CompUSA Settles Internet Deception Case with New York

The New York Attorney General’s office announced Monday that it has settled a deceptive advertising case with brick-and-click computer products retailer CompUSA.

At issue were advertisements for rebates on computer products offered by CompUSA’s now defunct subsidiary, Cozone.com. According to the attorney general’s office, Cozone.com failed to disclose up front that advertised rebates of up to US$400 were only available if consumers signed up for three years of Internet access at a cost of more than $20 a month, which totaled over $700.

“My office aggressively monitors advertising both online and offline to help consumers make decisions based on accurate and complete information,” New York Attorney General Eliot Spitzer said.

“My office will continue to enforce companies’ obligations to make full and fair disclosure to customers, regardless of whether products and services are offered for sale via the Internet or through traditional media,” Spitzer said.

Multiple Clicks Required

Cozone.com did disclose that consumers would have to sign up for Internet access, and told consumers that early cancellation of the Internet service would result in “substantial cancellation and repayment fees.”

However, the attorney general’s office deemed the disclosure “insufficient,” because consumers had to click through multiple pages to access the information and learn the basics of the actual offer.

To settle the case, CompUSA agreed to fully and conspicuously disclose the cost of any goods or services sold through its Web site, and to fully disclose all conditions for any rebate offers. CompUSA also agreed to pay $50,000 to cover the cost of the investigation.

Seller Beware

The attorney general’s office said the agreement underscores a “subtle but important” debate within the e-commerce community about online disclaimers and the disclosure of material conditions.

Although some e-commerce insiders maintain that online disclosures are sufficient as long as they are accessible or reviewable online, the New York Attorney General’s office held that such a standard was insufficient, because it allows companies to bury important disclosures behind multiple links, making it difficult for consumers to locate them.

The CompUSA agreement is significant, according to Spitzer, because it sets a more stringent standard requiring that important disclosures appear adjacent to offers — or, in some cases, through a single, conspicuous Web site link.

Similar Cases

CompUSA is not the first company to be taken to task for failing to fully disclose conditions of rebates tied to Internet service agreements. Last summer, the U.S. Federal Trade Commission (FTC) settled similar deceptive advertising cases with Buy.com, Value America and brick-and-click retailer Office Depot.

According to the FTC, ads run by the three companies offering “free” and “low-cost” computers were misleading, because the promotions required the purchase of three-year Internet service contracts and the companies failed to disclose the total cost of the offers. The FTC said that the ads either did not fully disclose the terms, or the terms appeared in very small and inconspicuous disclaimers.

The “free” or “low-cost” computers touted in the ads were in some cases far more expensive than advertised. The ads ran in newspapers, magazines, Web banners, as well as on TV, radio, and the companies’ Web sites.

For example, one advertisement featured a computer for $269. However, the purchaser’s actual cost, taking into account the cost of the Internet service contract, was over $1,000 — nearly four times greater than the advertised price.