FRANK W. HUNGER
Assistant Attorney General
Civil Division

U.S. Department of Justice

PAUL M. WARNER
United States Attorney

EUGENE THIROLF, Director
Office of Consumer Litigation
Civil Division
U.S. Department of Justice

ELIZABETH STEIN, Attorney
Office of Consumer Litigation
Civil Division
U.S. Department of Justice
Assistant United States Attorney

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, NORTHERN DIVISION

UNITED STATES OF AMERICA, Plaintiff,

vs.

IOMEGA CORPORATION, Defendant

No.

COMPLAINT FOR CIVILPENALTIES,
INJUNCTIVE AND OTHER RELIEF

Plaintiff, the United States of America, acting upon notification and authorization to the Attorney General by the Federal Trade Commission ("Commission"), for its complaint alleges that:

1. Plaintiff brings this action under Sections 5(a)(1), 5(m)(1)(A), 9, 13(b) and 16(a) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. 45(a)(1), 45(m)(1)(A), 49, 53(b) and 56(a), to obtain monetary civil penalties and injunctive and other relief for defendant's violations of the Commission's Trade Regulation Rule Concerning the Sale of Mail or Telephone Order Merchandise (the “Mail Order Rule” or “Rule”), 16 C.F.R. Part 435, and injunctive relief for violations of Section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. 45(a)(1).

JURISDICTION AND VENUE

2. This Court has jurisdiction over this matter under 28 U.S.C. 1331, 1337(a), 1345, and 1355 and under 15 U.S.C. 45(m)(1)(A), 49, 53(b) and 56(a). This action arises under 15 U.S.C. 45(a)(1).

3. Venue in the District of Utah is proper under 15 U.S.C. 53(b) and under 28 U.S.C. 1391(b-c) and 1395(a).

DEFENDANT

4. Defendant Iomega Corporation is a Delaware corporation with its office and principal place of business located within the District of Utah at 1821 West Iomega Way, Roy, Utah 84067. Iomega Corporation transacts business in the District of Utah.

UNFAIR OR DECEPTIVE ACTS OR PRACTICES

IN VIOLATION OF THE FTC ACT

5. Section 5(a) of the FTC Act, 15 U.S.C. 45(a), provides that "unfair or deceptive acts or practices in or affecting commerce are hereby declared unlawful."

6. Defendant advertises, offers for sale, sells and distributes personal computer products, including the "Zip Drive," the "Ditto Drive," the "Jaz Drive," and "Zip Disks." These products are designed to allow personal computer users to copy and/or store computer files to a location away from the computer's hard disk drive either to expand the computer's storage capabilities or as security in case of loss of data from the hard disk drive. In addition, as an inducement to prospective customers, defendant has sponsored promotions offering to certain purchasers of these products a cash rebate, merchandise premium, or both. Among these promotions have been "Hold Everything," "Triple Your Stuff," "Netscape Registration Card," and "Multi-item Registration Card."

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

8. Defendant has disseminated or has caused to be disseminated advertisements for its storage products for personal computers, including the Zip Drive, the Ditto Drive, the Jaz Drive, and Zip Disks, including but not limited to the attached Exhibits A through D, which contain the following statements and depictions:

a. "HOLD EVERYTHING OFFER

$50 mail-in rebate on any Iomega Zip drive

$20 mail-in rebate on any 10 Iomega Zip disks or Giga-pack

Buy both and get 1 carrying case and 2 caddies free (a $50 value)

. . . .

Allow 4-6 weeks for delivery"

Exhibit A (In-store coupon for "Hold Everything" offer)

b. "ZipTM Drive Offer:

Buy one (1) Iomega branded Zip Drive....

Receive by mail either (check one):

more than a $150 value 'Game Pack-to-Go' bundle....

or

a $50 Rebate....

ZipTM Disk Offer:

Buy one (1) Iomega branded Zip Disk 10-Pack....

Receive by mail either (check one):

more than a $150 value 'Net Stuff Organizer' bundle....

or

a $20 Rebate

. . . .

Allow 6-8 weeks for delivery"

Exhibit B (In-store coupon for "Triple Your Stuff" offer)

c. "Surf the Net FREE with Netscape NavigatorTM through Earthlink's total access

Plus the Official Guide to Netscape NavigatorTM 2.0....

Send enclosed registration card to receive your FREE CD ROM valued at $60"

Exhibit C (In-store advertisement for "Netscape Registration Card" offer)

d. "Get Your stuff together!

Fabulous Freebies

Choose Yours Today!

Get your schedule together....(Retail value: $99)

Great stuff, great shirt....(Retail value: $14.95)

Portable stuff organizer....(Retail value: $14.95)....

Send us your completed Iomega registration card...."

Exhibit D ( advertisement for "Multi-item Registration Card" offer)

9. Through the means described in Paragraph 8, defendant has represented, expressly or by implication, that purchasers of the Zip Drive, the Ditto Drive, the Jaz Drive, or Zip Disks would receive a cash rebate, merchandise premium, or both, within the times stated in the advertisements, or, where no time was stated in the advertisements, within a reasonable period of time.

10. In truth and in fact, in numerous instances, purchasers of the Zip Drive, the Ditto Drive, the Jaz Drive, or Zip Disks did not receive a cash rebate, merchandise premium, or both within the times stated in the advertisements, or, where no time was stated in the advertisements, within a reasonable period of time. In many instances, consumers did not receive the cash rebate, merchandise premium, or both for over one year. Therefore, the representation set forth in Paragraph 9 was and is false and misleading and constitutes an unfair or deceptive act or practice in violation of Section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1).

11. Through the means described in Paragraph 8, including but not necessarily limited to Exhibit C, defendant has represented, expressly or by implication, that purchasers of the Zip Drive, the Ditto Drive, or the Jaz Drive who participated in the Netscape Registration Card promotion would have a reasonable period of time within which to claim the offered merchandise premium.

12. In truth and in fact, in numerous instances, purchasers of the Zip Drive, the Ditto Drive, or the Jaz Drive who participated in the "Netscape Registration Card" promotion did not have a reasonable period of time within which to claim the offered merchandise premium. Defendant's Netscape Registration Card promotion represented that consumers purchasing one of these Iomega drive would receive the offered merchandise premium after submitting the registration card for the product. Defendant's promotional materials did not state an end date for the offer. Defendant, however, did not honor requests received after December 31, 1996, although it would have been reasonable to expect that a significant number of product boxes advertising the promotion remained in retail circulation at that time. In addition, at the time defendant stopped honoring such requests, defendant knew that significant numbers of consumers were still responding to the promotion. Defendant denied approximately 15,000 "Netscape Registration Card promotion requests as untimely. Therefore, the representation set forth in Paragraph 11 was and is false and misleading and constitutes an unfair or deceptive act or practice in violation of Section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1).

13. Through the means described in Paragraph 8, defendant has represented, expressly or by implication, that cash rebates and merchandise premiums offered in connection with the purchase of defendant's products were reasonably obtainable.

14. In truth and in fact, in numerous instances, cash rebates and merchandise premiums offered in connection with the purchase of defendant's products were not reasonably obtainable. For example, coupons required to receive cash rebates and merchandise premiums were not available at retail outlets during significant portions of several promotions. In addition, defendant did not adequately staff its telephone lines to handle inquiries from consumers unable to obtain the necessary coupons, even though it had notice that numerous consumers were having difficulty obtaining the coupons. Moreover, numerous legitimate requests for cash rebates or merchandise premiums were misplaced or processed incorrectly, resulting in the denial of such requests. Therefore, the representation set forth in Paragraph 13 was and is false and misleading and constitutes an unfair or deceptive act or practice in violation of Section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1).

THE MAIL ORDER RULE

15. The Mail Order Rule was promulgated by the Commission on October 22, 1975, under the FTC Act, 15 U.S.C. 41 et seq., and has been in full force and effect since that date. The Commission amended the Rule on September 21, 1993, under Section 18 of the FTC Act, 15 U.S.C. 57a, and these amendments became effective on March 1, 1994.

VIOLATIONS OF THE MAIL ORDER RULE

16. At all times material herein, defendant has engaged in the mail order sale and telephone order sale of personal computer products in commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. 44.

17. In numerous instances, after having solicited mail orders and telephone orders for merchandise and received "properly completed orders," as that term is defined in Section 435.2(d) of the Mail Order Rule, 16 C.F.R. 435.2(d), and having been unable to ship some or all of the ordered merchandise to the buyer within the Mail Order Rule's applicable time, as set out in Section 435.1(a)(1) of the Mail Order Rule, 16 C.F.R. 435.1(a)(1) (the "applicable time"), defendant has violated the Mail Order Rule by:

a. Soliciting orders for the sale of telephone or mail order merchandise when it had no reasonable basis to expect that it would be able to ship some or all of such merchandise within the time stated in the solicitation or, if no time was stated clearly and conspicuously in the solicitation, within thirty (30) days after receipt of a properly completed order, thereby violating 16 C.F.R. 435.1(a)(1);
 
b. Providing to the buyer a revised shipping date when it had no reasonable basis for making such representation, thereby violating 16 C.F.R. 435.1(a)(2);
 
c. Failing to offer to the buyer, clearly and conspicuously and without prior demand, an option either to consent to a delay in shipping or to cancel the order and receive a prompt refund, thereby violating 16 C.F.R. 435.1(b)(1);
 
d. Failing to offer to the buyer a prepaid means of exercising the buyer's options as described in 16 C.F.R. 435.1(b)(1), thereby violating 16 C.F.R. 435.1(b)(3); and
 
e. Having failed to offer the option to consent to a delay or to cancel the order and receive a prompt refund, as required by 16 C.F.R. 435.1(b)(1), and also having failed to ship the merchandise within the applicable time, failing to deem the order canceled and to make a prompt refund, thereby violating 16 C.F.R. 435.1(c)(5).

18. Pursuant to Section 18(d)(3) of the FTC Act, 15 U.S.C. 57a(d)(3), a violation of the Mail Order Rule constitutes an unfair or deceptive act or practice in violation of Section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1).

CIVIL PENALTIES AND INJUNCTION

19. Defendant has violated the Mail Order Rule as described above with knowledge as set forth in Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. 45(m)(1)(A).

20. Each sale or attempted sale, during the five years preceding the filing of this complaint, in which defendant has violated the Mail Order Rule in one or more of the ways described above constitutes a separate violation for which plaintiff seeks monetary civil penalties.

21. Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. 45(m)(1)(A), authorizes the Court to award monetary civil penalties of not more than $10,000 for each such violation of the Mail Order Rule occurring before November 20, 1996, and Section 4 of the Federal Civil Penalties Inflation Adjustment Act of 1990, 28 U.S.C. 2461, as amended, authorizes the Court to award civil penalties of not more than $11,000 for each such violation of the Mail Order Rule occurring on or after November 20, 1996.

22. Under Section 13(b) of the FTC Act, 15 U.S.C. 53(b), this Court is authorized to issue a permanent injunction against defendant's violating the FTC Act.

PRAYER

WHEREFORE, plaintiff requests this Court, pursuant to 15 U.S.C. 45(a)(1), 45(m)(1)(A), 49, and 53(b), and to the Court's own equity powers to:

(1) Enter judgment against defendant and in favor of plaintiff for each violation alleged in this complaint;
 
(2) Award plaintiff monetary civil penalties from defendant for each violation of the Mail Order Rule;
 
(3) Enjoin defendant from violating the Mail Order Rule;
 
(4) Enjoin defendant from violating Section 5(a) of the FTC Act, 15 U.S.C. 45(a), in connection with the offering for sale and sale of personal computer equipment;
 
(5) Award plaintiff such additional relief as the Court may deem just and proper.

DATED:

Of Counsel:

JEFFREY KLURFELD
Regional Director

LAURA FREMONT
MATTHEW D. GOLD
Attorneys
Federal Trade Commission
901 Market Street, Suite 570
San Francisco, CA 94103

FOR THE UNITED STATES OF AMERICA:

FRANK W. HUNGER
Assistant Attorney General
Civil Division
U.S. Department of Justice

PAUL M. WARNER
United States Attorney

By:

Assistant United States Attorney

EUGENE M. THIROLF
Director
Office of Consumer Litigation

ELIZABETH STEIN
Attorney
Office of Consumer Litigation
Civil Division
U.S. Department of Justice
Washington, D.C. 20530