WASHINGTON — A cellphone game for kids about U.S. geography, “Stack the States,” 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 child privacy rules, 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 their cellphone apps don't run afoul of the rules. The changes, which the FTC will announce Wednesday, would update a 14-year-old law prohibiting the collection of personal information from preteens. It 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 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.
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 on Capitol Hill.
The cost of the changes to developers just selling 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 the businesses it expects to be newly covered, according to the Association for Competitive Technology, a Washington-based trade group that represents small and midsize software development companies. The FTC's estimate is “laughable,” said Morgan Reed, the group's executive director.
The FTC has imposed steep fines on companies that have violated the current law, the 1998 Children's Online Privacy Protection Act. In 2011, a mobile apps developer, W3 Innovations, paid $50,000 to settle charges it illegally collected and stored the email addresses of preteens that downloaded apps called “Emily's Girl World” and “Emily's Dress Up.”
The co-founder of Launchpad Toys in San Francisco, Andy Russell, said he adheres to the current law but his apps business isn't yet profitable.
“I can't speak for other developers, but I think there are a lot of people out there who would say: ‘You know what ...I'm just going to fold up shop,'” he said.