Retailers Settle FTC Claims of Deceptive Advertising for PCs
WASHINGTON — Two online retailers and the biggest U.S. office-supply chain have reached an agreement with the Federal Trade Commission to settle allegations that their advertisements promoting “free” and “low-cost” computer systems were deceptive and misleading.
The FTC said that Buy.com Inc., Value America Inc. and Office Depot Inc. often failed to disclose that these deals involved rebates and to get the rebates, consumers often had to purchase three years of Internet service at a cost that could far exceed the amount saved through the offer.
In the FTC’s complaint against Aliso Viejo-based Buy.com, the commission took issue with both print and online ads that advertised a Compaq computer at $269. At the bottom of some of the ads, the company said that the $269 cost included two rebates--one from Compaq and one from Compuserve in exchange for three years of service at $21.95 a month. In other ads, there was no disclosure of the rebates.
The FTC also took issue with the fact that CompuServe does not have local access phone numbers in all areas, so users may have to pay a long-distance charge.
The FTC also faulted the companies for failing to note in the ads that consumers who canceled their Internet contracts before the three years was up could face substantial penalties--and have to repay the rebate as well.
“You shouldn’t need a PhD to figure out the cost of a PC,” said Jodie Bernstein, director of the FTC’s Bureau of Consumer Protection. “These advertisers should have done a better job of disclosing the details so consumers could figure out the deal.”
The agreement does not mean that the companies pleaded guilty to any crime. The agreement is expected to take effect July 31. If the companies continue their controversial advertising after then, they will be subject to substantial fines.
The three companies have agreed to prominently disclose the rebate information--the true costs and any important restrictions--in their future advertising.
Buy.com, one of the top five e-commerce companies, with 1999 revenue of about $600 million, said in a statement that it thought customers understood the intricacies of the deal, and that they received no customer complaints.
“We are glad we were able to work together with the FTC to resolve this issue,” said Mitch Hill, Buy.com’s chief financial officer. “As soon as we became aware of the concern with the computer advertisement, Buy.com pulled the ads to eliminate the possibility of any potential confusion.”
A statement from Charlottesville, Va.-based Value America said that it would change its practices “to ensure consumers are able to make better informed decisions about purchases involving price rebates.”
The FTC also alleged that both Value America and Office Depot advertised that their “free” computer system offer included a free monitor. The monitor had to be bought separately.
FTC officials said they hoped the agreement with the three companies would send a signal to other retailers who are making similar advertising claims.
“The goal of these cases is to send a message on what an advertiser’s obligations are,” said Joel Winston, assistant director of the FTC’s division of advertising practices.
“You can’t bury the obligations and costs in footnotes that require a magnifying glass to see.”
Office Depot Chief Financial Officer Barry Goldstein said his company’s ads were in line with retail industry ad practices.
“We’re in the same position as every other retailer,” he said.
Shares of Delray Beach, Fla.-based Office Depot, with 836 stores in the U.S. and Canada, were unchanged at $6.13 on the New York Stock Exchange. In Nasdaq trading, Buy.com shares rose 72 cents, or 14%, to $5.88, partly on the news that it is expanding its licensing program; and Value America shares fell 6 cents to close at $1.06.
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Associated Press, Bloomberg News and Washington Post were used in compiling this report.
