Prodigy Services Corporation

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IN THE MATTER OF PRODIGY SERVICES CORPORATION CONSENT ORDER, ETC, IN REGARD TO ALLEGED VIOLATION OF SEC 907 OF THE ELECTRONIC FUND TRAL\SFER ACT, REGULATION E AND SEC 5 OF THE FEDERAL TRADE COMMISSION ACT Docket 3788. Complaint, March 16, 1998--Decision, March 1998 This consent order prohibits, among other things, the New York-based Internet service provider from: misrepresenting the tenn or conditions of any online service trial offer; or representing that online service is free or otherwise representing that consumers need not pay for the online service, unless any obligation to cancel or to take other action to avoid charges is disclosed clearly and prominently in the instrctional materials, and all other advertisements include a statement directing consumers to where this disclosure is available. Appearances For the Commission: Lucy Morris, David Medine, Nina Chang and Steven Silverman.

For the respondent: Richard Kurnit, Frankfurt, Garbus, Klein & Salz New York, N.

COMPLAINT The Federal Trade Commission, having reason to believe that Prodigy Services Company, a general partnership, which has been succeeded by Prodigy Services Corporation, a corporation, has violated the provisions ofthe Federal Trade Commission Act ("FTC Act"), 15 US. c. 41- , as amended, as well as the Electronic Fund Transfer Act ("EFTA"), 15 U. c. 1693- 1693r, as amended, and its implementing Regulation E, 12 CFR 205, and it appearing to the Commission that this proceeding is in the public interest, alleges: 1. Prodigy Services Company was a New York general partnership comprised of two equal partners: International Business Machines Corporation and Sears, Roebuck and Company. Prodigy Services Corporation, a Delaware corporation with its principal offce or place of business at 445 Hamilton A venue, White Plains, New York, is a successor corporation to Prodigy Services Company, a general partnership. Prodigy Services Company, a general PRODIGY SERVICES CORPORATION 431 430 Complaint partnership, and Prodigy Services successor Corporation, a corporation, shall be hereinafter collectively referred to as "Prodigy. 2. Prodigy has developed, advertised, offered for sale, sold, and distributed to the public its online service for personal computer users. Through its online service, Prodigy has provided consumers with a range of options including electronic mail, interactive magazines and newspapers, transactional services, and access to the Internet.

3. Prodigy has been and is now engaged in the regular practice of making " electronic fund transfer( s J" from " consumer account( s J" as those terms are defined in the Electronic Fund Transfer Act and its implementing Regulation E.

4. The acts and practices of Prodigy alleged in this complaint have been in or affecting commerce, as "commerce" is defined in Section 4 of the Federal Trade Commission Act. PRODIGY' S COURSE OF BUS!)'ESS 5. Prodigy has disseminated, or has caused to be disseminated advertisements for its online service through varous media including, but not limited to, print, television, the Internet, direct mail promotional materials, and instructional materials. These advertisements include, but are not limited to, the attached Exhibits A and B , which contain the following statements: Exhibit A 10 free* hours lO' free hours of prodigy to surf the internet Free Trial! FREE PRODIGY SOFTWARE' FREE! ST MONTH' S MEMBERSHIP FREE 10 HOURS to explore PRODIGY in your first month The advertisement contains a statement at the bottom of the back panel, in fine print, that provides:

'This trial offer includes the first month' s membership fee and 10 free hours of trial usage the first month. Usage beyond the trial offer wi1 result in extra fees even during the first month. 10 free hours will not call over into future biling months and may not be used for certain features. Some features may be charged for separately.

Offer details available during online emollment. Complaint 125 FTC. Exhibit B Get IO free hours* ofPradigy with easy Internet access det 10 free hours to explore the Interaet te; get free software and 10 free hours CALL US AT I- SOO-PRODIGY After your 10 free hours, Pradigy is only $9.95 a month for 5 hours, with no extra charge for Internet access.

The advertisement contains a statement at the bottom of the ITont panel, in fine print, that provides:

*This offer includes first month' s membership fee and 10 free hours of usage in the first month. Usage beyond the trial offer wil result in extra fees. Some features charged for separately. . . .

6. Consumers choosing to participate in the free trial offer do so by connecting to the Prodigy service through a telecommunication modem attached to their personal computers. Upon their initial connection to the service, consumers view a series of enrollment screens which request identification and billing information, prompt them to select passwords for future access to the online service, and provide basic information about the online service. 7. At times relevant to this complaint, the online enrollment process included a "Welcome" screen, attached as Exhibit C, that provides, in part:

Exhibit C Welcome to the PRODIGY service. There s never been a better time to connect with the PRODIGY service. Live on PRODIGY, right now, you can have instant access to investment advice, sports scores, business news, travel tips, games, an encyclopedia, and so much more! To continue with the enrollment process, consumers next must choose one ofthree icons or "buttons" alTayed vertieally on the right side of the "Welcome" screen. These buttons provide, in descending order, the following three options: "Enroll Now Plan Details " and Guarantee. " The "Enroll Now" button has a flashing border. a. When consumers select the "Enroll Now" button ITom the Welcome" screen, the enrollment process continues without display of either the "Plan Details" screen or the " Guarantee" screen. b. The "Plan Details" button leads to a screen that provides: PRODIGY SERVICES CORPORATION 433 430 Complaint Exhibit D Plan Details Prodigy offers several Membership Plans. For details about your Plan, please refer to the materials included with your softare. Other plans are available online. Certain features are priced separately and prices are designated online. Charges for extra- fee features used by your household will be biIed to your account when online, Jump: fees for details about pricing. If you have any questions, please call us at I-800-PRODIGY (1-800-776-3449). From this screen, consumers next must choose one of two buttons to Theview another screen: "Previous Page" or "Enroll Now." Previous Page" button leads back to the "Welcome" screen. Choosing the "Enroll Now" button causes the enrollment process to continue without display of the " Guarantee" screen. c. From the "Welcome Screen " the "Guarantee" button leads to a screen that provides:

Exhibit E Satisfaction Guarantee We want you to be completely satisfied with the service. If you re not, let us know during your first month and we ll cancel your Membership. Otherwise, we automatically continue your Membership. Other plans are available online. From this screen, consumers next must choose one of two buttons to view another screen: "Previous Page" or "Enroll Now. " The Previous Page" button leads back to the "Welcome" screen. Choosing the "Enroll Now" button causes the enrollment process to continue without display of the "Plan Details" screen. 8. In the course of the enrollment process, Prodigy requires consumers to choose a biling method. Consumers must provide a credit, charge, or debit card number. Alternatively, consumers may choose an automatic checking account debiting program called AutoPay. Prodigy requires consumers choosing AutoPay to submit a written authorization form before debiting their accounts. Prodigy does not require such written authorization tiom consumers choosing to pay by debit card.

PRODIGY' S VIOLATIONS OF SECTION 5(a) OF THE FTC ACT 9. Through the means described in paragraphs five through eight Prodigy has represented, expressly or by implication, that consumers who participate in its free trial offer will not be charged, provided 434 FEDERAL TRDE COMMISSION DECISIONS Complaint 125 FTC. only that they use the trial time within one month of their initial sign-on and do not exceed ten hours of online use. 10. In truth and in fact, consumers who participate in Prodigy free trial offer and do not exceed ten hours of online time during the month following their initial sign-on, but who fail to cancel their memberships during the trial period, incur charges. Therefore, the representation set forth in paragraph nine was, and is, false or misleading.

11. In the advertising and sale of its online service, Prodigy has represented, expressly or by implication, that consumers who participate in its free tral offer wil not be charged, provided only that they use the trial time within one month of their initial sign-on and do not exceed ten hours of online use. Prodigy has failed to disclose adequately to consumers that, upon completion of ten hours of online use or one month from the date of initial sign-on, whichever is earlier consumers who fail to contact Prodigy and cancel their trial memberships are automatically emolled as members of Prodigy and are charged a monthly membership fee plus applicable usage fees. These fees continue to accrue until the consumers affrmatively cancel their memberships. Such facts would be material to consumers in their purchase or use of the Prodigy service. The failure to disclose these facts in light of the representation made was, and is, a deceptive practice.

PRODIGY' S VIOLATIONS OF SECTION 907 OF THE EFTA 12. As described in paragraph eight, in the course and conduct of its business, Prodigy in many instances has debited consumers accounts via their debit cards without their written authorization. In addition, in the course and conduct of its business, Prodigy in many instances has failed to provide consumers with advance written notice of transfers from their accounts varying in amount from previous transfers.

13. Prodigy s aforesaid practices violate Sections 907(a) and (b) ofthe Electronic Fund Transfer Aet, 15 US. c. 1693e(a) and (b), and Sections 205. IO(b) and (d) of Regulation E, 12 CFR 205. 10(b) and (d), as more fully set out in Section 205. 10 of the Federal Reserve Board' s Offcial Staff Commentary to Regulation E, 12 CFR 205 Supp.

14. The acts and practices of Prodigy as alleged in this complaint constitute deceptive acts or practices in or affecting commerce, in PRODIGY SERVICES CORPORATION 435 430 Complaint violation of Section 5(a) of the Federal Trade Commission Act. Such acts and practices additionally violate Sections 907(a) and (b) of the Electronic Fund Transfer Act, 15 U.sc. 1693e(a) and (b), and Sections 205. 10(b) and (d) of Regulation E, 12 CFR 205. 10(b) and (d).

Commissioner Azcuenaga not participating.

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PRODIGY SERVICES CORPORATION 443 430 Complaint EXHIBIT E PR adr GY Servi c:e EnrolllT1ent Satisfaction Gua antee Enroll No We wan I you 10 be complelely sallsf:ed i - P.g ;: with the service IF you re no!, let us now :) during your flrsl month and we ll cancel your Membership Otherwise, we ll aulomallcally '" contln e your Membership online f Other plans are available :f' . ;Mt Copied. from the FRCDICY(RI Iur-ic:e 07/21/95 12::2i .:c-==.:; ::

Decision and Order 125 FTC. DECISION AN ORDER The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondent named in the caption hereof, and the respondent having been furnished thereafter with a copy of a draft complaint which the Bureau of Consumer Protection proposed to present to the Commission for its consideration and which, if issued by the Commission, would charge the respondent with violation of the Federal Trade Commission Act and the Electronic Fund Transfer Act and its implementing Regulation E; and The respondent, its attorneys, and counsel for the Commission having thereafter executed an agreement containing a consent order an admission by the respondent of all the jursdictional facts set forth in the aforesaid draft of complaint, a statement that the signng of said agreement is for settlement puroses only and does not constitute an admission by the respondent that the law has been violated as alleged in such complaint, or that the facts as alleged in such complaint, other than jurisdictional facts, are tre and waivers and other provisions as required by the Commission s Rules; and The Commission having thereafter considered the matter and having determined that it had reason to believe that the respondent has violated the said Acts and Regulation, and that a complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, now in further conformity with the procedure prescribed in Section 2.34 of its Rules the Commission hereby issues its complaint, makes the following jurisdictional findings and enters the following order: 1. Respondent Prodigy Services Corporation is an Ohio corporation with its principal place of business or offce at 445 Hamilton Avenue, White Plains, New York.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondent, and the proceeding is in the public interest.

ORDER DEFI:"ITONS For purposes of this order, the following terms shall have the meanings set forth below, unless specifically stated otherwise: , PRODIGY SERVICES CORPORA non 445 430 Dccision and Order 1. "Account" means a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held either directly or indirectly by a financial institution, as defined below, and established primarily for personal, family, or household purposes.

2. "Financial institution means a State or National bank, a State or Federal savings and loan association, a mutual savings bank, a State or Federal credit union, or any other person who, directly or indirectly, holds an account belonging to a consumer. 3. "Consumer means a natural person or other entity that may be billed for online services; provided that, for purposes of paragraphs and VI of this order consumer" shall only mean a natural person. 4. "Electronic Fund Transfer " as defined by the Electronic Fund Transfer Act, 15 US.c. 1693a(6), means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal telephone, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account, except that it does not mean a transaction made using a debit card or debit card account which a consumer has identified as a credit card or credit card account.

5. "Online Service shall mean a respondent-controlled access information, communication, or transaction service which is made available to consumers as a paid service via connection by computers modems, or other means, to a proprietary or non-proprietary network of telecommunication or computer facilities. 6. Unless otherwise specified respondent shall mean Prodigy Services Corporation, its successors and assigns, and its offcers agents, servants, divisions, and employees. 7. "Respondent-controlled" shall mean respondent makes the management decisions affecting compliance with the provisions of this order.

8. ''In or affecting commerce shall mean as defined in Section 4 of the Federal Trade Commission Act, 15 US. c. 44. It is ordered That respondent, directly or through any respondent-controlled corporation, subsidiary or other device, in connection with the advertising, promotion, offering for sale, sale, or distribution of any Online Service in or affecting commerce, shall not g., g., , , Decision and Order 125 FTC. misrepresent, expressly or by implication, the terms or conditions of any trial offer of any Online Service.

II.

It is further ordered That respondent, directly or through any respondent-controlled corporation, subsidiary, or other device, in connection with the advertising, promotion, offering for sale, sale, or distrbution of any Online Service in or affecting commerce, shall not represent, expressly or by implication, that the Online Service is offered " ITee without risk without charge without further obligation " or words of similar import denoting or implying the absence of any obligation on the par of the recipient of such offer to pay for the Online Service unless respondent discloses clearly and prominently any obligation of the recipient to cancel or take other affrmative action to avoid charges for use of the Online Service. Provided, that for purposes of this paragraph II clearly and prominently" shall mean with respect to any representation, described in the foregoing paragraph and made in respondent' s detailed instructional materials (e. starter kits, guidebooks) distributed to consumers, a disclosure in a type size and in a location that are suffciently noticeable so that an ordinary consumer could notice read, and comprehend it.

Provided, further, that for purposes of this paragraph II clearly and prominently" shall mean, as to any representation described above in this paragraph, apar ITom any representation covered by the preceding proviso, and made in the context of any advertisement or promotion of the Online Service through any media, including radio television or other broadcast media, direct mail, interactive network (except as provided in paragraph IV below), or print media (including promotion packages attached thereto), a statement directing consumers to a location where the disclosure required herein will be available (e. For conditions and membership details " followed by: "load up trial software" or "see registration process" or words of similar effect.) In the case of an audio statement, the statement shall be delivered in a volume and cadence sufficient for an ordinary consumer to notice, hear, and comprehend it. In the case of a video statement, the statement shall be of a size and shade and shall appear for a duration suffcient for an ordinary consumer to notice, read, and comprehend it. In the case of print media, the statement shall be in a g., g., PRODIGY SERVICES CORPORATION 447 430 Decision and Order type size and in a location suffcient for an ordinary consumer to notice, read, and comprehend it.

Nothing contrary to, inconsistent with, or in mitigation of the disclosure shall be permitted.

It is further ordered That respondent, directly or through any respondent-controlled corporation, subsidiary, or other device, in connection with the advertising, promotion, offering for sale, sale distribution of, or billing for any Online Service in or affecting commerce, shall disclose, clearly and prominently, during the final registration process, and prior to the consumer incurng any financial obligation or financial liability to respondent, the terms of all mandatory financial obligations to respondent which will be incurred by the consumer as a result of using such Online Service, including but not limited to the following:

A. The financial terms and conditions of any plan or practice (e. trial offer) by which consumers enroll in or renew enrollment in such Online Service and by which, accordingly, respondent charges the consumer; provided, that if such plan or practice exists respondent must also disclose clearly and prominently any obligation of the recipient to cancel Of take other affrmative action to avoid charges for use of the Online Service and provide at least one reasonable means by which the consumer may effectively cancel his or her enrollment by a date certain and thereby avoid fuhef charges; and B. Any mandatory membership, enrollment, or usage fees (e. monthly or hourly usage charges).

Provided, however, that for purposes of this paragraph II, a disclosure is "clearly and prominently" made if it is of a size and shade, and appears for a duration suffcient for an ordinary consumer to notice, read, and comprehend it. In addition to the foregoing, such disclosure shall not be avoidable by consumers. Provided, further that such disclosure shall not be deemed avoidable for purposes of this order based solely on an ordinary consumer s failure to read it. Nothing contrary to, inconsistent with, or in mitigation of the disclosure shall be permitted.

Decision and Order 125 FTC. IV.

It is further ordered That respondent, directly or through any respondent-controlled corporation, subsidiar, or other device, in connection with any Electronic Fund Transfer from any consumer account, shall not:

A. Fail to obtain consumer authorization before initiating any Electronic Fund Transfer from any consumer account as required by Section 907(a) of the Electronic Fund Transfer Act, 15 US. 1693e(a), and Section 205. IO(b) of Regulation E, 12 CFR 205. 10(b), as more fully set out in Section 205. 10 ofthe Federal Reserve Board' Offcial Staff Commentary to Regulation E, 12 CFR 205, Supp. 1. B. Fail to provide any consumer with advance notice of Electronic Fund Transfers from the consumer s account varing in amount from previous transfers as required by Section 907(b) of the Electronic Fund Transfer Act, 15 US.c. 1693e(b), and Section 205. IO(d) of Regulation E, 12 CFR 205. 10(d), as more fully set out in Section 205. 10 of the Federal Reserve Board's Offcial Staff Commentary to Regulation E, 12 CFR 205 , Supp. 1.

It is further ordered That respondent, directly or through any respondent-controlled corporation, subsidiary, or other device, shall for five (5) years after the last date of dissemination of any representation covered by paragraphs I - III of this order, maintain and upon request make available to the Federal Trade Commission for inspection and copying business records demonstrating compliance with the terms and provisions of this order, except as provided for in paragraph VI of this order, including, but not limited to:

A. All advertisements, promotional materials, and instructional materials distributed or accessible to consumers containing the representation;

B. For five (5) years after the date of receipt or generation, all written complaints from consumers, governmental or consumer protection organizations and responses thereto; provided, however that in lieu of maintaining all electronic mail or similar communications, respondent may comply with this provision by maintaining a representative sample of such communications. g., PRODIGY SERVICES CORPORATION 449 430 Decision and Order VI.

It is further ordered That respondent, directly or through any respondent-controlled corporation, subsidiar, or other device, shall for two (2) years after the date of issuance ofthis order, maintain and upon request make available to the Federal Trade Commission for inspection and copying all business records which demonstrate respondent' s compliance with paragraph IV of this order; provided however, that in lieu of maintaining all electronic mail or similar communications, respondent may comply with this provision by maintaining a representative sample of such communications. VII.

It is further ordered That respondent, and its successors and assigns, shall deliver a copy of this order to all current and future principals, offcers, directors, senior managers (e. vice-presidents or above), and agents (including, without limitation, advertising agencies) having responsibilities with respect to the subject matter of this order, and shall secure ttom each such person a signed and dated statement acknowledging receipt of the order. Respondent, and its successors and assigns, shall prepare a summar of this order, and shall distribute a copy of that summar to all current and future managers with responsibilities or duties affecting compliance with the terms of this order.

VII It is further ordered That respondent, directly or through any respondent-controlled corporation, subsidiary, or other device, shall notify the Commission at least thirt (30) days prior to any change in the corporation that may affect compliance obligations arising under this order, including but not limited to dissolution, assignment, sale merger, or other action that would result in the emergence of a successor corporation; the creation or dissolution of a parent or respondent-controlled subsidiar or respondent-controlled affliate that engages in any acts or practices subject to this order; the proposed filing of a banptcy petition; or a change in the corporate name or address. Provided, however, that, with respect to any proposed change in the corporation about which respondent learns less than thirt (30) days prior to the date such action is to take place respondent shall notify the Commission as soon as is practicab Ie after obtaining such knowledge. All notices required by this Par shall be Decision and Order 125 FTC. Division ofsent by certified mail to the Associate Director, Enforcement, Bureau of Consumer Protection, Federal Trade Commission, Washington, D.

IX.

That respondent, directly or through any It is further ordered respondent-controlled corporation, subsidiary, or other device, shall within sixty (60) days after the date of service of this order, and at such other times as the Federal Trade Commission may require, file with the Commission a report, in writing, setting forth in detail the manner and form in which it has complied with this order. This order wil terminate on March 16 2018, or twenty (20) years ITom the most recent date that the United States or the Federal Trade Commission files a complaint (with or without an accompanying consent decree) in federal court alleging any violation of the order whichever comes later; provided, however, that the fiing of such a complaint will not affect the duration of: A. Any Par in this order that terminates in less than twenty (20) years;

B. This order s application to any respondent that is not named as a defendant in such complaint; and C. This order if such complaint is filed after the order has terminated pursuant to this Part.

Provided, further, that if such complaint is dismissed or a federal court rules that the respondent did not violate any provision of the order, and the dismissal or ruling is either not appeaJed or upheld on appeal, then the order will terminate according to this Part as though the complaint had never been filed, except that the order will not terminate between the date such complaint is filed and the later of the deadline for appealing such dismissal or ruling and the date such dismissal or ruling is upheld on appeal.

Commissioner Azcuenaga not participating.

COMPUSERVE, INe. 451 451 Complaint