January 7, 2000 1:25 PM PST

Snafu prompts Microsoft to suspend some PC rebates

Microsoft has suspended its MSN rebate programs in California and Oregon because a contract provision unintentionally allows customers in those states to wring $400 out of the software giant.

Because of the way the California and Oregon contracts are written, customers effectively can cancel their MSN service contracts but still qualify for Microsoft's rebate.

MSN has been offering $400 rebates to computer buyers who agreed to subscribe to the Internet service for three years through Best Buy, OfficeMax and Office Depot, among other stores. In 48 states, the contract is fairly clear. Customers have to subscribe to MSN for three years to qualify for the $400 rebate, said Tom Pilla, a Microsoft spokesman. If customers cancel the contract, penalty provisions kick in that allow Microsoft to recover part or all of the rebate.

California and Oregon, however, have passed consumer protection laws that prevent companies from linking the purchase of goods to loans. Microsoft worried that its rebate program could be interpreted as a loan, Pilla said.

To get around the law, Microsoft inserted the following clause--"You are not obligated to continue as an MSN Internet access member for any particular length of time"--into its contracts for California and Oregon.

Subsequently, the California Department of Corporations informed Microsoft that the law didn't apply to its deal, Pilla said. Microsoft will be able to offer rebates to customers and still keep its recapture provisions, he added.

Pilla said that the suspension of the rebate program was temporary, indicating that it could come back soon.

The three-year/$400 rebate has been a spark plug for the PC industry this year. Consumer PC sales grew by 30 percent during the summer while MSN and CompuServe, a once moribund division of AOL, saw subscriber rates jump because of these rebates.

Under these deals, consumers either get cash back through a mail-in rebate or qualify for instant in-store credit. CompuServe said it will cancel its cash rebate deal at the end of the month, although a store credit deal at Circuit City will continue into June.

 

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