Microworkz In legal hot water
by James Niccolai, IDG News Service\San Francisco Bureau
November 04, 1999
The attorney general of Washington state filed a lawsuit Thursday against Microworkz.com, accusing the low-cost computer maker of violating consumer protection laws including failing to deliver computers to its customers.
"This company generated lots of excitement when it offered a bare-bones, low-cost personal computer, but that quickly turned sour when they failed to deliver what they promised," Attorney General Christine Gregorie said in a statement issued Thursday.
The lawsuit was filed Thursday in King County Superior Court in Microworkz's home state of Washington, and alleges that the company failed to deliver computer equipment, honor warranties, issue refunds and respond to customer inquiries and complaints.
The suit names Richard Latman, Microworkz's chairman, as a defendant. The lawsuit asks the court for a permanent injunction to stop the firm's alleged unlawful conduct and to provide restitution for consumers, and other costs and fees. The goal of the lawsuit isn't to put Microworkz out of business, but to force it to mend its ways, said Janice Marich, a spokeswoman for the attorney general's office.
The attorney general's office said it has received 95 complaints against Microworkz since the start of the year. Consumer watchdog group the Better Business Bureau and the U.S. Federal Trade Commission (FTC) have also reported receiving complaints against the Lynwood, Washington-based firm.
Bob Rowe, a deputy fire chief who lives in Auburn, Washington, said he paid $1,493 on May 3 for one of Microworkz's higher-end computer systems. Rowe was attracted to the company after he heard Latman being interviewed on a local radio station, and by the firm's low prices, he said in a phone interview Thursday.
When he still hadn't received his computer on July 21, Rowe said he called the company and cancelled his order. Despite being promised a refund within 30 days, he still hasn't got his money back.
"My main fear is they will file for bankruptcy," Rowe said Thursday. He added that he plans to file a claim in small claims court in a bid to recover his money.
The attorney general's lawsuit raises broader issues for consumers about the potential risk of buying goods from newly established computer companies that have emerged along with the Internet's rapid growth, Marich said. Such firms often have no proven track record, and may not have a physical presence to which consumers can turn to if their orders aren't fulfilled, she added.
Microworkz.com leapt onto the public radar earlier this year when it introduced the Webzter PC, which carried the low price tag of $400 to $600. The company followed with the iToaster, a computer priced at $199 and designed to offer basic functions needed to surf the Internet.
The vendor's image started to tarnish in June when the first consumer complaints about Microworkz surfaced in the press. At the time, the company blamed the troubles on what it called an inexperienced management team. It said it had taken on more business than it could handle and promised to clean up its act.
As recently as a month ago, the company was still fielding complaints and hadn't issued refunds to all of its disgruntled customers, according to the attorney general's office.
"They certainly have said publicly that they were working on this, but what we saw was a company that continued to aggressively market and sell computers while it still had not delivered on previous orders," Marich said.
Microworkz maintains that it is working hard to fix its problems and address customer complaints, and is disappointed that the attorney general didn't give it more time, Latman said in a phone interview with the IDG News Service today.
Still, he acknowledged that "the attorney general is probably right that these problems should have been ironed out four or five months ago. It's taken us a ridiculous amount of time to deal with just a few people."
Latman reiterated the company's position that it grew too quickly too fast, and that it had an inexperienced management team. In August, Latman stepped down as the company's chief executive officer and said Microworkz has begun looking for new management.
"I can't make excuses," he said. "We're not in the business of making excuses. We're in the business of solving problems."
As part of its turnaround effort, Microworkz is pulling out of the hardware business and has decided to outsource the manufacture of the iToaster to a third-party firm. Instead, Microworkz will focus on producing the operating software designed to make the computer easy to use with the Internet, Latman said.
Microworkz will also no longer deal directly with consumers. Users who want to buy an iToaster will have to do so through a third-party distributor like Electronics Boutique or from a retail store, Latman said. iToasters currently aren't on sale anywhere, and the company hopes to have systems on store shelves in time for Christmas, he added.
When they do arrive in stores, the cost of an iToaster will have increased from $199 to $299, Latman said. The price hike is partly due to the impact of the recent earthquake in Taiwan, which led to a sharp increase in the price of semiconductors and other PC parts, he explained.
Increasing the price of its product by 50 percent right before the holiday buying season might not be the biggest issue facing Microworkz.
"The issue is, can we transcend the damage done to Microworkz's brand equity," Latman said.
Microworkz, in Lynnwood, Washington, can be reached at 1-425-744-7722, or at www.microworkz.com.
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