Seven Internet Retailers Settle FTC Charges Over Shipping Delays During 1999 Holiday Season

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.

Eric London

Office of Public Affairs

202-326-2180

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)