FTC Cracks Down on 'Free Computer' Deals

WASHINGTON (06/29/2000) - The U.S. Federal Trade Commission is cracking down on what it says are deceptive advertising practices by Value America Inc., Buy.com Inc. and Office Depot Inc.. The FTC accuses all three companies of offering computer rebates predicated on the purchase of three years of Internet service, without fairly disclosing all of the terms of the deal.

The commission says that the companies placed advertisements in major newspapers, on television and on the Web, which falsely promised "free" computer systems. The commission says that unwitting customers ended up overpaying for these systems.

"You shouldn't need a Ph.D. to figure out the cost of a PC," said Jodie Bernstein, director of the FTC bureau of consumer protection, in a statement.

Glenda Dorchak, Value America's chairman, president and CEO, said, "From its inception, one of Value America 's goals has been to provide our customers with the best information available about our products to help them make their buying decisions. In the last six months, we have significantly improved our customer service, including shipment times and resolution of customer issues as reflected in consumer satisfaction ratings by an independent rating firm. We are satisfied that our efforts with the FTC will ensure that our product descriptions, including information on rebates and shipping, are the most accurate and content-rich."

Buy.com CEO Mitch Hill issued a statement saying his company was "glad we were able to work together with the FTC to resolve this issue." Hill added that Buy.com "felt the promotion fit well within our goal of helping customers buy better." Office Depot has not yet commentedThe commission voted 5-0 to accept consent agreements with all three companies.

Under one such agreement, Value America, a beleaguered e-retailer headquartered in Charlottesville, Virginia, must provide refunds to any of its customers whose computer orders are more than 10 days late in fulfillment.

The FTC says that the three companies failed to adequately disclose several details - including the true cost of the Internet service, the penalties for early cancellation and the possibility that they would have to pay long-distance telephone charges to use the service. The commission says that customers who prematurely canceled their ISP contracts lost their rebates and faced additional penalties.

The FTC's action is likely to hit Value America the hardest. For months, the e-retailer has watched its innovative "inventory-less" e-commerce model crumble under what many former employees have called a shoddy backend support system.

In recent months, the company has dropped most of its product categories and laid off hundreds of employees to try to stay afloat. Value America executives have long seen computers as the company's most lucrative product line.

Ironically, the "inventory-less" company has had to resort to juggling piles of returned merchandise and backlogged customer orders as it struggles to stay in business.

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