ROBERT J. CLEARY
United States Attorney

By:
Assistant United States Attorney
970 Broad Street, Suite 700
Newark, New Jersey 07102
(973) 645-2700

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

UNITED STATES OF AMERICA,
Plaintiff
v.
TOYSRUS.COM, LLC, AND
TOYSRUS.COM, INC.,
Defendants.

Civil Action No.

COMPLAINT FOR CIVIL PENALTIES, 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), 13(b), and 16(a) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. 45(a)(1), 45(m)(1)(A), 53(b), and 56(a), to obtain monetary civil penalties and injunctive and other relief for defendants' 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.

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), 53(b), and 56(a). This action arises under 15 U.S.C. 45(a)(1).

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

DEFENDANTS

4. Defendant Toysrus.com, Inc. is a Delaware corporation with its office and principal place of business located at 225 Summit Avenue, Montvale, NJ 07645. Defendant Toysrus.com, Inc. is a subsidiary of Toys "R" Us, Inc., and transacts business in the District of New Jersey.

5. Defendant Toysrus.com, LLC is a Delaware Limited Liability Company with its office and principal place of business located at 155 Tice Boulevard, Woodcliff Lake, New Jersey 07675. Defendant Toysrus.com, LLC's managing member is Toysrus.com, Inc. Defendant Toysrus.com, LLC transacts business in the District of New Jersey.

DEFENDANTS' COURSE OF CONDUCT

6. In April l999, Toysrus.com, Inc. and Toysrus.com, LLC were established to engage in e-commerce on behalf of Toys "R" Us, Inc., Babies "R" Us, Inc., and Kids "R" Us through its website found at www.toysrus.com. (Hereinafter the defendants shall be collectively referred to as "Toysrus.com").

7. In November l999, Toys "R" Us, Inc. disseminated its holiday "Big Book" catalog, which reaches approximately 62 million households. The Big Book solicited online shopping by offering free shipping for merchandise ordered in November, and enclosing a $10.00 coupon toward online purchases over $25.00.

8. Since its inception, Toysrus.com has posted shipping representations on its website. In November l999, the shipping representations were as follow: Standard Delivery arrives approximately 7-10 business days from the time you place your order; Quick Delivery arrives approximately 3-5 business days from the time of order; and Express Delivery arrives approximately 2-4 business days from the time of order. On December 1, 1999, the shipping representations were changed, extending the arrival date by one or two days, depending on the type of delivery option selected by the consumer.

9. On December 10, 1999, Toysrus.com altered its shipping representations to a statement of the date by which orders had to be placed to assure arrival by December 24th: Standard Delivery orders placed by December 10th, Quick Delivery orders placed by December 12th and Express Delivery orders placed no later than December 14th.

10. On December 10, 1999 the Toysrus.com Website also posted the following statement: "All existing orders placed by December 10 will be shipped to arrive by December 24." This statement retroactively modified the shipping representations of pending orders. This revised shipping statement signaled that many consumers could receive ordered merchandise up to two weeks later than the promised arrival date in effect at the time of purchase. Defendants did not send notices to consumers whose orders were effected, to advise them of Toysrus.com's modification of their delivery dates.

11. On December 14, l999, Toysrus.com stopped taking orders for Christmas delivery. On December 21, 1999, Toysrus.com sent e mail notices to all consumers whose orders had not been shipped advising that Christmas delivery could no longer be assured, and providing cancellation instructions. In many instances, customers' deliveries were already overdue when this notice and a follow-up letter was mailed on December 22, l999.

12. In numerous instances during October through December l999, defendants failed to ship merchandise within the stated time, and either failed to send delay notices to consumers or sent notices that were deficient and/or failed to provide a revised shipping date to the consumer.

13. After circumstances regarding Toysrus.com's fulfillment capabilities negated the reasonable basis for their shipping representations, defendants continued to make shipping claims.

THE MAIL ORDER RULE

14. 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 became effective February 2, 1976. 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. The Rule applies to orders placed by telephone, facsimile transmission, or on the Internet.

VIOLATIONS OF THE MAIL ORDER RULE

15. Beginning in 1999, defendants have engaged in the mail order sale and telephone order sale of toys and other merchandise for children in commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. 44.

16. 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 forth in Section 435.1(a)(1) of the Mail Order Rule, 16 C.F.R.  435.1(a)(1) (the "applicable time"), defendants have:

a. Violated Section 435.1(b)(1) of the Rule by failing to offer to the buyer, clearly and conspicuously and without prior demand, and in a timely fashion, an option either to consent to a delay in shipping or to cancel the order and receive a prompt refund;
b. Violated Section 435.1(b)(1) of the Rule by failing to provide to the buyer a definite revised shipping date; and
c. Violated Section 435.1(c) of the Rule by failing to deem an order canceled and failing to notify the buyer that the buyer's account would not be charged.

17. Defendants have violated Section 435.1(a)(1) of the Rule by soliciting orders for the sale of telephone or mail order merchandise when they had no reasonable basis to expect that they would be able to ship all such merchandise within the time stated in their solicitations.

18. 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."

19. 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

20. Defendants have 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).

21. Each sale or attempted sale, during the period from October 1, l999 through December 31, l999 in which defendants have 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.

22. Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. 45(m)(1)(A), as modified by Section 4 of the Federal Civil Penalties Inflation Adjustment Act of 1990, 28 U.S.C.  2461, and Section 1.98(d) of the FTC's Rules of Practice, 16 C.F.R.  1.98(d), authorizes this Court to award monetary civil penalties of not more than $11,000 for each such violation of the Mail Order Rule.

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

PRAYER

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

(1) Enter judgment against defendants and in favor of plaintiff for each violation alleged in this Complaint;
(2) Award plaintiff monetary civil penalties from defendants for each violation of the Mail Order Rule;
(3) Enjoin defendants from violating the Mail Order Rule;
(4) Award plaintiff such additional relief as the Court may deem just and proper.

DATED:

FOR THE UNITED STATES OF AMERICA:

DAVID W. OGDEN
Acting Assistant Attorney General
Civil Division
U.S. Department of Justice

ROBERT J. CLEARY
United States Attorney
District of New Jersey

By:
Assistant U.S. Attorney
970 Broad Street, Suite 700
Newark, New Jersey 07102

EUGENE M. THIROLF
Director
Office of Consumer Litigation

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

OF COUNSEL:

ELAINE D. KOLISH
Associate Director
Division of Enforcement
Federal Trade Commission

HEATHER A. HIPPSLEY
Assistant Director
Division of Enforcement
Federal Trade Commission

CONNIE WAGNER
Attorney
Division of Enforcement
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
(202) 326-3309