Microsoft and Hewlett-Packard Settle FTC Charges of Making Misleading Pocket PC Claims

Under proposed settlement agreements with the Federal Trade Commission, Microsoft Corporation ("Microsoft") and Hewlett-Packard Company ("HP") have agreed to stop misrepresenting that Pocket PC handheld computers - personal digital assistants or "PDAs" - came with built-in wireless access to the Internet and e-mail at anytime and from anywhere. According to the FTC, Pocket PC users must purchase and carry additional equipment such as a modem to get mobile access to the Internet and e-mail, a fact not clearly disclosed in the joint Microsoft-HP advertising campaign.

"Consumers are faced with so many choices when they shop for handheld computers, and they often rely on advertising claims when they decide what PDA to buy," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "It is critical these ads stick to the facts and accurately reflect a PDA's capabilities. These settlements will help ensure that consumers understand what a PDA can and cannot do before they make a purchase."

Microsoft developed a new operating system for PDAs and licensed it to several Pocket PC equipment manufacturers, including Hewlett-Packard. In April 2000, Microsoft and HP announced the Pocket PC with a cooperative advertising campaign that ran in national publications, including the Wall Street Journal, USA Today, New York Times, Newsweek, Time, and U.S. News and World Report. These advertisements featured a picture of a specific Pocket PC - for example, the HP Jornada - and touted Pocket PCs generally.

Several of the challenged ads picture a Pocket PC accessing e-mail or Internet sites and claim the device can access the Internet and e-mail "anytime." The FTC complaint alleges that these ads implied that the Pocket PCs contain everything consumers need to access the Internet at anytime and from anywhere, which they clearly do not. In fact, a separate landline modem costs approximately $130, and wireless modems can cost $350 or more. While the ads contained a disclosure at the bottom stating "Modem Required. Sold separately," the disclosure was inconspicuous and appeared in extremely fine print of approximately four point type, (e.g., This is four point type). or six point type (e.g., This is six point type). These fine-print disclosures were unclear, inconspicuous and inadequate, according to the Commission. "The legal standard for disclosures is clear and conspicuous," said Director Bernstein. "Consumers shouldn't have to use a magnifying glass to read them."

Under the terms of the two proposed consent agreements, Microsoft and HP would be barred from engaging in similar acts or practices in the future. The agreements would apply to PDAs (and any other handheld Internet or e-mail access devices) that do not come with built-in wireless Internet and e-mail access. Microsoft and HP could not misrepresent the ability of such products to access the Internet or e-mail, nor could they misrepresent any performance characteristic of such products affecting access to the Internet or e-mail. Also, when making claims about the Internet or e-mail access of such devices, Microsoft and HP would have to disclose clearly and conspicuously the need for any additional products (such as a modem or mobile telephone, or adapter) or the need to subscribe to a special Internet or e-mail access service.

HP and Microsoft are also voluntarily disseminating consumer education materials about the various factors consumers should consider when purchasing PDAs, such as whether a PDA offers built-in wireless access. HP has already posted a brochure entitled "Helpful Facts About Personal Digital Assistants" on its Web site. HP will also include references to the brochure and its Web address in certain Jornada print advertising, e-mail the brochure to major consumer electronics retailers and encourage them to place it on their Web sites, and e-mail it to technology journalists and encourage them to write about it. The brochure can be found at www.hp.com/go/pdabrochure

Microsoft will run an essay as a quarter-page advertisement in the Chicago Tribune, Los Angeles Times, New York Times, Seattle Post-Intelligencer, Seattle Times, San Jose Mercury News, Washington Post and Washington Times. The essay, entitled "Personal Digital Assistants are Personal," will discuss the capabilities and limitations of PDAs, highlighting the inability of most PDAs to provide wireless access to e-mail and the Internet without a modem. The essay and Microsoft's print ads for a period of one year will refer readers to a detailed consumer education brochure about the factors consumers should consider when purchasing PDAs. The brochure can be accessed at www.microsoft.com/mobile/pocketpc/pdainfo.asp

The Commission votes to accept the consent agreements for public comment were both 5-0, with Commissioner Orson Swindle issuing a separate statement.

Commissioner Swindle expressed "strong reservations about the use of unenforceable 'voluntary' consumer education. In each of these cases, staff negotiated with the proposed respondent to achieve a consumer education campaign that is being undertaken wholly outside the confines of the order. . . . If consumer education is important enough to include in negotiations, there likely is some impact on what is achieved in negotiating the terms of the consent order itself. Moreover, to the extent that the FTC promotes such 'voluntary' consumer education initiatives in our efforts to publicize the consent agreements, we may see many more deep-pocketed respondents seeking to add a bit of voluntary and unenforceable consumer education to a broader promotional campaign in exchange for a weaker order than might otherwise be negotiated."

Summaries of the agreements will be published in the Federal Register shortly. Comments may be submitted for 30 days, until May 3, 2001, after which the Commission will determine whether to make the agreements final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, D.C. 20580.

NOTE: The consent agreements referenced in this release are for settlement purposes only and do not constitute admissions of law violations. 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 $11,000.

Copies of the complaints, consent agreements, analyses of the agreements to aid public comment and Commissioner Swindle's statement 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. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the online complaint form. The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.

Eric London

Office of Public Affairs

202-326-2180

Michael Ostheimer

Bureau of Consumer Protection

202-326-2699

(FTC File Nos. 002-3220 and 002-3331)