Microsoft faces another charge of false advertising

WASHINGTON -- Microsoft Corp. is facing a Federal Trade Commission (FTC) investigation of allegedly false and deceptive advertising for the second time in less than a year. But the company says it has already worked out settlement terms with commission staff members.

A Microsoft spokesman says the company has negotiated with the FTC to settle pending charges concerning its aggressive ad campaign, "Can Your Palm Do That?" The campaign targeted the Palm personal digital assistant.

The FTC is accusing Microsoft of deceptively offering features on Windows-run handheld devices -- features that weren't available unless consumers purchased more wireless capability. At the time, handheld devices from Santa Clara, Calif.-based Palm Inc. already had built-in wireless capability. Microsoft has since ended the ad campaign. The FTC's investigation was first reported in today's Wall Street Journal.

"We've cooperated fully with this investigation and have actually signed an agreement with the FTC staff addressing their concerns," said Microsoft spokesman Jim Desler. A representative for the FTC declined to comment. The prospective settlement with the commission's staff will have to be approved by the FTC's five commissioners.

It has been only five months since Microsoft settled similar charges with the FTC regarding its ad campaign for set-top boxes that bring the Internet to TV. The FTC found that Microsoft falsely advertised its WebTV service by not mentioning additional telephone-service costs. The commission also determined that the company misled consumers into believing the product could access the entire Internet. Microsoft settled those charges without admitting or denying wrongdoing.

Lawyers for Microsoft, the U.S. government, 19 states and the District of Columbia are in a federal appeals court here for oral arguments today and tomorrow. The company's legal team is trying to get the U.S. Court of Appeals for the District of Columbia Circuit to vacate a district judge's decision last year that Microsoft violated federal and state antitrust law. That judge ordered the company to break apart into two companies for 10 years in order to remedy those violations.

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