UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION

In the Matter of

GATEWAY, INC., a corporation.

DOCKET NO.

COMPLAINT

The Federal Trade Commission, having reason to believe that Gateway, Inc., a corporation ("respondent"), has violated the provisions of the Federal Trade Commission Act, and it appearing to the Commission that this proceeding is in the public interest, alleges:

1. Respondent Gateway, Inc. is a Delaware corporation with its principal office or place of business at 610 Gateway Drive, North Sioux City, South Dakota 57049.

2. Respondent has manufactured, advertised, labeled, offered for sale, sold, and distributed products and services to the public, including personal computers, computer peripherals, software, and Internet services.

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

4. Respondent has disseminated or has caused to be disseminated advertisements for certain of its personal computers, including but not necessarily limited to the attached Exhibits A through F. These advertisements contain the following statements and depictions:

A. [MAGAZINE ADVERTISEMENT]

"The Gateway Essential Line:
powerful PCs at practical prices.

Okay, maybe you don't need an astrophysics supercomputer. But you still want a fast processor and ample memory and drive space. Look no further than Gateway Essential PCs. With video, sound and Intel processors - and affordable prices - they're compromise-free PCs. Each one includes a year on the Internet.1 Pick a model, and we'll customize it the way you want.

Gateway Essential 400c

. . .

1-Year gateway.net Internet Access1

. . .

[Footnote1 appears as follows four pages later at the bottom of the page, in the eighth line of eleven lines of fine print disclosures, in approximately 4-point type:] 1. No monthly fee 1st year. Rural access $3.95/hour. Local access $1.50/hour over 150 hours per month. 12 months from delivery. Must register w/30 days of delivery." (Exhibit A)

B. [NEWSPAPER ADVERTISEMENT]

"GET A GATEWAY ESSENTIAL PC WITH INTERNET INCLUDED.1
LESS THAN A DOLLAR A DAY.
An unbelievable computer that actually comes with a year of Internet access . . . .1

. . .

GATEWAY ESSENTIAL 400c

. . .

1-YEAR GATEWAY.NET INTERNET ACCESS ($240 VALUE)

. . .

[Footnote1 appears as follows at the bottom of the page, in the second line of five lines of fine print disclosures, in approximately 2-point type:] 1. No monthly fee for first year. Rural access $3.95/hour. Local access $1.50/hour over 150 hours. 12 months runs from delivery. Must register w/30 days of delivery. $240 based on standard month to month fee." (Exhibit B)

C. [NEWSPAPER ADVERTISEMENT]

"Print it. Free.

With a free color printer from Gateway, you could print everything from pie recipes to pie charts. . . . Right now, we'll also include one full year of Internet access1 absolutely free.

[Footnote 1 appears as follows in a black box with white writing at the bottom of the page, in approximately 4-point type:] No monthly fee 1st year. Rural access $3.95/hour. Local access $1.50/hour over 150 hours per month. 12 months runs from delivery. Must register w/30 days of delivery." (Exhibit C)

D. [TELEVISION ADVERTISEMENT]

"[Depiction: Two computer boxes on a table in a darkened room. A spotlight scans one of the boxes, revealing a question mark on the label. The other box bears the Gateway name and logo.]

VO: When you buy a bargain basement PC, what you're really buying is a mystery box.

[Depiction: A Gateway box]

VO: Will there be a monitor? Probably not.* Lots of software? Ha! A year on the Internet?

[*Super appears in white at the bottom of the screen]: No monthly fee 1st year. Rural access $3.95/hour. Local access $1.50/hour over 150 hours. 12 months runs from delivery. Must register within 30 days of delivery.

VO: Twenty-four hour tech support? Dream on.

[Super ends. Depiction: close up of the Gateway box alone]

VO: With a Gateway Essential PC, you know exactly what you're getting:

[Depiction of a hand lifting box up to reveal the complete PC system underneath]

VO: ...a monitor, great software, award-winning tech support,

[Super appears at top of screen in black letters framed in a box:] as low as $28/mo. for 48 mo. or $999

. . .

VO: ...and Internet access for $28 a month or a dollar a day. No mystery there!

[Depiction: Gateway logo, Super in bold black print:] Connect with us /1-800-Gateway/www.gateway.com/Gateway is our trademark.

VO: Call 1-800 Gateway for a new Gateway Essential PC with an Intel celeron processor." (Exhibit D)

E. [MAGAZINE ADVERTISEMENT]

"Let's talk about the ultimate traveling companion.

. . .

All these add-ons are available when you purchase a Gateway system.

. . .

gateway.net
$14.95/mo.
4

[Footnote 4 appears as follows at the bottom of the page, in the eleventh line of eleven lines of fine print disclosures, in approximately 4-point type:] 4. gateway.net pricing based on 6-month commitment. $15 fee for early cancellation." (Exhibit E)

F. [ONLINE REGISTRATION SCREEN]

"Phone Book

. . .

Toll Free (888) 709-4076"

(Exhibit F)

5. Through the means described in Paragraph 4, including but not necessarily limited to Exhibits A through D, respondent has represented, expressly or by implication, that with the purchase of the advertised computer models, one year of Gateway.net Internet access would be free or included at no extra charge.

6. In truth and in fact, with the purchase of the advertised computer models, for many consumers one year of Gateway.net Internet access was not free or included at no extra charge because these customers incurred long distance charges to access Gateway.net or were charged $3.95 per hour to use respondent's 1-888 telephone number to access the service. Therefore, the representation set forth in Paragraph 5 was, and is, false or misleading.

7. Through the means described in Paragraph 4, including but not necessarily limited to Exhibit E, respondent has represented, expressly or by implication, that with the purchase of the advertised computer models, the total cost to consumers for Gateway.net Internet access would be a flat fee, such as $14.95 per month.

8. In truth and in fact, with the purchase of the advertised computer models, the total cost to many consumers for Gateway.net Internet access was not a flat fee, such as $14.95 per month because these customers incurred long distance charges to access Gateway.net or were charged $3.95 per hour to use respondent's 1-888 telephone number to access the service. Therefore, the representation set forth in Paragraph 7 was, and is, false or misleading.

9. Through the means described in Paragraph 4, including but not necessarily limited to Exhibit F, respondent has represented, expressly or by implication, that the use of respondent's "toll free" 1-888 number to connect to the Internet was free to consumers.

10. In truth and in fact, the use of respondent's "toll free" 1-888 telephone number to connect to Gateway.net was not free to consumers. Consumers were charged $3.95 per hour for the use of this number. Therefore, the representation set forth in Paragraph 9 was, and is, false or misleading.

11. In its advertising and sale of certain computer models, respondent has represented, expressly or by implication, that the cost of using the Internet for one year would be zero, or that Internet service could be purchased for a flat monthly fee, such as $14.95 a month. Respondent has failed to disclose adequately before purchase that many consumers would incur significant, additional costs such as long distance telephone charges or charges for the use of "toll free" 1-888 numbers to connect to the Internet. This fact would be material to consumers in their purchase or use of the service or product. The failure to adequately disclose this fact, in light of the representation made, was, and is, a deceptive practice.

12. The acts and practices of respondent as alleged in this complaint constitute unfair or deceptive acts or practices in or affecting commerce in violation of Sections 5(a) of the Federal Trade Commission Act.

THEREFORE, the Federal Trade Commission this day of , , has issued this complaint against respondent.

By the Commission.

Donald S. Clark
Secretary

SEAL: