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Retailers settle FTC claims
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June 29, 2000: 2:06 p.m. ET
Office Depot, Buy.com, Value America settle charges of misleading ads
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NEW YORK (CNNfn) - You've seen the ads.
The ones in the Sunday paper hawking computers for under $1,000 after rebates and other specials.
But the Federal Trade Commission says many consumers are being misled by the ads, which in fine print say that in order to qualify for the discount price, customers must enter a three-year agreement with an Internet Service Provider (ISP) which can quadruple the overall price.
On Thursday the FTC settled charges with three retailers who ran such ads for low-cost and free computers.
Two Internet-based retailers, Buy.com (BUYX: Research, Estimates) and Value America (VUSA: Research, Estimates), along with Office Depot (ODP: Research, Estimates), which operates both brick-and-mortar stores and an e-commerce site, were all charged with deceiving customers by advertising low-cost computers, but failing to make clear that a purchase required a costly three-year commitment with an ISP, the FTC said.
The ads appeared in newspapers, magazines, television infomercials, on radio, and on the Internet.
 "You shouldn't need a Ph.D 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 fact is that consumers and businesses all benefit when disclosures are prominently placed and in plain English."
The retailers said they were more than happy to work with the FTC, but defended the ads saying they did give customers a choice whether to participate in the rebate. Besides, the companies said, the promotions offered them Internet service, something they would likely need to buy for their computer anyway.
One ad offered a computer for $269, but the actual cost would exceed $1,000, nearly four times the advertised price, when the cost of the Internet service contract is included, the FTC said.
And if consumers canceled their contracts with such ISPs as CompuServe, MSN and Prodigy, they faced losing their rebates and other penalties. Some customers had to pay long-distance telephone charges to connect to the Internet through these ISPs as well, information the FTC says was either not disclosed in the advertisements or in small, difficult-to-read type.
In addition, the FTC alleged that Office Depot and Value America falsely represented that their "free" computer system offers included a monitor at no additional cost when in fact the monitor had to be purchased separately for between $140 and $200.
 "We've seen the Sunday supplements and this is a more pervasive problem than these three companies," said Joel Winston, and FTC spokesman.
Winston said the three companies were singled out because it's not feasible for the FTC to file the same charges against several other retailers allegedly guilty of the same practice.
On Thursday, the companies agreed to sign consent orders with the FTC prohibiting misleading computer ads.
All three proposed orders prohibit any misrepresentations of price or cost to consumers of any computer, computer-related product, or Internet access service. The Office Depot and Value America orders also ban misrepresentations about what is or is not included in the advertised price or cost to address the alleged false advertising about monitors.
In addition, if the companies advertise a price or rebate conditioned on the purchase of any other product or service, the proposed consent orders require the retailers to disclose both the requirement and the cost of the additional product or service.
One additional charge against Value America claims that the company failed to notify customers, as federal law requires, that if an item is not shipped within the time period they promise, the customer has the option to cancel the order, Winston said.
Therefore, the FTC will order Value America to refund several orders that are more than 10 days late, Winston said.
"We are glad we were able to work together with the FTC to resolve this issue," said Mitch Hill, chief financial officer for Buy.com. "... We felt the promotion fit well within our goal of helping customers buy better ... We feel like our customers understood the promotion and we received no complaints from customers about the advertisement being misleading."
Barry Goldstein, a spokesman for Office Depot, said the company has been working with the FTC for several months to change the ads to more clearly reflect the conditions of the promotions.
He defended the ads saying that customers have a choice whether to accept the promotion, and that the offers are simply an easy way to provide consumers Internet service, something they would need to buy anyway to access the Internet on their new computer.
 A Value America spokesperson could not immediately be reached for comment Thursday.
The FTC's Winston said the investigations came about through a combination of consumer complaints and examinations of the ads by FTC staff.
He declined to say whether more charges were forthcoming against other retailers or the ISPs, but at least hinted at the possibility.
"These cases do not charge the ISPs, and I can't comment on what we may be considering in that regard, but to the extent that the ISPs may have been involved in this deception they would certainly face any investigation we may be doing," Winston said. "This was a deal that was done in some sense jointly between the ISPs and the retailers ... "
Shares of Aliso Viejo, Calif.-based Buy.com were up 23/32 to 5-7/8 in trading Thursday afternoon.
Charlottesville, Va.-based Value America shares slipped 1/16 to 1-1/16, and Delray Beach, Fla.-based Office Depot remained unchanged at 6-1/8. 
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