[Federal Register Volume 65, Number 131 (Friday, July 7, 2000)]
[Notices]
[Pages 42000-42002]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17224]


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FEDERAL TRADE COMMISSION

[File No. 992 3206]


Value America, Inc.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before July 31, 2000.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW, Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: Joel Winston or Michael Dershowitz, 
FTC/S-4002, 600 Pennsylvania Ave., NW, Washington, D.C. 20580 (202) 
326-3153 or 326-3158.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of 
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final

[[Page 42001]]

approval, by the Commission, has been placed on the public record for a 
period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for June 29, 2000), on the World Wide Web, at ``http://www.ftc.gov/
ftc/format.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, Washington, 
D.C. 20580, either in person or by calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW, 
Washington, D.C. 20580. Two paper copies of each comment should be 
filed, and should be accompanied, if possible, by a 3\1/2\ inch 
diskette containing an electronic copy of the comment. Such comments or 
views will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted, subject to final 
approval, an agreement containing a consent order from Value America, 
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 personal electronic 
devices, computer software, personal computers, and other products 
through its Internet Web site (reached by www.va.com> or 
www.valueamerica.com>), and through toll-free telephone numbers. This 
matter concerns allegedly false and deceptive advertising claims 
regarding the sale of various computer systems based upon a $400 rebate 
that required consumers to enter into a three year contract for 
Internet service. This matter also concerns alleged violations of the 
Mail or Telephone Order Merchandise Rule.
    The Commission's proposed complaint alleges that respondent falsely 
claimed that the total cost of a Toshiba Satellite 2100CDS laptop was 
$899; that the total cost of a Hewlett-Packard Pavilion 4535 Multimedia 
PC was $449; that the total cost of a Proteva computer system was 
$1299; that the total cost of an IBM Aptiva E572 Micro Tower computer 
was $619; and that an emachines etower 366C computer was ``free.'' In 
fact, in order to obtain these computers at the advertised prices, 
consumers were required to subscribe to CompuServe 2000 Premier 
Internet Service, Prodigy Internet, or Microsoft MSN Plus Internet 
Access for three years at an additional cost of $19.95 to $21.95 per 
month or, in the case of CompuServe Internet Service, an optional full 
pre-payment of $790.20.
    The complaint also alleges that when respondent represented that 
the total cost of the computer was, respectively, $899, $449, $1299, 
$619, or ``free,''respondent failed to disclose or failed to disclose 
adequatley: (a) That consumers were required to subscribe to CompuServe 
2000 Premier Internet Service, Prodigy Internet, or Microsoft MSN Plus 
Internet Access for three years at an additional cost of $19.95 to 
21.95 per month, or in the case of CompuServe Internet Service, an 
optional full pre-payment of $790.20; (b) the amounts of the rebates, 
and the total price of the computer systems before rebates with respect 
to the Hewlett-Packard Pavilion 4535 Multimedia PC, and the emachines 
etower 366C computer; (c) that consumers who cancel the Internet 
service within three years must repay all or a portion of the $400 
rebate and, in the case of the CompuServe and Prodigy rebates offers, 
also pay a cancellation fee of up to $50; (d) that, in the case of the 
Prodigy rebates, it can take a total of 12 to 17 weeks to receive the 
$400 rebate; and (e) that CompuServe, Prodigy, and Microsoft do not 
provide local access telephone numbers for their respective Internet 
services in all areas, and therefore, that many consumers must either 
pay long distance telephone charges or, in the case of CompuServe 2000 
or Prodigy Internet, $6.00 per hour to access their Internet service. 
The complaint alleges that the failure to disclose these material facts 
is a deceptive practice.
    In addition, the complaint alleges that respondent falsely claimed 
that the IBM Aptiva E572 Micro Tower computer included a monitor at no 
additional cost. In fact, consumers must purchase a monitor separately. 
The complaint also alleges that in numerous instances, respondent 
failed to ship some or all of the ordered merchandise to the buyer 
within the time stated in the solicitation, or if no time was stated, 
within 30 days after receipt of a properly completed order, as required 
by the Mail Order Rule. The complaint also alleges that when respondent 
was not able to ship some or all of the ordered merchandise to the 
buyer, respondent failed to offer to the buyer an option either to 
consent to a delay in shipping or to cancel the order and receive a 
prompt refund, as required by the Mail Order Rule. The complaint also 
alleges that when respondent was not able to ship ordered merchandise 
to the buyer, and having failed to offer the affected buyer an option 
either to consent to a delay in shipping or to cancel the order and 
receive a prompt refund, as required by the rule, respondent failed to 
deem the order canceled and to make a prompt refund the buyer, as 
required by the Mail Order Rule.
    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 or what 
is included in the price of any such product or 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, along with the length of time 
consumers are required to purchase such other 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

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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 order, 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.
    In connection with the promotion or sale of any Internet access 
service, or any computer or computer-related product whose price is 
conditioned upon the purchase of Internet access service, Part IV of 
the proposed order prohibits respondent from making any representation 
about the price or cost to consumers of any Internet access service, 
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. In addition, 
respondent must disclose the amount of time required for purchasers to 
receive any rebate. 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 disclosre information about Internet cancellation 
terms, it must be labeled as follows: ``Early Cancellation of the 
Internet Service May 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.'' Finally, if a hyperlink is used to disclose information about 
the time it takes to receive a rebate, it must be labeled: ``Time to 
Receive Rebate. Click Here.''
    Part V of the proposed order prohibits respondent from violating 
any provision of the Mail or Telephone Order Merchandise Rule, 
including the soliciting of orders for merchandise, either by mail or 
phone, without a reasonable basis to expect to be able to ship some or 
all of the merchandise within the time stated in the solicitation, or 
if no time is stated, within 30 days of receiving a properly completed 
order. Respondent must offer the buyer the option of either consenting 
to a delay in shipping or canceling the order and receiving a prompt 
refund when respondent is unable to ship within the applicable time 
period. Respondent must also deem the order canceled and make a prompt 
refund in instances where respondent failed to ship on time and failed 
to offer the buyer the option of either consenting to the delay or 
canceling the order and receiving a prompt refund.
    Part VI of the proposed order requires respondent to maintain and 
make available to the Commission for five years, business records 
demonstrating compliance with the terms and conditions of Part V. Part 
VII of the proposed order requires respondent to compile a list of 
purchasers who ordered products from respondent and paid for them prior 
to the service date of the order, and who had not previously received a 
refund or consented to a delay, but did not receive ordered products 
more than ten days after the date respondent stated they would be 
shipped, or the date of the delay notice. Respondent must then cancel 
each such order and send a refund to each purchaser on the list for the 
total amount paid, including all taxes and shipping and handling 
charges, if any. Respondent must furnish the list of purchasers to the 
Commission, indicating for each the amount and date the refund was 
paid.
    Part VIII 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 IX of the proposed order requires respondent to distribute 
copies of the order to various officers, agents and employees of 
respondent.
    Part X of the proposed order requires respondent to notify the 
Commission of any changes in corporate structure that might affect 
compliance with the order.
    Part XI of the proposed order requires respondent to file with the 
Commission one or more reports detailing compliance with the order.
    Part XII of the proposed order is a ``sunset'' provision, dictating 
that the order will terminate twenty years after the date it is issued 
or twenty years after a compliant 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.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 00-17224 Filed 7-6-00; 8:45 am]
BILLING CODE 6750-01-M