is the latest example of what these routine deletions cost the public. As my Reuters colleagues Diane Bartz and Dan Levine reported, U.S. District Judge John Coughenour of Seattle determined that Amazon is liable to the parents of children who bought items like “a boatload of doughnuts, a can of stars, and bars of gold” while playing supposedly free apps.

Exact damages are still to be decided, the judge said, “but the millions of dollars billed to Amazon customers without a mechanism for consent, the thousands of customers complaining about unauthorized charges, and the time spent seeking refunds for those charges, all demonstrate substantial injury.”

And Amazon’s strategy was no accident, according to the opinion. When it developed the Kindle Fire tablet, Amazon targeted “soccer parents” as a key customer base, describing them as “low-hanging fruit.” In a marketing document discussing in-app purchases, which the opinion cites, Amazon admitted it knew children were spending their parents’ real money on in-app purchases without their parents’ knowledge. “As one Amazon employee explained, ‘If a parent gives the device to a child and the child is playing the game and they – they just decide, you know, outside of the parent’s view or whatever, to purchase, they could do that,'” Judge Coughenour wrote.

Within a couple months of Amazon’s launch of in-app purchasing in late 2011, parents were complaining in droves. Amazon fielded 11,110 requests for refunds, the opinion said, prompting an Amazon employee to state the obvious: “We’re clearly causing problems for a large percentage of our customers.”

You wouldn’t know any of the details in the preceding three paragraphs if you just read the public version of the opinion Judge Coughenour issued Wednesday. They’ve all been blacked out. It’s only because of a glitch in the execution of the redactions that we’re able to see the text beneath the black redaction tape. (As other sites have explained, the redacted text appears if you copy the opinion and paste it into a Word file.) After word of the glitch got out, the judge’s chambers pulled the redacted opinion from the court’s electronic docket.

I could not ascertain who decided what to black out in Judge Coughenour’s opinion. I emailed FTC counsel, Amazon lawyers from Venable and Perkins Coie and Judge Coughenour’s courtroom deputy to ask; I heard back only from J. Douglas Baldridge of Venable, who declined to comment. Several months into the case, which was filed in 2014, Amazon and the FTC jointly proposed an order to keep supposedly confidential discovery materials under seal. The judge signed the order in January 2015.

Later in the case, when both sides filed motions for summary judgment, Amazon and the FTC each asked the judge to keep some accompanying exhibits confidential. Both requests involved material Amazon wanted to keep under wraps; the FTC doesn’t seem to have protested Amazon’s assertion that internal corporate memos cited in the government’s summary judgment brief should be sealed.

Judge Coughenour’s sealing orders duly noted the presumption of public access but nevertheless granted the Amazon and FTC confidentiality motions. Corporate “strategic planning and financial information,” he said, is “of a sensitive enough nature that it outweighs the de minimus public interest in access.”

Really? A “de minimus public interest” in the details of Amazon’s corporate strategy to entice children to spend millions of dollars of their unwitting parents’ money in order to play supposedly free games? Amazon has now eliminated unauthorized in-app purchases on all devices except its obsolete first-generation Kindles, as Judge Coughenour acknowledged when he said the FTC is not entitled to an injunction against Amazon. Corporate documents debating a now-abandoned strategy don’t reveal anything useful to Amazon competitors. They are just embarrassing for Amazon.

The 4th U.S. Circuit Court of Appeals said in its magisterial Company Doe ruling in 2014, a corporation has no right to claim secrecy just because court filings might damage its reputation – no more than, say, the would-be adulterers who wanted to keep their names out of a class action against the Ashley Madison website.

Amazon and the FTC are at odds over the FTC’s damages model, which estimated Amazon’s revenue from unauthorized in-app purchases to be $86 million, based on an extrapolation involving failed password entries. Amazon says that model is completely unreliable. The judge has ordered additional briefing. But he has already concluded – in words the public was not intended to see – that Amazon caused millions of dollars of injury to thousands of customers. That seems like more than a “de minimus” public interest.

Amazon competitors Google and Apple stayed out of court when the FTC accused them of similarly luring kids to buy fake glittery game currency with real money. Apple settled for at least $32.5 million in January 2014; Google consented to a $19 million settlement the following September. The FTC filed its complaint against Amazon in July 2014, between the Apple and Google settlements. It’s a safe assumption that Amazon and the FTC also had pre-suit settlement talks but, unlike Apple and Google, decided to take its chances in court.

Had Amazon settled with the FTC before its case went to litigation, it could have kept its awkward documents out of public view. The company wanted to have things both ways – to go to court and keep ticklish materials under seal. It very nearly got what it wanted.

The Knight Foundation reported earlier this month that the journalism industry is too financially strapped to lead the First Amendment fight for access to court records. Public interest groups also have limited resources. That leaves judges as the guardians of the public’s right to know – a burden too many judges shrug off.

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