[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
             CHALLENGES FACING THE FEDERAL TRADE COMMISSION
=======================================================================


                                HEARING

                               before the

                            SUBCOMMITTEE ON
                COMMERCE, TRADE, AND CONSUMER PROTECTION

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 7, 2001
                               __________

                           Serial No. 107-68

                               __________

      Printed for the use of the Committee on Energy and Commerce










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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida                   JOHN D. DINGELL, Michigan
JOE BARTON, Texas                            HENRY A. WAXMAN, California
FRED UPTON, Michigan                         EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida                       RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                        RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania             EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California                  FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                         SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma                      BART GORDON, Tennessee
RICHARD BURR, North Carolina                 PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky                       BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa                            ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia                     BART STUPAK, Michigan
BARBARA CUBIN, Wyoming                       ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois                       TOM SAWYER, Ohio
HEATHER WILSON, New Mexico                   ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona                     GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING, Mississippi      KAREN McCARTHY, Missouri
VITO FOSSELLA, New York                      TED STRICKLAND, Ohio
ROY BLUNT, Missouri                          DIANA DeGETTE, Colorado
TOM DAVIS, Virginia                          THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee                         BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland             LOIS CAPPS, California
STEVE BUYER, Indiana                         MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California                CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire               JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska

                  David V. Marventano, Staff Director
                   James D. Barnette, General Counsel
      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

        Subcommittee on Commerce, Trade, and Consumer Protection

                    CLIFF STEARNS, Florida, Chairman

NATHAN DEAL, Georgia                 EDOLPHUS TOWNS, New York
  Vice Chairman                      DIANA DeGETTE, Colorado
ED WHITFIELD, Kentucky               LOIS CAPPS, California
BARBARA CUBIN, Wyoming               MICHAEL F. DOYLE, Pennsylvania
JOHN SHIMKUS, Illinois               CHRISTOPHER JOHN, Louisiana
JOHN B. SHADEGG, Arizona             JANE HARMAN, California
ED BRYANT, Tennessee                 HENRY A. WAXMAN, California
STEVE BUYER, Indiana                 EDWARD J. MARKEY, Massachusetts
GEORGE RADANOVICH, California        BART GORDON, Tennessee
CHARLES F. BASS, New Hampshire       PETER DEUTSCH, Florida
JOSEPH R. PITTS, Pennsylvania        BOBBY L. RUSH, Illinois
GREG WALDEN, Oregon                  ANNA G. ESHOO, California
LEE TERRY, Nebraska                  JOHN D. DINGELL, Michigan,
W.J. ``BILLY'' TAUZIN, Louisiana       (Ex Officio)
  (Ex Officio)

                                  (ii)











                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Muris, Hon. Timothy J., Chairman, Federal Trade Commission...    10
Material submitted for the record by:
    Business Roundtable, The, report entitled Information 
      Privacy: The Current Legal Regime..........................    40
    Davis, Anna, Office of the Director, Congressional Relations, 
      Federal Trade Commission, letter dated December 5, 2001, to 
      Hon. Clif Stearns, enclosing response for the record.......    35
    Simons, Joseph J., Director, Bureau of Competition, Federal 
      Trade Commission, letter dated December 3, 2001, to Hon. 
      Edward Markey, enclosing response for the record...........    38

                                 (iii)

  










             CHALLENGES FACING THE FEDERAL TRADE COMMISSION

                              ----------                              


                      WEDNESDAY, NOVEMBER 7, 2001

              House of Representatives,    
              Committee on Energy and Commerce,    
                       Subcommittee on Commerce, Trade,    
                                   and Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:08 a.m., in 
room 2123, Rayburn House Office Building, Hon. Cliff Stearns 
(chairman) presiding.
    Members present: Representatives Stearns, Deal, Whitfield, 
Shimkus, Bryant, Buyer, Terry, Bass, Tauzin (ex officio), 
Towns, Markey, Eshoo, and Dingell (ex officio).
    Staff present: Ramsen Betfarhad, majority counsel; Kelly 
Zerzan, majority counsel; Brendan Williams, legislative clerk; 
Jonathan Cordone, minority counsel; and Bruce Gwinn, minority 
professional staff.
    Mr. Stearns. Good morning. The subcommittee will come to 
order. I welcome all of you, especially our witness, the 
Chairman of the Federal Trade Commission, Mr. Muris. I am 
pleased to have you today and look forward to your testimony.
    I hope that your testimony today would be one of many 
before the subcommittee during your tenure as Chairman of the 
Commission. As a committee of jurisdiction with oversight 
responsibilities over the Commission, I find it important that 
there be good lines of communication between the committee and 
the Commission.
    I consider both our oversight obligations and our mandate 
to protect consumers to be of utmost import, and therefore week 
a close working relationship with the Commission.
    I hope that all subcommittee members will take the time to 
visit with the Chairman, and the other members of the Federal 
Trade Commission.
    I understand that your testimony today is on behalf of the 
Commission, and that it will outline the Commission's agenda, 
and specifically it is enforcement and programmatic priorities.
    I commend you and the Commission for focusing on the 
fundamentals which in the case of an enforcement agency, such 
as the FTC, is a vigorous enforcement of the existing laws. I 
also share with the Commission a keen interest in a number of 
other matters identified in your testimony as being priority 
issues for the Commission.
    One of these issues, of course, is privacy. As you are 
aware, and as we have talked about, our committee has held six 
hearings on this matter, and we have amassed a great deal of 
information on this subject, and we think our hearings have 
been instrumental in a better understanding of the issue.
    I welcome your attempt at focusing the Commission's 
resources on enforcement, and as you have mentioned, 
specifically enforcing existing laws that either directly or 
indirectly have privacy implications. That is after all 
precisely what an enforcement agency should be doing, enforcing 
the law.
    As was evident by the subcommittee's May hearing on cyber-
fraud and crime, I and many other members of the subcommittee 
find cyber-fraud and crime to be particularly important and 
worthy of special attention by the Commission.
    The potential for such fraudulent and criminal activities 
to impact thousands of consumers, and engender great financial 
losses make them particularly troubling. The FTC's consumer 
sentinel, Depository of Cyber-Fraud Complaints Accessible to 
Law Enforcement Agencies, is an important step.
    Nevertheless, effective law enforcement actions against 
cyber-fraud crime I think requires greater participation by 
both human and artificial intelligence. Moreover, the record 
from our hearing in May suggested less than a stellar level of 
cooperation between the various enforcement agencies when 
confronting cyber-fraud and crime.
    If such problems persist today, let us know. There is no 
excuse for interagency turf issues impending or undermining 
effective identification and prosecution of fraudulent and 
criminal activities on-line or off-line. I also welcome the 
Commission's commitment to a more aggressive enforcement and 
education initiative targeting health care fraud, and in 
particular, deceptive and misleading health claims.
    Health fraud is especially repugnant, as it impacts members 
of our society that are among the more vulnerable, such as the 
elderly and the young. And health fraud impacts the life and 
physical well-being of the American consumer, something much 
more important than just his or her pocket book.
    The Commission faces an arduous task combating health 
fraud, one that was made more difficult with the advent and 
proliferation of health websites. Also, taking a cue from your 
testimony, I also want to highlight my interest in two other 
issues.
    First, I think that increasingly the intersection between 
intellectual property rights and anti-trust law is being 
colored by flux or tension, and as such it requires greater 
vigilance on the part of our anti-trust enforcers.
    Moreover, I think we have just begun to understand and 
grapple with the significance of standards and standard setting 
organizations, as key sectors of our economy now are subject to 
network effects.
    I commend the Commission for their focus and attention on 
these two matters. Moreover, we are in agreement that consumer 
education is a critical mission of the Commission. I do believe 
that empowering the American consumer with knowledge is a most 
effective and potent consumer protection.
    I would encourage you and the Commission to explore new and 
creative ways of informing the American public of your work. I 
know very few people that are aware of the good work that the 
Commission undertakes on behalf of the American consumer.
    Let's make a concerted effort to change that. One thought 
that I had was for the Commission to use banner ads to inform 
the American public about its various activities, or alert 
them, just simply alert them, to the various scams. Just a 
thought.
    And finally I would be remiss if I didn't raise an issue 
that I, and I believe many Americans, find important today. 
First and foremost, I would appreciate your comments as to 
whether the FTC has any evidence of fraud being perpetrated 
against the Americans using charitable giving for the September 
11 victims as a pretext.
    Second, I would like to know whether the Commission has any 
persuasive authority with legitimate charitable organizations 
convincing them--convincing them--to disperse all the money 
collected for September 11 victims to those victims' families 
in a timely manner.
    We had an oversight hearing on this yesterday, in which it 
was evident that a lot of these charities were accumulating 
large sums of money and were very slow in dispersing it. I 
thank you for your testimony today. I am glad that we are able 
to do it in this room.
    Unfortunately, we had to cancel the previous hearings, and 
I appreciate your patience, and I am glad that you are here 
today, and I look forward to working with you, and my 
colleagues and I know that we are going to have a great 
relationship with you during the 107th Congress.
    And with that, I will close, and ask the ranking member, 
Mr. Towns, the gentleman from New York, for his opening 
statement.
    Mr. Towns. Thank you very much, Mr. Stearns. I would like 
to welcome the Chairman to the committee, and look forward to 
his testimony. The Federal Trade Commission has always played a 
pivotal role in America, standing with consumers and 
representing them against commercial interests, and who do not 
always have the customers' best interests in mind.
    And so I am pleased to have the new Chairman before us 
today, and having met with the Chairman a few weeks ago, I have 
all the confidence in the world that you, Mr. Chairman, will 
stand up for the consumers on every possible opportunity.
    Having said that, there are some issues of concern that I 
would like to see addressed today at the hearing. I would hope 
that you would address what seems to be a never-ending list of 
mergers which sits before the Commission and the issue of 
consumer privacy in both on-line and off-line situations.
    I know that you, Mr. Chairman, have every intention of 
being open about the happenings at the Commission through your 
testimony, and of course through your answers to our questions 
as well.
    I look forward to working very closely with you in the days 
and months ahead, and on that note, Mr. Chairman, I yield back 
the balance of my time.
    Mr. Stearns. I thank the gentleman, and recognize Mr. 
Shimkus for an opening statement.
    Mr. Shimkus. Thank you, Mr. Chairman. I do want to welcome 
the Federal Trade Commission Commissioner here, Mr. Muris, and 
I want to focus my short comments and listening to the debate 
on a couple of issues. And one was from my colleague on the 
merger issue, but the focus that I have had since I have been 
involved with the NATO parliamentary assemble and the EU issue 
is the usability to deny mergers that in essence we have 
approved here.
    And in essence the competitive disadvantage placed upon the 
United States and a lot of our fine companies because of the EU 
application process, and then the barriers that they are able 
to drop without--well, in essence, in negotiation, and we are 
at a competitive disadvantage.
    The other issue that I will address in the question and 
answer period is on the Internet and some patrolling of some of 
the business opportunities offered there, and the role in which 
you play.
    And I still have not--we know in the Department of Ag the 
Packers and Stockyard Act is the vertical integration aspect of 
merging concentration, and I am wondering where the line is 
drawn when it goes into the corporate application of the 
boxings of food and material. I know that is a big concern in 
the agricultural sector, is the concentration of that market in 
the hands of a few, leaving the producers at the whims of only 
a handful of purchasers.
    It is probably not in our venue. It is of my concern, and 
those are the things that I will be listening for and going 
into during questions and answers. Thank you, Mr. Chairman, and 
I yield back my time.
    Mr. Stearns. I thank the gentleman and recognize the 
gentleman from Massachusetts, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman, and welcome, Mr. 
Chairman, to your first meeting here with the Commerce 
Committee. The FTC recently announced that it was no longer 
going to recommend that Congress pass a law to protect the 
privacy and freedom of Americans on the Internet.
    Instead, the Agency announced that it would attempt yet 
again to get more of the on-line industry to take voluntary 
actions to protect personal privacy comprehensively. The 
Commission also indicated that it would renew its commitment 
toward stepping up its enforcement actions.
    I salute the laudable efforts of certain segments of the 
industry in trying to develop so-called self-regulatory 
solutions to some of the privacy concerns that many have 
expressed.
    These undertakings are critical to increasing consumer 
confidence and trust in the medium, and will be an important 
component in any comprehensive set of privacy protections for 
our consumers.
    Relying solely upon voluntary industry efforts, however, 
will not suffice. I believe that the progress that has been 
made in part voluntarily must be coupled with comprehensive 
protections for all Americans. There is no reason to delay in 
developing standards for such privacy protection.
    I do not accept the notion that the Internet is too complex 
and technology changing too rapidly to develop enforceable 
privacy protections for our consumers. As technologies change 
and business plans for on-line commerce adjust, consumers' 
privacy protections remain a constant.
    Again, consumers can negotiate in the marketplace for 
better privacy protection if they can get it, but no consumer 
should be without basic privacy protections, or without 
recourse to redress grievances for harm caused by privacy 
invasions.
    With respect to enforcement, increasing agency activity on 
this front is certainly welcome. Efforts can be made to protect 
Americans through enforcement, for example, of the law that we 
passed to protect the privacy of children on the on-line 
environment, as well as existing telemarketing laws.
    I authored the law which was approved by this committee 10 
years ago to establish do not call telemarketing rules to 
protect consumers. That law also permitted regulators in 
Section 227 of the Communications Act to establish a national 
do not call data base, rather than company by company lists 
which drives people crazy.
    At the time the FCC chose not to endorse a data base 
technology, although authority to implement it still exists on 
the books today. I encourage the Federal Trade Commission to 
step up its enforcement of the current do not call regulations 
and explore how technology from the private sector can help 
protect consumers today.
    In addition, Mr. Chairman, my hope is that the FTC will 
increase its investigation and analysis of products purported 
to be secure for consumer use, especially when such on-line use 
may include sensitive personal data.
    In this regard, enhancing the FTC's role in protecting 
consumers from security risks and new software products, and 
on-line services such as those alleged by consumer groups to be 
inherent in Microsoft's new Windows XP Operating System, and 
its Passport Program, is also something that I believe the FTC 
must explore in a timely fashion.
    I would argue that the Federal Trade Commission should 
begin its inquiry almost immediately since this product has the 
potential of compromising consumers and I believe that we 
shouldn't wait until after the damage is done to millions of 
Americans before there is an inquiry which is announced, and 
which may in and of itself be enough to protect consumers.
    Increased enforcement, however, will not help anybody if 
the egregious conduct is not yet against the law, and that is 
why I continue to believe that we must pass on-line privacy 
legislation.
    I thank the chairman for calling the hearing, and I look 
forward to working with you, Mr. Chairman, and again we welcome 
you to our greatest of all committees in Congress. It is great 
to have you with us.
    Mr. Stearns. Thank you. The Chair recognizes Mr. Buyer for 
an opening statement.
    Mr. Buyer. Mr. Chairman and Mr. Towns, I want to thank you 
for inviting the Chairman to come up and see us. Mr. Chairman, 
I have--I may not be able to be here for the question phase, 
and so I just want to let you know some areas of interest that 
I have.
    I note that in your testimony that you touched on five 
areas, and I join Mr. Shimkus with a concern about vertical 
integration in agriculture, and I noticed in your testimony 
that you had mentioned that you had wanted to follow the 
guidelines with regard to--you said that the Agency will 
continue to follow the merger guidelines when assessing the 
impact of the proposed merger on competition.
    And then you cite horizontal guidelines, and I don't know 
about how you handle vertical integration, but I do know that 
farmers out there today have less choices, less choices where 
they buy their equipment, and where they get their Ag inputs, 
and even limit on their markets.
    And it is very concerning what is happening out there in 
the Ag world. I also have concerns with regard to--there is a 
bill here in Congress called the Franchise E Act. It is a 
concern between the franchise owners and the parent companies, 
and it is a very serious issue, and it is one that we need to 
look at.
    The issue on--and one that I have never been able to figure 
out in the 9 years that I have been in Congress, is multi-level 
pricing in drug companies. I think the day that I can figure 
out how they do pricing in airline tickets, I will be able to 
figure out how they do multi-level prices in with drug 
companies.
    Another issue of concern that I have on consumer protection 
deals with sports programming. What is occurring today is with 
baseball as an example, and Congress gives baseball an anti-
trust exemption. The baseball owners then pay these outrageous 
salaries to athletes.
    And they pay $250 million to a shortstop, and people go how 
can an owner do that. An owner can do that because he takes 
those costs and passes them off to the programmers, and then 
people don't know why their cable rates are going up.
    They think cable rates are going up, Mr. Chairman, because 
of infrastructure upgrades. Cable rates are going up because 
sports programmers are taking advantage of consumers all across 
the country, and that is something that really concerns me.
    And it is a conversation that I want to continue to have 
with you, and as a matter of policy, and before I yield back my 
time, before I was on the Judiciary Committee for 4 years, and 
would work with the anti-trust division of the Department of 
Justice, I was really concerned about the level of merger mania 
that occurred there in the 1990's.
    And something bigger is better and can provide greater 
efficiencies, and therefore the consumer gets something at a 
lesser cost. Wait a minute. Time out. Aren't we about 
protecting the small businesses and the entrepreneurs so that 
we have an open and fair competitive marketplace?
    I think that is what the job of government should be in a 
capitalistic economic system. So as a matter of policy, I look 
forward to your comments on how a new administration views the 
world and the marketplace. I yield back and thank you for my 
opening comments.
    Mr. Stearns. I thank the gentleman, and the Chair 
recognizes the distinguished ranking member of the full 
committee, Mr. Dingell.
    Mr. Dingell. Mr. Chairman, I thank you. I thank you for 
holding the hearing, and I believe that it is an important one 
on a very important subject. The issues facing the Federal 
Trade Commission during these uncertain times are a matter of 
great concern, and I look forward to hearing the views of the 
Commission's new Chairman.
    One issue that I am particularly concerned about is the 
growing problem of identity theft, especially in the wake of 
the terrifying events of September 11. Within the limitations 
of its current resources and authority, I believe the FTC has 
made some progress in addressing fraud perpetrated through the 
use of stolen identities. I applaud these efforts.
    But we will have to see whether they are sufficient and I 
believe that there is evidence developing that they are not. We 
now live in a new reality, a reality in which the production 
and use of false identifications have very clear implications, 
and not just for ordinary citizens, but for the very security 
of the Nation itself.
    It's not just our personal financial security at stake. We 
once were only concerned with stolen identities, aiding thieves 
and con artists. Now we must be concerned with stolen 
identities aiding terrorists, and allowing them to conduct 
activities anonymously, and potentially granting them access to 
secure locations.
    The Commission must conduct a thorough examination of who 
has access to personally identifiable information in commerce, 
and the processes by which such information is collected and 
disseminated.
    The collection and transfer of non-public information has 
become an industry in and of itself, and it is used now to 
enrich people, and very frankly to hurt the people whose 
personal information is being used.
    For a fee today intimate and personal detailed information 
can be obtained by and about virtually anybody or everybody. 
The genie of privacy has been released from the bottle, and we 
are left with an extremely difficult task of putting it back 
in.
    Existing laws and government resources simply cannot 
restrict broad access to personal information of consumers. 
Years after the murder of Amy Boyer, Congress has still not 
prohibited the unauthorized sale or transfer of Social Security 
numbers that played such an important role in that case.
    Alone, neither industry self-regulation nor the government 
can fully protect the public against identity theft, and indeed 
I would note that industry has shown very little concern or 
interest in protecting the identities and the personal privacy 
of American citizens.
    Indeed, the most effective weapon against identity theft is 
to empower consumers with control over their personal 
information, and how that information is collected and 
disseminated.
    If citizens are armed with effective, and enforceable, 
legal rights, then the individual consumer should be able to 
manage access to his or her personally identifiable information 
more responsibly than industry or government.
    In conclusion, I agree with Chairman Muris that Congress 
should not limit new privacy legislation to on-line practices. 
Our goal must continue to be consumer control over their 
personal information, whether on or off-line, or indeed 
wherever it might happen to be.
    Under your leadership, Mr. Chairman, we expect the FTC to 
assist us in this endeavor. If we fail in this critically 
important task, we should expect the States to address the 
problem in ways that will pose far more problems for industry 
than any new Federal law.
    Indeed, the States could give us 50 or more different 
solutions to a problem, which might create significant problems 
for industry if industry does not recognize that situation.
    So industry, like individual Americans, then has a strong 
interest in seeing effective, enforceable, new authority and 
rights enacted. We must stop identity theft and we must do it 
now. We must see to it that the privacy of the American people 
is protected for new reasons above and beyond those which Mr. 
Markey and others on this committee and I have traditionally 
pushed.
    Mr. Chairman, I look forward to working with you on this 
important matter, and I welcome Mr. Muris for his appearance 
before this committee. Thank you, Mr. Chairman.
    Mr. Stearns. I thank the gentleman. Mr. Terry is recognized 
for an opening statement.
    Mr. Terry. Thank you. I just want to thank the Chairman for 
being here today, and I am anxious to hear your vision and your 
philosophy for the department under your leadership; and I also 
want to express my appreciation for your attempts to see each 
of us individually.
    That impressed me, and what also impressed me is how you 
are going to get your arms around so many important issues. 
Just listening to the opening statements today, each one of us 
have different concerns, of which have incredible significance 
and magnitude to them, and I am particularly going to listen in 
as Mr. Boyer mentioned on vertical integration in foreign 
policy.
    But I am going to look at it and attack the issues, and see 
when an Internet company is allowed to just control all of the 
transactions, or how we allow more small tech businesses to be 
involved in the process. So with that telegraph of where I will 
ask my questions, I will yield back the rest of my time.
    Mr. Stearns. I thank the gentleman, and the Chair 
recognizes the gentleman from New Hampshire, Mr. Bass.
    Mr. Bass. Thank you, Mr. Chairman, and I appreciate also 
you holding this hearing. The Federal Trade Commission is more 
than perhaps any regulatory agency the heart of the 
jurisdiction of this committee besides Energy. I mean, Commerce 
is trade, and we want to welcome the new Chairman.
    There are many issues that we need to review and address 
over the coming years, including issues such as identity theft, 
privacy, anti-trust, and oversight, and other consumer 
protection issues. So I think this is a great opportunity to 
get an introduction, and we will be discussing many important 
issues today, and I thank the chairman for holding the hearing.
    Mr. Stearns. I thank the gentleman.
    [Additional statements submitted for the record follow:]
Prepared Statement of Hon. Ed Bryant, a Representative in Congress from 
                         the State of Tennessee
    I would like to thank Chairman Muris for testifying before us today 
about the challenges facing the Federal Trade Commission. I look 
forward to hearing from the Chairman on the Commission's work 
protecting the welfare of our nation's consumers.
    As the chairman discusses in his testimony, the FTC is the only 
federal agency with jurisdiction across many sectors of the nations 
economy in the areas of both consumer protection and competition. I am 
particularly interested in hearing from the Chairman on the 
Commission's work in regard to technology and intellectual property, 
health care, privacy, energy, and mergers.
    It is important that the FTC continues to fight Internet and health 
care fraud and educate consumers about the characteristics of scams so 
that the nation has educated and aware consumers.
    I understand that many on the Commission do not believe there is a 
need for Congressional action in regard to information privacy--I hope 
to hear from the chairman on the reasons why some commissioners have 
concerns about action in this area.
    I consistently hear from a number of my constituents regarding the 
deluge of unsolicited emails they receive, and I am glad to hear that 
the FTC has an electronic mailbox where consumers can forward their 
spam.
    I also look forward to hearing about the Commission's work looking 
out for the interests of the consumers in its evaluation of mergers.
    I thank the Chairman for holding this hearing today and again, 
thank Chairman Muris for testifying before us today on the agency's 
work to protect the welfare of consumers.
                                 ______
                                 
 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce
    Let me thank you, Mr. Chairman, for calling this morning's hearing, 
which promises to provide us an excellent opportunity to discuss 
various challenges facing the FTC.
    This hearing will allow us to look forward a bit, to see what may 
be just over the horizon and how the federal agency charged with 
consumer protection plans to confront them. So I am pleased, as well, 
to welcome our distinguished guest, Federal Trade Commission Chairman 
Tim Muris.
    Given its general statutory authority to protect consumers from 
unfair or deceptive acts or practices, the FTC serves as consumers' 
principal federal guardian in the marketplace. From its policing of 
Internet fraud to generic drugs, to gas prices, the FTC helps to ensure 
the competition and honest dealing that is necessary for markets to 
thrive. And as the former head of the Bureau of Consumer Protection, 
Chairman Muris--I am sure--fully understands the scope of the public 
trust he now holds.
    Over the past few years, the FTC has also made its mark on the 
Internet age, as the body in charge of approving mega-mergers, such as 
the union of AOL and Time Warner, of establishing online anti-fraud 
guidelines, and providing safeguards to protect the Internet users' 
personal information. The future, doubtless, will contain many of the 
same debates.
    Privacy, for instance, is one issue that has been actively debated 
in this Subcommittee and I look forward to more discussion on that 
front this morning. I commend Chairman Muris for his thoughtful 
examination of this complex issue, as demonstrated by his recent speech 
in Cleveland, which focused on rededicating the FTC's attention and 
resources to enforcement issues, specifically actions related to 
consumer privacy. Chairman Muris' focus on enforcement is right on 
target.
    Although it is unlikely the Committee will have time to tackle the 
issue this year, given the shrinking session, I do see a need to 
explore additional legislative efforts that will help address an 
apparent failure in the marketplace to protect consumers' privacy. 
Perhaps there are some additional tools we can provide that will bring 
confidence to consumers and the industry without unnecessarily 
interfering with good business practices.
    Finally, Chairman Muris has long argued, and I agree with him, that 
the Commission should evaluate the economic impact of its actions 
closely and make sure that any proposed action will benefit consumers. 
The Commission should take aggressive law enforcement actions against 
fraud and deception, but take care to steer clear from cumbersome rule-
makings designed to transform entire industries. Consumers benefit 
tremendously from free markets and competition, and I look forward to 
continued acknowledgement of this fact at the FTC.
    Mr. Chairman, I look forward to the discussion today, and to 
working with you during your term.

    Mr. Stearns. At this point we welcome the testimony of 
Timothy Muris, the Chairman of the Federal Trade Commission. I 
think you have heard from a number of members who have brought 
up some interesting topics that you probably had not intended 
to talk about, such as baseball and the cable companies. But we 
welcome your testimony this morning.

  STATEMENT OF HON. TIMOTHY J. MURIS, CHAIRMAN, FEDERAL TRADE 
                           COMMISSION

    Mr. Muris. Thank you very much, Mr. Chairman. Let me 
briefly summarize my testimony and submit my statement for the 
record.
    I am certainly pleased to be here today. It has been a 
while since I testified before this committee, and this is my 
first testimony as Chairman of the Federal Trade Commission.
    I have been here at the FTC for 5 months. As your questions 
imply, the FTC has a very broad mandate. It is the only Federal 
Agency with both consumer protection and competition 
jurisdiction in broad sectors of the economy.
    This is the fourth job that I have had at the FTC, and I am 
honored to be Chairman. Our mission is important, as your 
questions have indicated. The issues are crucial and 
fascinating, and the people with whom I work are outstanding 
public servants.
    I am especially pleased to appear before this subcommittee 
for my first Congressional testimony as chairman. The committee 
and its chairman have been good friends to the FTC, and I 
especially benefited from the chairman's leadership on privacy. 
Privacy was a new issue for me, and I learned much from this 
committee's six hearings on the issue. The facts from those 
hearings led to our new privacy agenda, including increasing 
our resources devoted to protecting privacy by 50 percent.
    The FTC's record is impressive, and unlike the 1980's when 
I was last at the FTC, the FTC today is an example of 
bipartisan cooperation. We will continue the excellent work of 
our predecessors--my friend Bob Pitofsky and his colleagues.
    Let me briefly discuss our two major missions, consumer 
protection and anti-trust. In consumer protection, 20 years ago 
the FTC shifted from an attempt to be the second most powerful 
legislature in Washington, to enforcing basic consumer 
protection laws: laws against fraud, against deception, and 
against breach of contract. In the 1990's, this mission was 
perfected and performed extremely well using a three-part 
strategy of law enforcement, of consumer education, and of 
cooperation and working with the business community.
    Today the FTC is the leader both in fighting fraud on the 
Internet and in using hi-tech tools to detect and deter fraud 
and educate consumers about on-line scams. Last month, for 
example, we obtained an injunction against a cyber-scammer who 
allegedly used more than 5,500 copycat web addresses to divert 
consumers from their intended destinations to one of his sites, 
and then hold them captive while pelting them with a barrage of 
advertisements, many of them for products such as pornography, 
which many consumers regard as inappropriate.
    Another recent example is that we announced a settlement in 
a negative option case with more than $8 million in redress for 
consumers. We also recently announced eight diet supplement 
cases, which is an area in which we have seen an increasing 
number of problems.
    Following September 11, we have turned our attention to 
many potential scams. We have recently worked with law 
enforcement officials all over the country to search the 
Internet for potentially fraudulent and deceptive claims 
related to terrorism issues, and we have numerous 
investigations underway. We have also launched an aggressive 
consumer education campaign, warning consumers what to look for 
in potential scams and also addressing the charitable 
solicitation issue. We finally have been screening, along with 
many other agencies, for fraudulent charitable solicitations.
    Turning to anti-trust, the watch word again is continuity. 
The merger wave was extremely significant in the late 1990's, 
and it has receded somewhat, but we are still vigilant on the 
merger front.
    Last month, for example, we brought four merger cases. On 
non-mergers, we are increasing our efforts, particularly in 
health care. Health care costs as you know compromise about 15 
percent of our GDP, up from 12 percent just 10 years ago. Not 
surprisingly, health care cases are an important part of our 
focus. In particular, we are increasing our efforts to prevent 
firms from engaging in anti-competitive practices that raise 
drug prices.
    We have investigated claims that manufacturers use the 
provisions of the Hatch-Waxman Act anti-competitively. One 
problem involves agreements between makers of brand-name drugs 
and makers of generics, under which the generic entrant is 
essentially paid not to compete. A second issue under Hatch-
Waxman involves efforts unilaterally by brand manufacturers to 
forestall competition, and we are looking hard at that area as 
well.
    In summary, and I did want to briefly summarize my 
statement and allow you to turn to your questions, our mission 
is simply to protect consumers. Today's FTC has forged a 
widespread and bipartisan consensus on how to protect 
consumers, and how to work with other Federal and State 
agencies to provide maximum benefits. We will continue to use 
the full panoply of our institutional tools in fulfilling this 
important mission.
    Thank you very much.
    [The prepared statement of Hon. Timothy J. Muris follows:]
 Prepared Statement of Hon. Timothy J. Muris, Chairman, Federal Trade 
                               Commission
    Mr. Chairman and Members of the Subcommittee, I am Timothy J. 
Muris, Chairman of the Federal Trade Commission. I am pleased to appear 
before you today on behalf of the Commission to discuss our law 
enforcement and programmatic priorities.\1\
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    \1\ The written statement presents the views of the Commission. My 
oral statement and responses to questions are my own and do not 
necessarily represent the views of the Commission or any other 
individual Commissioner.
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    The FTC is the only federal agency with both consumer protection 
and competition jurisdiction in broad sectors of the economy.\2\ We 
enforce laws that prohibit business practices that are anticompetitive, 
deceptive, or unfair to consumers, as well as promote informed consumer 
choice and public understanding of the competitive process. The work of 
the FTC is critical in protecting and strengthening free and open 
markets in the United States.
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    \2\ The FTC has broad law enforcement responsibilities under the 
Federal Trade Commission Act, 15 U.S.C. Sec. 41 et seq. The statute 
provides the agency with jurisdiction over most of the economy. Certain 
entities, such as depository institutions and common carriers, are 
wholly or partially exempt from FTC jurisdiction, as is the business of 
insurance. In addition to the FTC Act, the FTC has enforcement 
responsibilities under more than 40 statutes.
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    The FTC's record is impressive. The agency has fulfilled its 
mission of protecting American consumers by pursuing an aggressive law 
enforcement program during rapid changes in the marketplace--the past 
decade saw the largest merger wave in history, the rapid growth of 
technology, and the increasing globalization of the economy. Through 
the efforts of a dedicated and professional staff, the FTC has 
shouldered an increasing workload despite only modest increases in 
resources. We also have benefitted greatly from the leadership of my 
predecessor, Robert Pitofsky.
    The guiding word at the FTC will be ``continuity.'' The agency 
aggressively will pursue law enforcement initiatives, launch consumer 
and business education campaigns, and organize forums to study and 
understand the changing marketplace, just as it has done for several 
years. We will continue to address competition and consumer protection 
issues in the evolving economy with the same expertise and commitment 
as before.
    Our competition mission will continue to reflect the following 
widely shared consensus: (1) the purpose of antitrust is to protect 
consumers; (2) the mainstays of antitrust enforcement are horizontal 
cases--cases involving the business relations and activities of 
competitors; (3) in light of recent judicial decisions and economic 
learning, appropriate monopolization and vertical cases are an 
important part of the antitrust agenda; and (4) case selection should 
be determined by the impact on consumers, guided by sound economic and 
legal analysis, and made with careful attention to the facts. The FTC 
is primarily a law enforcement agency, and we will continue aggressive 
enforcement of the antitrust laws within the agency's jurisdiction. The 
FTC is also an independent expert agency and a deliberative body, and 
is thus well suited to studying an evolving marketplace and developing 
antitrust policy--we will continue to hold public hearings, conduct 
studies, and issue reports to Congress and the public.
    Similarly, there is widespread agreement on how the FTC best 
carries out its consumer protection mission. Twenty years ago, the FTC 
shifted its emphasis toward more aggressive enforcement of the basic 
laws of consumer protection. The staple of our consumer protection 
mission is to identify and fight fraud and deception. The Commission 
continually monitors trends and developing issues in the marketplace to 
determine the most effective use of its resources. The FTC has become 
the national leader in consumer protection and partners with other law 
enforcement agencies at the federal, state, local, and even 
international levels to maximize benefits for consumers.
    The FTC will continue to address significant law enforcement and 
policy issues throughout the economy, devoting the major portion of its 
resources to those areas in which the agency can provide the greatest 
benefits to consumers. I will highlight five areas today:

 Technology and Intellectual Property
 Health Care
 Privacy
 Energy
 Mergers
                  technology and intellectual property
    Changes in technology and the growing importance of intellectual 
property to the economy have caused a significant change in the FTC's 
work in both missions. The consumer protection mission focuses 
increasingly on high-tech frauds, while the competition mission works 
to provide consumers with the full benefits of both innovation and 
competition.
    High-tech fraud. The FTC is the leader both in fighting fraud on 
the Internet and in using high-tech tools to detect and deter fraud and 
to educate consumers about online scams. The Internet has spawned new 
deceptive practices, and also has given renewed vigor to traditional 
scams. The FTC will continue to monitor rapidly evolving technologies 
used by scam artists. The FTC has brought a number of cases involving 
scams that depend on the special nature of technology. In a case filed 
September 25, for example, \3\ we obtained an injunction against a 
cyber-scammer who allegedly used more than 5,500 copycat Web addresses 
to divert consumers from their intended destinations to one of his 
sites and hold them captive while pelting their computer screens with a 
barrage of advertisements.\4\
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    \3\ See FTC v. Zuccarini, No. 01-CV-4854 (E.D. Pa. filed Sept. 25, 
2001).
    \4\ This scam involved registering Internet domain names that are 
misspellings or transpositions of legitimate popular domain names to 
lure surfers onto a Web site that they never intended to visit. Once 
taken to the defendant's sites, consumers were ``mousetrapped,'' making 
it difficult to exit. Mousetrapping involves the use of a special 
programming code at the site that obstructs surfers' ability to close 
their browser or return to the previous page. Clicks on ``close'' or 
``back'' buttons only cause new unwanted windows to open. The 
defendant's sites also contained a ``stealth'' feature, hidden under 
the task bar, making it invisible to consumers. Its sole function was 
to act as a timer, periodically launching additional pages of 
advertisements, without any action by consumers. Thus, even as 
consumers struggled to escape the defendant's multi-window 
mousetrapping scheme, they were barraged with even more windows of 
unwanted images.
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    Traditional frauds have migrated to the Internet in large numbers. 
Many of the 200 cases challenging Internet fraud brought by the FTC 
since 1994 concerned old frauds in the new medium--28 cases challenged 
credit repair schemes, 13 cases challenged deceptive business 
opportunities, and 11 cases challenged pyramid schemes. The Internet 
can give these old scams a sleek, new veneer, as well as provide access 
to a larger pool of potential victims at little cost.
    We also use technology in our fight against fraud. Our high-tech 
undertakings include:

 Consumer Sentinel--A consumer complaint database and web-based 
        law enforcement tool that is maintained by the FTC and shared 
        with over 300 law enforcement agencies in the U.S. and abroad. 
        This database is an integral part of our overall consumer 
        complaint system. Analysis of the complaints in the database 
        enables staff to spot trends and identify targets. The database 
        already has been expanded to cover identity theft complaints, 
        and this year will be expanded further to cover additional 
        types of privacy complaints. We are also working with the 
        Department of Defense on Soldier Sentinel, a database tailored 
        to accept consumer complaints from military personnel and to 
        track trends in frauds specifically targeted at members of the 
        armed forces.
 E-consumer.gov--A joint effort with 13 other nations launched 
        earlier this year to gather and share cross-border e-commerce 
        complaints.\5\
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    \5\ The other countries participating in this project are 
Australia, Canada, Denmark, Finland, Hungary, Japan, Mexico, New 
Zealand, Norway, South Korea, Sweden, Switzerland, and the United 
Kingdom.
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 Surf Days--Joint initiatives whereby the FTC staff identifies 
        a deceptive practice that is prevalent on the Internet and 
        recruits law enforcement partners to fight it. Together we 
        search the Web for a specific period of time using a specially 
        tailored protocol. Surfs can be highly efficient tools that: 
        (1) enable law enforcement officials to learn about online 
        practices; (2) provide an opportunity for the FTC to alert and 
        educate Web site operators--some of whom are new entrepreneurs, 
        unaware of existing laws--whose sites appear to violate the 
        law; and (3) enable law enforcement authorities to identify the 
        more egregious violators for possible law enforcement action.
 Internet investigation training--FTC-conducted training for 
        more than 2000 individual law enforcement staff, including 
        representatives of 20 countries, 30 states, and 22 federal 
        agencies. This training will continue.
 Toll free number--The FTC's toll-free hotline, 1-877-FTC-HELP. 
        The hotline will receive additional resources to accept more 
        consumer complaints and help us to identify trends in consumer 
        fraud. Complaints received through the hotline are entered into 
        Consumer Sentinel and made available to law enforcement 
        agencies across the country.
    Intellectual property. In past decades, our economy has become more 
knowledge-based; for some companies, patent portfolios represent far 
more valuable assets than manufacturing or other physical facilities. 
Thus, an increasing number of the FTC's competition matters require the 
application of antitrust law to conduct relating to intellectual 
property. Both antitrust and intellectual property law share the common 
purposes of promoting innovation and enhancing consumer welfare. On 
occasion, however, there have been tensions in how to manage the 
intersection between the doctrines, as well as questions about how best 
to spur innovation through competition and intellectual property law 
and policy. These issues may well merit broader and more in-depth 
study. In addition, we continue to pursue investigations involving 
intellectual property.
    An example of our objectives in this area is to ensure that patent 
holders do not improperly withhold critical information from industry 
standard-setting groups to delay the creation of a standard or raise 
the price of admission to its use. In Dell Computer,\6\ the FTC 
considered the issue of the capture of a standard-setting body by a 
holder of intellectual property rights that were critical to the 
standard ultimately selected by that body. Dell, a member of a 
standard-setting association, allegedly had influenced the choice of an 
industry standard for computer graphics performance without disclosing 
that its own intellectual property rights would benefit from the 
adoption of that standard to the detriment of its competitors and, 
ultimately, consumers. To settle the FTC's charges of antitrust 
violations, Dell agreed not to enforce its intellectual property 
rights. We currently are investigating matters that raise similar 
issues.
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    \6\ Dell Computer Co., C-3658 (May 20, 1996) (consent order).
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                              health care
    Health care costs comprise a large part of both the family budget 
and the national economy. Currently, health-related products and 
services account for approximately 15 percent of gross domestic 
product, up from 12 percent in 1990. Not surprisingly, health-related 
cases constitute an important part of the FTC's focus.
    Generic drugs. A major portion of the American health care dollar 
purchases prescription drugs, and we will continue our efforts to 
prevent firms from engaging in anticompetitive practices that raise 
drug prices. In particular, we will strive to ensure that 
anticompetitive practices do not delay market entry of generic drugs, 
which cost less than name-brand pharmaceuticals. We will seek to ensure 
that protections provided to drug innovators under the Hatch-Waxman Act 
\7\ are not abused to the detriment of consumers. As you know, Hatch-
Waxman was designed to increase the flow of new pharmaceuticals into 
the marketplace by carefully balancing two public policy objectives: 
encouraging vigorous competition from generic drugs, while maintaining 
incentives to invest in the development of innovator drugs.
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    \7\ See Federal Food, Drug, and Cosmetics Act, 21 U.S.C. Sec. 301 
et seq. The Hatch-Waxman amendments were contained in the Drug Price 
Competition and Patent Restoration Act of 1984, Pub. L. No. 98-417, 98 
Stat. 1585 (codified at 15 U.S.C. Sec. Sec. 68b, 68c, 70b; 21 U.S.C. 
Sec. Sec. 301 note, 355, 360cc; 28 U.S.C. Sec. 2201; 35 U.S.C. 
Sec. Sec. 156, 271, 282 (1984)).
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    The FTC has investigated claims that manufacturers use the 
provisions of this Act anticompetively in two different ways. The first 
involves agreements between makers of brand-name drugs and makers of 
generics, under which the generic entrant is essentially paid not to 
compete. In Abbott/Geneva,\8\ for example, the parties allegedly agreed 
that the generic manufacturer--in exchange for money paid by the 
branded manufacturer--would not enter the market until their patent 
litigation concluded; would not enter the market with any other generic 
version of the product; and would not relinquish the 180-day period of 
exclusivity given to it under Hatch-Waxman as the firm first to file an 
application to make a generic equivalent.\9\ Such agreements may 
unreasonably delay the entry of generic drug competition, potentially 
costing consumers hundreds of millions of dollars annually.
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    \8\ Abbott Laboratories, No. C-3945 (May 22, 2000), and Geneva 
Pharmaceuticals, Inc., No. C-3946 (May 22, 2000) (consent orders).
    \9\ See also Hoechst Marion Roussel, Inc., No. C-9293 (May 8, 2000) 
(consent order). The Commission has also issued a complaint against 
Schering-Plough and two producers of generic drugs challenging their 
settlement agreements resolving patent litigation involving the drug K-
Dur. Schering-Plough, No. 9297 (complaint issued April 2, 2001). 
Because the case is currently in administrative litigation, we cannot 
comment further.
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    The second issue involves unilateral conduct by branded 
manufacturers designed to forestall competition. For example, some 
branded manufacturers list additional patents in the FDA's ``Orange 
Book,'' often shortly before their original patents expire, which sets 
the stage for launching patent infringement suits against generic drug 
firms poised to enter the market. Under Hatch-Waxman, such litigation 
triggers an automatic 30-month stay on FDA approval of the generic 
drug. If the listings do not meet statutory and regulatory 
requirements, their inclusion in the Orange Book may constitute 
unlawful restraints on competition.
    To uncover whether strategies such as these are isolated examples 
or represent patterns of anticompetitive conduct, the Commission has 
undertaken a study, as requested by Representative Henry Waxman, to 
provide a more complete picture of how generic competition has 
developed under the Hatch-Waxman Act. The Commission has issued nearly 
100 orders to innovator and generic drug companies to obtain documents 
related to the issues identified through investigations and to identify 
any other anticompetitive strategies that may exploit certain Hatch-
Waxman provisions. The facts obtained through this study may provide a 
basis for policy recommendations in this area.
    Health care fraud. Fraud in the health care sector poses a direct 
and immediate threat of both economic and physical injury to 
consumers.\10\ To fight health care fraud, the FTC launched ``Operation 
Cure.All,'' a comprehensive consumer and business education and law 
enforcement initiative targeting deceptive and misleading Internet 
promotion of products and services as cures or treatments for serious 
diseases. Just this summer, the FTC filed eight cases as part of 
Operation Cure.All, targeting companies that market a variety of 
devices, herbal products, and other dietary supplements to treat or 
cure cancer, arthritis, Alzheimer's, diabetes, and many other 
diseases.\11\
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    \10\ Combating health fraud has been a longstanding priority of the 
Commission. Since 1998, the Commission has brought 80 cases involving 
health and safety claims in advertising.
    \11\ See Panda Herbal Int'l, Inc., No. C-4018 (Aug. 8, 2001) 
(consent order) (St. John's Wort and Herb Veil 8 marketed as treatment 
for HIV/AIDS and skin cancer, respectively); ForMor, Inc., No. C-4021 
(Aug. 8, 2001) (consent order) (St. John's Wort marketed as treatment 
for HIV/AIDS; colloidal silver and shark cartilage marketed as 
treatments for cancer, arthritis, and other diseases); MaxCell 
Bioscience, Inc., No. C-4017 (Aug. 8, 2001) (consent order) (multi-
ingredient product containing DHEA marketed to reverse aging and 
prevent age-related diseases); Michael Forrest d/b/a Jaguar Enterprises 
of Santa Ana, No. C-4020 (Aug. 8, 2001) (consent order) (miracle herbs 
and black box, magnetic pulser, and Beck-Rife units marketed as 
treatments for cancer and arthritis); Robert C. Spencer d/b/a Aaron 
Company, No. C-4019 (Aug. 8, 2001) (consent order) (colloidal silver 
marketed as treatment for cancer and many other diseases); FTC v. 
Western Dietary Products Co. (Skookum), No. C01-0818R (W.D. Wash., 
filed June 6, 2001) (herbal cure packages and ``zappers'' marketed as 
treatments for cancer); FTC v. Western Botanicals, Inc., No. S-01-1332 
DFL GGH (E.D. Cal., July 25, 2001) (Stipulated Permanent Injunction) 
(comfrey products); FTC v. Christopher Enterprises, Inc., 2:01CV-0505 
ST (C.D. Utah, stipulated preliminary injunction entered July 6, 2001) 
(comfrey products).
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    Although aggressive law enforcement is crucial, education may be 
the best consumer protection by preventing deception in the first 
place. As part of a comprehensive consumer education program, we 
recently partnered with the FDA to announce a new publication, Miracle 
Health Claims: Add a Dose of Skepticism, which provides detailed 
information on spotting and avoiding health care fraud. Another 
brochure, Who Cares: Sources of Information About Health Care Products 
and Services, published jointly with the National Association of 
Attorneys General, informs consumers about information for arthritis 
cures, alternative medicine, and other health issues, and where to file 
complaints about health care fraud. To alert older audiences about 
health fraud issues, the FTC works with other federal agencies, such as 
the Department of Health and Human Services' Administration on Aging, 
and with private groups, such as the AARP.
    We will continue to use the Internet and other media to distribute 
our consumer education messages. Our Web site, www.ftc.gov, provides 
links to reliable health information, including www.healthfinder.gov, 
developed by the Department of Health and Human Services. In a little 
over one year, the FTC's Web-based consumer education material dealing 
with health issues has received nearly 80,000 hits.
    To educate the unwary, the FTC also maintains three ``teaser'' Web 
sites--``Arthriticure,'' ``Virility Plus,'' and ``Nordicalite''--
accessed using common search engines and designed to mimic fraudulent 
health care sites. When consumers attempt to order the bogus products, 
however, they are warned that if the promotions had been real, they 
would have been scammed. Most important, the site provides consumers 
with tips on how to identify Web sites that are most likely scams and 
directs them to sources of reliable information. In the last two years, 
the three teaser sites have received over 20,000 hits.
    One specific type of health-related product--dietary supplements--
will continue to receive special attention.\12\ False or deceptive 
claims in the advertising for these products are especially rampant. 
Because total sales from such products were $15 billion in 1999 and are 
increasing annually by about 10 percent, \13\ targeting deceptive 
claims for dietary supplements is an important use of FTC resources.
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    \12\ In 2001, the Commission has brought 14 cases challenging 
advertising claims made for dietary supplements. During the period from 
1998 through 2000, the Commission brought 46 such cases.
    \13\ Nutrition Business Journal, Volume IV, No.6 ``Industry 
Overview 1999'' at 3.
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                                privacy
    Many consumers are deeply concerned about the privacy of their 
personal information, both online and offline. Although privacy 
concerns have been heightened by the rapid development of the Internet, 
they are by no means limited to the cyberworld. Consumers can be harmed 
as much by the thief who steals credit card information from a mailbox 
or dumpster as by the one who steals that information from a Web site. 
Of course, the nature of Internet technology may raise its own special 
set of issues.
    A majority of the Commission does not support online privacy 
legislation at this time,\14\ but there is no doubt that consumer 
privacy is an issue that will continue to be studied and debated both 
at the FTC and in Congress. The Committee on Energy and Commerce, and 
particularly the Subcommittee on Commerce, Trade, and Consumer 
Protection, have made significant contributions to the discussion of 
these issues. The Commission looks forward to continuing to work with 
the Committee and Subcommittee on these issues.
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    \14\ Commissioners Anthony and Thompson continue to support 
legislation as recommended by the Commission last year. See Statement 
of Commissioner Sheila Anthony on the Commission's Privacy Agenda (Oct. 
4, 2001); Privacy Online: Fair Information Practices in the Electronic 
Marketplace: A Federal Trade Commission Report to Congress (May 2000) 
(Commissioner Orson Swindle, Dissenting, and Commissioner Thomas B. 
Leary, Concurring in Part and Dissenting in Part).
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    The FTC currently enforces a number of laws that address consumers' 
privacy.\15\ The Commission intends to increase substantially the 
resources dedicated to privacy protection. Our initiatives in this area 
attempt to reduce the serious consequences that can result from the 
misuse of personal information and fall into three major categories: 
vigorous enforcement of existing laws, additional rulemaking, and 
continued consumer and business education.\16\
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    \15\ See, e.g., Federal Trade Commission Act, 15 U.S.C. Sec. 41 et 
seq. (prohibiting deceptive or unfair acts or practices, including 
violations of stated privacy policies); Fair Credit Reporting Act, 15 
U.S.C. Sec. 1681 et seq. (addressing the accuracy, dissemination, and 
integrity of consumer reports); Telemarketing and Consumer Fraud and 
Abuse Prevention Act, 15 U.S.C. Sec. 6101 et seq. (including the 
Telemarketing Sales Rule, 16 C.F.R. Part 310) (prohibiting 
telemarketers from calling at odd hours, engaging in harassing patterns 
of calls, and failing to disclose the identity of the seller and 
purpose of the call); Children's Online Privacy Protection Act, 15 
U.S.C. Sec. 6501 et seq. (prohibiting the collection of personally 
identifiable information from young children without their parents' 
consent); Identify Theft and Assumption Deterrence Act of 1998, 18 
U.S.C. Sec. 1028 (directing the FTC to collect identity theft 
complaints, refer them to the appropriate credit bureaus and law 
enforcement agencies, and provide victim assistance); Gramm-Leach-
Bliley Act, 15 U.S.C. Sec. 6081 et seq. (requiring financial 
institutions to provide notices to consumers and allowing consumers 
(with some exceptions) to choose whether their financial institutions 
may share their information with third parties).
    \16\ See Remarks of Chairman Timothy J. Muris, ``Protecting 
Consumers' Privacy: 2002 and Beyond,'' The Privacy 2001 Conference, 
Cleveland, Ohio (Oct. 4, 2001).
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    Law enforcement. The FTC intends to increase its law enforcement 
efforts in the following areas:

 Challenging ``pretexting,'' the practice of fraudulently 
        obtaining personal financial information, often by calling 
        banks under the pretense of being a customer.\17\
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    \17\ Some examples of recent ``pretexting'' cases brought by the 
Commission include: FTC v. Information Search, Inc. and David Kacala, 
No. AMD-01-1121 (D. Md. preliminary injunction entered May 4, 2001); 
FTC v. Victor L. Guzzetta d/b/a Smart Data Systems, No. CV-01-2335 
(E.D.N.Y. preliminary injunction entered Apr.19, 2001); FTC v. Paula L. 
Garrett d/b/a Discreet Data Systems, No. H 01-1255 (S.D. Tex. 
preliminary injunction entered May 1, 2001).
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 Enforcing privacy promises, focusing on cases involving 
        sensitive information, transfers of information as part of a 
        bankruptcy proceeding, and the failure of companies to meet 
        commitments made under the Safe Harbor Program to comply with 
        the European Commission's Directive on Data Protection.\18\
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    \18\ The European Commission's Directive on Data Protection became 
effective in October 1998, and prohibits the transfer of personal data 
to non-European Union nations that do not meet the European 
``adequacy'' standard for privacy protection. To bridge different 
privacy approaches between the U.S. and the EU, and to provide a 
streamlined means for U.S. organizations to comply with the Directive, 
the U.S. Department of Commerce, in consultation with the European 
Commission, developed a ``Safe Harbor'' framework, which was approved 
by the EU in July 2000. Companies that self-certify to the Department 
of Commerce that they comply with the Safe Harbor Principles may be 
deemed by the EU to provide ``adequate'' privacy protection under the 
EU Directive. The FTC will give priority to referrals of non-compliance 
with safe harbor principles from EU Member States. See Department of 
Commerce's Safe Harbor Website, www.export.gov/safeharbor.
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 Enforcing the Children's Online Privacy Protection Act, which 
        prohibits the collection of personally identifiable information 
        from young children without their parents' consent.\19\
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    \19\ See Children's Online Privacy Protection Act of 1998, 15 
U.S.C. Sec. 6501 et seq. The Commission has brought several actions to 
enforce COPPA and its implementing Rule. See, e.g. United States v. 
Lisa Frank, Inc., No. 01-1516-A (E.D. Va. filed Oct. 1, 2001) ($30,000 
civil penalty).
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 Enforcing the privacy protections of the Fair Credit Reporting 
        Act, which ensures the integrity and accuracy of consumer 
        credit reports and limits the disclosure of such information to 
        entities that have ``permissible purposes'' to use the 
        information.\20\
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    \20\ See Fair Credit Reporting Act, 15 U.S.C. Sec. 1681 et seq.
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 Bringing actions against fraudulent or deceptive spammers.\21\ 
        Since 1998, the FTC has maintained a special electronic 
        mailbox, [email protected], to which Internet customers can forward 
        spam. This database currently receives 10,000 new pieces of 
        spam every day. We will use this mailbox to identify targets 
        for law enforcement action.
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    \21\ Deceptive spamming is a prime example of high-tech fraud, 
discussed earlier.
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    Rulemaking. The Commission plans to engage in the following 
rulemaking activities:

 Considering whether to propose an amendment to the 
        Telemarketing Sales Rule \22\ to create a national do-not-call 
        list to allow consumers to make one call to remove their names 
        from telemarketing lists.
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    \22\ See Telemarketing Sales Rule, 16 C.F.R. Part 310.
---------------------------------------------------------------------------
 Considering whether to propose an amendment to the 
        Telemarketing Sales Rule to address the misuse of ``pre-
        acquired account information,'' lists of names and credit card 
        account numbers of potential customers. Misuses include billing 
        consumers who believed they were simply accepting a free trial, 
        or billing consumers for products or services that they did not 
        purchase.\23\
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    \23\ Recently, the Commission approved a federal district court 
settlement against Ira Smolev, Triad Discount Buying Services, Inc., 
and other defendants to resolve charges that they deceptively 
telemarketed buying clubs using negative option free trial offers and 
pre-acquired account information. The proposed order prohibits the 
defendants from obtaining account information from third parties, 
unless the third parties disclose to account-holders that they will 
transfer the account information and the account-holders agree to the 
transfer. The order also prohibits the defendants from transferring 
credit card information and personal identifiers to others, except as 
needed to process consumer-authorized transactions. See In re Premier 
Membership Services LLC, Case No. 00-35053-BKC-SHF (Bankr. S.D. Fla.).
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 Completing the current rulemaking on safeguarding consumers' 
        financial information pursuant to the Gramm-Leach-Bliley 
        Act.\24\
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    \24\ The Gramm-Leach-Bliley Act, 15 U.S.C. Sec. Sec. 6801(b) and 
6805(b), requires the FTC to issue a rule establishing appropriate 
standards for safeguards to ensure the security, confidentiality and 
integrity of customer records and information.
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    Consumer and business education and outreach. The agency will 
continue to conduct workshops and other educational activities:

 Training law enforcement officials of a number of agencies to 
        use the ID Theft database assembled by the FTC to spot trends 
        that will help them prosecute those who engage in ID theft.\25\
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    \25\ See Identity Theft and Assumption Deterrence Act of 1998, 18 
U.S.C. Sec. 1028. This Act makes the FTC a central clearinghouse for 
identity theft complaints. Under the Act, the FTC is required to log 
and acknowledge such complaints, provide victims with relevant 
information, and refer their complaints to appropriate entities (e.g., 
the major consumer reporting agencies and other law enforcement 
agencies).
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 Promoting the FTC's toll-free number, 1-877-FTC-HELP, so that 
        consumers know where to report privacy-related complaints.
 Hosting an interagency workshop on privacy notices required 
        under Gramm-Leach- Bliley \26\ to assess the impact of the 
        notices, identify successful privacy notices, discuss 
        strategies for communication of complex information, and 
        encourage industry ``best practices'' and consumer and business 
        education.
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    \26\ The Gramm-Leach-Bliley Act, 15 U.S.C. Sec. 6801 et seq., 
requires financial institutions to provide notices to consumers and 
(with certain exceptions) allows consumers to choose whether their 
financial institutions may share their information with third parties. 
The FTC will undertake enforcement efforts to ensure that financial 
institutions comply with the law and will work to increase consumer 
awareness of the notices.
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 Continuing to explore and monitor the privacy implications of 
        new and emerging technologies through workshops, reports, and 
        other public meetings.
 Joining with several companies and privacy organizations to 
        develop a universal fraud complaint form that victims of 
        identity theft can submit to each creditor involved. This form 
        will help victims recoup their losses and restore their 
        legitimate credit records more quickly.
                                 energy
    As are health care and privacy, energy is of critical concern to 
consumers. The energy sector accounts for a significant portion of the 
nation's total economic output, and is a vital input to virtually all 
sectors of the economy. The FTC has long experience with energy issues. 
We have investigated a number of oil mergers in recent years and have 
brought cases where appropriate. For example, in Exxon/Mobil,\27\ BP/
ARCO,\28\ and Chevron/Texaco,\29\ the FTC required large divestitures 
of oil fields, refineries, pipelines, and gas stations to ensure that 
the combined companies would not gain market power at any level in the 
petroleum industry. We will continue to investigate thoroughly any 
activities that may raise competition issues.
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    \27\ Exxon Corp. and Mobil Corp., No. C-3907 (January 26, 2001) 
(consent order).
    \28\ BP Amoco p.l.c. and Atlantic Richfield Co., No. C-3938 (Aug. 
29, 2000) (consent order).
    \29\ Chevron Corporation/Texaco, No. C-4023 (consent agreement 
accepted for public comment Sept. 7, 2001).
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    The Commission recently announced a series of comprehensive 
conferences and hearings on ``Factors that Affect the Price of Refined 
Petroleum Products'' to further explore the practices of, and the 
changes occurring among, firms in the industry. The first conference 
was held on August 2, 2001, and agency staff is planning a second set 
of hearings. We expect that a significant number of experts in this 
field will participate at these hearings, which will be held early next 
year.
    The FTC will investigate pricing behavior, where appropriate, in 
energy markets. In just the past year, we investigated various price 
spikes or pricing anomalies in petroleum products. Thus far, we have 
found no evidence of collusive activity in violation of the antitrust 
laws. Staff also investigated the recent gasoline price spikes in the 
aftermath of the September 11th terrorist attacks. Although these 
investigations did not find antitrust violations, Commission 
investigations nonetheless both have a deterrent effect on wrongdoing 
and provide the basis for action when anticompetitive practices have 
occurred.
    Drawing upon our experience with energy and environmental matters, 
we have been advising states on emerging consumer issues as they 
deregulate and restructure their electricity and natural gas markets. A 
recent staff report prepared at the request of this Committee examines 
state retail electric programs to determine which reforms appear to 
have worked best in introducing competitive forces into the retail sale 
of electricity. The report concludes that, although the transition to 
competition is incomplete, the properly designed restructuring of this 
industry on the state level ultimately will result in benefits to 
consumers.\30\
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    \30\ Staff Report, Competition and Consumer Protection Perspectives 
on Electric Power Regulatory Reform: Focus on Retail Competition. This 
report was prepared in response to a request from Chairman Tauzin of 
the House Committee on Energy and Commerce, and Chairman Barton of that 
Committee's Subcommittee on Energy and Air Quality.
---------------------------------------------------------------------------
    The agency also focuses on energy issues that have a direct bearing 
on consumers' wallets. We have brought law enforcement actions 
challenging deceptive energy savings claims for various products.\31\ 
We also educate consumers on energy issues by issuing alerts and other 
materials on topics such as saving at the gas pump, purported gas-
saving products, and seasonal home heating and cooling tips. For 
example, the June 2001 consumer alert with gas-saving tips, How to Be 
Penny Wise, Not Pump Fuelish, has been well-received. We will update 
our Web site with a special ``Energy and the Environment'' page for 
easy reference of the relevant FTC rules, reports, and consumer and 
business education materials.
---------------------------------------------------------------------------
    \31\ See., e.g., FTC v. Oil-Chem Research Corp. & Speedway 
Motorsports, Inc., No. 1:01 CV 00126 (M.D.N.C. filed Jan. 31, 2001) 
(challenging representations that vehicles using the zMax ``Power 
System'' will experience at least a 10 percent gas mileage improvement 
and reduced engine wear); United States v. Intermatic Inc., No. 
00C50178 (N.D. Ill. May 31, 2000) (consent decree) ($250,000 civil 
penalty in settlement of allegations that the company violated a 1979 
FTC order by making unsubstantiated energy savings claims about an 
electric water heater timer); Dura Lube Corp., No. 9292 (May 3, 2000) 
(consent order) (resolving allegations that respondents deceptively 
represented that their engine treatment product reduces emissions and 
improves gas mileage by up to 35 percent; order prohibits future 
deceptive claims and requires payment of $2 million in consumer 
redress).
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                                mergers
    The FTC's careful evaluation of mergers will continue.\32\ Although 
there has been much speculation about how the new Commission will 
regard merger cases, this area is yet another in which continuity, not 
change, will be the norm.\33\ The agency will continue to follow the 
Merger Guidelines when assessing the impact of a proposed merger on 
competition.\34\ Merger cases are fact intensive--the impact of a 
merger on competition can be assessed only with a careful investigation 
of the market or markets involved. If our investigation convinces us 
that a proposed merger will harm competition, the agency will assess 
proposed restructuring options presented by the parties to determine 
whether they will prevent that harm, or, when necessary, we will go to 
court to stop it.
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    \32\ In the last five fiscal years, the FTC has reviewed over 
17,000 HSR filings, opened 1,078 merger investigations, issued 190 
second requests, and required modification to, or otherwise challenged, 
147 mergers and acquisitions.
    \33\ See Remarks of Chairman Timothy J. Muris, ``Antitrust 
Enforcement at the Federal Trade Commission: In a Word--Continuity,'' 
before the ABA Antitrust Section Annual Meeting, Chicago, Illinois 
(Aug. 7, 2001).
    \34\ U.S. Department of Justice and Federal Trade Commission, 
Horizontal Merger Guidelines (1992, revised 1997), reprinted in 4 Trade 
Reg. Rep. (CCH) para.para. 13,104 (1997), available at 
---------------------------------------------------------------------------
    Recent amendments to the Hart-Scott-Rodino Act \35\ have reduced 
the overall number of HSR merger filings that the FTC and the Antitrust 
Division of the Department of Justice receive. Despite this reduction 
in HSR filings, the number of mergers raising competitive concerns 
appears to remain significant, and many are likely to present complex 
competitive issues that require thorough investigation. In addition, 
the FTC will not limit its attention only to those mergers that are the 
subject of an HSR filing. In a complaint filed this month, the FTC 
alleged that an acquisition harmed consumers, even though it was not 
reportable to the antitrust agencies under the HSR Act.\36\ It suffices 
to say that the merger staff likely will remain quite busy.
---------------------------------------------------------------------------
    \35\ 15 U.S.C. Sec. 18a, as amended, Pub. L. No 106-553; 114 Stat. 
2762 (Dec. 21, 2000), effective February 1, 2001.
    \36\ MSC.Software Corp., No. 9299 (complaint filed Oct. 10, 2001). 
The complaint filed this month challenges two acquisitions made by a 
dominant supplier of a popular type of advanced computer-aided 
engineering software. The complaint alleges that the defendant acquired 
its only two competitors in transactions that fell below HSR 
notification thresholds.
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    The FTC also continues to focus attention on reducing the burden of 
merger investigations. We are reviewing the burden caused--to both the 
government and the parties--by document productions received in 
response to so-called ``Second Requests.'' We are also assessing 
whether merger investigations can be streamlined and shortened. As with 
all matters involving merger standards and procedures, we are working 
with the Department of Justice to address these issues. In particular, 
we are working with our counterparts at the Antitrust Division to 
determine the ``best practices'' that will minimize burdens while 
maintaining or enhancing our enforcement capability.
                               conclusion
    The agency's mission is to protect the welfare of consumers. 
Today's Federal Trade Commission has forged a widespread consensus on 
how to protect consumers and how to work with other federal and state 
agencies to provide maximum benefits for consumers from our limited 
resources. We will continue to use the full panoply of our 
institutional tools in fulfilling this important mission.

    Mr. Stearns. I thank the Chairman. I think the first 
question obviously is what would you say your top 3 to 5 goals 
that you will accomplish so that when you come back at the end 
of the 107th Congress, and hopefully the 1st of October, 
September of next year, that we can say that the Chairman said 
that his top 3 to 5 goals are X, and this is what he 
accomplished. And so maybe I will just start off with that 
question.
    Mr. Muris. Thank you, Mr. Chairman. I would----
    Mr. Stearns. I would just point out that we do have a vote 
here, and we have a series of a couple of votes. So I will try 
and get through my opening questions, and then we will recess 
and come back, and I know that the members will be asking 
questions thereafter.
    Mr. Muris. Thank you. I want to emphasize that we are 
standing on the shoulders of people who did an excellent job at 
the FTC, and we are hoping to build on the work that they did 
to do it even better.
    On the consumer protection side, as I have mentioned, we 
are substantially increasing our resources on privacy. One of 
our issues that Mr. Markey raised is we are going to propose a 
National Do Not Call List, which for the first time will give 
consumers a one-stop place to call and have their names taken 
off of telemarketing lists. The Telemarketing Rule gives us 
that authority, and we have discussed it with the FCC, and I 
believe that will be a very important consumer initiative. 
Thus, implementation of our privacy agenda would be one point.
    A second point on the consumer protection side would be to 
increase our effort against fraud, particularly on-line, 
although obviously we will look at off-line fraud as well. The 
diet supplement area is one of increasing importance, and we 
are looking there. Also, we are trying to use more 
sophisticated tools to search our data base, to look for 
patterns of illegal activity, and to try to detect and stop 
fraud even faster.
    On the anti-trust side, with the slight receding of the 
merger wave, we are turning more attention to non-merger cases. 
We hope in the drug and other areas to have a very aggressive 
agenda to protect and benefit consumers. In the merger area, I 
would last point out that we are continuing aggressive 
enforcement. At the same time, we believe there are steps that 
we can take to reduce the compliance burdens of businesses that 
have grown quite large. Thus, these four areas are ones in 
which I hope we can accomplish a lot.
    Mr. Stearns. Let me just get to a question that a lot of 
people have asked me. Some have suggested that different types 
of fraudulent schemes have been used to fund terrorist networks 
in the United States. Do you have any evidence to support that 
contention?
    Mr. Muris. No. We are aggressively looking at scams that 
attempt to take advantage of the events of September 11, but we 
certainly have no evidence of the sort that you are suggesting.
    Mr. Stearns. Are you receiving any complaints?
    Mr. Muris. We are receiving many complaints about 
potentially fraudulent scams, but we have no evidence that 
links any of them to terrorist organizations. What we see are 
people trying to take advantage of the situation. For example, 
there are diet supplements that claim to cure or prevent 
anthrax, and people selling perhaps deceptive kits to test for 
various sorts of problems that are related to September 11.
    Mr. Stearns. And in the area of charitable giving are there 
any fraudulent schemes being perpetrated dealing with 
charitable contributions as of September 11?
    Mr. Muris. There are dozens of law enforcement agencies 
that we are working with that are searching for such schemes. 
At the moment, although there have been a few problems that 
would surface briefly and then the companies would desist, 
there do not appear to be problems. Again, there are dozens of 
law enforcement agencies looking at this issue, including us.
    Mr. Stearns. Recently, we have begun to see reduced risk 
tobacco product ads claiming that those products pose a lower 
health risk than regular tobacco products. Does the Commission 
have the requisite authority to review the efficacy of these 
ads, and if so, will it?
    Mr. Muris. Yes on both accounts. The Commission has a long 
history in the tobacco area. Although many of the issues of 
tobacco advertising were resolved in the agreement between the 
tobacco industry and the States, this is an active issue. I 
would certainly recommend that the Commission move 
appropriately against any deception or unfairness in such 
advertising.
    Mr. Stearns. Just briefly. Is there anything as a result of 
September 11 that you are facing that part of the emergency 
funding and supplemental that you see an area where you need 
beefed up support that we in Congress should give you?
    Mr. Muris. In terms of resources, the Commission in the 
budget that is about to pass will receive a modest increase. I 
personally think another modest increase would be beneficial. 
Because of September 11, we have diverted resources from some 
other areas that are important, and I do think that modest 
increases in our budget are appropriate.
    Mr. Stearns. Okay. Mr. Chairman, we are going to take a 
recess for two votes, and it will probably be about 20 minutes, 
and we appreciate your indulgence. You have been up here many 
times and so you understand this.
    Mr. Muris. Yes, thank you.
    Mr. Stearns. And the subcommittee will take a recess.
    [Brief recess.]
    Mr. Stearns. The subcommittee will come to order, and I 
have finished with my questions, and I will go now to the 
ranking member, Mr. Towns of New York.
    Mr. Towns. Thank you very much, Mr. Chairman. Talking about 
identity theft, is there any one document or one piece of 
personal information that seems to be used more than others by 
those that engage in identity theft?
    Mr. Muris. Well, certainly the Social Security number is. 
If you want to steal someone's identity that is an excellent 
way to do it. There are people who just get credit card 
numbers, and that can be a problem as well, in the sense that 
if you get the credit card number, then you can certainly run 
up bills.
    Mr. Towns. Since September 11, there have been numerous 
press reports about how easy it is in certain States to get a 
drivers license. One State has reportedly issued more than a 
hundred-thousand licenses all with the number 99999 as a 
substitute for a Social Security number that could not be 
provided.
    Do license requirements for a drivers license at that level 
pose a significant problem in controlling identity theft, and 
if so, what should be done about it?
    Mr. Muris. That is certainly a good question. Congress had 
us create an identity theft lab, and we have about 130,000 
complaints and inquiries. I have actually sat in that lab and 
listened to calls. My experience, and I am new at this 
particular issue, is that the driver's license is less of a 
problem than the other problems that I have mentioned, but I 
would be certainly glad to look into it.
    Mr. Towns. All right. How many of these identity theft 
complaints received by the FTC would you say constitute actual 
violations of the law, and how many result from legal 
commercial practices?
    Mr. Muris. Certainly most of the complaints that we have 
received are identity theft. There are people who have charges 
on their bills that they did not make. There are serious 
problems in so-called pretexting which Congress gave us 
authority to act against, and which we are acting against. 
Pretexting is when someone calls a financial institution and 
pretends to be you, and gets information. The Commission 
brought some recent cases, and I think that is an outrageous 
practice. We have complaints about it.
    Mr. Towns. Thank you. Let me say that the means with which 
web sites collect and distribute non-public personal 
information is by-and-large governed only by the industry self-
regulation. We support the FTC's efforts to enforce industry 
promises.
    However, what can be done to address web sites that choose 
not to participate in self-regulation, having inadequate or no 
privacy policies at all? What can we do?
    Mr. Muris. One of the things that is under-appreciated by 
some is the extent to which there has been considerable 
progress in posting privacy policies. All of the top web sites 
have such policies.
    If the operator of a website permits payment using a VISA 
card, for example, VISA requires that the website post a 
privacy policy. Obviously, most web sites that do transactions 
would accept a VISA card.
    Moeover, in the privacy area, in terms of security, when 
information is leaked or sold either intentionally or 
negligently, I think that under certain circumstances that can 
be a violation of the FTC Act, and we are moving in that area.
    Mr. Towns. One final question, Mr. Chairman. In many 
communities across the country predatory lenders swindle 
unsuspecting consumers out of millions of dollars every year. 
What can the FTC do, if anything, about that?
    Mr. Muris. The FTC has been quite aggressive under our 
predecessors in attacking predatory lending. There are some 
particularly bad practices out there, and the cases have been 
appropriate. We are prosecuting them vigorously, and we are 
looking for others.
    Mr. Towns. Thank you very much, Mr. Chairman. I yield back.
    Mr. Stearns. I thank the gentleman. The chairman of the 
full committee is here, Mr. Tauzin, is recognized.
    Chairman Tauzin. Thank you, Mr. Chairman. Let me welcome 
you, Chairman Muris, and I know that our written statements 
have been made a part of the record, and in the written 
statement that I prepared for today's hearing I commended you.
    And I wanted to commend you personally for the statements 
that you made in Cleveland, I think it was, regarding the 
privacy issue, and the fact that you intend to refocus the 
Commission's attention to enforcing law in these areas, and 
insisting that in fact that as much as possible that the 
private sector respect the principles of privacy that have been 
outlined by the Commission on previous occasions.
    And also I wanted to thank you for attending the privacy 
conference that Chairman Stearns and the Chamber of Commerce 
held just recently at Landsdown, where in fact we got a better 
sense of what the outstanding legislative initiatives may look 
like next year when we take the issue up.
    And particularly the concern that the States are beginning 
to move, and particularly California, toward adopting State 
privacy policies that might conflict with other States and 
Federal policies in interstate conference.
    And I want to thank you again for participating in that 
session and for giving us the benefit of your thoughts and 
advice in regards to that. And in that regard, while you 
indicated initially in that speech that you thought that 
legislation might not be as necessary as good enforcement, you 
seem to have conceded the notion to us at that hearing that we 
have sort of been wrestling with as well that if we are going 
to have a privacy policy that works for the country, that 
having States and/or different agencies adopting conflicting 
policies could cause us great harm.
    And that perhaps that we need at least some sort of 
standard, some basic principles of policy upon which all of us 
can function in interstate commerce. Is that correct?
    Mr. Muris. Yes, Mr. Chairman. I appreciate your comments. I 
have enjoyed working with you so far, and look forward to 
working together in the future. The point that I made in that 
speech, and also at Landsdowne, was that the particular issue 
of broad based, Internet only legislation is still premature at 
this moment. I did say and I do believe that the best argument 
for such legislation is if we start getting inconsistent State 
laws. At the moment that has not happened, but I understand 
that there is some danger that that will occur.
    Chairman Tauzin. Well, California came within the half-foot 
line in football analogy from getting it done, right?
    Mr. Muris. It was financial institutions. It was not the 
on-line privacy issue, but in that financial institution area 
it would create a serious problem.
    Chairman Tauzin. And we also talked about the concept of 
creating a safe harbor for private institutions that work 
within self-regulatory regimes, and sealed organizations, so 
that they might not be affected by any kind of Federal statutes 
or rulemaking.
    And at the same time, some sort of provision to catch those 
that refuse or are unwilling to work within self-regulatory 
structures. Is that a good frame upon which we should proceed?
    Mr. Muris. Certainly if you are going to do legislation, 
legislation that gives clear guidance with things like safe 
harbors would be appropriate. Quite frankly there is a lot that 
we can do under the FTC Act, and I thank you for you commending 
us for doing more. One of the things that we are doing both in 
our cases and in working with the self-regulatory agencies is 
trying to set out some clear guidance. But again if you are to 
do legislation, that would be appropriate.
    Chairman Tauzin. And I want to touch on a topic that is 
going to get I think a lot of attention next year. We are going 
to begin work on a reauthorization of the FDAUFA statutes. 
FDAUFA is a statute that deals with the FDA, and has to do with 
the user fees that are collected for studying and for approving 
new drugs.
    When that statute opens, it is very likely that we are 
going to get back into tobacco, and so I want to ask you a 
couple of tobacco questions. We are beginning to see 
advertisements by tobacco companies regarding their efforts to 
reduce the carcinogenic compounds that are found in tobacco, 
and their efforts to market products that have less of those 
carcinogens in the tobacco.
    We are also beginning to see new products, new smokeless 
tobacco products, and we will begin to see advertisements on 
those products. What is the FTC's role when it comes to 
advertisements or claims about safer, or different, forms of 
tobacco products?
    Mr. Muris. The FTC has an important role involving 
advertising. As I have stated, this is an area in which we 
should be aggressive in policing advertising for deception and 
unfairness, and I believe that the FTC will continue to do 
that.
    Chairman Tauzin. So that if a tobacco company were making a 
claim that some tobacco product had a less serious deleterious 
health effect, and that it was safer in some respect, or that 
it contained less carcinogens, is it without the FTC's 
jurisdiction and authority to examine those claims and to 
enforce the law against false, misleading, or deceptive health 
claims in regard to these tobacco products?
    Mr. Muris. Absolutely. We have that authority now, and I 
believe the FTC would exercise it appropriately.
    Chairman Tauzin. I thank you very much, and I yield back, 
Mr. Chairman.
    Mr. Stearns. I thank the gentleman. The gentlelady from 
California, Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman, and welcome, Mr. 
Chairman.
    Mr. Muris. Thank you.
    Ms. Eshoo. It is good to see you, and have you here. I 
wrote to you last month with some of my concerns, and so I am 
looking forward to hearing back from you on the specifics of 
that letter.
    But let me ask some broader questions of you this morning. 
I want to commend you for proposing that the FTC's enforcement 
of existing laws--that your budget be, and your staff be 
increased by I think 50 percent.
    I think that is what you were asking for, and to devote it 
to consumer privacy issues. Where is that right now? I mean, 
very quickly. Is it in an appropriation bill?
    Mr. Muris. No, what I was saying is that we would increase 
within our total budget our resources----
    Ms. Eshoo. And how much is that?
    Mr. Muris. In the fiscal year that just ended, we spent 
about 35 people full-time.
    Ms. Eshoo. And how much is that? So you are going 50 
percent over that?
    Mr. Muris. Yes, 50 percent over that. Actually, it is a 
little more than 50 percent, but we will spend somewhere in the 
range of 55 to 60 people working on privacy, which is a 
slightly more than 50 percent increase from the last year. I am 
talking fiscal years, and the fiscal year that just began last 
month.
    Ms. Eshoo. Yes. I am aware of that. Thank you. Now, in the 
50 percent increase of that staff, what exactly will they be 
doing relative to consumer privacy issues? Can you give us a 
thumbnail sketch?
    And I think you know where I am going. Since it has been 
your recommendation to kind of pull up the emergency brake so 
to speak on legislative action, what I am pursuing is exactly 
how you are going to make use of the staff at the FTC on this.
    So how are you instructing them, and what exactly will they 
be doing, and how do you pursue bad actors? What is a bad 
actor, and how do you come down on them?
    Mr. Muris. We have five very recent privacy statutes that 
we enforce and we are increasing our enforcement. We have 
statutes dealing with financial privacy, children's privacy, 
health privacy, and we have recent amendments to the Fair 
Credit Reporting Act. We also have recent identity theft 
statutes. Plus, we have our own statute that we use in privacy, 
and we are increasing our resources by 50 percent to enforce 
those statutes. We will follow a tripartite strategy of case 
enforcement, and that particularly deals with the----
    Ms. Eshoo. How aggressive has this been, or is it something 
that is awakening and really being shaped by you?
    Mr. Muris. Privacy is a relatively new issue for the 
Federal Trade Commission, but in the last few years the 
Commission has become a leader in the privacy efforts. I 
thought particularly with these new statutes that a further 
increase in our effort would be appropriate. We are going to 
bring cases. We also have excellent relations, and----
    Ms. Eshoo. How do you determine bad actors? What is the 
process for the Commission and its staff to pursue this? Again, 
I think it is obvious why I am asking these questions. What I 
am concerned about, and I know that obviously the letter that I 
sent to you states this, that I think in some areas we need 
umbrellas, Federal umbrellas, because of the 50 States, and the 
patchwork quilt.
    It is very difficult I think to give the answer to our 
constituents of where we are on privacy, and how we have made 
progress as a Nation, and what is acceptable, and what isn't 
acceptable, and how we pursue, and what the rules of the road 
are.
    Right now if I were to describe it, I think it is like 
nailing jello to a wall. I don't really think we have anything. 
I think we have some operating principles that people think are 
good things to go by. I certainly have introduced legislation 
on this, and others have.
    But what I am trying to nail down are some of the bright 
lines of the FTC. So how do you determine bad actors? What are 
you going to do about them? How does the staff bring this 
about? Are they reported, or do you do this internally?
    And I note that in your comments that you said that about a 
hundred of the top companies have posted. Well, there may be a 
hundred top companies, but I can think of at least 50 brand-
named companies in my Congressional District. And so a hundred 
is not that many out of our country I don't think. So, anyway, 
go at it.
    Mr. Muris. Sure. First of all, I apologize. I am unaware of 
your letter. Unfortunately for 2 weeks we had no mail delivered 
to us, and if you sent it in the regular mail, it probably----
    Ms. Eshoo. We will fax it to you. How is that?
    Mr. Muris. I appreciate it. It probably was rerouted to 
Ohio, and we are now starting to get mail delivered. We have a 
complaint system, and it is one of the ways that we look for 
cases.
    Ms. Eshoo. So, from the outside coming in?
    Mr. Muris. Yes, which we are improving. That complaint 
system had never specifically addressed privacy concerns 
before. The privacy groups asked to change our complaint system 
to track privacy complaints. I thought that was an excellent 
idea, and we are doing that.
    Under the specific statutes that we enforce, we look for 
people who create problems. For example, the Fair Credit 
Reporting Act was our first privacy statute. It is 30 years 
old, and it is an important privacy statute.
    One of the things that it says is that if a consumer is 
denied credit, insurance, or employment, because of something 
that is in his or her credit report, the consumer has to be 
told that that was why. And if the consumer is told, as credit 
reports aren't always perfect, then they know that there is a 
problem and to check on the problem.
    We are stepping up and increasing our enforcement of that 
provision. We are also quite frankly under the----
    Ms. Eshoo. So if someone violates that and you find them, 
quote, guilty, what happens to them?
    Mr. Muris. We have a variety of remedies that we can seek. 
In some cases, depending on the violation, we can get monetary 
relief. Under the Fair Credit Reporting Act, for the most part, 
we do what is called a cease and desist order.
    Ms. Eshoo. Let me ask you this, because I think the clock 
is going to go off, or maybe the red light is already on.
    Mr. Muris. Okay.
    Ms. Eshoo. In the areas that you listed out, and where you 
have jurisdiction, in the last year how many violations that 
were either detected or reported from the outside to the FTC 
have been adjudicated and fines levied, or whatever the process 
is?
    Mr. Muris. Well, we have brought numerous cases. Under the 
Children's Privacy Act, for example----
    Ms. Eshoo. No, all of them combined.
    Mr. Muris. All of them combined? I am not sure what the 
answer is.
    Ms. Eshoo. Do you think it is aggressive?
    Mr. Muris. One of the reasons that I proposed a 50 percent 
increase in resources is that I thought that we could do 
better. The Commission has done a good job in the past in 
making privacy a central issue, but I proposed an increase 
because I thought it was an important issue that deserved more 
effort.
    Mr. Stearns. The gentlelady's time has expired.
    Ms. Eshoo. May I ask unanimous consent for one more 
question?
    Mr. Stearns. So ordered.
    Ms. Eshoo. Thank you, Mr. Chairman. Why do you consider the 
Internet and main street, and how they operate, one and the 
same? Why do you treat them the same way?
    Mr. Muris. The point that I made about on-line and off-
line, which I know that Chairman Stearns' proposal agreed with, 
is that collecting information is increasingly becoming 
seamless. Companies that collect information off-line and on-
line are integrating those systems. To have one set of rules 
for the Internet is going to punish the Internet relative to 
off-line. For the sensitive financial and health information, 
which are the most important kinds of collections, we ought not 
to punish on-line.
    Ms. Eshoo. I am not so sure I understand your answer. If 
you draw a line between the two because they operate 
differently--Mr. and Mrs. Smith's store on main stream, versus 
an on-line privacy--I don't understand why you would treat them 
the same?
    Mr. Muris. The issue that we are talking about and that is 
relevant for us is the collection of sensitive personal 
information. If you have tougher standards for the----
    Ms. Eshoo. But it operates differently though.
    Mr. Muris. If you have tougher standards for the collection 
of information on-line than you have for the collection of 
information off-line, then you are punishing the on-line 
companies.
    Ms. Eshoo. And how would the FTC enforce that?
    Mr. Muris. How? Certainly the FTC will enforce whatever 
laws Congress tells us to enforce. But my point is that we 
ought not to penalize the development of the Internet by 
adopting tougher privacy standards for the collection of 
information on-line than for the collection of information off-
line.
    Ms. Eshoo. And my final comment, and I thank the Chairman 
for his patience, is that I think that if you don't do more to 
build the confidence of the American people in transactions on-
line, then we have lost the battle.
    I think that there is enough out there that is cutting into 
this confidence. We have many, many overlays today since 
September 11, but I think that confidence is the gold standard 
when it comes to our markets, and I think confidence is the 
gold standard relative to the Internet.
    I think that confidence, confidence, confidence, being 
built in each important sector just cannot be overlooked. So I 
think that we are missing that opportunity, but I look forward 
to working with you. Thank you, Mr. Chairman.
    Mr. Stearns. Thank you, gentlelady. Mr. Terry is 
recognized.
    Mr. Terry. Thank you, Mr. Chairman. We telephoned your 
office to discuss an issue in my home town with one of my 
constituents, and a couple of hundred of the employees that 
work for Paypal, in a kind of interesting issue regarding 
vertical integration of E-Commerce on the Internet, and who can 
control the payment methods when making purchases on the 
Internet.
    So let me just ask you the general, and then if you can 
move to the specific, but generally what is the philosophy of 
your department, of the FTC, regarding anti-trust on E-Commerce 
and vertical integration.
    And whether or not specifically then in electronic commerce 
if the method of on-line payment fits into that philosophy, and 
again whether or not the philosophy will change from past to 
now under your leadership.
    Mr. Muris. To start at the most general level, we enforce 
the anti-trust laws, and the anti-trust laws--mostly, but not 
exclusively--focus on agreements among competitors and on so-
called monopolistic practices. It is possible in certain 
circumstances to bring a case based on vertical integration. 
The law is very tough because it is premised on lots of 
empirical evidence that vertical integration often benefits 
consumers.
    Many of these cases frequently involve contractual 
disputes, contractual issues more than they involve anti-trust 
law. If you have a situation, however, when you have a company 
that really has substantial market power, that company can 
misuse vertical integration in a way that harms consumers. It 
is a tough case to bring and win.
    Mr. Terry. This issue is somewhere in the process at the 
FTC, and where is it in--well, you mentioned about whether 
somebody has sufficient market power to really cause damage. 
Has there been any determination or early thoughts that E-Bay 
in this particular situation has that level of market power to 
really wreck havoc on these small businesses that focus on 
electronic payment?
    Mr. Muris. We would take a look at situations involving 
abuses of market power. I personally do not know enough about 
the specific matter that you have referenced. I just found out 
about it last night, about the particular facts, and can not 
comment on those facts. As I said, there can be appropriate 
cases, but they are relatively few and they are hard to win.
    Mr. Terry. Despite the difficulty in winning those, is this 
somewhere in the process of being reviewed at the FTC?
    Mr. Muris. Again, part of the problem is that we have had 
this mail problem like everyone else has, and we will certainly 
look at any recommendation we receive from you or any other 
members of the committee.
    Mr. Terry. I appreciate that. Thank you. I yield back.
    Mr. Stearns. The gentleman yields back the balance of his 
time. The gentleman from Massachusetts, Mr. Markey, is 
recognized.
    Mr. Markey. Thank you, Mr. Chairman, very much. First, I 
would like to compliment you, Mr. Chairman, on announcing that 
the Commission is going--and I am reading from your testimony, 
that the Commission plans to engage in the following rulemaking 
activities to consider whether to propose an amendment to the 
telemarketing sales rule to create a national do not call list 
to allow consumers to make one call to remove their names from 
telemarketing lists.
    What greater gift could you give to the American people 
than to just have one call where you say I don't want anybody 
else to call me again. You know, just keep them all away from 
my house.
    So this has always been my dream when I authored the Act in 
1991. That the day would arrive when out of the Federal 
Communications Commission, or the Federal Trade Commission, 
that they would do this, and it was always my intention.
    Because you just get worn down. You keep telling different 
companies, and then you can't remember which company it was 
that you told 3 weeks ago that you didn't want to be called 
again, and so you are not sure whether you should be mad at 
this one person who is calling you, but you are just mad in 
general when you hang up because you were waiting for a call 
from your Aunt Margie, and these people are just interfering 
with it.
    So I want to compliment you for doing it, but the hosannas 
will rain down on you, Mr. Chairman, if more than just 
considering whether to propose an amendment that you actually 
announce that you are going to propose an amendment.
    You name will ring in the heavens of this institution and 
all across the country, because there never again will be a 
greater achievement that will attach to your name than if you 
actually do it. So I would just like you to know that on this 
issue that there are no Democrats, and there are no 
Republicans. We are united at water's edge here in our battle 
against telemarketers.
    So you will hear no dissenting views on this, I think, 
except from companies that make money off of it. And the 
interesting thing about privacy policy generally as you know is 
that we have this privacy paradox, which is that if in fact a 
company posts a privacy policy, and then violates its own 
policy, then the Federal Trade Commission can bring an action 
against them for engaging in unfair and deceptive practices.
    However, if the company never posts a privacy policy, but 
engages in personal information hijacking, then there is 
nothing that you can do about it, which is just totally 
backwards. The companies that don't protect privacy at all, you 
can't do anything about, and the companies that say that they 
are going to protect privacy and then don't, you have an action 
against them because they didn't do as much as they promised 
that they were going to do.
    So the question that obviously constantly arises is why 
don't we just put a regulation on the books so that these bad 
people who don't protect any privacy at all have real 
protections which are built in to the law so that there is a 
minimal level of electronic ethics that every company has to 
abide by, in terms of their relationship with the consumer.
    Mr. Muris. I certainly appreciate your comments on the 
telemarketing sales rule amendment, which we are about to 
propose. Obviously, we have to look at the rulemaking record in 
making our final determination.
    The problem that I have at this time with on-line 
legislation, besides the fact that it would discriminate 
against on-line commerce, is that it is notice based. This 
spring and summer everyone in America received several notices 
from their financial institutions, as required by Gramm/Leach/
Bliley. We need to understand how to do notice legislation 
better before we move to new notice-based legislation. We are 
holding a workshop on December 4, where we are bringing in 
everybody, the agencies who enforce Gramm/Leach/Bliley and the 
people who send out the notices. We will try to see how we can 
make it work better. Quite frankly that experience this spring 
and summer was not a very salutary experience for notice-based 
legislation.
    Mr. Markey. Can I tell you, Mr. Chairman, that I am the 
author of that language as well, although it is included in the 
bill that you keep mentioning, those three names. But it is the 
Markey language that is in there.
    And what we are trying to do with the financial services 
industry is to deal with the fact that there is an underlying 
pathology in the financial services industry which doesn't want 
to provide any privacy protections whatsoever, which is why 
they fought us on this committee, which is where it came out 
of, the privacy language.
    They actually defeated it in the Senate and in the Banking 
Committee across the corridor from me. So they are kind of 
like--they are in a recovering privacy violators program. There 
is a deep-seeded pathology that they have.
    And then when you say to them, now, please give notice to 
people that their privacy may or may not be protected, and here 
is your two-page document that you have to sign, and this or 
that, and there is triple-negatives that are in it that would 
require a $500 an hour lawyer in order to figure it out, of 
course it is not successful.
    However, if you allowed a bunch of sixth graders to sit 
around and just draft it up, or just check it this way or that 
way, and it is going to cover you for everything, then it would 
be all done.
    And so it is not that complicated in fact. In just requires 
somebody in your staff to just kind of draft it up, and just 
say here is what you are going to do from now on or else we are 
going to sue you, and it would be all solved for the next round 
that we would have to go through.
    But it doesn't require a lot to figure out that the people 
who were charged with doing it at their company didn't want to 
do it. I have one final question, Mr. Chairman, if I may, and I 
apologize, and ask for your indulgence.
    In recent days there has been an announcement of media 
mergers that are going to receive a lot of attention. I think 
that one of the ways in which we can gain some insights as to 
what needs to be done would be looking just backwards a little 
bit toward the AOL-Time Warner merger so that we can assess the 
conditions that were imposed upon that merger, in terms of how 
successful they have been.
    So I would just like to just ask this quick question, and 
then ask you to submit to the record, to the chairman, and to 
the full committee, or to the subcommittee, in writing your 
answer to this question within 2 weeks, and I would appreciate 
it.
    The consent AOL-Time Warner order, as summarized by your 
agency's website, stipulates, quote, that AOL would be required 
to open its cable system to competitor ISPs, prohibited from 
interfering with content passed along the bandwidth, and 
contracted for by non-affiliated ISPs, and from interfering 
with the ability of non-affiliated providers of interactive 
t.v. services, to interact with interactive signals, triggers, 
or content that AOL-Time Warner has agreed to carry; and 
prevented from discriminating on the basis of affiliation in 
the transmission of content, or from entering into exclusive 
arrangements with other cable companies with respect to ISP 
services or interactive t.v. services.
    And required to market and offer AOL's digital subscriber 
line services to subscribers in AOL's cable areas where 
affiliated cable broadband service is available in the same 
manner, and at the same retail pricing, as they do in these 
areas where affiliated cable broadband ISP service is not 
available.
    So what I would like to ask, Mr. Chairman, is perhaps not 2 
weeks, but perhaps by December 1, if the Agency could submit to 
us in writing how much compliance in their opinion they believe 
the AOL-Time Warner has given to this language.
    Mr. Stearns. I think that is a good question that we would 
like to have.
    Mr. Markey. And if I may, we would like a status report on 
each condition so that we can have an idea in each area how 
well the FTC is overseeing the implementation of the Act. Thank 
you, Mr. Chairman.
    Mr. Stearns. Yes, I thank the gentleman.
    Mr. Markey. Would the Chairman be willing to do that?
    Mr. Muris. Yes, sir.
    Mr. Stearns. Okay. The gentleman from New Hampshire, Mr. 
Bass, is recognized.
    Mr. Bass. Thank you, Mr. Chairman. Mr. Chairman, the 
Oversight and Investigation Subcommittee had a hearing 
yesterday on the issue of charitable--the disposition of funds 
raised for charitable purposes in the aftermath of the 
September 11 tragedy.
    And I asked Mr. Beamis yesterday about the issue of whether 
he thought the FTC needed additional authority to oversee the 
practices of charities, and I am just wondering what your 
thoughts are on that subject.
    Mr. Muris. One of the issues in the national do not call 
list is that it would cover 80 percent of the calls, but it 
would not cover political fundraising calls, or most charitable 
calls. If Congress proposed to extend our ability to cover 
charities in that sense, that certainly would be something that 
we would consider. You recently amended the Telemarketing Sales 
Rule to give us more authority over charities, and we are 
trying to understand the new law.
    Mr. Bass. In the Patriot Act you mean; is that right?
    Mr. Muris. Yes. When there is outright fraud, we already 
have sufficient jurisdiction. There are serious constitutional 
problems in dealing with charities, however. A final issue with 
non-profits in general, and not just charities, is that their 
exemption causes us a problem under the anti-trust laws. There 
can be anti-competitive conduct by non-profits that we cannot 
reach, although the Justice Department, which also enforces the 
anti-trust laws, can reach those.
    Mr. Bass. Okay. Another issue is what level of success have 
you had with enforcing rules when the seller is overseas, and 
it is probably an Internet more than anything else issue.
    Mr. Muris. That is an excellent question and it is one to 
which we need to pay increasing attention. Cross-border fraud 
is a growing issue. As we have moved in the United States, for 
example on the telemarketing front to crack down on fraud, many 
telemarketers have gone to Canada. We have good cooperation 
with the Canadians, and we are hoping to increase it.
    I hope to emulate something that occurred on the anti-trust 
side. Over the last 15 years, anti-trust authorities 
internationally have achieved good cooperation in attacking 
price fixing. I hope that we can emulate that cooperation on 
the cross-border front. We have begun with Canada, and I hope 
that we increase our work in that area.
    Mr. Bass. Do you need Congressional help to achieve that, 
or can you do it anyway?
    Mr. Muris. We might need Congressional help, and it is 
something that I am studying. I certainly would not hesitate to 
ask for your help, and this committee would obviously be the 
place to start.
    Mr. Bass. One last question. Mr. Tauzin talked about the 
issue of privacy and preemption of State regulatory efforts. 
Are there any other areas where you think the FTC may have some 
issues with State regulation versus Federal?
    Mr. Muris. For the most part, we have an excellent 
cooperative relationship with the States. In fraud in 
particular, we bring cases together with the States. The same 
thing happens on the anti-trust side. It is clear that State 
legislation can cause problems. In terms of enforcement, it is 
mostly cooperation and not any sort of adverse competition.
    Mr. Bass. Thank you, Mr. Chairman.
    Mr. Stearns. Thank you. I thank the gentleman. Mr. Deal is 
recognized.
    Mr. Deal. Thank you, Mr. Chairman and thank you for being 
here today as well. I have a couple of very diverse areas, and 
to follow up on your last comment, I have just a matter of 
inquiry with regard to the enforcement of fraud schemes in 
cross-country relationships.
    Is there anything in WTO that binds all of the WTO members 
to a common agreement with regard to prosecuting those, and if 
not, is that an area that perhaps should be looked at as one 
that our country should push?
    Mr. Muris. No, there is not. We should push bilateral 
agreements. We are not at the stage yet when a multi-lateral 
WTO agreement would be appropriate, but certainly bilateral 
agreements, which is what we first used in the anti-trust laws, 
are appropriate. I plan to make this a priority.
    Mr. Deal. I would urge you to do that, and as we go forward 
with the bilateral agreements, certainly I think we ought to 
make it a priority in those agreements. Let me go--we all have 
our favorite issues that we have complaints about, and as a 
member who has three--my wife and my own family members, who 
are 86 through 95 years of age, and live with us in our home, I 
have become increasingly aware of the fraud that is attempted 
and continue to be perpetrated and aimed at senior citizens and 
the so-called sweepstakes type solicitations.
    I assume that at least part of that issue is within your 
jurisdiction, and I would just ask you if you would bring us up 
to date as to what has been done. I mean, if I could just add 
together all of the winnings that these three senior members of 
our family have been told they have won, they would all be 
multi-millionaires.
    However, if I added up the amount of fees that have to be 
paid just to get their earnings, whether it be send us $11.65 
so that we can mail you your $25,000 check, and we will do so 
immediately, I think we have sort of all lost focus of that 
problem, and to me it is a huge problem.
    There may be problems in the mail elsewhere, but there is 
no problem with those letters getting through. What is being 
done and what if anything else do we need to do legislatively?
    Mr. Muris. The situation that you described would probably 
be illegal. The Commission has brought cases. The typical one 
involves consumers paying money for a promise to help them win. 
The States were very active and have announced in the last few 
years settlements with major sweepstakes companies. Congress in 
the last year or 2 passed legislation requiring additional 
disclosures. Thus, there has been much that has happened on 
this front.
    We in general work with the AARP and other groups on 
particular problems that the elderly have. Health care issues 
are probably a bigger issue, but sweepstakes is a significant 
issue as well. We have been aggressive in those areas.
    Mr. Deal. Do you need any other legislative authority to 
assist in that regard?
    Mr. Muris. This is an area where our legislative authority 
is quite good.
    Mr. Deal. All right. Let me move to a totally different 
subject, and that is the area of health care, and your written 
testimony I think is very good in that regard, in your efforts 
to deal with fraudulent and scam operations in the health care 
area.
    Let me bring the question as it relates to an issue that we 
get complaints from in my office, and that is the question of 
the ordering of prescription drugs over the Internet. And the 
question that is raised by many local pharmacists, for example, 
that the adequate safeguards that are required of a local 
pharmacist, in terms of advising, and follow-up, and 
counseling, are not accompanying those kinds of orders. Is that 
an area that you have been involved with, and what is the 
status of that? If you would comment.
    Mr. Muris. In general we have been looking at several 
issues of products migrating on-line--whether they are sold 
deceptively and whether there are restrictions imposed upon 
them that are appropriate. We have looked at some issues 
involving the on-line sale of pharmaceuticals. I would be glad 
to get back to you with the details, because I do not know 
specifically the status.
    Mr. Deal. All right. If you would, because I think as you 
recognized as more migrates to that medium for purchase, we 
can't tighten up on the local pharmacist, and at the same time 
relieve the other sales venues from those kind of controls.
    And one final very unrelated question, and that is the safe 
harbor provisions that the EU has put in place. I noticed in 
your testimony, and I believe it is Footnote 18 to the 
testimony, that your organization is giving priority to 
complaints of non-compliance.
    I think that all of us recognize that some people think 
that we are going too far in enforcing European law on American 
companies. What is your general view of the safe harbor under 
the EU and your role in enforcement?
    Mr. Muris. It is important to understand what my 
predecessor promised to do, which promise I will abide by. We 
are not going to enforce the European law. What we are going to 
enforce is American companies promises to their consumers.
    In this case, if they promised that they will enforce 
certain privacy provisions and if they break that promise, we 
will act.
    Mr. Deal. That is a good distinction. Thank you very much, 
and thank you, Mr. Chairman.
    Mr. Stearns. I thank the gentleman. Before we close, Mr. 
Chairman, you touched in one of your answers to one of my 
colleagues that as a result of September 11 and these 
charitable contribution funds, there have been some complaints 
that they have not distributed the money.
    You sort of indicated that perhaps you could be given more 
authority to help out in this area. The State of Minnesota has 
a proposal that if you have a charitable, not-for-profit fund, 
that you have to notify the State.
    And second that you have to provide information on your 
expenses and your overhead. You don't have to provide the 
privacy of the individuals contributed, but you have to show 
how much money was expended in overhead, or administrative 
expense, and how much was given out in a charitable way.
    And I was wondering if you thought on a national basis that 
we should have perhaps as a start just for national 
emergencies, like Hurricane Andrews down in Florida, or 
September 11, and perhaps we have, god forbid, additional 
terrorist acts, that these national tragedies which we see 
people develop huge amounts of money, and yet the money is not 
distributed, is it possible that we should have some national 
legislation that would give you more power so that you would 
develop, say, a data base on these people to make sure that 
they are legitimate, and that there is no fraud.
    And then second that they have a reporting system where 
they would have to tell what their expenses are and how much 
money they give out, because just the light of day, the 
sunlight, would perhaps give the American citizens knowledge, 
whether they are giving money to the United Fund, or the Red 
Cross, or the Julianne Fund, what it is doing with the money 
and when. I would just be curious to hear your comments.
    Mr. Muris. That is an excellent question, Mr. Chairman. 
This is not an area in which we have current jurisdiction, and 
I would have to look at it more closely to give you a 
definitive answer. I do know that there are serious 
constitutional issues just in doing what you are stating, 
particularly with religious institutions. The Supreme Court 
struck down a State law that required some of the information 
that you are discussing on First Amendment grounds.
    I certainly think that sunshine is appropriate. I know that 
there are some self-regulatory organizations that provide that 
information. Through our consumer education programs, we try to 
help educate consumers. But on the issue of additional 
legislation, I would have to study it more closely.
    Mr. Stearns. You might do that for me and just get back in 
writing.
    Mr. Muris. Yes.
    Mr. Stearns. And as I pointed out, as I understand it, some 
States have been successful in this, and have met the 
Constitutional requirements. So that is the area that we would 
work at. The ranking member, I will ask for his----
    Mr. Towns. I have a unanimous consent request.
    Mr. Stearns. Yes.
    Mr. Towns. I ask consent for all members to be able to 
submit statements for the record.
    Mr. Stearns. Without objection, so ordered.
    Mr. Towns. And on that note, I ask that Congresswoman 
DeGette, I would like permission for her to submit for the 
record a report of the Business Roundtable, dated July 2001, 
entitled, Information Privacy, the Current Legal Regime.
    Finally, Mr. Chairman, I request permission for Mrs. 
DeGette to submit questions to the Chairman, and that his 
responses be included in the record of this hearing.
    Mr. Stearns. By unanimous consent, so ordered.
    Mr. Towns. Thank you.
    Mr. Stearns. Mr. Chairman, thank you very much for your 
patience while we went to vote and we are delighted that we had 
this first opportunity to engage in a discussion, and we look 
forward to seeing you again. With that, the committee is 
adjourned.
    Mr. Muris. Thank you.
    [Whereupon, at 11:58 a.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]
                           Federal Trade Commission
            Office of the Director, Congressional Relations
                                                   December 5, 2001
The Honorable Cliff Stearns
Chairman
Subcommittee on Commerce, Trade and Consumer Protection
Energy and Commerce Committee
United States House of Representatives
Washington, D.C. 20515
    Dear Chairman Stearns: Enclosed please find the written responses 
from Chairman Muris to questions raised during the November 7, 2001 
hearing. Please let me know if I can be of further assistance.
            Sincerely,
                                                         Anna Davis
Enclosure
    Question 1 (from Representative Bass): Does the Federal Trade 
Commission need additional authority to oversee the practices of 
charities?
    Response. I believe the Commission currently has sufficient 
authority to combat fraudulent charitable fundraising practices, 
particularly in light of the additional authority that the new USA 
PATRIOT ACT of 2001 confers.
    Under the Federal Trade Commission Act (``FTC Act''), the agency's 
mandate is to take action against ``unfair or deceptive acts or 
practices'' that are ``in or affecting commerce.'' \1\ The FTC Act also 
equips the FTC with a wide array of tools to enforce this mandate.\2\ 
Sections 4 and 5 of the FTC Act provide the Commission with 
jurisdiction over corporations only if organized to carry on business 
for their own profit or that of their members.\3\ Over the years, 
federal courts have construed Section 4 to bar the Commission from 
suing any truly nonprofit organization under the FTC Act, thereby 
removing many charitable organizations from the FTC's scope of 
authority.\4\
---------------------------------------------------------------------------
    \1\ 15 U.S.C. Sec. 45(a). The Commission also has responsibilities 
under more than 45 additional statutes, e.g., the Fair Credit Reporting 
Act, 15 U.S.C. Sec. Sec. 1681 et seq., which governs the privacy, 
fairness, and accuracy of certain sensitive consumer information; the 
Truth in Lending Act, 15 U.S.C. Sec. Sec. 1601 et seq., which mandates 
disclosures of credit terms; and the Fair Credit Billing Act, 15 U.S.C. 
Sec. Sec. 1666 et seq., which provides for the correction of billing 
errors on credit accounts. The Commission also enforces over 35 rules 
governing specific industries and practices, e.g., the Used Car Rule, 
16 C.F.R. Part 455, which requires used car dealers to disclose 
warranty terms via a window sticker; the Franchise Rule, 16 C.F.R. Part 
436, which requires the provision of information to prospective 
franchisees; and the Telemarketing Sales Rule, 16 C.F.R. Part 310, 
which defines and prohibits deceptive telemarketing practices and other 
abusive telemarketing practices.
    \2\ These include the authority to file civil actions in federal 
district court, as well as to bring administrative cease and desist 
actions, against those who engage in deceptive practices. The FTC Act 
also enables the Commission to obtain a full range of relief for 
injured consumers. Typically these civil actions seek preliminary and 
permanent injunctions to halt the targeted illegal activity, as well as 
redress for injured consumers.
    \3\ Section 5(a)(2) of the FTC Act states:
    The commission is hereby empowered and directed to prevent persons, 
partnerships, or corporations . . . from using unfair or deceptive acts 
or practices in or affecting commerce. 15 U.S.C. Sec. 45 (a) (2).
    Section 4 defines ``Corporation'' to include:
    any company, trust, so-called Massachusetts trust, or association, 
incorporated or unincorporated, which is organized to carry on business 
for its own profit or that of its members . . . 15 U.S.C. Sec. 44.
    \4\ See Community Blood Bank of Kansas City, Inc. v. FTC, 405 F.2d 
1011 (8th Cir. 1969).
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    Significantly, however, the Commission does have jurisdiction over 
a nonprofit organization that is merely an instrumentality or a shell 
used to seek direct monetary gain, either for itself or for its 
members.\5\ The Commission also has jurisdiction under the FTC Act over 
entities that are organized to carry on business for profit. These 
entities include for-profit telemarketers, sometimes referred to as 
``telefunders,'' that contract with nonprofit organizations to perform 
the nonprofits' fundraising activities.\6\ The Commission has used this 
jurisdiction aggressively to attack instances of fraud.
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    \5\ Community Blood Bank, 405 F.2d at 1019; Ohio Christian College, 
80 F.T.C. 815 (1972).
    \6\ See FTC v. Saja, 1997-2 Trade Cas. (CCH) para. 71,952 (D. Ariz. 
1997). Cf. California Dental Ass'n v. FTC, 526 U.S. 756 (1999).
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    The recently-enacted USA PATRIOT ACT of 2001 provides the FTC with 
an additional tool to address charitable fraud.\7\ The USA PATRIOT law 
amends the statute authorizing the FTC's Telemarketing Sales Rule 
(``TSR'') to apply to certain solicitations of charitable 
contributions. The Commission is currently considering proposed 
amendments to the TSR that will implement this new authority.
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    \7\ USA PATRIOT Act, Pub. Law No. 107-56, Sec. Sec. 6102(a)(2), 
(3)(D), 6106(4), __ Stat. __ (2001).
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    Acting within the parameters of its authority, the Commission has 
asserted a strong enforcement presence in the fraudulent fundraising 
arena. In the past decade, the Commission has filed over 25 cases in 
federal district courts challenging deceptive fundraising practices by 
for-profit solicitors. Many of these cases involved ``badge fraud,'' 
where a telemarketer poses as a law enforcement officer or an affiliate 
and typically claims that he is raising money to support law 
enforcement efforts in the donor's local area. In fact, the 
telemarketer is not a law enforcement officer or affiliate, and the 
money is not used to support local efforts, as promised. In these 
cases, the Commission obtained injunctions stopping the deceptive 
fundraising and, in many cases, recovered monetary redress for 
consumers.
    Question 2 (from Chairman Stearns): Does the Federal Trade 
Commission wish to be given the authority to develop a national 
database and corresponding reporting system to track charitable 
solicitation that occurs in response to national tragedies such as 
terrorist attacks and natural disasters, similar to the statute that 
exists in Minnesota?
    Response. I am concerned that creating a new, nationwide 
registration and reporting system to track charities would impose 
significant costs, that a viable alternative to an FTC-run system might 
already exist, and that the costs of creating a new system would not 
outweigh the incremental benefits.
    Creating a new registration and reporting system would burden all 
charities, the vast majority of which are legitimate. With increased 
administrative costs, charities would have less funds to deliver 
program services; thus, less of a donor's contribution would go for its 
intended purpose. Moreover, creating a new system would require 
significant government resources. For example, many states that have 
registration requirements have large staffs devoted exclusively to 
auditing and registration compliance issues.
    Notably, an arguably analogous nationwide system is already in 
place. Currently, in order to obtain tax-exempt status from the 
Internal Revenue Service, many charities must file with the IRS an 
application that contains financial statements. In addition, each year, 
many charities must file a Form 990 return, which requires charities to 
detail their costs and expenditures and to describe their specific 
program endeavors. In partnership with the IRS, a private non-profit 
company, Guidestar, publishes and makes available to the public many of 
the Form 990 filings that these charities file each year. See 
www.guidestar.org. In light of the IRS-Guidestar system, it is not 
clear that the incremental benefits of creating a new FTC-run system 
would justify the significant additional costs of creating a new 
system.
    Another possible reason to pass new legislation is if it would 
meaningfully increase the distribution to potential donors of 
information about charities (whether it be information already 
collected by the IRS or information that would be collected under the 
new law). However, the government's ability to require such 
dissemination is severely constrained by the First Amendment.\8\ The 
Supreme Court has held that charitable fundraising is fully protected 
speech under the First Amendment. Thus, for example, the government 
cannot require professional fundraisers to disclose to potential donors 
the percentage of donations the fundraisers keep,\9\ and presumably the 
government could not require charities that do their own fundraising to 
disclose the percentage of donations that actually goes to charitable 
works.
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    \8\ Courts have expressly held that enforcing anti-fraud statutes 
does not violate the First Amendment. Riley v. National Fed'n of the 
Blind of N. Carolina, 487 U.S. 781, 795 (1988). The Commission has 
successfully argued that false speech, which is the type of speech that 
the Commission targets for enforcement under Section 5, is not 
protected by the First Amendment, Beauhanis v. People, 343 U.S. 250, 
266 (1952).
    \9\ Riley, 487 U.S. at 800.
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    Ultimately, I believe that resources might be better expended 
targeting law enforcement and regulatory efforts to combat deceptive 
activity.
    Question 3. (from Representative Deal): The safeguards that apply 
to local pharmacists, in terms of advertising, followup, and 
counseling, do not appear to apply when consumer purchase prescription 
drugs online. What is the role of the FTC in the oversight of online 
pharmacies?
    Response. The primary responsibility for the regulation of the 
dispensing of prescription drugs, both online and offline, is with the 
state medical and pharmacy licensing boards and the Food and Drug 
Administration.
    The Federal Trade Commission's authority derives from the agency's 
mandate to prevent deceptive or unfair acts or practices in commerce, 
pursuant to Section 5 of the Federal Trade Commission Act (``FTC 
Act'').\10\ In addition, Section 12 of the FTC Act prohibits the false 
advertisement of ``food, drugs, devices, services, or cosmetics.'' \11\ 
The marketing of prescription drugs, either online or offline, would be 
deceptive in violation of the FTC Act if it involved a 
misrepresentation or omission likely to mislead consumers acting 
reasonably under the circumstances to their determent. Thus, the 
Commission has authority to bring an enforcement action where an online 
pharmacy makes false or misleading claims about the products or 
services it provides and to obtain injunctive relief prohibiting the 
entity from making false or misleading claims in the future.
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    \10\ 15 U.S.C. Sec. 45(a).
    \11\ 15 U.S.C. Sec. 52.
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    Beginning in 1999, the FTC staff has conducted periodic monitoring 
of online pharmacy sites, most recently looking at sites selling Cipro 
(ciprofloxacin) online, to determine whether websites are engaged in 
deceptive or misleading advertising. The Commission has filed one case 
against an online pharmacy.\12\ In this case, the Commission alleged 
that defendants falsely represented that their customers were served by 
a clinic with physicians and an on-site pharmacy. According to the 
Commission's complaint, defendants' customers were not served by a 
medical clinic or an on-site pharmacy. Defendants employed one 
physician in another state to review customers' medical questionnaires. 
For this service, customers were charged $75.00, if the prescription 
was approved, and the doctor was paid $10.00 for each of the first 50 
prescriptions he approved per week and $7.50 for each additional 
approved prescription request. The final stipulated order prohibits the 
defendants' alleged misrepresentations and requires the defendants to 
clearly and conspicuously disclose certain identifying information to 
help consumers and state regulatory authorities identify the owners of 
the website and the pharmacy and physician involved in dispensing the 
drugs.
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    \12\ FTC v. Rennert (CV-S-00-0861 JBR) (D. Nev.) (July 6, 2000).
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    As noted above, traditionally, state licensing boards and the Food 
and Drug Administration have been responsible for regulating the 
dispensing of prescription drugs. Accordingly, a number of states have 
actively challenged online companies that dispense prescription drugs 
without a valid prescription. Kansas,\13\ Missouri, and Illinois filed 
actions against so-called Internet pharmacies, and Michigan issued 
intent-to-sue letters to 17 sites.\14\ The state actions are based on 
violations of state consumer protection statutes as well as state 
medical and pharmacy laws. In addition, at least a dozen states have 
initiated professional disciplinary actions. In one case, an Oregon 
physician was put on 10 years probation and fined $5,000 for 
prescribing drugs online without an examination.\15\
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    \13\ See, e.g., Kansas v. Focus Medical Group, Inc., No. 99C749 (D. 
Kan., Shawnee County, June 9, 1999).
    \14\ Testimony of Kansas Attorney General Carla J. Stovall before 
the Health, Education, Labor, & Pensions Committee, Hearing on E-Drugs: 
Who Regulates Internet Pharmacies, March 21, 2000.
    \15\ Pittsburgh Post-Gazette, Internet Viagra, April 2, 2000, pg. 
A-12
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    Under Federal law, the FDA has regulatory responsibility over 
prescription drugs. The Federal Food, Drug and Cosmetics Act (``FDC 
Act'') provides that prescription drugs may be dispensed only with a 
valid prescription under the professional supervision of a physician or 
other practitioner licensed to administer the drug.\16\ A prescription 
drug dispensed without a valid prescription is ``misbranded.'' \17\ The 
introduction or distribution of misbranded drugs into interstate 
commerce is prohibited under Section 301(a) of the FDA Act.\18\ The FDA 
may seek injunctive relief to restrain violations of the Act or in 
appropriate cases pursue criminal charges.\19\ FDA can also institute a 
seizure action under Section 304 of the Act.\20\
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    \16\ 21 U.S.C. Sec. 353. In many instances, online pharmacies do 
not require that the patient have a prior prescription from their 
treating physician. Patients without a prior prescription can often 
obtain a prescription online through an ``online consultation.'' These 
practices raise difficult issues involving physician practices that the 
Commission traditionally has refrained from regulating.
    \17\ 21 U.S.C. Sec. 353(b).
    \18\ 21 U.S.C. Sec. 331(a).
    \19\ 21 U.S.C. Sec. Sec. 332, 333.
    \20\ 21 U.S.C. Sec. 334.
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                                 ______
                                 
                           Federal Trade Commission
                                      Bureau of Competition
                                                   December 3, 2001
The Honorable Edward Markey
United States House of Representatives
2108 Rayburn House Office Building
Washington, DC 20515
    Dear Representative Markey: During the recent hearing on 
``Challenges Facing the Federal Trade Commission'' before the House 
Subcommittee on Commerce, Trade, and Consumer Protection on November 7, 
2001, you requested that FTC Chairman Timothy Muris submit a written 
response detailing the status of compliance with each condition in the 
America Online/Time Warner (AOL Time Warner) order. Because Chairman 
Muris is recused from participating in activities associated with the 
AOL Time Warner matter, he has asked me to respond to your request. As 
you know, the FTC entered into a consent order with America Online, 
Inc. and Time Warner, Inc. (Docket No. C-3989), under Section 7 of the 
Clayton Act, as amended, and Section 5 of the Federal Trade Commission 
Act, to remedy the likely anticompetitive effects of the merger between 
the two companies. The consent order, which was finalized on April 18, 
2001, sets forth a number of requirements designed to ensure access to 
the broadband Internet market. The following paragraphs provide an 
overview of the various requirements in the AOL Time Warner consent 
order and a summary of the state of compliance by the merged company 
with each relevant provision.
    Paragraph II of the order sets out AOL Time Warner's obligations to 
make non-affiliated broadband ISP service available throughout Time 
Warner Cable's system. Subpart A of this paragraph sets out the 
requirements as to cable broadband ISP service in each of Time Warner 
Cable's twenty largest cable divisions. Paragraph II.A.1 of the order 
requires AOL Time Warner to make Earthlink's ISP service available in 
each of Time Warner's twenty largest cable divisions no later than AOL 
Time Warner makes an affiliated ISP service (other than RoadRunner) 
available in a particular cable division. As of November 30, 2001, AOL 
Time Warner will have offered its affiliated ISP service in each of 
Time Warner Cable's twenty largest cable divisions no earlier than it 
offered Earthlink's broadband service, consistent with its obligations 
under the order. According to Earthlink's web site, Earthlink is 
offering its ISP service at a special introductory rate of $41.95 per 
month. See http://www.earthlink.net/home/broadband/cable/tw/
availability/ (As of 11/28, service in New York is projected to be 
available, but not yet available.)
    Paragraph II.A.2 of the order requires AOL Time Warner, within 
ninety days after the affiliated ISP service is made available in each 
of Time Warner Cable's twenty largest cable divisions, to have entered 
into agreements approved by the Commission with at least two 
nonaffiliated ISPs approved by the Commission to make ISP service 
available in those cable divisions. As of November 30, 2001, AOL Time 
Warner has entered into such agreements with the following ISPs for the 
indicated cable divisions (covering all of the twenty largest 
divisions) and has requested Commission approval of each ISP and each 
agreement: (1) Juno Online Services Inc. (now merged with NetZero and 
called United Online) for all cable divisions; (2) High Speed Access 
Corp. for all cable divisions (application withdrawn); (3) New York 
Connect for New York City Division; (4) Internet Junction for Tampa Bay 
and Central Florida Divisions; (5) Inter.net for all cable divisions; 
(6) STIK for all Texas divisions (San Antonio and Houston); (7) 
Local.net for upstate New York divisions (Syracuse, Albany, and 
Rochester); (8) West Central Ohio Internet Link for all Ohio divisions 
(Columbus, Cincinnati, Western Ohio, and Northeastern Ohio), and (9) 
Digital Communications Networks (Los Angeles).
    Commission staff is currently reviewing AOL Time Warner's requests 
for approval of the ISPs and the submitted agreements. As part of a 
review of this kind, staff evaluates the financial and competitive 
viability of the ISP to determine whether the ISP has the financial 
capability to implement the agreement and whether it has the experience 
and expertise necessary to compete in the market. Commission staff 
reviews financial information concerning the ISP and evaluates its 
current and proposed business and marketing plans. Commission staff 
also carefully examines the terms of the proposed agreements to 
determine whether they are consistent with AOL Time Warner's 
obligations under the order and whether the agreement enables the ISP 
to compete effectively in the market or whether any term in the 
agreement would interfere with the ability of the ISP to compete 
effectively.
    Paragraph II.A.3 of the order gives the Commission the right to 
appoint a trustee to enter into the required agreements if AOL Time 
Warner fails to do so within the time limits required. Paragraph III.B 
of the order sets out the requirements as to the remainder of Time 
Warner's cable system (its smaller cable divisions). Paragraph II.B.1 
of the order requires AOL Time Warner, within ninety days after 
affiliated broadband ISP service is made available in each of the 
remaining divisions of Time Warner Cable's system, to have entered into 
agreements approved by the Commission with at least three non-
affiliated ISPs approved by the Commission to make cable broadband ISP 
service available in those cable divisions. It is our understanding 
that AOL Time Warner has not yet launched its cable broadband ISP 
service in any of these smaller cable divisions, so that the ninety day 
time period during which it is obligated to make additional ISPs 
available in these cable divisions has not yet begun. Several of the 
applications noted above include some of these smaller cable divisions. 
For example, Inter.net covers all cable divisions; STIK covers Austin; 
and Local.net covers Binghamton.
    Paragraphs II.A.3 and II.B.2 of the order give the Commission the 
right to appoint a trustee to enter into the required agreements if AOL 
Time Warner fails to do so within the required time limits. AOL Time 
Warner is required to have executed agreements with two additional non-
affiliated ISPs in the twenty largest cable divisions (and three in the 
remaining cable divisions) within ninety days after making its own ISP 
available in a particular cable division. We understand that Earthlink 
and AOL launched their first cable broadband ISP services in Columbus, 
Ohio, on September 17, 2001, with launches following in the remaining 
19 cable divisions throughout the fall of 2001. AOL Time Warner is thus 
required to have approved agreements with two additional non-affiliated 
ISPs in the first cable division by December 16, 2001. If it does not 
satisfy that obligation, the Commission may at that time determine to 
appoint a trustee to enter into an agreement, comparable to the 
Earthlink agreement, with a non-affiliated ISP approved by the 
Commission.
    Subpart C of this section describes specific provisions that must 
be included in the agreements to be approved by the Commission. The 
agreements submitted to the Commission for its approval include the 
specific provisions required by this paragraph of the order. Subpart D 
of this paragraph describes AOL Time Warner's obligations in the event 
that an approved ISP ceases providing the service pursuant to the 
agreement approved by the Commission. No ISP has ceased providing 
service as of this date. Subpart E of this section requires AOL Time 
Warner to negotiate and enter into agreements with ISPs to provide 
cable broadband service on Time Warner's cable system unless certain 
requirements are satisfied. AOL Time Warner has hired an individual 
whose primary responsibility includes negotiating with ISPs to provide 
cable broadband service on Time Warner's cable system in compliance 
with AOL Time Warner's obligations under the order. Staff of the 
Compliance Division of the Commission's Bureau of Competition is 
available to discuss any of the concerns that ISPs might have in 
connection with this requirement, and members of the staff have had 
some discussions with ISPs. There is no indication at this point that 
AOL Time Warner is not complying with its obligation under this 
provision of the order.
    Paragraph III of the order places specific prohibitions on AOL Time 
Warner in connection with cable broadband service. Subpart A of 
paragraph HI prohibits AOL Time Warner from interfering with the 
content of non-affiliated ISPs. Subpart B of paragraph III requires AOL 
Time Warner to provide connections for the non-affiliated ISPs, at 
their request, wherever it is providing connections for its affiliated 
ISP. Subpart C of paragraph III prohibits AOL Time Warner from 
interfering with the provision of ITV services by non-affiliated ISPs. 
Subpart D of paragraph III prohibits AOL Time Warner from 
discriminating against nonaffiliated ISPs in the transmission or 
modification of the content of the non-affiliated ISPs. Subpart E of 
paragraph III prohibits AOL Time Warner from entering into exclusive 
agreements for the provision of ISP services with any other cable 
company.
    Paragraph IV prohibits AOL Time Warner from offering different 
prices and promotional activities for its cable broadband service based 
on whether AOL offers broadband DSL service in a particular geographic 
area. Staff of the Bureau of Competition's Compliance Division monitors 
AOL Time Warner's compliance with its obligations under these 
provisions of the order. As part of its monitoring activities, staff 
talks periodically with non-affiliated ISPs and with representatives of 
AOL Time Warner, particularly of Time Warner Cable. In addition, staff 
has made it clear to non-affiliated ISPs that it is available to 
discuss any concerns the nonaffiliated ISPs may have. Staff also 
consults regularly with Dale Hatfield, the Monitor Trustee in this 
matter, and he is also available to discuss with any ISPs concerns that 
they may have and has had on-going discussions with representatives of 
Time Warner Cable. Staff will continue its normal monitoring 
procedures, particularly as additional non-affiliated ISP service is 
made available on Time Warner's cable system.
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