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Microsoft and Hewlett-Packard settled a lawsuit Tuesday with the U.S. Federal Trade Commission regarding a claim that the companies falsely advertised wireless capabilities of the Pocket PC handheld computer in a number of national print advertisements.

The advertisements in question, paid for by HP and Microsoft--which makes the operating system for HP's Jornada Pocket PC--ran for several months beginning in April 2000. During that time, the ads appeared in several prominent newspapers including The New York Times and The Wall Street Journal.

The FTC argued that the advertisements misled consumers into thinking HP's handheld could access the Internet and e-mail "anytime" with no additional components. The products actually require a separate landline modem or wireless modem to access the Internet, which can cost between $130 and $350, according to the FTC.

The advertisements did contain a fine-print disclosure stating that a modem was required and sold separately, but the FTC argued that the disclosure, written in four-point and six-point type, was "unclear, inconspicuous, and inadequate."

"The legal standard for disclosures is clear and conspicuous," says Jodie Bernstein, director of the FTC's Bureau of Consumer Protection. "Consumers shouldn't have to use a magnifying glass to read them."

No-Fee Settlement

Microsoft and HP settled the dispute without incurring monetary damages. The companies agreed to a consent order that prevents them from exaggerating the capabilities of products that access the Internet or e-mail, and to disclose clearly in advertisements the need for any additional products, such as a wireless modem, or an Internet access account.

Educating PDA Buyers

"We're pleased to resolve this matter with the FTC," says Jim Desler, a spokesperson for Microsoft. "In terms of working through this with the FTC, we agree there is a need to educate consumers about the capabilities of Pocket PC."

In addition to the FTC's consent order, Microsoft will voluntarily run a quarter-page ad in a number of major newspapers, including The Chicago Tribune, The New York Times, and The Washington Post. The advertisement will include an "essay" regarding helpful hints for consumers when shopping for a Pocket PC.

HP has also already posted a link to a consumer information brochure on its Web site called "Helpful Facts About Personal Digital Assistants" and will refer to the link in subsequent advertisements.

"Consumers are faced with so many choices when they shop for handheld computers, and they often rely on advertising claims when they decide what PDA to buy," says the FTC's Bernstein. "It is critical these ads stick to the facts and accurately reflect a PDA's capabilities."

The FTC will gather comments from the public regarding the consent order against the two technology companies through May 3, when it expects to finalize the agreements. You can send comments to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, D.C. 20580.

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