Analysis of Proposed Consent Order
The Federal Trade Commission has accepted, subject to final approval, an agreement containing a consent order from BUY.COM Inc. ("respondent").
The proposed consent order has been placed on the public record for thirty (30) days for receipt of comments by interested persons. Comments received during this period will become part of the public record. After thirty (30) days, the Commission will again review the agreement and the comments received, and will decide whether it should withdraw from the agreement or make final the agreement's proposed order.
Respondent advertises, sells, and distributes books, music and video recordings, personal electronic devices, computer software, personal computers and other products though its Internet Website, www.buy.com. This matter concerns allegedly false and deceptive advertising claims regarding the sale of a $269 Compaq Presario 5304 computer system based upon a $400 rebate that required consumers to enter into a three year contract for Internet service.
The Commission's proposed complaint alleges that respondent falsely claimed that the total cost of a Compaq Presario 5304 computer system was $269. In fact, in order to obtain the computer system for $269, consumers were required to subscribe to CompuServe 2000 Internet service for three years at an additional cost of $21.95 per month or a full payment of $790.20. The complaint also alleges that in representing that the total cost of the computer system was $269, respondent failed to disclose or failed to disclose adequately: (a) that consumers were required to subscribe to CompuServe 2000 Internet service for three years at an additional cost of $21.95 per month or a total cost of $790.20; (b) the amounts of the rebates, $200 and $400, and the total price of the computer system before rebates, $869; (c) that consumers who cancel the Internet service within three years must repay all or a portion of the $400 rebate and pay a $50 cancellation fee; and (d) that CompuServe does not provide local access telephone numbers for its Internet service in all areas, and therefore, that many consumers must either pay long distance telephone charges or surcharges of $6.00 per hour to access its Internet service. The complaint alleges that the failure to disclose these material facts is a deceptive practice.
The proposed consent order contains provisions designed to prevent respondent from engaging in similar acts and practices in the future.
Part I of the proposed order prohibits respondent from making any misrepresentations as to the price or cost to consumers of any computer, computer-related product, or Internet access service.
Part II of the proposed order prohibits respondent from making any representation about the price or cost to consumers of any computer, computer-related product, or Internet access service, when that price or cost, or any rebate, is conditioned upon the purchase of another product or service, unless respondent discloses clearly and conspicuously, and in close proximity to the price, cost or rebate representation that consumers must purchase the additional product or service in order to obtain the advertised price or rebate. In addition, Part II requires respondent to disclose the cost of the other product or service that must be purchased. Furthermore, if the advertised product or service is sold together with a service, respondent is also required to disclose the length of time that consumers are required to purchase that service. Part II also contains a proviso that permits respondent to use the terms "rebate" or "discount" without making the additional cost disclosures, as long as respondent does not describe or characterize the rebate or discount in any way.
Part III of the proposed order prohibits the respondent from making a claim about the after-rebate price or cost of any computer, computer-related product, or Internet access service, unless it discloses, clearly and conspicuously, and in close proximity to the after-rebate price or cost representation, the amounts of any rebates offered, and the total cost of the computer product or service, excluding any rebate amounts (i.e., the before-rebate price). Part III also contains a proviso that states that if there is only one rebate involved in the offer, and no other reductions in the total price of the product or service, respondent need only disclose the amount of that one rebate, and need not also disclose the before-rebate price.
Part IV of the proposed order prohibits the respondent from making any representation about the price or cost of any Internet access service it offers for sale, unless it discloses certain material facts. If consumers have to pay additional fees, charges, rebate repayments, or other costs to cancel the Internet access service, the amounts of such costs must be disclosed. If consumers may have to pay long distance telephone charges, hourly surcharges, or other costs in excess of local telephone fees to access the Internet service, this fact must be disclosed, along with a means for consumers to ascertain whether or not they would have to incur such costs and the amounts of any such costs. These disclosures must be clear and conspicuous.
Part IV of the proposed order also contains a proviso, that together with the definition of "through the use of a hyperlink," provides a way in which the disclosures required by Part IV can be made on the Internet with hyperlinks. These disclosures may be made through the use of hyperlinks, as long as each hyperlink label contains sufficient information about the nature and importance of the required disclosure, is, itself, clear and conspicuous, is on the same Web page and proximate to the Internet service price or cost representation, and leads directly to the full disclosure. According to the proviso, if a hyperlink is used to disclose information about Internet cancellation terms, it must be labeled as follows: "Early Cancellation of the Internet Service Will Result in Substantial Penalties. Click Here." Similarly, if a hyperlink is used to disclose information about Internet access costs, it must be labeled: "You May Have to Pay Significant Telephone Charges to Use the Internet Service. Click Here."
Part V of the proposed order contains a document retention requirement, the purpose of which is to ensure compliance with the proposed order. It requires that respondent maintain copies of ads and promotional material that contain representations covered by the proposed order, and materials that were relied upon by respondent in complying with the proposed order.
Part VI of the proposed order requires respondent to distribute copies of the order to various officers, agents and employees of respondent.
Part VII of the proposed order requires respondent to notify the Commission of any changes in corporate structure that might affect compliance with the order.
Part VIII of the proposed order requires respondent to file with the Commission one or more reports detailing compliance with the order.
Part IX of the proposed order is a "sunset" provision, dictating that the order will terminate twenty years from the date it is issued or twenty years after a complaint is filed in federal court, by either the United States or the FTC, alleging any violation of the order.
The purpose of this analysis is to facilitate public comment on the proposed order. It is not intended to constitute an official interpretation of the agreement and proposed order or to modify in any way their terms.