Garen Meguerian and a team of lawyers are taking Apple to task for "inducing" children to spend hundreds of dollars of their parents' money on in-app game purchases. Meguerian filed a class-action lawsuit this week in California acknowledging that Apple has already addressed the problem, but saying that the company continues to unfairly profit from sales of virtual "smurfberries" and "fish bucks."

The issue at hand is related to games that rely on a "freemium" business model, giving away the game for free on the App Store and relying on in-app purchases of virtual currency, extra levels, or other add-ons as a revenue stream. Parents ran into problems with this model when some games, ostensibly geared toward kids (such as Smurfs' Village or Tap Fish), relied on in-app purchases of in-game virtual currency to do many tasks. For instance, players in Smurfs' Village can buy bundles of "smurfberries"—a whole wagon-full runs $99.99—to trade for plants to farm or materials to build a Smurf hut. Tap Fish players can buy "fish bucks" to buy new exotic fish, food, or other virtual aquarium accoutrements.

Making in-app purchases normally requires an iTunes Store password, but older versions of iOS offered a 15-minute window after entering your password that allowed users to make additional purchases without another password prompt. Some parents entered their passwords so a child could download a "free" game from the App Store, only to discover that their kids ended up making hundreds of dollars of in-app purchases without their knowledge. And if the parent shared the iTunes password to avoid the minor hassle of entering it themselves, children could make in-app purchases with reckless abandon—all which ended up being charged to parents' credit cards or PayPal accounts.

Some parents were able to get Apple to refund the charges if they complained loudly enough to iTunes customer service, but their complaints also reached the desk of US Representative Edward Markey (D-MA), who asked the FTC to look into the issue. "Companies shouldn’t be able to use Smurfs and snowflakes and zoos as online ATMs pulling money from the pockets of unsuspecting parents," Markey said in a statement accompanying his letter to the FTC.

The FTC ultimately agreed to look into the matter further. "We fully share your concern that consumers, particularly children, are unlikely to understand the ramifications of these types of purchases," FTC Chairman Jon Leibowitz said in his response to Markey.

Apple had long included an option in iOS's Parental Controls that could disable in-app purchases, but last month, the company added a separate password requirement for in-app purchases to iOS 4.3. After entering a password to purchase an app from the App Store, the password now has to be reentered in order to make any initial in-app purchases. In-app purchasing uses its own separate 15 minute timer, so users don't have to constantly reenter their passwords for continued in-app purchases. Developers of many games that rely on in-app purchases have also added a warning for parents unaware of the practice.

While Meguerian's class-action suit explicitly acknowledges Apple's remedies, it also seems to suggest that Apple is complicit in "selling Game Currency to children." It also claims that Apple continues to sell in-app purchases to children—though it requires a parent to hand over the iTunes Store password to do so—"garnering millions of dollars of ill-gotten gains."

Any "inducement" to buy in-app purchases seems more likely to be the culpability of an app's developers, and parents are ultimately responsible if they give out their iTunes Store passwords to their kids. But the lawsuit suggests Apple is the responsible party since it approves the apps for sale and facilitates the in-app purchase mechanism.

Regardless of the legal merits of the lawsuit, it's worth pointing out that there is an easier solution to the problem if you're a parent and your kids use an iOS device: create a separate account for them. The account can be set up without connecting to a credit card, and instead relies on a monthly allowance or iTunes gift cards. Once a child uses the allowance or gift credit, he or she won't be able to spend any more of mom and dad's money without their approval.