Shouldn't the update be free if I have Lion?

I'm being asked to pay $14.99 for the update. I got Lion as soon as it came out. Shouldn't it include updates to iPhoto?

No.
Lion is the Operating System. The iLife apps are not part of the Operatign System. If you want to upgrade to a later version of iPhoto (from 09 to 11, for instance) it requires a purchase.
Regards
TD

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