9523332
B235425

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION

In the Matter of

PRODIGY SERVICES CORPORATION, a successor corporation to Prodigy Services Company, a general partnership.

DOCKET NO. C-3788

COMPLAINT

The Federal Trade Commission, having reason to believe that Prodigy Services Company, a general partnership, which has been succeeded by Prodigy Services Corporation, a corporation, has violated the provisions of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. 41-58, as amended, as well as the Electronic Fund Transfer Act (“EFTA”), 15 U.S.C. 1693-1693r, as amended, and its implementing Regulation E, 12 C.F.R. 205, and it appearing to the Commission that this proceeding is in the public interest, alleges:

1. Prodigy Services Company was a New York general partnership comprised of two equal partners: International Business Machines Corporation and Sears, Roebuck and Company. Prodigy Services Corporation, a Delaware corporation with its principal office or place of business at 445 Hamilton Avenue, White Plains, New York 10601, is a successor corporation to Prodigy Services Company, a general partnership. Prodigy Services Company, a general partnership, and Prodigy Services Corporation, a successor corporation, shall be hereinafter collectively referred to as “Prodigy.”

2. Prodigy has developed, advertised, offered for sale, sold, and distributed to the public its online service for personal computer users. Through its online service, Prodigy has provided consumers with a range of options including electronic mail, interactive magazines and newspapers, transactional services, and access to the Internet.

3. Prodigy has been and is now engaged in the regular practice of making “electronic fund transfer[s]” from “consumer” “account[s]” as those terms are defined in the Electronic Fund Transfer Act and its implementing Regulation E.

4. The acts and practices of Prodigy alleged in this complaint have been in or affecting commerce, as “commerce” is defined in Section 4 of the Federal Trade Commission Act.

PRODIGY’S COURSE OF BUSINESS

5. Prodigy has disseminated, or has caused to be disseminated, advertisements for its online service through various media including, but not limited to, print, television, the Internet, direct mail, promotional materials, and instructional materials. These advertisements include, but are not limited to, the attached Exhibits A and B, which contain the following statements:

Exhibit A

10 free* hours

. . .

10 free hours* of prodigy to surf the internet

. . .

Free Trial!

. . .

FREE PRODIGY SOFTWARE*

. . .

FREE 1ST MONTH’S MEMBERSHIP

. . .

FREE 10 HOURS
to explore PRODIGY in your first month

The advertisement contains a statement at the bottom of the back panel, in fine print, that provides:

* This trial offer includes the first month’s membership fee and 10 free hours of trial usage the first month. Usage beyond the trial offer will result in extra fees, even during the first month. 10 free hours will not carry over into future billing months and may not be used for certain features. Some features may be charged for separately.

Offer details available during online enrollment. . . .

Exhibit B

Get 10 free hours* of Prodigy with easy Internet access!

. . .

Get 10 free hours to explore the Internet

. . .

To get free software and 10 free hours
CALL US AT 1-800-PRODIGY

. . .

After your 10 free hours, Prodigy is only $9.95
a month for 5 hours, with no extra charge for
Internet access.

The advertisement contains a statement at the bottom of the front panel, in fine print, that provides:

*This offer includes first month’s membership fee and 10 free hours of usage in the first month. Usage beyond the trial offer will result in extra fees. Some features charged for separately. . . .

6. Consumers choosing to participate in the free trial offer do so by connecting to the Prodigy service through a telecommunication modem attached to their personal computers. Upon their initial connection to the service, consumers view a series of enrollment screens which request identification and billing information, prompt them to select passwords for future access to the online service, and provide basic information about the online service.

7. At times relevant to this Complaint, the online enrollment process included a “Welcome” screen, attached as Exhibit C, that provides, in part:

Exhibit C

Welcome to the PRODIGY service.

There’s never been a better time to connect with the PRODIGY service. Live on PRODIGY, right now, you can have instant access to investment advice, sports scores, business news, travel tips, games, an encyclopedia, and so much more!

To continue with the enrollment process, consumers next must choose one of three icons or “buttons” arrayed vertically on the right side of the “Welcome” screen. These buttons provide, in descending order, the following three options: “Enroll Now,”“Plan Details,” and “Guarantee.” The “Enroll Now” button has a flashing border.

a. When consumers select the “Enroll Now” button from the “Welcome” screen, the enrollment process continues without display of either the “Plan Details” screen or the “Guarantee” screen.

b. The “Plan Details” button leads to a screen that provides:

Exhibit D

Plan Details

Prodigy offers several Membership Plans. For details about your Plan, please refer to the materials included with your software. Other plans are available online.

Certain features are priced separately and prices are designated online. Charges for extra-fee features used by your household will be billed to your account when online, Jump: fees for details about pricing.

If you have any questions, please call us at 1-800-PRODIGY

(1-800-776-3449).

From this screen, consumers next must choose one of two buttons to view another screen: “Previous Page” or “Enroll Now.” The “Previous Page” button leads back to the “Welcome” screen. Choosing the “Enroll Now” button causes the enrollment process to continue without display of the “Guarantee” screen.

c. From the “Welcome Screen,” the “Guarantee” button leads to a screen that provides:

Exhibit E

Satisfaction Guarantee

We want you to be completely satisfied with the service. If you’re not, let us know during your first month and we’ll cancel your Membership. Otherwise, we’ll automatically continue your Membership.

Other plans are available online.

From this screen, consumers next must choose one of two buttons to view another screen: “Previous Page” or “Enroll Now.” The “Previous Page” button leads back to the “Welcome” screen. Choosing the “Enroll Now” button causes the enrollment process to continue without display of the “Plan Details” screen.

8. In the course of the enrollment process, Prodigy requires consumers to choose a billing method. Consumers must provide a credit, charge, or debit card number. Alternatively, consumers may choose an automatic checking account debiting program called AutoPay. Prodigy requires consumers choosing AutoPay to submit a written authorization form before debiting their accounts. Prodigy does not require such written authorization from consumers choosing to pay by debit card.

PRODIGY’S VIOLATIONS OF SECTION 5(a) OF THE FTC ACT

9. Through the means described in Paragraphs 5 through 8, Prodigy has represented, expressly or by implication, that consumers who participate in its free trial offer will not be charged, provided only that they use the trial time within one month of their initial sign-on and do not exceed ten hours of online use.

10. In truth and in fact, consumers who participate in Prodigy’s free trial offer and do not exceed ten hours of online time during the month following their initial sign-on, but who fail to cancel their memberships during the trial period, incur charges. Therefore, the representation set forth in Paragraph 9 was, and is, false or misleading.

11. In the advertising and sale of its online service, Prodigy has represented, expressly or by implication, that consumers who participate in its free trial offer will not be charged, provided only that they use the trial time within one month of their initial sign-on and do not exceed ten hours of online use. Prodigy has failed to disclose adequately to consumers that, upon completion of ten hours of online use or one month from the date of initial sign-on, whichever is earlier, consumers who fail to contact Prodigy and cancel their trial memberships are automatically enrolled as members of Prodigy and are charged a monthly membership fee plus applicable usage fees. These fees continue to accrue until the consumers affirmatively cancel their memberships. Such facts would be material to consumers in their purchase or use of the Prodigy service. The failure to disclose these facts in light of the representation made was, and is, a deceptive practice.

PRODIGY’S VIOLATIONS OF SECTION 907 OF THE EFTA

12. As described in Paragraph 8, in the course and conduct of its business, Prodigy in many instances has debited consumers’ accounts via their debit cards without their written authorization. In addition, in the course and conduct of its business, Prodigy in many instances has failed to provide consumers with advance written notice of transfers from their accounts varying in amount from previous transfers.

13. Prodigy’s aforesaid practices violate Sections 907(a) and (b) of the Electronic Fund Transfer Act, 15 U.S.C. 1693e(a) and (b), and Sections 205.10(b) and (d) of Regulation E, 12 C.F.R. 205.10(b) and (d), as more fully set out in Section 205.10 of the Federal Reserve Board’s Official Staff Commentary to Regulation E, 12 C.F.R. 205, Supp. I.

14. The acts and practices of Prodigy as alleged in this complaint constitute deceptive acts or practices in or affecting commerce, in violation of Section 5(a) of the Federal Trade Commission Act. Such acts and practices additionally violate Sections 907(a) and (b) of the Electronic Fund Transfer Act, 15 U.S.C. 1693e(a) and (b), and Sections 205.10(b) and (d) of Regulation E, 12 C.F.R. 205.10(b) and (d).

THEREFORE, the Federal Trade Commission this sixteenth day of March, 1998, has issued this Complaint against respondent.

By the Commission, Commissioner Azcuenaga not participating.

Donald S. Clark
Secretary

SEAL: