Dell Computer Corporation and Micron Electronics, Inc.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 9823563 & 9823565]

Dell Computer Corporation and Micron Electronics, Inc.; Analysis

To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreements.

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SUMMARY: The consent agreements in these matters settle alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaints that accompany the two consent agreements and the terms of

the consent orders--embodied in the consent agreements--that would

settle these allegations.

DATES: Comments must be received on or before July 19, 1999.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 600 Pennsylvania Avenue, NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Sally Forman Pitofsky or Rolando

Berrelez, FTC/S-4429, 601 Pennsylvania Avenue, NW., Washington, DC

20580, (202) 326-3224.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of

the Commission's Rules of Practice, 16 CFR 2.34, notice is hereby given

that the above-captioned consent agreements containing consent orders

to cease and desist, having been filed with and accepted, subject to

final approval, by the Commission, have been placed on the public

record for a period of sixty (60) days. The following Analysis to Aid

Public Comment describes the terms of the consent agreements, and the

allegations in the complaints. Electronic copies of the full text of

the consent agreement packages can be obtained from the FTC Home Page

(for May 13th, 1999), on the World Wide Web, at ``http://www.ftc.gov/

os/actions97.htm.'' Paper copies can be obtained from the FTC Public

Reference Room, Room H-130, 600 Pennsylvania Avenue, NW., Washington,

DC 20580, either in person or by calling (202) 326-3627.

Public comment is invited. Comments should be directed to: FTC/

Office of the Secretary, Room 159, 600 Pennsylvania Avenue, NW.,

Washington, DC 20580. Two paper copies of each comment should be filed,

and should be accompanied, if possible, by a 3\1/2\ inch diskette

containing an electronic copy of the comment. Such comments or views

will be considered by the Commission and will be available for

inspection and copying at its principal office in accordance with

Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR

4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

Summary: The Federal Trade Commission has accepted separate

agreements, subject to final approval, from Dell Computer Corporation

(``Dell'') and Micron Electronics, Inc. (``Micron'') (collectively

referred to as ``respondents''). The proposed consents resolve

allegations that respondents created and disseminated computer lease

advertisements that violate the Federal Trade Commission Act (``FTC

Act''), the Consumer Leasing Act (``CLA''), and Regulation M.

Section 5 of the FTC Act prohibits false, misleading, or deceptive

representations or omissions of material information in advertisements.

In addition, Congress established statutory disclosure requirements for

lease advertising under the CLA and directed the Federal Reserve Board

(``Board'') to promulgate a regulation implementing such statute--

Regulation M. See 15 U.S.C. 1667-1667e; 12 CFR Part 213.

The proposed consent orders have been placed on the public record

for sixty (60) days for receipt of comments by interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will again review the

agreements and the comments received and will decide whether it should

withdraw from the agreements or make final the agreements' proposed

orders.

[[Page 27545]]

I. Dell and Micron Complaints

A. FTC Act Violations--Lease Advertising

1. Failure to Disclose Adequately that Transaction Advertised is a

Lease.

Count I of the Dell complaint alleges that respondent Dell, in

lease advertisements, represents that consumers can purchase the

advertised computer systems for the monthly payment amounts prominently

stated in the advertisements. These advertisements allegedly do no

adequately disclose that each advertised monthly payment amount is a

component of a lease offer. The Dell complaint alleges that the

existence of this additional information would be material to consumers

in deciding whether to lease or purchase a computer from Dell. Count I,

therefore, alleges that the failure to disclose adequately this

additional information, in light of the representation made, was, and

is, a deceptive practice in violation of Section 5 of the FTC Act.

2. Failure to Disclose, and/or Failure to Disclose Adequately,

Lease Terms.

Count II of the Dell complaint and Count I of the Micron complaint

allege that respondents' lease advertisements represent that consumers

can obtain the advertised computer systems at the terms prominently

stated in the advertisements, including but not limited to the monthly

payment amount. These advertisements allegedly fail to disclose, and/or

fail to disclose adequately, additional terms pertaining to the lease

offers, such as the total amount of any payments due at lease inception

and/or the term of the lease. The existence of this additional

information would be material to consumers in deciding whether to lease

the advertised computer systems from respondents, according to the

complaints, These practices, according to the complaints, constitute

deceptive acts or practices in violation of Section 5(a) of the FTC

Act.

B. CLA and Regulation M Violations

Dell and Micron's lease advertisements also allegedly violate the

CLA and Regulation M. According to the complaints, these respondents'

computer lease advertisements state a monthly payment amount but fail

to disclose, and/or fail to disclose clearly and conspicuously, certain

additional terms required by the CLA and Regulation M, including one or

more of the following terms: that the transaction advertised is a

lease; the total amount due prior to or at consummation or by delivery,

if delivery occurs after consummation, and that such amount: (1)

excludes third-party fees, such as taxes, licenses, and registration

fees, and discloses that fact or (2) includes third-party fees based on

a particular state or locality and discloses that fact and the fact

that such fees may vary by state or locality; whether or not a security

deposit is required; and the number, amount, and timing of scheduled

payments.

Respondents' television, Internet, and/or print disclosures are not

clear and conspicuous because they appear in fine print at the bottom

of the advertisements. The Dell and Micron complaints, therefore,

allege that these practices violate Section 184 of the CLA, 15 U.S.C.

1667c, as amended, and Section 213.7 of Regulation M, 12 CFR 213.7 as

amended.

II. Proposed Consent Orders

The proposed consent orders contain provisions designed to remedy

the violations charged and to prevent respondents from engaging in

similar acts and practices in the future. Specifically, subparagraph

I.A. of the Dell proposed order prohibits Dell from failing to disclose

clearly and conspicuously that any advertised lease terms, including

but not limited to a monthly payment amount or downpayment, pertain to

a lease offer.

Subparagraph I.B. of the Dell proposed order and subparagraph I.A.

of the Micron proposed order prohibit respondents, in any lease

advertisements, from making any reference to any charge that is part of

the total amount due at lease signing or delivery or that no such

amount is due, not including a statement of the periodic payment,

unless the advertisement also states with equal prominence the total

amount due at lease inception. The ``equal prominence'' requirement

prohibits respondents from running deceptive advertisements that

highlight low amounts ``down,'' with inadequate disclosures of actual

total inception fees. This ``Equal prominence'' requirement for lease

inception fees also is found in Regulation M.

Moreover, subparagraph I.C. of the Dell proposed order and

subparagraph I.B. of the Micron proposed order prohibit respondents, in

any lease advertisement, from stating the amount of any payment, or

that any or no initial payment is required at consummation of the

lease, unless the advertisement also states, clearly and conspicuously,

all of the terms required by Regulation M, as follows: (1) that the

transaction advertised is a lease; (2) the total amount due at lease

signing or delivery; (3) whether or not a security deposit is required;

(4) the number, amounts, and timing of scheduled payments; and (5) that

an extra charge may be imposed at the end of the lease term where the

liability of the consumer at lease end is based on the anticipated

residual value of the leased property.

The information required by subparagraphs I.C. and I.B. of the Dell

and Micron proposed orders, respectively, must be disclosed ``clearly

and conspicuously'' as defined in the proposed orders. The ``clear and

conspicuous'' definition requires respondents to present such lease

information, as applicable, within the advertisement so that an

ordinary consumer can read, or hear, and comprehend it. This definition

is consistent with the ``clear and conspicuous'' requirement for

advertising disclosures in Regulation M that require disclosures that

consumers can see and read (or hear) and comprehend. It is also

consistent with prior Commission orders and statements interpreting

Section 5 to require that advertising disclosures be readable (or

audible) and understandable to reasonable consumers.

Finally, subparagraph I.D. of the Dell proposed order and

subparagraph I.C. of the Micron proposed order enjoin respondents from

failing to comply in any other respect with Regulation M, 12 CFR 213,

as amended, and the CLA, 15 U.S.C. 1667-1667e, as amended.

Like prior Commission orders involving lease advertising, these

orders refer to Regulation M and the CLA, as amended, Thus, these

orders contemplate that any modification to the advertising disclosure

requirements provided in Regulation M or the CLA will be incorporated

automatically into those parts of the orders referencing those laws.

The purpose of this analysis is to facilitate public comment on the

proposed orders. It is not intended to constitute an official

interpretation of the agreements and proposed orders or to modify in

any way their terms.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 99-12660 Filed 5-19-99; 8:45 am]

BILLING CODE 6750-01-M