The agreement would require Palm to make "clear and conspicuous" claims about the ability of its handhelds to perform functions that require users to purchase additional products or services.
The FTC accused Palm of implying that its PDAs came with built-in Internet and e-mail access when in fact users needed to purchase add-on services and products to have these functions. The FTC also alleged that claims Palm made about the common business function of its PDAs were "deceptive," noting that additional software had to be purchased to do so.
The proposed settlement deals requires Palm to disclose that customers must subscribe to the company's Palm.Net Internet service and pay a monthly fee for e-mail and Internet access. Palm is also prohibited from claiming that its wireless access and e-mail coverage is available "everywhere" or "almost everywhere" in the US when it is not.
The agency pointed out that the settlement proposal does not constitute an admission of wrongdoing on Palm's part.
Palm spokeswoman Marlene Somsak said that although the company does not feel that it did anything wrong, it does understand the FTC's perspective. The company has agreed to be more explicit about its products and to display information about additional products and services more prominently in marketing materials.
The proposed settlement is open to public comment in the US for 30 days, until April 5, after which the commission will decide whether to make it final. Once final, Palm would be charged a $11,000 (£7,702) penalty for each violation of the agreement.