IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS

UNITED STATES OF AMERICA, Plaintiff

v.

PATRIOT COMPUTER CORPORATION, Defendant.

CIVIL ACTION NO.

COMPLAINT FOR CIVIL PENALTIES, INJUNCTIVE AND OTHER RELIEF

Plaintiff, the United States of America, acting upon notification and authorization to the Attorney General by the Federal Trade Commission ("Commission"), for its Complaint alleges that:

1. Plaintiff brings this action under Sections 5(a)(1), 5(m)(1)(A), 13(b), and 16(a) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 45(a)(1), 45(m)(1)(A), 53(b), and 56(a), to obtain monetary civil penalties and injunctive and other relief for defendant's violations of the Commission's Trade Regulation Rule Concerning the Sale of Mail or Telephone Order Merchandise (the "Mail Order Rule" or "Rule"), 16 C.F.R. Part 435, and injunctive or other relief for defendant's deceptive practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).

JURISDICTION AND VENUE

2. This Court has jurisdiction over this matter under 28 U.S.C. §§ 1331, 1337(a), 1345, and 1355 and under 15 U.S.C. §§ 45(m)(1)(A), 53(b), and 56(a). This action arises under 15 U.S.C. § 45(a)(1).

3. Venue in the Northern District of Texas is proper under 15 U.S.C. § 53(b) and under 28 U.S.C. §§ 1391(b-c) and 1395(a).

DEFENDANT

4. Defendant Patriot Computer Corporation is an Ontario corporation with its Untied States office and principal United States place of business located within the Northern District of Texas at 5930-E Royal Lane, #160, Dallas, TX 75230. Patriot Computer Corporation transacts business in the Northern District of Texas.

DEFENDANT'S COURSE OF CONDUCT

5. Defendant sells personal computers and computer peripheral equipment. In October 1999, pursuant to a licensing agreement with Mattel Corporation, defendant began selling "Barbie" and "Hotwheels" personal computers for children throughout the United States. Defendant advertised these products in both print and television advertisements nationwide.

6. Defendant sells its merchandise over the Internet and via telephone. For each Internet order, defendant confirms the order by telephone. During these confirmation calls, and during each telephone order, defendant represents the length of time during which the ordered product will be delivered.

7. For orders placed between October 1, 1999, and approximately November 14, 1999, and for orders placed after approximately December 6, 1999, defendant represented that the ordered merchandise would be delivered within eight weeks. For orders placed between approximately November 15, 1999, and approximately December 5, 1999, defendant represented that the ordered merchandise would be delivered prior to Christmas.

8. In numerous instances during October through December 1999, defendant failed to ship merchandise within the stated time and either failed to send delay notices or sent untimely delay notices to the affected consumers. As a result, these consumers were not properly informed about their right to cancel the order and receive a prompt refund.

THE MAIL ORDER RULE

9. The Mail Order Rule was promulgated by the Commission on October 22, 1975, under the FTC Act, 15 U.S.C. § 41 et seq., and became effective February 2, 1976. The Commission amended the Rule on September 21, 1993, under Section 18 of the FTC Act, 15 U.S.C. § 57a, and these amendments became effective on March 1, 1994. The Rule applies to orders placed by telephone, facsimile transmission, or on the Internet.

VIOLATIONS OF THE MAIL ORDER RULE

10. Beginning in 1991, defendant has engaged in the mail and telephone order sale of personal computers and computer peripheral products in commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44.

11. In numerous instances, after having solicited mail orders and telephone orders for merchandise and received "properly completed orders," as that term is defined in Section 435.2(d) of the Mail Order Rule, 16 C.F.R. § 435.2(d), and having been unable to ship some or all of the ordered merchandise to the buyer within the Mail Order Rule's applicable time, as set forth in Section 435.1(a)(1) of the Mail Order Rule, 16 C.F.R. § 435.1(a)(1) (the "applicable time"), defendant has:

a. Violated Section 435.1(b)(1) of the Rule by failing to offer to the buyer, clearly and conspicuously and without prior demand, and in a timely fashion, an option either to consent to a delay in shipping or to cancel the order and receive a prompt refund; and

 

b. Violated Section 435.1(c) of the Rule by failing to deem an order canceled and make a prompt refund to buyers who are entitled to such refunds under the Rule.

12. Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), provides that "unfair or deceptive acts or practices in or affecting commerce are hereby declared unlawful."

13. Pursuant to Section 18(d)(3) of the FTC Act, 15 U.S.C. § 57a(d)(3), a violation of the Mail Order Rule constitutes an unfair or deceptive act or practice in violation of Section 5(a)(1) of the FTC Act, 15 U.S.C. § 45(a)(1).

CIVIL PENALTIES AND INJUNCTION

14. Defendant has violated the Mail Order Rule as described above with knowledge as set forth in Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. § 45(m)(1)(A).

15. Each sale or attempted sale, during the five years preceding the filing of this Complaint, in which defendant has violated the Mail Order Rule in one or more of the ways described above constitutes a separate violation for which plaintiff seeks monetary civil penalties.

16. Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. § 45(m)(1)(A), as modified by Section 4 of the Federal Civil Penalties Inflation Adjustment Act of 1990, 28 U.S.C. § 2461, and Section 1.98(d) of the FTC's Rules of Practice, 16 C.F.R. § 1.98(d), authorizes this Court to award monetary civil penalties of not more than $11,000 for each such violation of the Mail Order Rule.

17. Under Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), this Court is authorized to issue a permanent injunction against defendant's violating the FTC Act.

PRAYER

WHEREFORE, plaintiff requests this Court, pursuant to 15 U.S.C. §§ 45(a)(1), 45(m)(1)(A), and 53(b), and to the Court's own equity powers to:

(1) Enter judgment against defendant and in favor of plaintiff for each violation alleged in this Complaint;

 

(2) Award plaintiff monetary civil penalties from defendant for each violation of the Mail Order Rule;

 

(3) Enjoin defendant from violating Section 5(a) of the FTC Act and the Mail Order Rule;

 

(4) Award plaintiff such additional relief as the Court may deem just and proper.

DATED: