Palm, Inc. Settles FTC Charges That it Failed to Disclose Limitations of its Personal Digital Assistants

The Federal Trade Commission today announced a proposed settlement agreement with Palm, Inc. (Palm), the leading manufacturer of Personal Digital Assistants (PDAs). The settlement concerns Palm's claims that its PDAs come with built-in wireless access to the Internet and e-mail, as well as other common business functions - claims that the FTC alleged were not true for many models of the popular PDAs. Under the terms of the settlement, Palm would be required to disclose, clearly and conspicuously, when consumers have to buy add-ons in order to perform advertised functions (such as the need for a modem to access e-mail or the Internet).

In its complaint against Palm, the Commission said the company's claims that its PDAs come with built-in wireless access to the Internet and e-mail, as well as other common business functions, such as viewing Microsoft Word and Excel documents, were deceptive. In order to wirelessly access the Internet and their email accounts using most Palm PDAs, consumers must purchase and carry a separate wireless modem or a device to connect the PDA to certain mobile telephones, and in order to perform the claimed business functions using Palm PDAs, consumers must purchase and install additional software.

In addition, the FTC alleged that the company's advertisements failed to disclose that purchasers of one model line that comes with built-in wireless Internet and e-mail access must subscribe to Palm's proprietary "Palm.Net" Internet service and pay significant monthly service fees for e-mail and Internet access.

The Proposed Consent Order

Under the terms of the proposed consent agreement, Palm would be prohibited from misrepresenting that products covered by the order - PDAs and other handheld Internet or e-mail access devices - can perform any common business function that they cannot perform without additional products or services that must be purchased by consumers. The agreement also would require Palm to make clear and conspicuous disclosures when making claims about the ability of such products to perform any function that requires the purchase of additional products or services.

If the function being advertised involves accessing the Internet or e-mail, Palm would have to disclose any other products (such as a modem or mobile telephone, or adapter) or special Internet or e-mail services that consumers must buy in order to get access using Palm's product. When the functions being advertised do not involve accessing the Internet or e-mail, Palm would have to disclose that additional products must be purchased to perform such functions.

In addition, Palm would be barred from misrepresenting any performance characteristic of any non-wireless PDA regarding its ability to access the Internet or e-mail. The agreement would also prohibit Palm from misrepresenting that its wireless Internet or e-mail service coverage is available everywhere or almost everywhere in the United States.

The Commission vote to accept the proposed consent agreement for public comment was 5-0. A summary of the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until April 5, 2002, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, 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.

Copies of the proposed consent agreement and an analysis to aid public comment 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 complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC File No. 002-3332)