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Pocket PC settlement chastens Microsoft, HP

The two companies have agreed not to run ads in the future that suggest Pocket PC-based handhelds come with built-in Internet access, the Federal Trade Commission says.

Microsoft and Hewlett-Packard have agreed not to run ads in the future that suggest Pocket PC-based handheld computers come with built-in wireless Internet access, the Federal Trade Commission said Tuesday.

A joint advertisement that ran last spring in several national publications including The New York Times and The Wall Street Journal made this claim, while failing to conspicuously note that customers must also own a modem to connect to the Internet, the FTC said.

HP makes Jornada handheld computers that use Microsoft's Pocket PC operating system. They do not come with built-in wireless access.

The lack of detailed information about Internet access is significant because a landline modem costs about $130 and a wireless modem can cost at least $350, according to the FTC.

"Buying a PDA can be very confusing; there's a lot of things to consider," said Michael Ostheimer, a staff attorney at the FTC. "These companies were making claims that were misleading."

Under the terms of the proposed consent agreements, Microsoft and HP agree they will not misrepresent the ability of their products to access the Internet or e-mail.

When making claims about the ability of handheld computers to access the Internet or e-mail, the companies also agree to disclose clearly and conspicuously the need for any additional products such as a modem.

In addition, HP and Microsoft voluntarily agree to publish consumer information on buying a handheld computer. HP has already posted a brochure titled "Helpful Facts About Personal Digital Assistants" on its Web site. Microsoft plans to run an essay as a quarter-page ad in several national newspapers including the Chicago Tribune, The New York Times and The Washington Post.

Microsoft and HP admit no wrongdoing in the settlement.

Microsoft spokesman Jim Desler said that the company was "pleased" to have reached a settlement with the FTC and that the issue was over the size of the disclosure in the ads, not the absence of it.

The ads in question, which ran in April 2000, did contain a disclosure at the bottom stating "Modem required. Sold separately." However, the FTC asserts that the disclaimers, written in 4-point and 6-point type, were too small to effectively warn consumers.

"The legal standard for disclosures is clear and conspicuous," FTC Director Jodie Bernstein said in a statement. "Consumers shouldn't have to use a magnifying glass to read them."

The settlement will be finalized after a 30-day public comment period.