The U.S. Federal Trade Commission (FTC) announced Monday that Netpliance (Nasdaq: NPLI), which manufactures a low-cost Internet access and e-mail device, has agreed to settle charges that its sales and billing practices violated a host of federal laws.
According to the agency, Netpliance employed deceptive advertising tactics when pitching its “i-opener” device, claiming that the product is a less expensive alternative to the personal computer and could provide complete Internet access for as little as US$199.
However, the FTC said the Austin, Texas-based company failed to disclose that customers would have to pay extra costs, such as Internet service fees and long distance telephone charges, to use the appliance.
The federal complaint also maintained that Netpliance did not inform users they would have to utilize Netpliance’s own Internet service to go online and could not sign up with another ISP, even if the company stopped offering the access service in the future.
The FTC also charged that while Netpliance promised the i-opener would supply full Internet functionality, it actually could not process much of the Web’s information and entertainment content. For instance, customers were unable play digital music and video files, nor could they download, store or run software that is readily available online.
In some instances, the device’s users were not able to display Web pages or open e-mail attachments, according to the FTC.
Despite these alleged shortcomings, the agency said Netpliance continued to promise in its advertisements “complete access to the World Wide Web” and claimed that “even the most expensive home computer system” could not supply users with the i-opener’s “simplicity, compact size and convenient features.”
In addition to the deceptive advertising charges, the FTC argued that Netpliance also had violated governmental billing statutes, at times charging customers for Internet service based upon the date they received their i-openers.
However, buyers were told at the time of purchase that they would not be billed until they actually began using the service, said the FTC. The company was also accused of back billing these customers for months of Internet service by charging their credit or debit cards without their consent.
On a related charge, the FTC alleged that Netpliance misrepresented to consumers that they had only 30 days to dispute a charge to their credit card accounts for services performed by the company. Federal law mandates that consumers have 60 days to challenge questionable charges.
As part of the settlement, Netpliance, which did not admit guilt, will pay a $100,000 civil penalty and reimburse consumers for illegal charges to their credit card accounts.
In addition, the FTC said the company agreed to change its procedures to ensure that similar violations do not recur in the future, including “clearly and conspicuously” disclosing all important terms and qualifications related to any of its online access devices or services.
The FTC commission overseeing the complaint voted 5-0 to approve the settlement, which is now subject to the approval of the U.S. District Court for the Western District of Texas.
In a separate statement issued Monday, Netpliance said it had escaped delisting by the Nasdaq National Market.
The Nasdaq listing qualifications panel, which presided over a hearing on the matter last month, ruled that Netpliance’s common stock can continue to be listed with the index while it implements a compliance plan. The firm has contended that its strong cash position, among other factors, justified its continued listing.
According to the panel’s judgment, the company’s stock must trade at or above $1 per share no later than August 28th. Once it hits the target, the stock then must demonstrate a closing bid price of at least $1 per share for a minimum of 10 consecutive trading days.
Netpliance also agreed to undertake a reverse stock split if necessary in order to bring its share price up to the level that is required by Nasdaq. The firm said it expects to hold a special shareholder meeting in the coming weeks to seek approval for the reverse stock split to be implemented at the discretion of its board of directors.