Iomega Corporation Agrees to Pay $900,000 Civil Penalty To Settle FTC Charges It Violated Mail Order Rule

Iomega Corporation, the world's leading manufacturer of portable data storage products, has agreed to settle Federal Trade Commission charges that it violated the FTC's Mail Order Rule when it failed to fulfill rebate and merchandise premium requests for its products. The company, which is based in Roy, Utah, has agreed to pay a $900,000 civil penalty -- the largest penalty ever obtained for non-fraudulent violations of the Mail Order Rule.

"The FTC's Mail and Telephone Order Sales Rule ensures that products and services ordered through the mail and over the phone are delivered as promised to consumers," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "Iomega violated the Rule when it failed to provide refunds or promised merchandise to consumers. The Rule's protections against delayed delivery of merchandise are especially important in a rapidly developing industry."

Iomega markets a variety of computer data storage products, including the "Zip" drive, the "Jaz" drive, and the "Ditto" drive. These products, which are sold through computer retailers and large mail order houses, range in price from approximately $100 to $400, the FTC said. In addition to its large consumer market, the company supplies products to many major businesses and bundles its products with other manufacturers' computers.

According to the FTC, Iomega has sponsored numerous programs through which consumers could receive rebates, free merchandise ("premiums"), or both by purchasing Iomega products. The promotions appeared in print, at point of sale, on boxes, on the radio, and on Iomega's web site.

The FTC's complaint detailing the allegations states that Iomega violated the Mail Order Rule by:

• failing to offer consumers the option to consent to a delay or to receive a refund;
• failing to provide prompt automatic refunds or rebates when it was unable to fulfill orders on time and customers had not been given the option to agree to a delay or receive a refund;
• failing to offer buyers a cost-free means of canceling orders;
• failing to have a reasonable basis for many of its shipping representations.
• In addition, the FTC's complaint alleges that Iomega violated Section 5 of the FTC Act in the handling of its rebate and premium promotions when it failed to send promised rebates in a timely manner. Also, the company's arbitrary cancellation of a promotion and its failure to make its advertised premiums and rebates reasonably obtainable violated Section 5, the agency charged.

The proposed consent decree calls for a $900,000 civil penalty and injunctive relief that would address Iomega's violations of the Mail Order Rule and the FTC Act. It would enjoin the company from misrepresenting the shipping time of any cash rebate or service offered; failing to provide any cash rebate within the time promised, or, if no time is promised, within 30 days; and failing to provide merchandise premiums or other non-cash inducements within the time promised, or, if no time is promised within 30 days, unless Iomega offers to the buyers the option to consent to the delay or cancel the order. The consent decree also provides an incentive for Iomega to disclose the closing date for any premium offer, and would require that the company make available sufficient coupons and adequate staff telephone lines to respond to anticipated demand.

The proposed settlement also contains a number of recordkeeping and reporting requirements designed to assist the FTC in monitoring compliance with its terms.

The complaint and proposed settlement were filed today by the Department of Justice on behalf of the FTC, in the U.S. District Court for the Northern Division of Utah.

The Commission vote to refer the complaint and proposed settlement to DOJ for filing was 4-0. The FTC's San Francisco Regional Office conducted the investigation in this matter.

NOTE: This consent decree is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees have the force of law when signed by the judge.

Copies of the complaint and proposed consent decree are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

Media Contact:

(Civil Action No: 1:98CV00141C)

(FTC File No. 972 3023)