eToys Investigation Has Far-Reaching Implications

As the E-Commerce Times predicted last December, the Federal Trade Commission (FTC) has opened an investigation into whether e-tailers violated its Mail or Telephone Order Merchandise Rule during the just-completed holiday shopping season.

While companies like Toysrus.com received far more publicity over late shipments, the FTC has zeroed in on eToys, Inc. It is not clear whether other e-tailers will be investigated as well.

Regardless of how many companies the FTC targets, news of the investigation will reverberate throughout the industry. By focusing on one or a dozen firms, the FTC has made it very clear to other leading e-tailers that it expects conformance with its Mail Order Rules.

As a result, it is likely that the FTC will not take harsh actions against the company. Instead, expect a consent decree in which eToys agrees to follow the Mail Order Rule without admitting or denying prior guilt.

While such a consent decree might seem like a slap on the wrist, it will be a loud slap that all e-tailers will hear. It is likely that the very act of a public investigation is already having an impact.

If every leading e-tailer does not already have a plan in place to automate the process of complying with the FTC’s Mail Order Rules, such plans will likely be under consideration within a matter of weeks.

About the Mail Order Rule

The Rule requires companies to notify the consumer if an order cannot be shipped on time. The customer must then be given an opportunity to cancel the sale, although the company can presume that the customer wants the order completed if the customer says nothing after being notified.

If the company cannot meet the revised shipping date, the Rule requires the consumer to be notified a second time, and unless the consumer expressly consents to the new delay, the company must cancel the order.

Because of the nature of the online sales process, it should be comparatively easy for online companies to comply with the Rule. E-tailers can use e-mail to notify customers of any delays in shipping products, while mail order firms typically must use snail mail.

Plan To Contain E-Commerce ‘Excesses’

The FTC has identified e-commerce as one of its leading targets for consumer protection. In a recent speech, FTC Chairman Robert Pitofsky said that the revolution in Internet commerce “surpasses anything we have seen since the communications and transportation developments at the end of the 19th century. The challenge to the private and public sector is to encourage that revolution, but contain the excesses that revolutions often produce.”

In addition to the Mail Order Rule issue, the FTC is also targeting online fraud and privacy. The FTC, for example, has already brought more than 100 Internet-related actions against companies that are suspected of defrauding online users.

It also recently announced that it is specifically targeting online auction fraud. The FTC said it received 10,700 complaints about online auction frauds in 1999.

It is also widely expected that the FTC is going to take strong steps to protect online consumer privacy, although this area is far more complicated than fraud. While it is not clear what it intends to do, the FTC may be taking notice of a spate of recent complaints against Internet advertiser DoubleClick.

In Pitofsky’s recent speech, for example, he mentioned “the merging of online and offline databases” as an area of concern. DoubleClick recently merged with Abacus Direct, one of the largest offline database companies.

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