The Wellington District Court today imposed the highest single fine yet under the Fair Trading Act, when it fined Edge Computer Ltd $50,000 for selling computer components which did not have the memory claimed for them.
Any New Zealand assembled 486 computer could include Edge components. If it does not have the memory claimed for it, then the computer will work slowly, especially when running multi-media programmes like Encarta. Some programmes may not run at all.
Edge was prosecuted by the Commerce Commission and had pleaded guilty on Monday.
Judge Ian Borrin said the fine should be considered as a deterrent only, and not as compensation or payment for any damages or losses Edge's customers may have suffered. He said it was appropriate for customers who suffered damages or losses to negotiate with Edge and, if necessary, take civil action against it.
In setting the level of fine he took into account that Edge had pleaded guilty and that it had no previous convictions.
He also said it is possible Edge's New Zealand managers were simply doing as they were told and were carrying out the company's international policy. The Edge Group of Companies is based in Sydney and operates in several Asian countries as well as in Australia and New Zealand.
Commission Chairman Dr Alan Bollard said this is believed to be the first successful prosecution of its type in the world. It is understood similar cases are underway in the United States, Germany and Britain, but have not yet been resolved.
"We have provided information to an overseas enforcement agency," Dr Bollard said, "but their investigation is still at an early stage and we cannot say where it is for fear of damaging its chances of success."
He said household or domestic customers in New Zealand should be aware of their rights under the Consumer Guarantees Act.
"If they have a problem, the customer has the choice of taking it to the retailer, manufacturer or importer. The retailer cannot tell them 'not my problem, go and see Edge'.
"However, the retailer of course has all its legal rights, and if Edge has caused it loss or damages, then it can, as Judge Borrin suggested, negotiate with Edge or take civil action against it."
The Commission alleged that Edge deliberately described dummy computer motherboards as having 256k of cache memory, when Edge knew the motherboards had no cache memory at all.
Documents seized by the Commission during the execution of search warrants included specific reference to "dummy" motherboards.
Tests showed the dummy motherboards had been installed with chips that looked identical to functioning cache memory chips but were only plastic mouldings with no working parts.
Other changes had also been made so that when a computer fitted with a dummy motherboard was started or tested, it would falsely state on its screen that it had 256k of cache memory. The relevant pages had also been removed from some motherboard manuals.
"Edge acted methodically, and deliberately misled customers in a way that only an expert with specialist equipment could detect," Dr Bollard said.
"However, Edge was caught, and is now paying the price for deceiving its customers."
The previous highest fine was $35,000 against Invercargill car dealer, Macaulay Ford.
Media contact: Fair Trading Manager Rachel Leamy
Phone work (04) 498 0908, home (04) 386 3110, 021 662 773
