FTC v. Balls of Kryptonite is an enforcement action brought in 2009 by the U.S. Federal Trade Commission (FTC) in United States District Court for the Central District of California. The defendant was Jaivin Karnani, a Southern California man, his company Balls of Kryptonite LLC, and several other corporate names they did business as. In 2011 the FTC secured a court order barring Karnani and Balls of Kryptonite from engaging in many of the deceptive business practices that had brought him to the agency's attention.
For several years before the FTC brought its case, Karnani had been selling consumer electronic devices such as cameras, video game systems and computer software to customers in the United Kingdom. Despite being physically located in California, he registered his websites in British domains, quoted prices in pounds sterling and took other steps to suggest that the business was physically located in the U.K. Customers who bought the merchandise at the prices quoted, usually significantly lower than other, established British retailers, found that delivery took in some cases far longer than the promised 48 hours even though their credit cards were charged immediately and they were told they could not cancel their orders. In many cases, the goods they received were inoperable since they had never been intended for sale in the British or European markets, and were thus not protected by warranty.
Complaints to the U.K.'s Office of Fair Trading (OFT) led to the FTC's enforcement action. In response to its initial complaint Judge Dean D. Pregerson issued a temporary restraining order barring Karnani and his companies from misrepresenting their location on their websites along with the other practices customers had complained to OFT about. It was the first time the FTC had brought an action against an American company that did business exclusively abroad, its first action enforcing the U.S./EU Safe Harbor Privacy Program and one of the first uses of its expanded ability to coordinate its efforts with foreign counterparts under the SAFE WEB Act Congress had passed several years earlier.
The FTC's decision to pursue the case came in for some criticism. Some commentators, who thought the case title was humorous enough to make extended references to the Superman comics in their commentary, questioned whether the commission's action against a retailer who did not deceive any American consumers was a wise use of its limited resources, and whether it might have been better to prosecute him in Britain. Another, in the course of criticizing the failings of the European Union's Data Protection Directive when it came to dealing with cloud computing, did not criticize the enforcement action as such but showed that it pointed out how much more work needed to be done in ensuring compliance with the Safe Harbor Program.
Background
In 2006, the FTC later alleged, Karnani, a resident of Pasadena, California, created two companies, Best Price Brands LLC and Bite Size Deals LLC. He then registered websites in their names with the .co.uk top-level domain, offering consumer electronics such as cameras, video game systems, and computer software. Prices were given in pounds sterling—often considerably below those charged by other online retailers.
The domain name and the pound pricing led many visitors to believe that the company was based in the United Kingdom. British consumers began ordering items from the site in late 2006. Many found the goods and services deficient, and even fraudulent.
For example, the company charged buyers' credit cards for their purchases immediately, promising delivery within 48 hours. Many orders, however, did not ship for weeks. Customers who called or emailed about this were often ignored, with those who persisted and/or supplemented their queries with complaints to the Better Business Bureau told that there were delays, such as the item being out of stock, which they had never consented to or been informed of prior to their purchase. When they tried to cancel their orders they were informed that "company policy", which they were not made aware of prior to purchase, did not allow them to do so at that point.
Those to whom goods were delivered were often equally dissatisfied. Instructions were sometimes in Spanish or Chinese, making it difficult to use the product. Some products were shipped with plugs and internal wiring meant for the U.S. market, making them unusable in Britain (in a few cases, the company did provide a power converter, the FTC conceded). Even products usable in Britain turned out not to have been manufactured for sale there, or in the European Union (EU) generally, meaning they were not covered by manufacturers' warranties.