Gateway 2000 to Pay $290,000 to Settle FTC Charges of False Advertising Claims

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.

The FTC's Cleveland Regional Office conducted the investigation.

The Commission vote to accept the proposed consent agreement for public comment was 3-0, with Commissioner Sheila F. Anthony recused. An announcement of the proposed consent agreement will be published in the Federal Register shortly. The agreement 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 Avenue, N.W., Washington, D.C. 20580.

NOTE: This 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.

Copies of the proposed consent agreement, the complaint and an analysis to assist public comment, are available on the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 932 3275)