FTC FALSE ADVERTISING DECISIONS
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1. Computer False or Deceptive Advertising
Gateway 2000 to Pay $290,000 to Settle FTC Charges of False Advertising
Gateway 2000 has agreed to pay $290,000 as part of a settlement with the Federal Trade Commission. The FTC alleges that Gateway made numerous false statements in advertising its refund policy and its on-site warranty service. According to the FTC, Gateway's ads stated that it would provide a "money back guarantee" with a "full refund" and would provide free "on-site service" to consumers upon request, when such was not the case. Under the proposed settlement, in addition to paying $290,000, Gateway would be prohibited from, among other things, misrepresenting its money back guarantee policy and its on-site service provision.
Gateway 2000, headquartered in North Sioux City, South Dakota, is one of the leading direct marketers of personal computers in the world. It develops, markets, manufactures and supports a broad line of desktop and portable PCs. According to the complaint detailing the charges, the FTC alleges that Gateway falsely advertised that:
it provides a "money back guarantee" of a "full refund," when, in fact, it deducted the cost of shipping the merchandise to consumers, an average cost of over $62, from the refund amount; and
consumers would be provided free "on-site service" upon request, when, in fact, the on-site service was not provided until Gateway diagnosed the problem over the telephone and determined that the consumer could not make the repair.
In addition, the FTC alleges that, in its written warranties, Gateway falsely represented the remedies available to consumers seeking incidental or consequential damages, completely disclaiming such liability despite the fact that some states do not allow for such exclusions or limitations. The complaint also alleges that Gateway's written warranty disclaimed all implied warranties, that Gateway failed to make the text of its written warranties readily available to prospective buyers prior to the sale, and that Gateway failed to include mandatory language concerning consumer's legal rights in its written warranties -- all of which violate either federal warranty law or its rules.
In order to settle these charges, Gateway would pay approximately $290,000 to the U.S. Treasury -- the amount equal to the shipping charges that Gateway should have refunded to consumers who had returned their computers in accordance with the advertised money-back guarantee. The Commission would require that this amount be paid to the U.S. Treasury because individual consumers who should have received a refund generally could not be identified.
The proposed settlement would prohibit Gateway from failing to make a full refund under any money-back guarantee unless it discloses, clearly and conspicuously and in close proximity to the guarantee, any deductions that will be made. Gateway would also be prohibited from promising free on-site service in its ads, unless it discloses any material limitations to that service. In addition, Gateway would be prohibited from misrepresenting consumers' remedies under its warranties.
2. Government Grants Deceptive Advertising
FTC CHARGES "INFOMERCIAL" COMPANY MADE FALSE ADVERTISING
CLAIMS FOR GOVERNMENT GRANTS BOOK; COMPANY & OWNER TO PAY
$175,000 IN CONSUMER REFUNDS, UNDER CONSENT AGREEMENT
The Federal Trade Commission has charged that Hal Morris and Money Money Money Inc. (MMM) made false claims in a 30-minute commercial advertising the availability of government grants. The
commercial, called "Money Money Money," is one of a series produced by the respondents. Under a consent agreement announced today for public comment, the respondents have agreed not to air the "info- mercial" again and to pay $175,000 in consumer refunds.
According to the FTC's complaint, "Money Money Money" is a commercial in the form of a talk show produced by Morris and MMM. In the commercial, Morris, as "host", interviews Wayne Phillips,
a "guest" who is referred to as "America's foremost expert on low-interest government loans and government grants." The "show" is actually an advertisement for a book titled, "How to Start Your Own
Business By Doing Business With The Government," which sells for $49.95. In February, the FTC lodged false advertising charges against Phillips in an administrative complaint similar to the one
issued in this case.
The complaint charges that the MMM "Government Grants" commercial makes the following false and misleading claims:
-- There are $33 billion in grants available from federal, state, and local governments to start small businesses.
-- Federal, state, and local governments provide grants toconsumers to start small businesses without regard to the applicant's financial history or resources.
-- It is easy for the average consumer to obtain a government grant to start virtually any type of small busi-ness.
-- The Government Grants book consists primarily of information on how the average consumer can easily obtain grants from federal, state, and local governments to start a small business.
-- The Small Business Innovation Research program provides grants to consumers to start virtually any kind of small business, and average consumers can obtain a $25,000 grant from that program to start a small business quickly and easily.
-- Certain claimed success stories are true and substantiate that the information provided in the Government Grants book has been used successfully by average con-sumers to start small businesses.
Under the consent agreement, Morris and MMM agreed not to sell, broadcast, or disseminate the "Government Grants" commercial. They also agreed not to make the claims cited above in any future
ads. The consent agreement prohibits them from making any commer-cial that misrepresents that it is an independent program and not a paid commercial. In any commercial they produce that runs longer
than 15 minutes, a disclosure must be displayed, saying "The pro-gram you are watching is a paid advertisement for (the product or service)." This disclosure must be made within 30 seconds of the
beginning of the commercial, and also immediately before each time ordering instructions are given for the product or service.
In addition, Morris and MMM agreed to have competent and reliable evidence before making any representation concerning:
-- the availability of grants from any source;
-- whether any book or other written material contains in- formation about a particular subject or topic;
-- the terms or conditions upon which any person, firm, agency or institution will award a grant to any other person, firm, or organization;
-- the terms or conditions of any government or private business opportunity, business assistance program, grant program, loan program or procurement program; and
-- any method or techniques for starting, operating, or financing any profession or business.
The consent agreement further requires that any endorsements the respondents use must reflect the honest opinions, findings, beliefs, or experience of the endorser and contain no false or
unsubstantiated representations. They also must not represent that any endorsement represents the typical or ordinary experience of consumers, unless that is the case.
Within five days after the order becomes final, Morris and MMM must turn over $175,000 to the FTC, which will use the money to establish a consumer redress fund. If the Commission decides that
refunds are not practical, the money will go to the U.S. Treasury.
The consent agreement is scheduled to appear in the Federal Register shortly. It will be subject to public comment for 60 days, after which the Commission will decide whether to make it
Comments should be addressed to the Office of the Secretary, FTC, 6th St. and Pennsylvania Ave. N.W., Washington, D.C. 20580.
A consent agreement is for settlement purposes only and does not constitute admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of
law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $10,000