For Release: July
26, 2000 Seven Internet Retailers Settle FTC Charges
Over Shipping Delays During 1999 Holiday Season
Agreements Include $1.5 Million in Civil Penalties
Seven large Internet e-tailers agreed to settle Federal Trade Commission charges they
violated the Mail and Telephone Order Rule during the 1999 holiday shopping season by
providing buyers inadequate notice of shipping delays or continuing to promise specific
delivery dates when timely fulfillment was impossible. In settling the allegations, CDnow,
Inc., KBkids.com LLC, Macys.com, Inc., Franklin W. Bishop d/b/a Minidiscnow.com, The
Original Honey Baked Ham Company of Georgia, Inc., Patriot Computer Corp., and
Toysrus.com, Inc. have agreed to change their procedures to ensure
that such violations will not recur this year, and to pay civil penalties totaling $1.5
million for last season's violations. Today's settlements are the culmination of
"Project TooLate.com," an FTC investigation of whether major online retailers
delivered goods when promised during last year's holiday season.
"Although there are still 151 shopping days until Christmas, today's announcement
is an early gift for Internet shoppers," said Jodie Bernstein, Director of the FTC's
Bureau of Consumer Protection. "Last December, a large number of e-commerce buyers
didn't get the type of notice of late shipment which the law requires and were misled
about delivery dates. Many retailers ended up looking more like Scrooge than Santa."
Bernstein added that "the requirements of the Rule apply to online and offline
commerce equally; today's settlement shows the FTC takes violations of the Rule by
e-tailers seriously, and will expect e-tailers either to comply with the law or face stiff
penalties."
Last December, the FTC received complaints from a variety of sources indicating that
prominent e-tailers repeatedly failed to meet their express shipping and delivery
representations.
Based on this information, FTC staff began an investigation of e-tailers, focusing on
major online companies that were making express delivery claims, to examine whether these
failures were violations of the Rule.
The Rule requires that retailers ship goods within the date promised, or if no date is
promised, within 30 days of the order's receipt. If the company cannot ship as promised,
it is required to provide Notice to the buyer with a revised shipping date, giving the
opportunity for the buyer to agree to the delay or to cancel the order.
The staff investigation revealed that some e-tailers repeatedly violated the Rule by
failing to send Rule-required Delay Option Notices, sending Notices that were deficient,
and in some cases, making shipping representations without a reasonable basis.
The FTC obtained settlements from seven companies which it alleged violated the Rule.
Common to all complaints is the failure to timely offer to the buyer an option either to
consent to a delay in shipping or to cancel the order and receive a prompt refund, in
violation of Section 435.1(b)(1) of the Rule.
Six companies (all but CDnow) that sent no Notices are charged with failure to deem
certain orders canceled in the absence of a notice, in violation of Section 435.1(c) of
the Rule. Four defendants (KBkids.com, Macys.com, Toysrus.com, and Minidiscnow.com) were
charged with taking orders without a reasonable basis for their shipping representations,
in violation of Section 435.1(a)(1) of the Rule.
The proposed consent decrees with six of the companies call for civil penalties ranging
from $45,000 to $350,000 -- Macys.com ($350,000), KBkids.com ($350,000), Toysrus.com
($350,000), CDnow ($300,000), Patriot Computers ($200,000), and The Original Honey Baked
Ham Co. ($45,000). In addition, Macys.com is required to fund an Internet consumer
education campaign about the Mail Order Rule. The campaign will consist of banner ads that
alert consumers that they have certain rights when shopping online. The penalty amounts
sought against KBkids.com, Toysrus.com, and The Original Honey Baked Ham Co. take into
account the amount of money the companies spent in mitigating consumer injury caused by
their Rule violations. CDnow's penalty amount is waived except for $100,000 due to its
poor financial condition. The seventh company, Minidiscnow.com, will be required to fully
reimburse each consumer who has ordered, but not received, any of the company's products.
The decrees also contain injunctive provisions prohibiting future Rule violations, and
require compliance reports to be filed within 120 days of the entry of the decree
demonstrating procedures are in place to comply with the Rule. These reports will be due
as the next holiday shopping season is launched, helping ensure the companies will make
the infrastructure changes necessary to bring about full compliance with the Rule.
Finally, the settlements contain a number of recordkeeping and reporting requirements to
assist the FTC in monitoring compliance by the companies.
The Commission vote authorizing the filing of the complaints and the proposed
settlements was 5-0. The consent decrees will be filed this week by the Department of
Justice at the request of the FTC and are subject to court approval.
NOTE: The consent decrees and orders are for settlement purposes only and do not
constitute an admission by the defendants of a law violation. The decrees have the force
of law when signed by the judge.
Copies of the complaints
and the proposed settlements are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response
Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll free:
877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the
latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
- MEDIA CONTACT:
- Eric London
- Office of Public Affairs
- 202-326-2180
- STAFF CONTACT:
- Heather Hippsley
- Bureau of Consumer Protection
- 202-326-3285
(CDnow, Inc., FTC File No. 0023116)
(KBkids.com LLC, FTC File No. 0023115)
(Macys.com, Inc., FTC File No. 0023114)
(Franklin W. Bishop d/b/a Minidiscnow.com, FTC File No. 0023110)
(The Original Honey Baked Ham Company of Georgia, Inc., FTC File No.
0023144)
(Patriot Computer Corp., FTC File No. 0023107)
(Toysrus.com, Inc., FTC File No. 0023088)
(http://www.ftc.gov/opa/2000/07/toolate.htm) |
RELATED
DOCUMENTS: Businessperson's
Guide to the Mail and
Telephone Order Mdse Rule
Project TooLate.com
U.S. v. CDnow, Inc., and CDnow Online, Inc.
(Eastern District of Pennsylvania)
- Complaint for Civil
Penalties, Injunctive and Other Relief
- Consent Decree and
Order for Civil Penalties, Injunctive and Other Relief
- Reasons for
Settlement
U.S. v. Southdale Kay-Bee Toy, Inc., and KBkids.com LLC
(District of Minnesota)
- Complaint for Civil
Penalties, Injunctive and Other Relief
- Consent Decree and
Order for Civil Penalties, Injunctive and Other Relief
- Reasons for
Settlement
U.S. v. Federated Department Stores, Inc., and
Macys.com, Inc. (District of Delaware)
- Complaint for Civil
Penalties, Injunctive and Other Relief
- Consent Decree and
Order for Civil Penalties, Injunctive and Other Relief
- Reasons for
Settlement
U.S. v. Franklin W. Bishop, an individual doing business
as Minidiscnow.com (Northern District of California)
U.S. v. The Original Honey Baked Ham Company of Georgia,
Inc. (Northern District of Georgia)
- Complaint for
Civil Penalties, Injunctive and Other Relief
- Consent Decree
and Order for Civil Penalties, Injunctive and Other Relief
- Reasons for
Settlement
U.S. v. Patriot Computer Corporation
(Northern District of Texas)
- Complaint for Civil
Penalties, Injunctive and Other Relief
- Consent Decree
and Order for Civil Penalties, Injunctive and Other Relief
- Reasons for
Settlement
U.S. v. Toysrus.com, LLC, and Toysrus.com, Inc.
(District of New Jersey)
- Complaint for Civil
Penalties, Injunctive and Other Relief
- Consent Decree
and Order for Civil Penalties, Injunctive and Other Relief
- Reasons for
Settlement
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