Apple Computer To Offer To Pay Consumers To Settle FTC Charges over False Advertising Claims

As part of a settlement of Federal Trade Commission charges, Apple Computer, Inc., has agreed to offer Power PC Upgrade Kits, at less than half the original list price, to each consumer who purchased one of three of the company’s entry-level “Performa” model personal computers. Apple has also agreed to rebate $776 of the original price to consumers who have already purchased the upgrade. The consent agreement settles FTC charges that Apple misrepresented that the upgrade was available to consumers at the time that they purchased a Performa or within a reasonable period of time thereafter.

“Apple’s offer to compensate thousands of consumers will help assure the public that advertising must be truthful,” said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. “This is particularly important in the fast moving world of computers, where consumers must be able to rely upon claims made by companies that the product they are buying is, and will be, capable of remaining up-to-date.”

According to the complaint detailing the charges, the FTC alleged that Apple made false claims that: a Power PC upgrade was available to consumers at the time that they purchased a “Performa 550" or “Performa 560" computer; and that a Power PC upgrade would be available within a reasonable period of time after the purchase of a Performa 550, Performa 560 or “Macintosh LC 550." The "upgrade" was not offered for at least one year after Apple began representing that these computers were upgradeable. Once offered, the "upgrade" was so expensive it cost almost as much as an entirely new PowerPC computer, the Commission alleged.

According to the FTC, the company also failed to disclose in its advertising that, in order to obtain the PowerPC technology, consumers would need to purchase and install an upgrade package that included not only a PowerPC upgrade card, but also a new logic board. (A logic board is Apple’s equivalent of the PC’s mother board.) The fact that a logic board was a component of the upgrade package would be an essential fact for consumers to know when they purchased the computer, the complaint says.

Apple, a California corporation with its offices and principal place of business located at One Infinite Loop, Cupertino, California, is a major manufacturer and marketer of personal computer hardware and software products. Apple introduced the Performa 550 in November 1993, the Performa 560 in January 1994, and the LC 550 in February 1994.

In order to settle these charges, Apple would compensate consumers who purchased the Performa 550, Performa 560, and the Macintosh LC 550 by offering a Power PC Upgrade Kit for the reduced price of $599--less than one-half of the original list price of the upgrade. Apple has also agreed to rebate $776.00 of the original price of $1,375.00 to consumers who have already purchased the upgrade.

The company would also be prohibited from misrepresenting the availability of any microprocessor upgrade product. In addition, the company would be prohibited from representing that any computer hardware product is currently upgradeable, unless at the time such representation is made, the upgrade is then available, in reasonable quantities to the public, given good-faith projections of anticipated demand.

Apple would also be prohibited from marketing as an "upgrade" any microprocessor upgrade product that also includes a new logic board, unless Apple discloses, clearly and prominently, that a new logic board is a component of the upgrade product.

The redress program’s offer of a reduced price for the PowerPC Upgrade Kit would also ensure that the kit will include all of the hardware necessary for the upgrade, as well as four megabytes of RAM, two essential pieces of PowerPC software, and a coupon for free installation of the upgrade hardware redeemable at any authorized Apple service location. Apple also would have the option of providing eligible consumers with a new PowerPC system in lieu of the upgrade kit. According to the FTC, this provision is designed to protect consumers if Apple runs out of the hardware necessary to build the upgrade kits. The redress provision includes a detailed program by which Apple would identify the consumers likely to have been injured by the alleged deception, notify them of the program, and implement either the sale and installation of the upgrade, or the sending of a rebate check. A notification of the redress program would be published in at least one nationally circulated newspaper.

The investigation was conducted by the FTC’s San Francisco Regional Office.

The Commission vote to announce the proposed consent agreement for public comment was 5-0. An announcement of the agreement will be published 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 final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Ave., N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an 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 $11,000.

The complaint, proposed consent agreement, and an analysis to assist public comment, are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov ; the consents are available by calling 202-326-3627. In addition, FTC documents are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY 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.

FTC File No: 952 3275