Under the agreement with 22 states, Packard Bell will pay $70,000 in attorney fees and investigative costs to each of the states in the case. $3.5 million will be paid to the federal government for its case.
Packard Bell is also required to post notices on its computer and monitor boxes informing consumers that the new equipment may contain components from previously sold computers. Retailers will also be given similar information to post through out the store. These changes will begin in January.
"In addition, such components must be covered by the Packard Bell original product warranty for new products," said Tom Corbett, attorney general for Pennsylvania.
Packard Bell, which admits no wrongdoing in the case, said the recycling of components is a common industry practice and noted the investigation was spurred by a competitor.
"Compaq filed a lawsuit against us for false advertising back in April 95, but the case blew up in their face," said Marshall Grossman, an attorney representing Packard Bell. "In their lawsuit, they said they allow resellers to put used computers back in new boxes without retesting them."
That disclosure resulted in state agencies launching their own investigation into Compaq, he said.
But Compaq disputes that claim. "We do not condone selling used computers as new," spokeswoman Yvonne Donaldson said. "It's an industry practice to provide boxes to resellers if they have been stained or damaged in transit, so customers can have a nice box when they buy a computer." She added that Compaq, which settled the Packard Bell lawsuit in February, did initiate the investigation and is cooperating with the attorney generals.
Meanwhile, the state agencies are investigating reports that other companies have a similar policy to that of Packard Bell, said Andi Thomas, a spokeswoman for the California attorney general's office. "We are looking into the ways other companies are running their business and nothing has yet been resolved," she said.
In addition to Pennsylvania and California, other states involved in the agreement were Arizona, Arkansas, Connecticut, Delaware, Florida, Illinois, Indiana, Kentucky, Louisiana, Massachusetts, Michigan, Missouri, New Jersey, New Mexico, New York, Ohio, Oregon, Texas, West Virginia, and Vermont.
Packard Bell said the $5 million will be paid out over 12 months and does not expect it to affect its operations, Grossman said. adding that sales will not likely be affected by the notice postings.
Packard Bell was fortunate in its ability to postpone the notices until after the busy Christmas season. "It takes time to change the packaging and we won't be ready until January," Grossman said.