FTC Settles Charges Against Two Computer Peripherals Sellers for Failing to Keep Rebate Promises

The Federal Trade Commission today announced that it has settled two cases - one against Philips Electronics North America Corporation (Philips) and the other against TimWofford (Wofford), president and sole shareholder of the recently bankrupt OKie, Inc., a company that did business as "Prime Peripherals" - for failure to live up to rebate promises made to consumers of computer peripheral products. These cases represent the first time the FTC has challenged such conduct as both deceptive and unfair in violation of the FTC Act.

According to the FTC, both Philips and Wofford misrepresented the time in which they would deliver rebates, in addition to unilaterally modifying the terms of their rebate programs after they had already begun. Under the consent orders reached with the Commission, Philips and Wofford would be required to comply with the FTC Act and the Commission's Mail or Telephone Order Rule (Mail Order Rule) in the future. Philips also would be required to provide redress to consumers whose pending rebate requests are either due or past due.

"Rebates that begin as a big draw for consumers often end up as a big drag," said J. Howard Beales III, Director of the FTC's Bureau of Consumer Protection. "Some companies are quick to offer attractive rebates, but are slow to send them out, and often make them so difficult to redeem that consumers simply give up." Further, he stated that, "In both of the cases announced today, the Commission alleged that the sellers changed the rules of the game while it was being played. The FTC will use all of its powers - including its power to allege unfair business practices - to challenge such conduct."

The FTC's complaint against Philips states that, between January 2001 and January 2002, its division, Philips Consumer Electronics North America, promised a rebate delivery time of eight weeks, and, in many instances, extended this delivery time without seeking agreement from consumers. Over 50,000 consumers waited up to six months or more beyond the promised eight weeks before receiving their rebates. The complaint against Wofford alleges a similar failure to live up to rebate delivery promises made for OKie, Inc.'s "Prime Peripherals" brand products - noting that in many instances, Wofford's customers either experienced delays ranging from one to six months, or never even received their rebates. The Wofford complaint also alleges facts indicating that the respondent made it difficult for consumers to redeem their rebates by modifying or failing to disclose material terms and conditions of rebate offers. Specifically, Wofford rejected rebate coupons that did not include a phone number, fax number, or email address on the rebate coupon - without informing customers that they would be required to have and disclose all of this information to be eligible to receive a rebate.

The Commission's Complaints

The FTC's complaint against Philips alleges that the company's conduct was deceptive and unfair in violation of the FTC Act. First, the complaint states that Philips falsely represented that it would deliver cash rebates to purchasers of its computer peripheral products (such as CD-re-writable drives and monitors) within eight weeks. Next, the company allegedly unfairly extended the time in which rebates were to be delivered through a unilateral modification of its agreement with consumers. Such one-sided modifications have been found to be "unfair practices" in the past, according to the Commission. A business practice is considered "unfair" if it substantially injures consumers and that injury is not outweighed by a "countervailing benefit" either to consumers or competition, and consumers cannot "reasonably avoid" the injury.

According to the complaint against Wofford, the FTC contends that as the president and sole shareholder of OKie, he falsely represented that the company would mail cash rebates to purchasers of Prime Peripherals' computer peripherals (such as CD-Rom drive kits and recordable compact discs) within 8 to 10 weeks after the company received their requests or within a reasonable period of time, in violation of the FTC Act. In addition, the complaint states that Wofford unilaterally and unfairly modified the terms of the rebate offers and that he failed to state that consumers were required to have and disclose their telephone number, fax number, and e-mail address on the rebate form to receive the cash rebates they were promised.

The Proposed Consent Orders

The proposed consent orders are intended to remedy the conduct alleged in the complaints and ensure such behavior does not recur in the future. The details of each proposed order, and the specific alleged violations they address, are described below.

Philips. The proposed order against Philips would prohibit the company from engaging in practices similar to those alleged in the Commission's complaint, specifically those related to any rebate program involving personal computers or related products. In addition, the order would require that the company comply with the Mail Order Rule if it were to offer rebates in the form of merchandise in the future, and that it not "misrepresent, in any manner...any material terms of any rebate program, including the status of or reasons for any delay in providing any rebate." Finally, the proposed order would require Philips to pay all valid rebate requests that are either due or past due within 10 business days from the date the FTC's order is served.

OKie (Wofford). The proposed order against Wofford would explicitly require him in the future to disclose, clearly and conspicuously, all terms and conditions of any offer made on the rebate form. Second, it would prohibit him from requiring consumers to disclose their fax numbers or e-mail addresses on the rebate form, unless this requirement is disclosed in the ads containing the rebate offers themselves.

Further, Wofford would be prohibited from misrepresenting the time in which any cash rebate (or credit towards future purchases) will be mailed, as well as from failing to provide any such rebate within the time specified. If no time-frame is specified, the rebate would have to be mailed within 30 days. Finally, Wofford would be prohibited from violating the Mail Order Rule in the future if he were to offer rebates in the form of merchandise.

The Commission vote to accept each proposed consent order and place a copy on the public record was 5-0. The FTC is accepting public comment on the proposed orders for 30 days, until September 3, 2002, after which the Commission will determine whether to make them 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 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 complaints and proposed consent orders 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 Nos. 022-3095 - Philips; and 012-3191 - OKie)