[Senate Hearing 107-1147]
[From the U.S. Government Printing Office]

                                                       S. Hrg. 107-1147
                          FTC REAUTHORIZATION



                               before the


                                 OF THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION


                             JULY 17, 2002


    Printed for the use of the Committee on Commerce, Science, and 

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                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

              ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii             JOHN McCAIN, Arizona
    Virginia                         CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana            KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon                    SAM BROWNBACK, Kansas
MAX CLELAND, Georgia                 GORDON SMITH, Oregon
BARBARA BOXER, California            PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina         JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri              GEORGE ALLEN, Virginia
               Kevin D. Kayes, Democratic Staff Director
                  Moses Boyd, Democratic Chief Counsel
      Jeanne Bumpus, Republican Staff Director and General Counsel

                              AND TOURISM

                BYRON L. DORGAN, North Dakota, Chairman
    Virginia                         CONRAD BURNS, Montana
RON WYDEN, Oregon                    SAM BROWNBACK, Kansas
BARBARA BOXER, California            GORDON SMITH, Oregon
JOHN EDWARDS, North Carolina         JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri              GEORGE ALLEN, Virginia

                            C O N T E N T S


Hearing held on July 17, 2002....................................     1
Statement of Senator Dorgan......................................     1
Statement of Senator Fitzgerald..................................    44
Statement of Senator Hollings....................................     1
Statement of Senator McCain......................................    39
Statement of Senator Nelson......................................    41
Statement of Senator Smith.......................................    36
Statement of Senator Wyden.......................................     2


Alldridge, Dennis H., President, Special Olympics-Wisconsin, Non-
  Profit and Charitable Coalition Representative.................    73
    Prepared statement...........................................    74
Anthony, Hon. Sheila F., Federal Trade Commission................    27
Cannon, Lou, President, DC Lodge of the Fraternal Order of Police    83
Leary, Hon. Thomas B., Federal Trade Commission..................    32
Mendoza, Hon. Charles, Member, AARP Board of Directors...........    51
    Prepared statement...........................................    53
Muris, Hon. Timothy, Chairman, Federal Trade Commission..........     5
    Prepared statement...........................................     7
Sarjeant, Lawrence E., Vice President, Law and General Counsel, 
  U.S. Telecom Association.......................................    56
    Prepared statement...........................................    58
Schwartz, Ari, Associate Director, Center for Democracy and 
  Technology.....................................................    66
    Prepared statement...........................................    67
Swindle, Hon. Orson, Federal Trade Commission....................    30
Thompson, Hon. Mozelle W., Federal Trade Commission..............    28
Weintzen, H. Robert, President and CEO, Direct Marketing 
  Association, Inc...............................................    60
    Prepared statement...........................................    62

                          FTC REAUTHORIZATION


                        WEDNESDAY, JULY 17, 2002

                               U.S. Senate,
          Subcommittee on Consumer Affairs, Foreign
                             Commerce, and Tourism,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:30 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Byron L. 
Dorgan, Chairman of the Subcommittee, presiding.


    Senator Dorgan. The Subcommittee hearing will come to 
order. I would like to welcome the Federal Trade Commission, as 
well as the witnesses who have gathered to provide testimony to 
the Subcommittee today. Let me call on the Chairman of the Full 
Committee for any statement he may wish to make at the opening.
    Senator Hollings.


    The Chairman. Mr. Chairman, I want to thank you and the 
Subcommittee under your leadership for this particular hearing. 
It is very important. We have oversight responsibilities for 
one of the most important agencies, the Federal Trade 
Commission, and I wanted to pay my respects for the hard work 
they are doing and their willingness to undertake additional 
consumer protection responsibilities in the communications 
    We have got a terrible drive to remonopolize 
telecommunications, and they are being assisted materially by 
the Federal Communications Commission. We have got a 
distinguished Chairman over there whose first reaction to 
WorldCom was to see who could buy them. He was not interested 
in making the communications industry competitive and current. 
Instead, it is off to Wall Street, encouraging merger fever. 
That has been our problem, and the Federal Trade Commission is 
our last great hope to take on and watch these particular 
    Chairman Morris just informed me that you have got some 
lease expenses you might have to assume with our budget freeze. 
The reason we had the budget freeze at the Commerce, State and 
Justice Appropriations Subcommittee is that we had to do a lot 
of eating. We had to provide for the Homeland Security. We had 
to provide for the world and embassy security under the 
Department of State. We had to take care of the 4.1 percent pay 
increase, the prisons increase and, of course, the $300 million 
more that 98 Senators voted for the day before yesterday.
    With that, that is all we could do to hold the lines in the 
budgets current as of this particular year, and so it was not 
an effort to cut the Federal Trade Commission. We appreciate 
what the Federal Trade Commission is doing, and you all keep up 
the good hard work. We are depending on you.
    Thank you very much, Mr. Chairman.
    Senator Dorgan. Senator Hollings, thank you very much.
    Senator Wyden.

                 STATEMENT OF HON. RON WYDEN, 
                    U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Mr. Chairman. I 
appreciate the opportunity to make this brief opener. After a 
few minutes while I am in the Capitol, I will be back to 
participate in the hearing. I share Chairman Hollings' view 
that considerable good work is done at the Federal Trade 
Commission. I will tell the folks at the Commission and the 
Chairman here I really think that the Commission is AWOL on 
energy issues, and particularly with respect to gasoline 
pricing, and also electric issues.
    With respect to gasoline pricing, the Commission found that 
anticompetitive practices known as red-lining were rampant in 
West Coast gasoline markets, and yet no action was taken. 
Perhaps what is particularly troubling and to me--just 
staggering--is the Federal Trade Commission in their inquiry, 
and I will quote here: ``The investigation uncovered no 
evidence that any refiner had the ability profitably to raise 
prices market-wide or reduce output at the wholesale level.''
    Well, Chevron and Texaco, their president testified just to 
the opposite. He testified that the West Coast gasoline market 
is dominated by a limited number of refiner marketers whose 
individual actions can have significant market impact, and so 
what you have--and I want to be very clear with the Commission 
on this--is, you have oil company executives admitting to 
practices that the Federal Trade Commission says they cannot 
find evidence of. Think about that. Oil company executives come 
to the Congress and admit to engaging in anticompetitive 
practices that the Commission says it cannot find evidence of, 
so I have some questions to ask about that.
    I am also very troubled about the Commission's position 
with respect to competitive effects of electric utility 
transactions with non-utility subsidiaries and affiliates. This 
is important for us on the West Coast because of Enron. The 
agency, of course, does have jurisdiction with respect to 
wholesale market impacts, and it seems that the agency gives a 
lot of speeches about the benefits of deregulation, and I do 
not see much about protecting consumers. I thank you, Mr. 
Chairman, and apologize for having to be gone for a few 
minutes, but look forward to the questioning later.
    Senator Dorgan. Senator Wyden, thank you. Senator Wyden 
will be returning, and there is a Senate vote at 10:30, and we 
will go slightly into that vote before we take a very brief 
recess, and then I will be recognized on the floor of the 
Senate for the first amendment, I believe immediately following 
the vote, so Senator Wyden will chair at that point.
    Let me make a couple of comments. Senator Fitzgerald, I 
believe, the Ranking Member, will also be here in a few 
moments. But let me say that this hearing is a hearing to begin 
the task of reauthorizing the Federal Trade Commission. It is 
an independent Federal agency with broad consumer protection 
mandates from Congress. The Commission's authorization has 
expired. It is long past the time when Congress should do 
something about that, and it is my hope to introduce a piece of 
legislation at some point soon that would reauthorize the 
activities of the Federal Trade Commission. The two specific 
proposals that the Commission has that the Subcommittee will 
focus on this morning are interesting proposals.
    The first is the proposed national Do-Not-Call registry 
that would amend the telemarketing sales rule and enable 
consumers to eliminate most telemarketing calls by making one 
call to the FTC. While consumers appear to overwhelmingly 
support this initiative, and the idea of uninterrupted dinner 
free from telephone solicitation appeals to many of us, we want 
to be certain that doing so will not have unintended 
consequences for groups such as charitable organizations that 
depend on some solicitation to raise funds. But I must say that 
if you go anywhere in the country and ask people what is 
annoying them these days, especially while they are eating, it 
is the incessant telephone calls that try to sell them a credit 
card to refinance their home, to solicit some other sort of 
contribution. The American people are upset by having their 
privacy invaded in this way, and the Commission has a proposal 
that is something we will talk about a bit today and will 
consider as we take a look at the reauthorization as well.
    The Commission has also expressed an interest in rescinding 
the common carrier exemption for telecommunications issues. 
This exemption was put in the Federal Trade Commission Act back 
when there was only one federally-regulated telephone company. 
There is an argument that with a variety of companies now 
providing so many different types of telecommunications 
services, sometimes in combination with common carriage, 
sometimes as separate services, there needs to be an aggressive 
agency with expertise in fraud and marketing practices to 
police the industry.
    There is some concern that this change will create 
redundancy, since the Federal Communications Commission already 
has jurisdiction, I personally think this subject needs to be 
examined at some length, and I look forward to beginning that 
discussion as well. I frankly do not think that there is as 
aggressive a set of actions as should be taken by current 
regulatory authorities, so for that reason I believe this is an 
interesting proposal.
    Let me just make a comment on Senator Wyden's observation, 
especially with respect to energy and gasoline prices. In 
recent months, I guess over the last year or so, I have been 
concerned--in fact, I met with the Federal Trade Commission, 
some of them, some of the officials, including the Chairman. I 
have been concerned that consumers have not been well-served by 
a range of Federal agencies.
    For example, when we saw what happened with respect to the 
Enron Corporation where investors lost their shirts, and the 
people at the top of the corporation walked away with a pocket 
full of gold, I asked the question, ``Well, who is looking out 
for the people that are the consumers of stocks at this point, 
and who were defrauded, in effect--bad information was put out 
to them, they were manipulated in many ways, they lost their 
shirts--who is investigating that?'' And I was told the FTC 
really does not have jurisdiction. That is the Securities and 
Exchange Commission.
    Energy pricing, we had hearings in this room with respect 
to the manipulation of wholesale energy prices, and therefore 
retail prices in the State of California. We will have a 
hearing tomorrow with Army Secretary White, who was involved in 
Enron Energy Services, on that very subject, and he asked the 
question, ``Well, who is active and involved in seeing that the 
consumers were not defrauded out of billions of dollars in 
California?'' The answer was, ``Really, nobody.'' It was 
supposed to have been FERC, I guess, but FERC and the FCC and 
others have done their best pillars of stone imitations and 
essentially sat on their hands while consumers in a wide range 
of areas have, in my judgment, been defrauded, or manipulated, 
or in other ways disadvantaged.
    I agree with Senator Wyden. I want watch dogs, and I want 
agencies that are aggressive, not paper tigers. I want real 
tigers going after those that are taking advantage of the 
American consumer. I want agencies that are aggressively 
pursuing fraud and price manipulation, and let me just say, 
part of my angst about this goes back to last fall with the 
hearings we had with respect to Enron and what happened to the 
investors, and there was not anybody seeming to be very excited 
about that in a regulatory area.
    The American people were excited. Congress was excited. We 
could not find regulators that were very excited about it, and 
the same was true with respect to price manipulation. I happen 
to think Californians were bilked to the tune of billions of 
dollars, and it may well be to the tens of billions of dollars 
in phony energy pricing and manipulative and fraudulent pricing 
practices, and frankly, I see precious little evidence of 
anybody aggressively going after that. Shame on those who have 
the responsibility but do not assume it, and we will talk about 
some of that today as well.
    The Federal Trade Commission has a specific area in which 
it works, and I mentioned earlier that we are going to talk 
about trying to expand that in certain area so that we might 
have the Federal Trade Commission involved in some of the areas 
that I just mentioned.
    The Securities & Exchange Commission was literally created 
from the Federal Trade Commission. Congress took two 
commissioners, the General Counsel and 120 attorneys out of the 
FTC to create the new SEC many years ago. My own feeling is 
that we ought to take a look at that once again. I am not 
suggesting a wholesale merger these days of Federal agencies, 
but I am suggesting that I think that we have Federal watch 
dogs who have not been watching. I think the Federal Trade 
Commission does a lot of good work in trying to prevent 
consumer fraud, despite the fact that they are a small agency. 
Since 1995, the Federal Trade Commission has brought over 1,000 
fraud and deception cases, won more than $825 million in 
consumer redress, and reviewed over 26,000 mergers worth nearly 
$10 trillion. They have been active in a wide range of areas. I 
will not describe them all. We have been pleased to work with 
the Commission in many areas.
    Mr. Muris will remember last fall when I was not pleased 
that we could not find a way for the Commission to believe it 
ought to go hip deep into the Enron issue. But you know, I 
understand that you have certain jurisdictional areas that you 
evaluate, and other agencies and other regulatory bodies have 
jurisdiction. So I hope maybe we can find a way to sort all 
this out, and decide if there are agencies that do not want to 
regulate, then let us get rid of them and give the 
responsibility to some agency that is staffed by people who do 
want to regulate.
    This system of ours, this market system, needs effective 
regulation. This nonsense about let us just deregulate everyone 
and let the consumer beware, if we have not gotten a belly full 
of that in the last year, then somebody has been sleeping. You 
need, in this market system, effective oversight and 
regulation. There are people who are willing to defraud the 
consumers, and we need not just in the criminal justice system 
investigations, but we need regulatory agencies to prevent that 
from happening.
    So with that as a precursor, let me call on Mr. Muris to 
begin providing us your comments this morning. Let me welcome 
the Chairman and all the members of the Federal Trade 
Commission, and let us include your entire statements as a part 
of our permanent record, and you may summarize as you choose.
    Chairman Muris, why don't you proceed.

                    FEDERAL TRADE COMMISSION

    Mr. Muris. Thank you, Mr. Chairman, we are happy to be 
here, and we especially appreciate your support and kind words. 
In attendance with me today are the full Commission. In order 
of seniority, to my right is Commissioner Anthony, to my 
immediate left is Commissioner Thompson, to my far right, at 
least geographically and sometimes in other ways, is 
Commissioner Swindle, and to my far left is Commissioner Leary. 
We certainly appreciate the opportunity to appear before you 
    Since our last reauthorization in 2000, I believe the 
Commission has been very aggressive, and certainly I believe we 
have continued in my Chairmanship the aggressive nature of my 
predecessor, Bob Pitofsky.
    On a personal note, I want to say that this is my sixth job 
in the Federal Government. I have voted with my feet in 
agreeing that we do need aggressive regulation. Four of those 
jobs have been at the FTC. I am extremely proud to be the FTC's 
Chairman. Our mission is vital, the issues are extraordinary, 
and the people are great.
    Let me outline our mission briefly. In the time you have 
allotted, my colleagues will each discuss a specific issue. I 
will talk very generally.
    In consumer protection, which is one of our two main 
missions, protection of consumer privacy is a key focus of our 
efforts. In this fiscal year, we have increased our resources 
50 percent to address consumer harm that results from the 
misuse of consumer information. In addition to bringing 22 
cases in this area in the last 14 months, as you mentioned, we 
have proposed amending the Telemarketing Sales Rule to create a 
national Do-Not-Call list. If we adopt that registry, it would 
allow consumers to make one call to remove their name from most 
    We have also been active in another important privacy 
issue, which is the ubiquitous spam that people receive. We are 
probably one of the few places in the world that wants to 
receive spam. We have something called the ``Refrigerator'' in 
our computer lab that now has over 14 million spam. We have 
recently begun systematically looking at those spam, picking 
    There are a great many deceptive solicitations made. For 
example, we recently bought a case against a very pernicious 
practice. Individuals would receive a spam that said, ``Receive 
a free Sony Play Station,'' and in five clicks of their mouse 
they would be on a pornographic website with their phone bill 
being billed to a 900 number. We shut that down.
    We certainly remain aggressive in fighting other frauds, 
including a variety of telemarketing fraud; franchise fraud; 
business opportunity and work-at-home schemes; advance fee 
loans; credit loss protection; and false and unsubstantiated 
claims for health and weight loss products.
    I would like to give you a couple of recent examples. We 
obtained a federal court order against the promoters of Miss 
Cleo Psychic Services for misrepresenting the cost of the 
services. Surprisingly, she did not see it coming.
    Senator Dorgan. Do you want to go slower, Chairman Muris?
    Mr. Muris. We also challenged the marketers of the devices 
you may have seen on television promising washboard abs. Those 
commercials and infomercials were ubiquitous at the end of last 
year and the beginning of this year. We have sued, and we have 
preliminarily stopped that activity.
    Turning to antitrust, merger enforcement, of course, 
continues to be a staple of our efforts. Recently there have 
been fewer mergers, but there are still a great many cases that 
require enforcement activity, and we have been bringing such 
    Health care is a major part of our effort. We have 
increased our resources in this area in this fiscal year by 50 
percent as well. Most of those resources, probably about 70 
percent-plus, involve pharmaceuticals, and I testified recently 
before you on that issue. Our focus has been on efforts by 
branded drug manufacturers to slow or stop competition from 
lower priced generics. We are particularly concerned about 
anticompetitive gaming of certain parts of the Hatch-Waxman 
Act, and the day I was here to testify on competition in the 
pharmaceutical industry, we announced a case. We brought 
another case recently, and we have many other investigations 
    I am sure the other Commissioners will want to respond to 
Senator Wyden. I think he was quoting from Commissioners' 
statements that were issued shortly before I arrived. Energy is 
vital to our entire economy. We have spent a lot of effort on 
maintaining competitive energy markets, and we recently have 
increased our efforts. For the first time, on a real-time 
basis, we are now tracking the price of gasoline in 360 cities. 
We are looking for price anomalies, whatever their cause; one: 
so that we can better understand what is going on in the 
marketplace; and two: so we can identify enforcement targets if 
appropriate ones exist.
    As you mentioned, we have some legislative recommendations. 
The first, which will be discussed in more detail by 
Commissioner Anthony, involves the elimination of the exemption 
for common carriers. We also request some technical changes, as 
we describe in our written testimony.
    Let me just conclude by saying, I firmly believe that we 
have a vital role. I want to thank you for your continued 
support of our mission, and I want to note that in 
accomplishing this mission there is a very high degree of unity 
among the five Commissioners. In fact, there is a near 
unanimous pattern in voting, particularly when it comes to law 
enforcement. That does not mean we agree on everything. We 
spend a lot of time working issues out among ourselves to 
achieve consensus, and we also work very closely with our 
staff. As you will see, the Commissioners are independent-
minded, but I believe we work extraordinarily well together to 
serve the public interest.
    [The prepared statement of Mr. Muris follows:]

          Prepared Statement of Hon. Timothy Muris, Chairman, 
                        Federal Trade Commission
I. Introduction
    Mr. Chairman and Members of the Subcommittee, the Federal Trade 
Commission (FTC) is pleased to appear before you to support our 
reauthorization request for Fiscal Years 2003 to 2005. Since our last 
reauthorization hearing in February 2000, the FTC has continued to take 
innovative and aggressive actions to protect consumers and promote 
    The FTC is the only federal agency with both consumer protection 
and competition jurisdiction over broad sectors of the economy. \1\ We 
enforce laws that prohibit business practices that are anticompetitive, 
deceptive, or unfair to consumers. We also 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 and, increasingly, the world.
    The FTC is a small agency, but one with a large mission. The FTC 
has shouldered an ever-increasing workload as the economy becomes more 
global and more high tech. The agency has met its broad 
responsibilities with only modest increases in resources. Highlights of 
recent accomplishments include:

   Enhancing consumer privacy and security. Since April 2001, 
        the FTC has brought 22 cases involving privacy and security 
        issues, ranging from ``pretexting'' (obtaining personal 
        information under false pretenses) and children's privacy to 
        ``spam'' (unsolicited commercial e-mail). The agency also has 
        held three workshops to address privacy issues such as 
        financial privacy notices and the security of consumer 

   Recovering as much as $60 million for nearly 18,000 
        consumers who were victims of fraudulent lending under the 
        terms of a proposed settlement that requires court approval. 
        Working with the AARP, six states, and individual plaintiffs, 
        in March 2002 the FTC settled charges against a mortgage 
        company and its CEO for misleading consumers about fees they 
        would be charged, which amounted to 10 to 15 percent of the 

   Attacking fraud. Since June 2001, the FTC has filed 98 
        federal court actions and obtained judgments for more than $160 

   Stopping branded drug manufacturers from eliminating 
        competition from cheaper generic equivalents. Recent cases 
        addressing conduct allegedly stifling generic competition have 
        involved drugs for high blood pressure, anxiety, and angina and 
        other cardiac problems.

   Preventing anticompetitive effects of mergers in the 
        petroleum industry. Last year, the FTC reviewed three multi-
        billion dollar oil mergers and, where necessary, required 
        divestitures in two of the proposed mergers to ensure continued 
        competition in refining, distribution, and retail sales of 
        gasoline in markets across the United States.

   Ensuring competition among health care providers. The FTC is 
        challenging as illegal agreements among providers to fix fees 
        and boycott health plans that resist paying higher fees. The 
        FTC's goal is helping to insure the existence of a competitive 
        health care industry that consistently delivers high-quality 
        care at competitive costs.

    In accomplishing these goals, there is a high degree of unity among 
the five Commissioners. In fact, there is near unanimity in voting 
patterns, particularly with respect to votes concerning law enforcement 
matters. The near unanimity of voting patterns reflects both a broad 
consensus among the Commissioners about the types of cases the 
Commission should pursue, and the careful and deliberate process by 
which the Commissioners consider matters, consulting with the staff to 
address the issues and concerns of individual Commissioners. As 
Chairman Muris has stated, \2\ through the efforts of a talented, 
dedicated, and professional staff, the current Commission is building 
on the extraordinary work of former Chairman Robert Pitofsky.
II. Mission Focus
    In the next few years, the FTC will focus its resources in 
significant areas of the economy through law enforcement actions, 
consumer and business education campaigns, and continuing assessment of 
ongoing developments in the marketplace. As we explain in detail below, 
the FTC's activities fulfill its mission on behalf of American 
consumers by:

   Continuing emphasis on critical areas of law enforcement--
        stopping and preventing consumer fraud and deception as well as 
        stopping anticompetitive mergers;

   Enhancing consumer privacy and security;
   Preventing deceptive and anticompetitive health care 
   Promoting and maintaining competitive energy markets;
   Keeping pace with technology and the changing marketplace;
   Targeting special initiatives to specific groups of 
        consumers; and
   Advancing efficient law enforcement.

A. Continuing Emphasis on Critical Areas of Law Enforcement
    Two areas in the FTC's jurisdiction have become staples of its law 
enforcement agenda--(1) fighting consumer fraud and deception, and (2) 
preventing anticompetitive mergers. Since 1995, the FTC has attacked 
fraud and deception by bringing 1,052 federal court and administrative 
actions, and obtaining orders for more than $825 million in consumer 
redress. \3\ During the same time period, the FTC reviewed over 26,000 
proposed mergers worth a total of nearly $10 trillion, opened about 
1,600 formal investigations (issuing ``Second Requests'' in more than 
300 matters), and took enforcement action in over 230 transactions. 
Over the next few years, the FTC plans to devote significant resources 
to build on its solid record of achievement in these areas.
1. Consumer Fraud and Deception
    The FTC targets both traditional types of fraud and deception and 
those types that capitalize on new technologies. Simply stated, our 
mission is to identify the most egregious forms of fraud and deception; 
to bring cases, on our own and with our law enforcement partners across 
the country and around the globe; and to educate industry about 
complying with the law, consumers about how to protect themselves from 
fraud and deception, and ourselves about emerging issues.
    The FTC has two toll-free telephone numbers and an online form 
available to consumers who have questions or complaints. Consumer 
complaints are entered into a number of FTC databases, which are 
accessible to increasing numbers of domestic and foreign law 
enforcement partners. To identify the most pervasive forms of fraud and 
deception, and to target wrongdoers for law enforcement actions, we 
analyze the information collected through the following data systems:

   Consumer Response Center. The FTC's Consumer Response Center 
        (CRC) fields complaints and inquiries on a wide variety of 
        consumer protection issues. Consumers can use a toll-free 
        number (1-877-FTC-HELP), as well as an online form and the 
        mail, to contact the CRC with complaints and inquiries. The CRC 
        now responds to more than 55,000 inquiries and complaints a 

   Consumer Sentinel. Established by the FTC in 1997, Consumer 
        Sentinel \4\ is a fraud database available online to law 
        enforcement agencies across the U.S. and Canada. It receives 
        complaints from the FTC's CRC and from a growing number of 
        other organizations in the U.S. and Canada. Sentinel now 
        contains more than 680,000 complaints, and is the richest 
        source of consumer fraud data available to law enforcement 
        agencies. Since June 2001, the FTC has recruited 115 new 
        Sentinel members, bringing the total number of Sentinel users 
        to more than 460 law enforcement agencies. Law enforcement 
        agencies can use this centralized database to identify trends 
        and target companies that have received a large number of 
        consumer complaints. Consumers also can access publicly 
        available sections of this Web site for statistics about fraud, 
        including the schemes that garner the most consumer complaints, 
        the location of companies subject to complaints, and tips on 
        how to avoid fraud.

   Identity Theft. Another FTC toll-free number, 1-877-ID-
        THEFT, is a central clearinghouse and a critical source of 
        consumer complaint data on ID theft. Calls have increased from 
        2,200 calls per week one year ago to over 3,000 today. Building 
        on its experience with Consumer Sentinel, the FTC began making 
        the data available to its law enforcement partners through an 
        online database. More than 350 law enforcement agencies--46 
        separate federal agencies and 306 state and local agencies--now 
        can access the data. Among the agencies represented are more 
        than half of the state Attorneys General, as well as law 
        enforcement authorities from a number of major cities including 
        Baltimore, Dallas, Los Angeles, Miami, San Francisco, and 
        Philadelphia. To encourage even greater participation, we have 
        conducted law enforcement training and outreach since April of 
        this year to demonstrate the efficacy of the clearinghouse. As 
        one example of positive results from these efforts, within 
        three weeks after our most recent training seminar in Chicago, 
        approximately a third of the participating agencies without 
        prior access to the clearinghouse had signed up. We will 
        continue to focus resources and to devise new methods to expand 
        law enforcement access to the database. Finally, FTC 
        investigators, working with the Secret Service, have started to 
        prepare preliminary investigative reports based on 
        clearinghouse data, which are referred to Financial Crimes Task 
        Forces for possible prosecution.

   Spam Database. Since 1998, the FTC has maintained an 
        electronic mailbox ([email protected]) to which Internet customers 
        can forward unsolicited commercial e-mail, commonly known as 
        ``spam.'' This database currently receives, on average, 42,000 
        new pieces of spam every day. The total number of spam e-mails 
        has grown from 700,000 in the first year to more than 10 
        million today. The FTC staff searches the database to identify 
        trends and select law enforcement targets.

   Surf Days. The FTC ferrets out online fraud and deception 
        through ``Surf Days.'' First used in 1996 to look for online 
        pyramid schemes, the law enforcement surf is now a staple of 
        FTC online scheme identification, usually conducted with other 
        law enforcement agencies. It provides both a window to learn 
        about online practices and a way to alert new Web site 
        providers--some of whom are new entrepreneurs unaware of 
        relevant laws--that their sites appear to violate the law. 
        Since May 2001, the FTC has conducted six surfs with more than 
        140 partners, focusing on claims about unsubscribing from spam, 
        remedies or preventive products for anthrax and other serious 
        diseases, bioterror protection devices, e-tailer holiday 
        shipping, and ultrasonic pest-control devices.

    Drawing on consumer complaint data and information gathered from 
Surf Days, the FTC targets fraudulent and deceptive practices. The 
FTC's cases reflect a broad range of illegal activity, including 
telemarketing fraud, franchise fraud, business opportunity and work-at-
home schemes, advance fee loan and credit loss protection schemes, and 
false and unsubstantiated claims for health and weight loss products. 
The FTC also has continued to bring deceptive advertising cases, 
focusing in particular on cases that involve health or safety issues, 
or significant economic injury. Recent cases include:

   Project Busted Opportunity. In June 2002, the FTC, the 
        Department of Justice, and 17 state law enforcement agencies 
        announced law enforcement actions against 77 targets engaged in 
        the sale of business opportunities or work at home schemes. The 
        targets allegedly used deceptive earnings claims and paid 
        ``shills'' to promote their schemes or otherwise violate 
        consumer protection laws. \5\

   Operation Dialing for Deception. In April 2002, the FTC 
        announced the filing of 11 federal district court complaints 
        challenging ``in-bound'' telemarketing fraud--situations in 
        which consumers call companies based on classified ads, 
        Internet banners, or other promotions. Among those charged were 
        the purveyors of advance-fee loans and credit cards, at-home 
        medical billing programs, work-at-home envelope stuffing 
        schemes, and a ``consumer protection'' agency that was, in 
        reality, no more than a shill for a vending machine business 
        opportunity. \6\

   Magazine Telemarketing. A federal court ordered a group of 
        magazine subscription telemarketers to pay $39 million in 
        consumer redress for violating the terms of a 1996 FTC 
        settlement. Among other provisions, the FTC's 1996 order barred 
        the defendants from misrepresenting the cost of subscriptions, 
        charging consumers' accounts without authorization, and 
        threatening to harm consumers' credit ratings. To facilitate 
        the redress process, the FTC established a special hotline for 
        consumers who think that defendants may have billed them 
        improperly. \7\

   ``Miss Cleo.'' The FTC obtained a federal court order 
        against the promoters of ``Miss Cleo'' psychic services after 
        charging that defendants misrepresented the cost of services, 
        billed for services never purchased, and engaged in deceptive 
        collection practices. Among other provisions, the court's order 
        enjoins the defendants from any future misrepresentations about 
        the cost of psychic readings and from making harassing 
        telemarketing calls. The FTC estimates that the defendants 
        billed consumers $360 million in connection with this alleged 
        illegal scheme. \8\

   Ab Devices. In ``Project ABsurd,'' the FTC challenged widely 
        advertised ``ab'' devices. In suits against three marketers of 
        electronic abdominal exercise belts, the FTC charged that 
        infomercials falsely advertised that users would get ``six 
        pack'' or ``washboard'' abs without exercise. The 30-minute 
        infomercials were heavily aired on national cable television 
        stations, such as USA, TNN, Lifetime, E!, FX, and Comedy 
        Central, and were among the ten most frequently aired 
        infomercials in weekly U.S. rankings. The FTC's action seeks a 
        permanent injunction to stop future false or deceptive claims 
        and the payment of redress to consumers who bought the devices. 

   Wonder Bread. In March 2002, the FTC announced a settlement 
        with the marketers of Wonder Bread concerning allegedly 
        deceptive ads claiming that Wonder Bread could improve 
        children's brain function and memory. \10\

   Palm, Inc. Palm, the leading manufacturer of Personal 
        Digital Assistants (PDAs), agreed to a settlement concerning 
        its claims that its PDAs come with built-in wireless access to 
        the Internet and e-mail, as well as other common business 
        functions--claims that the FTC alleged were not true for many 
        models of the popular PDAs. Announced in March 2002, the 
        settlement requires Palm to disclose, clearly and 
        conspicuously, when consumers have to buy add-ons to perform 
        advertised functions. \11\

2. Anticompetitive Mergers
    Merger enforcement also continues to be a staple of the FTC's 
enforcement agenda. Stopping mergers that substantially lessen 
competition ensures that consumers pay lower prices and have greater 
choice in their selections of goods and services than they otherwise 
would. The level of merger activity in the marketplace, along with 
other factors, affects the FTC's merger workload. During the 1990s, 
record-setting levels of mergers, both in numbers and in size, required 
extraordinary efforts by the FTC staff to manage the necessary reviews 
within statutory time requirements. Recent economic conditions have 
reduced merger activity, and amendments to the Hart-Scott-Rodino Act 
\12\ have cut the number of proposed mergers reported to the 
government. Even so, FTC merger enforcement remains a significant 
challenge for the following reasons:

   The size, scope, and complexity of mergers have increased. 
        The number of mergers still remains relatively high by historic 
        standards, and mergers also continue to grow in size, scope, 
        and complexity. The dollar value of last year's reported 
        mergers was about 82 percent higher, in nominal terms, than the 
        1995 total, even without any adjustment for the different 
        filing thresholds. In fact, the $1 trillion total in 2001 
        exceeded the average annual total dollar value of reported 
        transactions during the booming 1991-2000 decade. The size of 
        mergers affects the FTC's workload because mergers among large 
        diversified firms are likely to involve more products than 
        mergers among smaller firms, and thus generally involve more 
        markets requiring antitrust investigation. In addition, larger 
        firms are more likely to be significant players in the markets 
        in which they compete--increasing the need for antitrust 
        review. Finally, as new technologies continue to grow and as 
        the economy becomes more knowledge-based, the resulting 
        complexity of many mergers requires more extensive inquiry.

   Large numbers of mergers still require scrutiny. The number 
        of proposed mergers raising competitive concerns remains 
        significant. Despite fewer reported transactions, the FTC's 
        level of enforcement activity remains at a high level. Through 
        the first eight months of this year, for example, we opened 
        well over 100 merger investigations and issued 20 requests for 
        additional information under the HSR Act (Second Requests), 
        numbers only slightly below those during the peak merger wave 
        years 1996 through 2000. Thus far in FY 2002, the FTC has taken 
        enforcement action in 21 mergers. Thus, despite a drop in the 
        number of merger filings, our merger enforcement workload 
        remains high because the workload derives mostly from the 
        number of transactions raising antitrust concerns, not from the 
        overall number of filings.

   Non-reportable mergers now require greater attention. 
        Although fewer proposed mergers remain subject to the reporting 
        requirements of the HSR Act, the standard of legality under 
        Section 7 of the Clayton Act remains unchanged. \13\ 
        Consequently, we need to identify through means such as the 
        trade press and other news articles, consumer and competitor 
        complaints, hearings, and economic studies, those unreported, 
        usually consummated, mergers that could harm consumers. So far 
        this fiscal year, the FTC has challenged two non-reportable 
        mergers. \14\

   Resource-intensive litigation is more frequently needed. 
        While the FTC resolves most merger challenges through 
        settlement, it is sometimes necessary to litigate, particularly 
        when the merger at issue already has been consummated. Merger 
        litigation requires enormous resources. At the height of 
        preparation, a single merger case requires the full-time 
        attention of numerous staff members--not only lawyers, but also 
        economists, paralegals, and support staff. To counter arguments 
        and evidence presented by merging parties, these cases also 
        require analysis and testimony by outside experts with 
        specialized knowledge, which can be extremely costly. Since the 
        fiscal year began, the FTC has filed two administrative 
        actions, \15\ and has authorized federal court challenges to 
        five proposed mergers involving products including rum, \16\ 
        food service glassware, \17\ pigskin and beef hide gelatin, 
        \18\ telescopes, \19\ and cervical cancer screening products. 
B. Protecting Consumer Privacy and Security
    A major focus of the FTC for the next several years will be the 
protection of consumer privacy and security. Consumers are deeply 
concerned about the privacy and security of their personal information, 
both online and offline. Although privacy concerns have been heightened 
by the rapid development of the Internet, concerns are by no means 
limited to the cyberworld. This fiscal year, we have substantially 
increased resources dedicated to privacy protection. The agency has 
undertaken several major privacy initiatives to reduce the serious 
consequences to consumers that can result from the misuse of personal 
1. Do Not Call Initiative
    The FTC has proposed amending the Telemarketing Sales Rule (TSR) 
\21\ to create a national do-not-call list that would be binding on 
telemarketers and allow consumers to make one call to remove their 
names from most telemarketing lists. The proposal also would restrict 
the use of ``preacquired account information''--lists of names and 
credit card numbers of potential telemarketing customers--to ensure 
that these lists are not used to bill consumers for unwanted goods or 
services. To date, the FTC has received over 40,000 comments on the TSR 
proposal, reflecting a high degree of public interest.
2. Public Workshops
    In December 2001, the FTC co-hosted, with seven other federal 
agencies, a public workshop titled Get Noticed: Effective Privacy 
Notices under Gramm-Leach-Bliley which assessed the impact of GLB 
privacy notices, identified successful privacy notices, discussed 
strategies for communicating complex information, and encouraged 
industry ``best practices'' and consumer and business education. \22\ 
In May 2002, the FTC hosted a two-day public workshop to explore issues 
related to the security of consumers' computers and the personal 
information stored in them or in company databases. \23\
3. ID Theft
    In 2001, identity theft was the number one consumer complaint made 
to the FTC. To help stamp out this growing consumer problem, the FTC 
has undertaken a number of initiatives:

   Identity Theft Law Enforcement Training. Last March, the 
        FTC, the U.S. Secret Service, and the Department of Justice 
        kicked off a series of nationwide training seminars to provide 
        hundreds of local and state law enforcement officers with 
        practical tools to enhance their efforts to combat identity 

   ID Theft Affidavit. In October 2001, the FTC joined with 
        several companies and privacy organizations to create a 
        universal identity theft affidavit for victims of identity 
        theft to submit to creditors. Available online, the form helps 
        victims recoup their losses and restore their legitimate credit 
        records more quickly.

   Identity Theft Education. The FTC has coordinated with other 
        government agencies and organizations to develop and 
        disseminate comprehensive consumer education materials for 
        victims of identity theft and those concerned with preventing 
        this crime. Since its publication, the FTC has distributed more 
        than 850,000 hard copies of its best-selling publication, 
        ``Identity Theft: When Bad Things Happen to Your Good Name,'' 
        and has logged over 700,000 visits to its Web version. The FTC 
        also launched an outreach effort to Spanish-speaking victims of 
        identity theft, releasing Spanish versions of the identity 
        theft booklet (Robo de Identidad: Algo malo puede pasarle a su 
        buen nombre) and the ID Theft Affidavit. We have added Spanish-
        speaking phone counselors to our hotline staff and will soon 
        launch a Spanish version of our online complaint form.

4. Privacy Enforcement Actions
    The FTC brings law enforcement actions when it has reason to 
believe that laws protecting privacy have been violated. Recent FTC 
privacy enforcement actions include:

   Children's Privacy. Over the past year, the FTC brought six 
        cases involving the rule implementing the Children's Online 
        Privacy Protection Act (COPPA) for alleged violation of the 
        requirement that commercial Web sites give notice of their 
        information practices and obtain parental consent before 
        collecting, using, or disclosing personal information about 
        children under 13. As part of these settlements, the companies 
        agreed to pay civil penalties totaling $175,000. \24\

   Eli Lilly. The FTC settled charges that Eli Lilly & Company 
        unintentionally had disclosed the e-mail addresses of users of 
        its Prozac.com and Lilly.com Web sites by failing to take 
        reasonable steps to protect the confidentiality and security of 
        that information. The settlement requires Lilly to establish a 
        security program to protect consumers' personal information 
        against any reasonably anticipated threats or hazards to its 
        security, confidentiality, or integrity. \25\

   Pretexting Cases. The FTC has taken its first steps to 
        enforce prohibitions against ``pretexting''--the use of false 
        pretenses to obtain customer financial information--which is 
        prohibited under the Gramm-Leach-Bliley Act. \26\ FTC staff 
        found apparent violations after a surf of 1,000 Web sites and a 
        review of 500 publications. The FTC sent warning notices to 200 
        firms and settled three actions in federal court involving the 
        most egregious situations. \27\

   Preacquired Account Information. \28\ A group of ``buying 
        clubs'' has agreed to pay $9 million to settle charges by state 
        Attorneys General and the FTC that they deceptively enticed 
        consumers into accepting free trial memberships and deceptively 
        obtained billing information from the consumers, which they 
        used to bill consumers for membership in the ``buying clubs'' 
        without the consumers' knowledge or authorization. \29\

   Spam. In February 2002, the FTC announced federal court 
        settlements with seven individuals who allegedly were 
        disseminating deceptive chain-letter e-mails involving pyramid 
        schemes with ``get rich quick'' schemes. \30\ In April 2002, 
        the FTC announced a law enforcement action challenging ``spam'' 
        e-mail messages that deceptively claimed that consumers had won 
        a free Sony PlayStation 2 or other prize through a promotion 
        purportedly sponsored by Yahoo, Inc. When consumers responded 
        to the e-mail message, they were routed to an adult Internet 
        site via a 900-number modem connection that charged them up to 
        $3.99 a minute. \31\

C. Preventing Deceptive and Anticompetitive Health Care Practices
    The cost of health care has become increasingly significant to both 
the economy and the American family. Health-related products and 
services account for over 13 percent of gross domestic product, up from 
10.9 percent in 1988. \32\ A major FTC objective is to root out 
deceptive practices that waste consumer dollars on ineffective or bogus 
remedies, and to stop collusion and other anticompetitive practices 
that drive up health care costs and decrease quality.
1. Internet Health Fraud and Deception
    The Internet has become the newest venue for marketing snake oil. 
Promoters of fraudulent products and services continue to use the 
Internet to plague consumers searching for cures for various diseases 
and preventative treatments to manage their health. The FTC has in 
place several program to protect consumers from scam artists who prey 
upon consumers' fears and concerns about their health.

   Bioterrorism Project. Following the tragedies of September 
        11 and the anthrax attacks, the FTC targeted purveyors of phony 
        products related to bioterrorism diseases. Last October, staff 
        from the FTC, the Food and Drug Administration (FDA), and the 
        offices of 30 state Attorneys General conducted a surf and 
        followed it up with warning letters to 121 Web sites. These 
        sites were exploiting bioterrorism fears by marketing 
        ineffective products, ranging from oregano oil to gas masks. To 
        date, over 70 of the 121 warned sites have eliminated their 
        objectionable claims. In February, the FTC announced 
        settlements with marketers of an ineffective anthrax home test 
        kit \33\ and an on-line seller of a colloidal silver product 
        advertised to treat anthrax. \34\

   ``Teaser'' Web Sites. One of the principal challenges facing 
        the FTC is reaching consumers before they fall victim to a 
        fraudulent scheme. Knowing that many consumers use the Internet 
        to shop for information, agency staff have developed 14 
        different ``teaser'' sites that mimic fraudulent sites and that 
        are found easily by consumers who conduct research on the 
        Internet with popular search engines. Within three clicks, the 
        teaser sites link back to the FTC's site, where consumers can 
        find practical, plain language information on recognizing 
        fraudulent claims on a range of topics, including health care 
        products. Feedback from the public on FTC teaser sites has been 
        overwhelmingly positive. \35\

   ``Operation Cure.All.'' In June 2001, the FTC, in 
        cooperation with the FDA, Health Canada, and various state 
        Attorneys General, announced ``Operation Cure.All,'' the latest 
        round of enforcement actions against online purveyors of health 
        products that purported to cure serious diseases. The FTC 
        challenged allegedly unfounded claims regarding a DHEA hormonal 
        supplement, St. John's Wort, various multi-herbal supplements, 
        colloidal silver, and a variety of electrical therapy devices.

    Commissioner Sheila Anthony recently discussed Operation Cure.All 
before the Food and Drug Law Institute's 45th Annual Educational 
Conference in a speech titled ``Combating Deception in Dietary 
Supplement Advertising'' (April 16, 2002). \36\ This speech discussed 
the FTC's recent law enforcement actions and proposed a strengthened 
self-regulatory response and more media responsibility to address the 
widespread problem of deceptive and unsubstantiated health claims for 
dietary supplement products.
2. Collusion and Other Anticompetitive Practices
    During the past year, the FTC has placed renewed emphasis on 
stopping collusion and other anticompetitive practices that raise 
health care costs and decrease quality.
        (a)  Antitrust Investigations Involving Pharmaceutical 
        Companies. The growing cost of prescription drugs is a 
        significant concern for patients, employers, and government. 
        Drug expenditures doubled between 1995 and 2000. \37\ In 
        response, the FTC dramatically has increased its attention to 
        pharmaceutical-related matters in both merger and non-merger 
        investigations. The agency now focuses one-quarter of all 
        competition mission resources on this industry. We also have 
        opened increasingly more pharmaceutical-related investigations. 
        In 1996, less than 5 percent of new competition investigations 
        involved pharmaceuticals, while in 2001, the percentage of new 
        investigations involving pharmaceutical products was almost 25 

   Mergers Affecting the Pharmaceutical Industry. Last year, 
        the FTC took action to restore competition in the market for 
        integrated drug information databases in a case involving 
        violations of both Sections 7 and 7A of the Clayton Act. This 
        case marked the first time the FTC sought disgorgement of 
        profits as a remedy in a merger case. The case resulted from 
        the 1998 acquisition by Hearst Corporation of the Medi-Span 
        integratable drug information database business. Pharmacies, 
        hospitals, doctors, and third-party payors rely on such 
        databases for information about drug prices, drug effects, drug 
        interactions, and the eligibility for drugs under various 
        payment plans. At the time of the acquisition, Hearst already 
        owned First DataBank, Medi-Span's only competitor. The FTC 
        alleged that the acquisition created a monopoly in the sale of 
        integratable drug information databases, causing prices to 
        increase substantially to all database customers. \38\ We 
        negotiated a settlement requiring Hearst to divest the Medi-
        Span database and to disgorge $19 million in illegal profits, 
        which will be distributed to injured consumers. \39\

   Pharmaceutical Firms' Efforts to Thwart Competition from 
        Generic Drugs. In its non-merger enforcement cases, the FTC 
        focused on efforts by branded drug manufacturers to slow or 
        stop competition from lower-cost generic drugs. While patent 
        protection for newly developed drugs sometimes limits the role 
        of competition in this industry, competition from generic 
        equivalents of drugs with expired patents is highly 
        significant. The Congressional Budget Office reports that 
        consumers saved $8 to 10 billion in 1994 alone by buying 
        generic versions of branded pharmaceuticals. \40\ The first 
        generic competitor typically enters the market at a 
        significantly lower price than its branded counterpart, and 
        gains substantial share from the branded product. Subsequent 
        generic entrants typically bring prices down even further. \41\ 
        Anticompetitive ``gaming'' of certain provisions of the Hatch-
        Waxman Act \42\ to forestall generic entry has been a major 
        focus of FTC enforcement actions. FTC Hatch-Waxman abuse cases 
        have fallen into three categories:

          (i)  Agreements Not to Compete. The first category involves 
        agreements between manufacturers of brand-name drugs and 
        manufacturers of generics in which the generic firm allegedly 
        is paid not to compete. The FTC has settled three such cases, 
        including a recent settlement with American Home Products 
        (AHP). That settlement resolved charges that AHP entered into 
        an agreement with Schering-Plough Corporation to delay 
        introduction of a generic potassium chloride supplement in 
        exchange for millions of dollars. The FTC had alleged that an 
        AHP generic would have competed with Schering's branded K-Dur 
        20, used to treat low potassium conditions, which can lead to 
        cardiac problems. \43\

          (ii)  Fraudulent ``Orange Book'' Listings. The second 
        category deals with unilateral conduct by branded manufacturers 
        to delay generic entry. Pursuant to the Hatch-Waxman Act, a 
        branded drug manufacturer must list any patent claiming its 
        branded drug in the FDA's ``Orange Book.'' Companies seeking 
        FDA approval to market a generic equivalent of that drug before 
        patent expiration must provide notice to the branded 
        manufacturer, which then has an opportunity to file a patent 
        infringement action. The filing of such an action within the 
        statutory time frame triggers an automatic 30-month stay of FDA 
        approval of the generic drug. Certain branded manufacturers 
        have attempted to ``game'' this regulatory structure by listing 
        patents in the Orange Book improperly. Such a strategy permits 
        the company to abuse the Hatch-Waxman's stay provision to block 
        generic competition without advancing any of the Act's 
        procompetitive objectives. The FTC recently filed an action 
        against Biovail Corporation (Biovail), alleging that it had 
        illegally acquired a license to a patent and engaged in such an 
        anticompetitive patent listing strategy with respect to its 
        high blood pressure drug, Tiazac. The matter was resolved 
        through a consent order, which requires Biovail to: (1) 
        transfer certain rights in the acquired patent back to their 
        original owner; (2) terminate its infringement suit against the 
        generic competitor, thereby terminating the 30-month stay; (3) 
        refrain from any action that would trigger another 30-month 
        stay; (4) refrain from future improper Orange Book listing 
        practices; and (5) provide the FTC with prior notice of the 
        acquisitions of any patents it intends to list in the Orange 
        Book. \44\

           The FTC also recently filed an amicus brief in pivotal 
        private litigation involving allegations of fraudulent Orange 
        Book listing practices. \45\ In re Buspirone--which is the 
        subject of continuing litigation--involves allegations that 
        Bristol-Myers Squibb Co. (``BMS'') violated the antitrust laws 
        by fraudulently listing a patent on its branded drug, BuSpar, 
        in the FDA's Orange Book, thereby foreclosing generic 
        competition. BMS argued that the conduct in question was 
        covered by the Noerr-Pennington doctrine--a legal rule 
        providing antitrust immunity for conduct that constitutes 
        ``petitioning'' of a governmental authority. In its amicus 
        brief opposing Noerr immunity, the FTC argued that submitting 
        patent information for listing in the Orange Book did not 
        constitute ``petitioning'' the FDA and that, even if it did, 
        various exceptions to Noerr immunity applied. The district 
        court subsequently issued an order denying Noerr immunity and 
        adopting much of the Commission's reasoning. \46\ The Court's 
        ruling does not mean that all improper Orange Book filings will 
        give rise to antitrust liability. An antitrust plaintiff must 
        still prove an underlying antitrust claim. The Buspirone 
        decision merely establishes that Orange Book filings are not 
        automatically immune from the antitrust laws or exempt from 
        their scrutiny.

          (iii)  Agreements Between Generic Manufacturers. The third 
        category of cases involves agreements among manufacturers of 
        generic drugs. In our recent complaint against Biovail and Elan 
        Corporation, plc (Elan), the FTC alleged that the companies 
        violated the FTC Act by entering into an agreement that 
        provided substantial incentives not to compete in the market 
        for the 30 mg and 60 mg dosage forms of generic Adalat CC. 
        Biovail and Elan are the only companies with FDA approval to 
        manufacture and sell 30 mg and 60 mg generic Adalat products. 
        In October 1999, Biovail and Elan entered into an agreement 
        involving both companies' generic Adalat products. Under their 
        agreement, in exchange for specified payments, Elan would 
        appoint Biovail as the exclusive distributor of Elan's 30 mg 
        and 60 mg generic Adalat products and allow Biovail to profit 
        from the sale of both products. Our complaint alleged that the 
        companies' agreement substantially reduces their incentives to 
        introduce competing 30 mg and 60 mg generic Adalat products. 
        The proposed order, which has a ten-year term, remedies the 
        companies' alleged anticompetitive conduct by requiring them to 
        terminate the agreement and barring them from engaging in 
        similar conduct in the future. \47\
    Commissioner Thomas B. Leary has written and spoken in depth about 
the issues that we must confront as we proceed with these cases at the 
intersection of intellectual property rights and antitrust enforcement. 

   Generic Drug Study. The FTC currently is conducting an 
        industry-wide study focused on certain aspects of generic drug 
        competition under the Hatch-Waxman Amendments. The study has 
        examined whether the Commission's enforcement actions against 
        alleged anticompetitive agreements, which relied on certain 
        Hatch-Waxman provisions, were isolated examples or 
        representative of conduct frequently undertaken by 
        pharmaceutical companies. The study also has examined more 
        broadly how the process that Hatch-Waxman established to permit 
        generic entry prior to expiration of a brand-name drug 
        product's patents has worked between 1992 and 2000. \49\

        (b)  Antitrust Investigations Involving Health Care Providers. 
        So far this year, the agency has reached settlements with three 
        groups of physicians for allegedly engaging in collusive 
        practices that drove up consumers' costs. In May, the FTC 
        announced a settlement with two Denver-area physician 
        organizations to resolve charges that they entered into 
        agreements to fix fees and to refuse to deal with health plans. 
        According to the complaints, primary care doctors--who compete 
        with each other as internists, pediatricians, family 
        physicians, or general practitioners--formed groups to 
        negotiate contracts for higher fees and other terms more 
        advantageous than they could obtain by bargaining separately. 
        The FTC's proposed orders put a stop to further anticompetitive 
        collusive conduct. \50\

         Earlier this year, the FTC settled charges that a group of 
        Napa County, California, obstetricians and gynecologists agreed 
        to fix fees and other terms of dealing with health plans and 
        refused to deal with health plans except on collectively 
        determined terms. The FTC's complaint further alleged that the 
        physicians' actions harmed employers, individual patients, and 
        health plans by depriving them of the benefits of competition 
        in the purchase of physician services. To resolve the matter, 
        the physicians agreed to refrain from engaging in similar 
        conduct in the future, and to dissolve the organization through 
        which they conducted their allegedly anticompetitive activity. 

        (c)  Workshop on Health Care and Competition Law and Policy. On 
        September 9-10, 2002, the Commission will hold a public 
        workshop focusing on the impact of competition law and policy 
        on the cost, quality, and availability of health care, and the 
        incentives for innovation in the field. Given the significance 
        of health care spending in the United States, it is important 
        that competition law and policy support and encourage efficient 
        delivery of health care products and services. Competition law 
        and policy should also encourage innovation in the form of new 
        and improved drugs, treatments, and delivery options. 
        Developing and implementing competition policy for health care 
        raises complex and sensitive issues. The goal of this workshop 
        is to promote dialogue, learning, and consensus building among 
        all interested parties (including, but not limited to, the 
        business, consumer, government, legal, provider, insurer, and 
        health policy/health services/health economics communities).

D. Promoting and Maintaining Competitive Energy Markets
    Representing a significant portion of total U.S. economic output, 
energy is vital to the entire economy. The FTC focused considerable 
resources on energy issues, including conducting in-depth studies of 
evolving energy markets and investigating numerous oil company mergers.
1. Oil Merger Investigations
    In recent years, the FTC has investigated numerous oil mergers. 
Last year, the agency reviewed three large oil mergers and analyzed the 
competitive effects in a host of individual product/geographic market 
combinations. When necessary, the agency has insisted on remedial 
divestitures to cure potential harm to competition. In Chevron/Texaco, 
the FTC accepted a consent agreement that allowed the proposed $45 
billion merger to proceed but required substantial divestitures to cure 
the possible anticompetitive aspects of the transaction in 10 separate 
relevant product markets and 15 sections of the country comprised of 
dozens of smaller relevant geographic markets. \52\ In Valero/Ultramar, 
the FTC obtained a settlement requiring Valero to divest a refinery, 
bulk gasoline supply contracts, and 70 retail service stations to 
preserve competition. \53\ In Phillips/Tosco, applying the same 
standards, the Commission concluded that the transaction did not pose a 
threat to competition and voted unanimously to close the investigation. 
2. Study of Refined Petroleum Prices
    Building on its enforcement experience in the petroleum industry, 
the FTC is studying the causes of the recent volatility in refined 
petroleum product prices. During an initial public conference held in 
August 2001, participants identified key factors, including increased 
dependency on foreign crude sources, changes in industry business 
practices, restructuring of the industry through mergers and joint 
ventures, and new governmental regulations. This information assisted 
the agency in structuring a second public conference in May 2002, 
focusing in greater depth on those factors identified as most important 
in the earlier conference. The information gathered through these 
public conferences will form the basis for a report to be issued later 
this year.
3. Gasoline Price Monitoring
    The FTC also recently announced a project to monitor wholesale and 
retail prices of gasoline. FTC staff will inspect wholesale gasoline 
prices for 20 U.S. cities and retail gasoline prices for 360 cities. 
Anomalies in the data will prompt further inquiries and likely will 
alert the agency to the possibility of anticompetitive conduct in 
certain parts of the country. It will also increase our understanding 
of the factors affecting the price of gasoline.
4. Consumer Gas-Savings Tips
    In addition to focusing resources on protecting competition to keep 
the family gasoline budget down, the FTC developed a series of consumer 
education publications to help families fuel up wisely: Gas-Saving 
Products: Facts or Fuelishness?; The Low-Down on High Octane Gasoline; 
How To Be Penny Wise, Not Pump Fuelish; and Gas-Saving Products: 
Proceed with Caution. Two of the publications were produced in 
cooperation with the American Automobile Association. To date, 
distribution totals for the four publications exceed 277,000.
E. Keeping Pace With Technology and the Changing Marketplace
    As an agency with a history of studying marketplace developments, 
\55\ the FTC is well-positioned to take a leading role in assessing the 
impact of high technology and globalization on domestic and world 
markets. In 1995, the agency held 23 days of hearings on these twin 
phenomena, which culminated in a comprehensive, two-volume Staff 
Report. \56\ Building on this base, the FTC continues to study the 
impact of technology in general and specific innovations, such as the 
Internet, and to work increasingly with foreign government agencies and 
international bodies to promote competition and protect consumers both 
at home and around the globe. The FTC organizes numerous task forces, 
workshops, hearings, and conferences to gather information.
1. Technology
   Internet Lab. To keep pace with rapidly changing Internet 
        technology, the FTC established an Internet Lab in 1999. 
        Equipped with state-of-the-art personal computers, the lab is a 
        resource for ongoing efforts to understand the medium and to 
        search for fraud, deception, and anticompetitive practices in a 
        secure environment. It provides the necessary equipment and 
        software to capture Web sites and preserve them as evidence. 
        The lab also provides the latest tools for staff to track the 
        manner in which technology is changing the way that commercial 
        information is transmitted to consumers. Unlike advertising in 
        traditional media, for example, advertising in electronic media 
        may vary in content and appearance depending on the appliance 
        and Web browser used by the consumer. FTC Internet enforcement 
        cases reflect the broad range of illegal activity carried out 
        online, from traditional scams like pyramid schemes, health 
        fraud, and bogus investments to high-tech frauds that take 
        advantage of the technology itself to scam consumers. Since 
        June 2001, the FTC has brought over 51 cases involving 
        fraudulent or deceptive Internet marketing practices, bringing 
        the total number of Internet cases filed since 1994 to 236.

   Internet Task Force. In August 2001, an Internet Task Force 
        began to evaluate potentially anticompetitive regulations and 
        business practices that could impede e-commerce. The Task Force 
        grew out of the already-formed State Action Task Force, which 
        had been analyzing potentially anticompetitive state 
        regulations generally, and out of the FTC's longstanding 
        interest in the competition aspects of e-commerce. Over the 
        past year, the Task Force has met with numerous industry 
        participants and observers, including e-retailers, trade 
        associations, and leading scholars, and reviewed relevant 
        literature. The Task Force discovered that many states have 
        enacted regulations, ostensibly for other purposes, that have 
        the clear effect of protecting existing bricks-and-mortar 
        businesses from new Internet competitors. The Task Force also 
        is considering whether private companies may be curtailing e-
        commerce by employing potentially anticompetitive tactics, such 
        as by collectively pressuring suppliers or dealers to limit 
        sales over the Internet. To date, three advocacy filings have 
        resulted in large part from the Task Force's efforts: (1) a 
        joint FTC/DOJ comment before the North Carolina state bar 
        expressing concerns about the impact on consumers of ethics 
        opinions requiring that an attorney be physically present for 
        all real estate closings and refinancings; (2) a joint FTC/DOJ 
        comment before the Rhode Island legislature on similar 
        requirements in a real estate bill; and (3) an FTC staff 
        comment before the Connecticut Board of Opticians, which is 
        considering additional restrictions on out-of-state and 
        Internet contact lens sellers. \57\

   Internet Competition Workshop. In October, the Commission 
        will hold a public workshop on possible efforts to restrict 
        competition on the Internet. The workshop will include panel 
        discussions to address certain specific industries that are 
        important to consumers and that have experienced some growth in 
        commerce via the Internet, but that may have been hampered by 
        potentially anticompetitive state regulations or business 
        practices. For example, the workshop will include panels on 
        some or all of the following industries: retailing, 
        automobiles, cyber-charter schools, real estate, health care, 
        wine sales, auctions, contact lenses, and caskets. The Internet 
        Task Force expects that the workshop will (1) enhance the 
        Commission's understanding of these issues, (2) help educate 
        policymakers about the effects of possibly protectionist state 
        regulations, and (3) help educate private entities about the 
        types of business practices that may or may not be viewed as 

   Standards Setting. As technology advances, there will be 
        increased efforts to establish industry standards for the 
        development and manufacture of new products. While the adoption 
        of standards is often procompetitive, the standards setting 
        process which involves competitors' meeting to set product 
        specifications, can be an area for antitrust concern. In a 
        complaint filed last month, the FTC charged that Rambus, Inc., 
        a participant in an electronics industry standards-setting 
        organization, failed to disclose--in violation of the 
        organization's rules--that it had a patent and several pending 
        patent applications on technologies that eventually were 
        adopted as part of the industry standard. \58\ The standard at 
        issue involved a common form of computer memory used in a wide 
        variety of popular consumer electronic products, such as 
        personal computers, fax machines, video games, and personal 
        digital assistants. The FTC's complaint alleges that once the 
        standard was adopted, Rambus was in a position to reap millions 
        in royalty fees each year, and potentially more than a billion 
        dollars over the life of the patents, all of which would be 
        passed on to consumers through increased prices for the 
        downstream products. \59\ Because standard-setting abuses can 
        harm robust and efficiency-enhancing competition in high tech 
        markets, the FTC will continue to pursue investigations in this 
        important area. \60\

   Intellectual Property Hearings. In February 2002, the FTC 
        and the DOJ commenced a series of hearings on ``Competition and 
        Intellectual Property Law and Policy in the Knowledge-Based 
        Economy.'' \61\ The hearings respond to the growth of the 
        knowledge-based economy, the increasing role in antitrust 
        policy of dynamic, innovation-based considerations, and the 
        importance of managing the intersection of intellectual 
        property and competition law to realize their common goal of 
        promoting innovation. During the hearings, business persons, 
        consumer advocates, inventors, practitioners, and academics are 
        focusing on:

        (a)  what economic learning reveals, and does not reveal, 
        regarding the relationships between intellectual property and 
        innovation, and between competition and innovation;

        (b)  ``real-world'' experiences with patents and competition;

        (c)  procedures and substantive criteria involved in 
        prosecuting and litigating patent claims;

        (d)  issues raised by patent pools and cross-licensing and by 
        certain standard-setting practices;

        (e)  the implications of unilateral refusals to deal, patent 
        settlements, and licensing practices;

        (f)  international comparative law perspectives regarding the 
        competition/intellectual property interface; and

        (g)  jurisprudential issues, including the role of the Federal 

    A public report that incorporates the results of the hearings, as 
well as other research, will be prepared after the hearings.

   Wireless Workshop. In March, FTC staff released a summary 
        and update of the proceedings of its December 2000 workshop, 
        ``The Mobile Wireless Web, Data Services and Beyond: Emerging 
        Technologies and Consumer Issues.'' \62\ The workshop addressed 
        five topics: (1) an overview of the relevant technologies; (2) 
        privacy issues raised by these technologies; (3) security 
        issues; (4) advertising and disclosures in the wireless area; 
        and (5) self-regulatory programs. The FTC will continue to 
        monitor the development of wireless technologies, along with 
        the privacy, security, advertising, and other consumer 
        protection issues they raise.

2. Globalization
   International Antitrust. Because competition increasingly 
        takes place in a worldwide market, cooperation with competition 
        agencies in the world's major economies is a key component of 
        our enforcement program. Given differences in laws, cultures, 
        and priorities, it is unlikely that there will be complete 
        convergence of antitrust policy in the foreseeable future. 
        Areas of agreement far exceed those of divergence, however, and 
        instances in which our differences will result in conflicting 
        results are likely to remain rare. The agency has increased its 
        cooperation with agencies around the world, both on individual 
        cases and on policy issues, and is committed to addressing and 
        minimizing policy divergences.

   ICN and ICPAC. Last fall, the FTC, the DOJ, and twelve other 
        antitrust agencies from around the world launched the 
        International Competition Network (ICN). The ICN is an 
        outgrowth of a recommendation of the International Competition 
        Policy Advisory Committee (ICPAC) that competition officials 
        from developed and developing countries convene a forum in 
        which to work together on competition issues raised by economic 
        globalization and the proliferation of antitrust regimes. ICN 
        provides a venue for antitrust officials worldwide to work 
        toward consensus on proposals for procedural and substantive 
        convergence on best practices in antitrust enforcement and 
        policy. Sixty-one jurisdictions already have joined the ICN, 
        and we are working on initial projects on mergers and 
        competition advocacy.

   Free Trade Agreement of the Americas. The FTC is working 
        with the nations of our hemisphere to develop competition 
        provisions for a Free Trade Agreement of the Americas.

   OECD. The FTC is participating in the continuing work of the 
        OECD on, among other things, merger process convergence, 
        implementation of the OECD recommendation on hard-core cartels 
        (e.g., price-fixing agreements), and regulatory reform.

   Technical Assistance. For the past ten years, the FTC has 
        been able to participate in assisting developing nations that 
        have made the commitment to market and commercial law reforms. 
        With funding principally from the U.S. Agency for International 
        Development, and in partnership with the DOJ, about thirty 
        nations have received technical assistance with development of 
        their competition and consumer protection laws. Currently, the 
        technical assistance program is active in South and Central 
        America, South Africa, and Southeastern Europe. The program 
        emphasizes the development of investigative skills, and relies 
        on a combination of resident advisors, regional workshops, and 
        targeted short term missions. These activities have enabled a 
        large number of career staff to share their expertise, although 
        great care is taken to avoid any intrusions on the time and 
        planning for domestic enforcement projects. Future plans are 
        focused on expanding this reimbursable program to the former 
        Soviet Union and to Asia.

   International Consumer Protection. The number of consumer 
        protection cases with an international component continues to 
        rise. Consumers now increasingly participate in a global 
        marketplace, often receiving telemarketing or e-mail 
        solicitations from vendors outside the U.S. Increasingly, the 
        FTC is called upon to lead or participate in international 
        organizations. Last year, Commissioner Swindle became head of 
        the U.S. delegation to the OECD Experts Group for Review of the 
        1992 OECD Guidelines for the Security of Information Systems. 
        The revised guidelines will be released in early September and 
        will promote a ``culture of security'' in which we all have a 
        role to play. This spring, Commissioner Thompson was elected 
        Chair of the OECD's Committee on Consumer Policy.

   Cross-Border Fraud. The FTC is increasing its efforts to 
        counter fraud that transcends borders. In particular, our 
        partnerships with Canadian officials allow the FTC to respond 
        more effectively to telemarketing scams emanating from Canada. 
        The FTC has forged two city-specific partnerships to coordinate 
        our law enforcement efforts: the Ontario Strategic Partnership, 
        in which the FTC's Midwest Regional Office has worked with 
        Canadian law enforcers to focus on Toronto-based telemarketing; 
        and Project Emptor, in which the Northwest Regional Office has 
        partnered with British Columbia officials to target Vancouver 
        boiler rooms. Drawing on these partnerships, in June 2002 the 
        FTC and 17 Canadian and U.S. law enforcement and consumer 
        protection agencies announced a coordinated criminal and civil 
        law enforcement initiative to stop fraudulent cross border 
        schemes and recover money for victims, many of whom are 
        elderly. Fraudulent schemes targeted by the initiative included 
        illegal international lottery scams, phony advance-fee credit 
        card offers, and bogus credit card loss-protection schemes. 
        \63\ The FTC has brought seven actions and obtained nine final 
        orders in cases involving cross-border fraud between the U.S. 
        and Canada in 2002.

   IMSN Findings on Cross-Border Remedies. Last spring, the 
        International Marketing Supervision Network--an organization of 
        consumer protection agencies from 29 countries--under the 
        leadership of the FTC, issued ``Findings on Cross-Border 
        Remedies,'' which outlines obstacles to cross-border 
        enforcement of consumer protection laws and suggestions for 
        overcoming these obstacles.

   econsumer.gov. In April 2001, 13 countries and the OECD 
        launched nsumer.gov public Web site where consumers can file 
        cross-border e-commerce complaints with law enforcement 
        agencies around the world, access education materials about e-
        commerce, and contact consumer protection agencies. The site is 
        available to consumers in English, French, Spanish, and German. 
        Since its launch, three additional countries have joined the 
        project. To date, we have received over 1,700 complaints from 
        consumers in six continents about companies in more than 68 
        countries. Next steps for this project include adding 
        additional members, increasing outreach and publicity, adding 
        consumer education materials, and adding information about 
        alternative dispute resolution for e-commerce complaints on the 

F. Targeting Special Initiatives to Specific Consumer Groups
    The FTC has initiated a variety of programs that seek to assist 
specific consumer groups. Among these groups are children, minorities 
and non-English speaking sections of the U.S. population, and 
homeowners who may be special prey for fraudulent lenders.

1. Children and Violent Media
    In response to Congressional requests, the FTC continues to monitor 
violent media directed toward children. An FTC September 2000 report 
concluded that the entertainment industry targeted advertising of 
violent video games, movies, and music to children. \64\ Subsequently, 
Congress directed that the FTC continue its efforts through three 
related initiatives: consumer research and workshops, an underage 
shopper retail compliance survey, and marketing and data collection. 
\65\ In response, the FTC released a follow-up report, in April 2001, 
outlining improvements in the movie and electronic game industries but 
finding no appreciable change in the music industry's target marketing 
practices. \66\ The FTC's second follow-up report, in December 2001, 
found that the movie and electronic game industries had made continued 
improvements, and that although the music industry had made progress in 
disclosing parental advisory label information, it had not altered its 
marketing practices. \67\ The FTC's third follow-up report, released in 
June 2002, found continued progress by the movie and electronic game 
industries and improvement by the music industry in including rating 
information in advertising that would help parents identify material 
that may be inappropriate for their children. This most recent report 
also showed compliance by the movie and electronic games industries 
with industry promises to limit ad placements, although the report 
found advertisements by all three industries continue to appear in some 
media popular with teens. \68\ The report concludes that the music 
industry continues to advertise music with explicit content on 
television shows and in print magazines popular with teens.

2. Children and Gambling
    The FTC also is assessing the marketing of online gambling sites to 
children. In June, the FTC announced the results of an informal survey 
of web sites to determine the access and exposure that teens have to 
online gambling. \69\ The FTC visited over 100 popular gambling web 
sites and found that minors can, indeed, access these sites easily, and 
that minors often are exposed to ads for online gambling on non-
gambling web sites. The FTC staff has met with representatives of the 
online gambling industry to seek voluntary corrective action, and with 
interested consumer advocates. The FTC, in conjunction with industry 
representatives, has launched a consumer and business education 
campaign warning about the dangers of underage online gambling. Online 
gambling industry representatives have advised FTC staff that they will 
devise a ``Guide to Best Practices'' regarding clear and conspicuous 
warnings about prohibited underage gambling, effective blocking 
methods, and restricted placement of industry advertisements.

3. Spanish-Speaking Consumers
    To reach the expanding population of Spanish-speaking consumers in 
the United States, the FTC instituted an Hispanic Outreach Program in 
January 2002. This effort includes the creation of a dedicated page on 
the FTC Web site, Proteccion para el Consumidor, that will mirror the 
English page, and translation of 14 consumer publications, printed or 
posted to the Web. We also translated the FTC Consumer Complaint Form 
into Spanish. In addition, the FTC is conducting media outreach and 
providing interviews in Spanish.

4. Native Americans
    The FTC has partnered with the Indian Arts and Crafts Board, the 
Alaska State Council on the Arts, and the Alaska Attorney General's 
office in developing and distributing more than 100,000 postcards and 
brochures to assure the authenticity of Alaskan Native art and help 
prevent fakes. The materials provide numerous tips--mostly centered on 
a ``Silver Hand'' certification program--on how to be confident that 
Alaskan Native art is truly Native.

5. Homeowners
    The FTC also has focused its consumer protection efforts on 
homeowners, especially those in poorer urban areas, who sometimes are 
the victims of deceptive lending practices. Since 1998, the FTC has 
brought 15 cases involving a variety of deceptive lending practices. 
This past March, the FTC, six states, AARP, and class action and 
individual plaintiffs settled claims against First Alliance Mortgage 
Company and its chief executive officer. The complaint alleged that the 
defendants misled consumers about the existence and amount of 
origination fees for their loans (which typically constituted 10 to 25 
percent of the loan) and the interest rate and monthly payments of 
their adjustable rate mortgage loans. Consequently, according to the 
complaint, consumers believed they were borrowing less money at lower 
interest rates than they actually were. The settlement, which requires 
court approval, creates a consumer redress fund that will include all 
of the remaining assets of First Alliance and its affiliates, now under 
liquidation in bankruptcy court, as well as a payment of $20 million 
from the company's principals. Nearly 18,000 borrowers could receive as 
much as $60 million in redress, making this one of the FTC's largest 
cases ever.

G. Advancing Efficient Law Enforcement
    The FTC has undertaken a variety of efforts to streamline its 
practices, leverage its resources, and minimize the burden on the 
public. These ongoing ``good government'' initiatives share a common 
theme: they represent efforts to go beyond the regular, ongoing work of 
the agency and to find ways to make the FTC's work more effective, more 
efficient, and less costly for businesses and consumers. We seek to use 
our limited resources wisely, because each day or dollar saved can be 
applied to additional activities that benefit consumers.

1. Sweeps and Partnerships with Enforcement Agencies
    The FTC leverages its resources through coordinated enforcement 
actions with other law enforcement agencies, both state and federal. In 
particular, the FTC conducts ``sweeps'' to investigate and bring 
actions against specific types of frauds and deceptions. In the past 12 
months, the FTC and 12 partners have participated in sweeps covering 
Internet health fraud, cold-call telemarketing, Internet scams, and 
business opportunities, resulting in over 170 separate law enforcement 

2. Training Staff from Other Agencies
    Another way that the FTC promotes efficient law enforcement is to 
train staff from other law enforcement agencies in new technologies or 
techniques pioneered by the FTC. One example is the FTC's ongoing 
Internet fraud training program. The FTC has created a series of 
regional ``Netforces'' made up of law enforcement agencies that have 
participated in our training. On April 2, 2002, the FTC began the first 
of these efforts by joining eight state agencies in the northwest 
United States and four Canadian agencies in an initiative targeting 
deceptive spam and Internet fraud. Together, these agencies have 
brought 63 law enforcement actions against Web-based scams ranging from 
alleged auction fraud to bogus cancer cure sites, and have sent more 
than 500 letters warning of the illegality of deceptive spam.

3. Streamlining Merger Review
    A major focus of FTC efficiency efforts is the merger review 
process. The FTC is working on a number of reforms to speed the process 
and reduce the burden on merging parties without sacrificing the 
sufficiency of information required by the agency.

   Electronic Premerger Filing. As part of an overall movement 
        to make government more accessible electronically, the FTC, 
        working with the DOJ, will accelerate its efforts in FY 2003 to 
        develop an electronic system for filing HSR premerger 
        notifications. E-filing will reduce filing burdens for both 
        businesses and government, and also will create a valuable 
        database of information on merger transactions to inform future 
        policy deliberations.

   Burden Reduction in Investigations. The agencies have taken 
        steps to reduce the burden in document productions responsive 
        to Second Requests. In response to legislation amending the HSR 
        Act, the FTC amended its rules of practice to incorporate new 
        procedures. The rule requires Bureau of Competition staff to 
        schedule conferences to discuss the scope of a Second Request 
        with the parties and also establishes a procedure for the 
        General Counsel to review the request and rule promptly on any 
        remaining unresolved issues. Measures adopted include a process 
        for seeking modifications or clarifications of Second Requests, 
        and expedited senior-level internal review of disagreements 
        between merging parties and agency staff; streamlined internal 
        procedures to eliminate unnecessary burdens and undue delays; 
        and implementation of a systematic management status check on 
        the progress of negotiations on Second Request modifications.

   Merger Investigation Best Practices. The FTC is conducting a 
        series of national public workshops regarding modifications and 
        improvements to the merger investigation process. The FTC will 
        solicit input from a broad range of interest groups, including 
        corporate personnel, outside and in-house attorneys, 
        economists, and consumer groups, on topics such as using more 
        voluntary information submissions before issuance of a Second 
        Request, reducing the scope and content of the Second Request, 
        negotiating modifications to the Second Request, and focusing 
        on special issues concerning electronic records and accounting 
        or financial data. \70\

   Merger Remedies. Other ``best practices'' workshops will 
        solicit comments on merger remedies. Among the issues to be 
        addressed are structuring asset packages for divestitures, 
        timing of divestitures (i.e., up front or after consummation), 
        evaluating the competitive adequacy of proposed buyers, and 
        assessing the preservation of competition after divestitures.

4. Consumer and Business Education
    Yet another way the FTC seeks to make law enforcement more 
efficient is by disseminating information about deceptive practices in 
the marketplace. The less often consumers are victimized by deceptive 
practices, the fewer enforcement actions the FTC must bring. Further, 
the more that businesses, especially small businesses, understand their 
obligations, the more readily they can comply. Thus, consumer and 
business education is the first line of defense against fraud and 
    With each major consumer protection enforcement initiative, the FTC 
launches a comprehensive and creative education campaign. Between May 
2001 and May 2002, the FTC issued 108 consumer protection publications: 
94 for consumers and 14 for businesses. Of those publications, 67 are 
new and 41 are revisions; 23 are translations into Spanish, and six are 
joint efforts between the public and private sectors. The FTC continues 
to exceed previous distribution records. In the last year, the FTC 
distributed more than 5.6 million printed publications to the public, 
and received more than 12.5 million ``hits'' on publications posted on 
the consumer protection portion of the FTC's Web site. Special FTC 
educational undertakings include:

   National Consumer Protection Week. For the fourth 
        consecutive year, the FTC took the lead in organizing National 
        Consumer Protection Week. This year, the event focused on 
        privacy. Other participants were the National Association of 
        Consumer Agency Administrators, AARP, the National Consumers 
        League, the Council of Better Business Bureaus, the Consumer 
        Federation of America, the U.S. Postal Service, the U.S. Postal 
        Inspection Service, the National Association of Attorneys 
        General, and the DOJ.

   www.consumer.gov. The FTC continues to manage 
        www.consumer.gov and to recruit new members to participate in 
        the site, which offers one-stop access to federal consumer 
        information. In the past year, the number of members has grown 
        from 135 to 178.

   Response to 9/11. In the wake of September 11th, the FTC 
        worked with other groups to alert consumers to possible fund-
        raising fraud. The FTC released a Consumer Alert, Helping 
        Victims of the Terrorist Attacks: Your Guide to Giving Wisely 
        on September 21, at a press conference held by the FTC's 
        Northeast Regional Office in conjunction with the New York 
        Attorney General and the New York Better Business Bureau.

III. Legislative Recommendations
    To improve the FTC's ability to implement its mission and to serve 
consumers, we make the following recommendations for legislative 
changes. We would be happy to work with the Committee to develop 
appropriate language.

A. Eliminate the FTC Act's Exemption for Communications Common Carriers
    The FTC Act exempts common carriers subject to the Communications 
Act from its prohibitions on unfair and deceptive acts or practices and 
unfair methods of competition. This exemption dates from a period when 
telecommunications were provided by government-authorized, highly 
regulated monopolies. The exemption is now outdated. In the current 
world, firms are expected to compete in providing telecommunications 
services. Congress and the Federal Communications Commission (FCC) have 
dismantled much of the economic regulatory apparatus formerly 
applicable to the industry. Telecommunications firms also have expanded 
into numerous non-common carrier activities. Oversight by the FTC of 
telecommunications firms' activities thus has become increasingly 
    The FTC Act exemption has proven to be a barrier to effective 
consumer protection, both in common carriage and in other 
telecommunications businesses. The exemption also has prevented the FTC 
from applying its legal and economic expertise regarding competition to 
mergers and other possible anticompetitive practices, not only 
involving common carriage, but in other high-tech fields involving 
telecommunications. We believe that Congress should eliminate the 
special exemption to reflect the fact that competition and deregulation 
have replaced comprehensive economic regulation.
    FTC efforts to halt fraudulent or deceptive practices by 
telecommunications firms have sometimes been stymied by the common 
carrier exemption. While common carriage has been outside the FTC's 
authority, we believe that the FTC Act applies to non-common carrier 
activities of telecommunications firms, even if the firms also provide 
common carrier services. \71\ Continuing disputes over the breadth of 
the FTC Act's common carrier exemption hamper the FTC's oversight of 
the non-common carrier activities. These disputes have arisen even when 
the FCC does not have, or does not exercise, jurisdiction over the non-
common carrier activity. These disputes may increase the costs of 
pursuing an enforcement action, or may cause the agency to narrow an 
enforcement action--for example, by excluding some participants in a 
scheme--to avoid protracted jurisdictional battles and undue delay in 
providing consumer redress.
    The FTC has the necessary expertise to address these issues. The 
FTC is the federal agency with broad consumer protection and 
competition experience covering nearly all fields of commerce. The FTC 
has extensive expertise with advertising, marketing, billing, and 
collection, areas in which significant problems have emerged in the 
telecommunications industry. In addition, the FTC has powerful 
procedural and remedial tools that could be used effectively to address 
developing problems in the telecommunications industry if the FTC were 
authorized to reach them.
    The common carrier exemption also significantly restricts the FTC's 
ability to engage in effective antitrust enforcement in broad sectors 
of the economy. The mix of common carrier and non-common carrier 
activities within particular telecommunications companies frequently 
precludes FTC antitrust enforcement for much of the telecommunications 
industry. Further, because of the expansion of telecommunications firms 
into other high-tech industries and the growing convergence of 
telecommunications and other technologies, the common carrier exemption 
increasingly limits FTC involvement in a number of industries outside 

B. Technical Changes
    The FTC also requests two new limited grants of authority: (1) the 
ability to accept reimbursement for expenses incurred by the FTC in 
assisting foreign or domestic law enforcement authorities, and (2) the 
ability to accept volunteer services, in-kind benefits, or other gifts 
or donations. Both new authorities would be useful as the FTC tries to 
stretch its resources to meet its statutory responsibilities.
    The authority to accept reimbursement for expenses incurred in 
assisting foreign or domestic law enforcement authorities would be 
especially useful, since the FTC has been working closely with domestic 
and foreign law enforcement authorities to address possible law 
violations. Partnering with these law enforcement authorities has 
resulted in enhanced law enforcement efforts and greater sharing of 
significant information. In some of these situations, our foreign or 
domestic partner is interested in reimbursing the FTC for the services 
it has provided or in sharing some of the costs of investigating or 
prosecuting the matter. Without specific statutory reimbursement 
authority, however, the FTC cannot accept and keep such reimbursements 
because of constraints under appropriations law. \72\
    In addition, the FTC requests authority to accept donations and 
gifts, such as volunteer services and in-kind benefits. Congress has 
conferred this authority by statute on various agencies, including the 
Office of Government Ethics, the FCC, and the Consumer Product Safety 
Commission. \73\ Without this authority, the FTC cannot accept services 
or keep items because of appropriations law constraints. This broad 
restriction on acceptance of gifts sometimes limits the FTC's ability 
to fulfill its mission in the most cost-effective manner. For example, 
the FTC cannot accept volunteer services from individuals wishing to 
provide such services to the agency. In addition, agency officials must 
sometimes refuse donated items that could otherwise be useful in 
carrying out the agency's mission, such as books and similar mission-
related items.

IV. Concluding Remarks
    Mr. Chairman and Members of the Subcommittee, we appreciate this 
opportunity to provide an overview of the Commission's efforts to 
maintain a competitive marketplace, free of deceptive and unfair 
practices, for American businesses and consumers. We believe that the 
Commission's antitrust and consumer protection enforcement has 
demonstrable benefits for consumers and the American economy--benefits 
that far outweigh the resources allocated to maintaining our mission. 
We would be pleased to respond to any questions you may have.

    1. 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 the 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.
    2. Timothy J. Muris, Chairman Robert Pitofsky: Public Servant and 
Scholar Remarks Before the American Antitrust Institute, Second Annual 
Conference (Washington, D.C., June 12, 2001), available at .
    3. Much of what the FTC challenges in its consumer protection 
mission is hard-core fraud, and given the transient nature of many of 
these illegitimate operations, we frequently are unable to collect the 
full amount of the monetary judgment ordered. The judgment amount, 
however, gives some indication of the extent of fraud and deception 
stopped by the FTC.
    4. This web site is available at .
    5. Press Release, State, Federal Law Enforcers Launch Sting on 
Business Opportunity, Work-at-Home Scams (June 20, 2002), available at 
    6. Press Release, FTC Sweep Protects Consumers from ``Dialing for 
Deception'' (Apr. 15, 2002), available at .
    7. FTC v. H.G. Kuykendall, Jr., No. CIV-96-388-M (W.D. Okla. Mar. 
4, 2002).
    8. FTC v. Access Resource Servs., Inc., No. 02-60226 (S.D. Fla. 
Feb. 20, 2002).
    9. FTC v. Electronic Products Distribution, L.L.C., No. 02CV0888 
H(AJB) (S.D. Cal. May 7, 2002);  v. United Fitness of America, LLC,. 
CV-S-02-648-KJD-LRL (D. Nev. May 7, 2002); FTC v. Hudson Berkley Corp., 
No. CV-S-0649-PMP-RJJ (D. Nev. May 7, 2002).
    10. Interstate Bakeries Corp., Docket No. C-3402 (Apr. 16, 2002) 
(consent order).
    11. Palm, Inc. Docket No. C-4044 (April 18, 2002) (consent order)
    12. 15 U.S.C Sec. 18a, as amended, Pub. L. No 106-553, 114 Stat. 
2762 (2000).
    13. See 15 U.S.C. Sec. 18a, as amended, Pub. L. No. 106-553, 114 
Stat. 2762 (2000).
    14. MSC Software Corp., Docket No. 9299 (Oct. 10, 2001) (complaint 
issued) (alleging that two MSC acquisitions violated Clayton Act).
    15. MSC Software Corp., Docket No. 9299 (Oct. 10, 2001) (complaint 
issued) (involving engineering software); Chicago Bridge Iron Co., 
Inc., Docket No. 9300 (Oct. 25, 2001) (complaint issued) (pertaining to 
field-erected specialty industrial storage tanks).
    16. Press Release, FTC Authorizes Suit to Block Joint Acquisition 
of Seagram Spirits and Wine by Diageo PLC and Pernod Ricard S.A. (Oct. 
23, 2001), available at .
    17. FTC v. Libbey, Inc., Civ. Act. No. 02-0060 (RBW) (Memorandum 
Opinion) (D.D.C. Apr. 22, 2002) (granting FTC's request for a 
preliminary injunction).
    18. Press Release, FTC to Challenge DGF Stoess's Proposed 
Acquisition of Leiner Davis (Jan. 15, 2002), available at .
    19. Press Release, FTC Authorizes Injunction to Pre-empt Meade 
Instruments' Purchase of All, or Certain Assets, of Tasco Holdings, 
Inc.'s Celestron International (May 29, 2002), available at .
    20. Press Release, FTC Seeks to Block Cytyc Corp.'s Acquisition of 
Digene Corp. (June 24, 2002), available at .
    21. Telemarketing Sales Rule, 67 Fed. Reg. 4492 (Jan. 30, 2002) 
(proposed Rule amendments).
    22. Press Release, Workshop Planned To Discuss Strategies for 
Providing Effective Financial Privacy Notices (Sept. 24, 2001), 
available at .
    23. Press Release, FTC to Host Public Workshop on Consumer 
Information Security (Mar. 12, 2002), available at .
    24. United States v. The Ohio Art Co., No. 3:02CV7203 (N.D. Ohio 
filed Apr. 19, 2002); United States v. American Pop Corn Co., No. C02-
4008DEO (N.D. Iowa Feb. 28, 2002) (consent decree); United States v. 
Lisa Frank, Inc., No. 01-1516-A (E.D. Va. Oct. 3, 2001) (consent 
decree); United States v. Looksmart, Ltd., No. 01-606-A (E.D. Va. Apr. 
23, 2001) (consent decree); United States v. Bigmailbox.com, Inc., No. 
01-605-A (E.D. Va Apr. 23, 2001) (consent decree); United States v. 
Monarch Servs., Inc., No. AMD 01 CV 1165 (D. Md. Apr. 20, 2001) 
(consent decree).
    25. Eli Lilly & Company, Docket No. C-4047, (May 10, 2002) (final 
    26. 15 U.S.C. Sec. 6801.
    27. FTC v. Information Search, Inc., No. AMD-01-1121 (D. Md. Mar. 
15, 2002); FTC v. Guzzetta, No. CV-01-2335 (E.D.N.Y. Feb. 25, 2002); 
FTC v. Garrett, No. H 01-1225 (S.D. Tex. Mar. 26, 2002).
    28. The cases challenging the misuse of preacquired account 
information and deceptive spam also involved issues of fraud.
    29. TechnoBrands, Inc., and Charles J. Anton, Docket No. C-4041 
(Apr. 15, 2002) (decision and order), available at ; FTC v. Technobrands, Inc., No. 3:02-CV-
86 (E.D. Va. filed Feb.15, 2002); FTC v. Ira Smolev, No. 01-8922 CIV 
ZLOCH (S.D. Fla. filed Oct. 23, 2001).
    30. FTC v. Boivin, No. 8:02-CV-77-T-26 MSS (M.D. Fla. Jan. 15, 
2002) (consent decree); FTC v. Estenson, No. A3-02-10 (DND Feb. 5, 
2002) (consent decree); FTC v. Larsen, No. 8:02-CV-76-T-26MAP (M.D. 
Fla. Jan. 16, 2002) (consent decree); FTC v. Lutheran, No. 02 CV 0095 K 
(RAB) (S.D. Cal. Jan. 18, 2002) (consent decree); FTC v. Va, No. 02-
60062-Civ-Zloch (S.D. Fla. Jan. 18, 2002) (consent decree); FTC v. 
Pacheco, No. 02-CV-31L (D.R.I. Jan. 22, 2002) (consent decree).
    31. FTC v. BTV Industries, No. CV-S-02-0437-LRH (PAL) (D. Nev. 
filed Mar. 7, 2002).
    32. Katharine Levit et al., Inflation Spurs Health Spending in 
2000, 21 Health Affairs 172 (Jan.--Feb. 2002).
    33. FTC v. Vital Living Products, Inc., No. 3:02CV74-MU (W.D. N.C. 
Mar. 13, 2002).
    34. FTC v. Pletschke, Docket No. C-4040 (Feb. 22, 2002) (decision 
and order).
    35. The titles of the teaser sites are: Looking for Financial 
Freedom?; The Ultimate Prosperity Page; Nordicalite Weight Loss 
Product; A+ Fast Ca$$h for College; EZTravel: Be an Independent agent; 
EZTravel: Certificate of Notification; EZToyz Investment Opportunity; 
HUD Tracer Association; CreditMenders Credit Repair; NetOpportunities: 
Internet is a Gold Mine; National Business Trainers Seminars; 
VirilityPlus: Natural Alternative to Viagra; ArthritiCure: Be Pain-Free 
    36. Commissioner Sheila F. Anthony, Remarks Before the Food & Drug 
Law Institute, 45th Annual Educational Conference, Combating Deception 
in Dietary Supplement Advertising (Apr. 16, 2002), available at .
    37. See National Health Expenditures, by Source of Funds and Type 
of Expenditures, Health Care Financing Administration, available at 

    38. FTC v. The Hearst Trust, The Hearst Corp., and First DataBank, 
Inc., Civ Act. No.1:01CV00734 (D.D.C. Apr. 5, 2001) (complaint) 
(Commissioner Leary and Commissioner Swindle dissenting).
    39. FTC v. Hearst, Civ. Act. No. 1:01CV00734 (D.D.C. Nov. 9, 2001) 
(Stipulation for Entry of Final Order and Stipulated Permanent 
    40. Congressional Budget Office, How Increased Competition from 
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical 
Industry (July 1998), available at .
    41. Id.
    42. 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)).
    43. Schering-Plough Corp., Dkt. 9297 (Apr. 2, 2002) (consent order 
as to American Home Products). In an initial decision filed on June 27, 
2002, an FTC Administrative Law Judge (ALJ) dismissed all allegations 
of anticompetitive conduct in a March 2001 Federal Trade Commission 
complaint against pharmaceutical manufacturers Schering-Plough 
Corporation (Schering) and Upsher-Smith Laboratories (Upsher-Smith). 
Schering-Plough Corp., Dkt. 9297 (June 27, 2002) (initial decision) 
(available at ; Thomas B. Leary, Commissioner, 
Antitrust Issues in Settlement of Pharmaceutical Patent Disputes, 
Address Before the Sixth Annual Antitrust Healthcare Forum, 
Northwestern University School of Law, Chicago, Illinois (Nov. 3, 
2000), available at .
    59. Id.
    60. In 1996, the FTC brought a similar case against Dell Computer, 
alleging that Dell had failed to disclose that it had an existing 
patent on a personal computer component that was adopted as the 
standard by a video electronics group. Dell Computer Co. Docket No. C-
3658 (May 20, 1996) (consent order) (Commissioner Azcuenaga 
    61. See 66 Fed. Reg. 58146 (Nov. 20, 2001).
    62. Federal Trade Commission, Public Workshop: The Mobile Wireless 
Web, Data Services and Beyond: Emerging Technologies and Consumer 
Issues (Feb. 2002), available at .
    63. Press Release, U.S., Canadian Law Enforcers Target Cross-Border 
Telemarketing (June 10, 2002), available at .
    64. Federal Trade Commission, Marketing Violent Entertainment to 
Children: A Review of Self-Regulation and Industry Practices in the 
Motion Picture, Music Recording & Electronic Game Industries (Sept. 
2000), available at .
    65. See Conf. Rep. No. 107-278, at 162 (Nov. 9, 2001).
    66. Federal Trade Commission, Marketing Violent Entertainment to 
Children: A Six-Month Follow-Up Review of Industry Practices in the 
Motion Picture, Music Recording & Electronic Game Industries (Apr. 
2001), available at .
    67. Federal Trade Commission, Marketing Violent Entertainment to 
Children: A One-Year Follow-Up Review of Industry Practices in the 
Motion Picture, Music Recording & Electronic Game Industries (Dec. 
2001), available at .
    68. Federal Trade Commission, Marketing Violent Entertainment to 
Children: A Twenty-One Month Follow-Up Review of Industry Practices in 
the Motion Picture, Music Recording & Electronic Game Industries (June 
2002), available at .
    69. Press Release, FTC Warns Consumers about Online Gambling and 
Children (June 26, 2002), available at .
    70. See Press Release, FTC Initiates ``Best Practices Analysis'' 
for Merger Review Process (Mar. 15, 2002), available at .
    71. See, e.g., FTC v. Verity Int'l, Ltd., 194 F. Supp. 2d 270 
(S.D.N.Y. 2002).
    72. The Securities and Exchange Commission (SEC) currently has 
authority to accept payment and reimbursement for investigative or 
other assistance that it provides to a foreign securities authority. 
See 15 U.S.C. Sec. 78d(f). Congress were to grant the FTC similar 
authority, that would permit the agency to accept reimbursement from 
foreign or domestic law enforcement authorities for services provided 
or for cooperative investigative or law enforcement activities.
    73. See 5 U.S.C. App. 4, Sec. 403(b); 47 U.S.C. Sec. 154(g)(3); and 
15 U.S.C. Sec. 2076(b)(6).

    Senator Dorgan. Chairman Muris, thank you very much.
    I think we will go in order if you would like. Commissioner 
Anthony is next.

                    FEDERAL TRADE COMMISSION

    Ms. Anthony. Mr. Chairman, Members of the Subcommittee, I 
would like to take a moment to address our legislative 
recommendation to repeal the FTC Act's exemption for 
communications common carriers, but first I would like to thank 
you, Chairman Dorgan, for tackling this important issue. There 
has been a general feeling at the Commission for sometime that 
this exemption should be eliminated, and this hearing today is 
really the first time Congress has asked us to address this 
topic, and this impediment actually to our ability to protect 
consumers, and so I appreciate your leadership in this regard.
    Section 5 of the FTC Act grants the Commission broad 
authority to protect consumers. We deal with classic consumer 
protection issues such as fraud and deceptive advertising, as 
well as antitrust issues such as mergers and anticompetitive 
conduct. One of the few activities expressly exempted from the 
Commission's authority is common carriage subject to the 
Communications Act. At the time this Act was adopted, early in 
the 20th Century, the exemption made sense. As you noted, 
telecommunications services were being provided in the United 
States substantially by single service monopoly firms highly 
regulated by the Interstate Commerce Commission first, and then 
by the FCC. With pervasive regulation and a noncompetitive 
marketplace, there really was little need for the FTC's 
additional oversight.
    I call your attention to a picture over here on the wall of 
the committee room showing some old telephone systems, and just 
draw the distinction that that was what we were operating under 
a good while ago, but we are now at the dawn on of the 21st 
Century, and the state of affairs in the telecommunications 
industry is vastly different. Ma Bell's tightly regulated 
monopoly has given way to competition and a largely deregulated 
    In addition, the business activities of telecommunications 
firms have now expanded far beyond common carriage and into 
fields including Internet services and cable television. AT&T 
is a good example. Opening the door to competition in 
telecommunications also opens the door to a raft of consumer 
protection issues that are the FTC's bread and butter. 
Unfortunately, the exemption stands in the way of the FTC 
protecting consumers in this new telecommunications 
marketplace. The bottom line is that the exemption has outlived 
its purpose, and consumers are being harmed.
    Let me give you some concrete examples of what I am talking 
about in the consumer protection arena. We have seen 
telecommunications firms increasingly engage in aggressive 
business activities, including fraud and deception to gain or 
retain customer and market share both in their common carrier 
businesses and in their other business. We have seen cramming, 
which are unauthorized charges for goods and services on 
consumer's telephone bills, and we have seen a torrent of 
misleading long distance advertising.
    The FTC has extensive experience with these types of 
billing, marketing, collection and advertising issues. 
Furthermore, even when telecom firms engage in fraudulent or 
deceptive business practices that do not fall within the 
exemption, the exemption can still pose an obstacle. Defendants 
often argue that the exemption protects every action of a 
company that enjoys common carrier status. The Commission 
firmly believes that only the common carrier activities of such 
companies are exempted, but litigating this issue, as the 
Commission has been repeatedly forced to do, raises the cost of 
pursuing enforcement actions. It forces the agency to make 
pragmatic decisions about who to include in a complaint, and 
about unnecessary delays in obtaining consumer redress and 
other remedies.
    In the competition arena, the exemption creates serious 
antitrust enforcement obstacles. The exemption potentially 
precludes the FTC from reaching a variety of conduct that may 
warrant antitrust scrutiny. For example, a regulated common 
carrier may seek to deter competition from providers of 
Internet telephony by degrading connections, or through 
connection fees. A telco might also refuse to deal with a DSL-
based broadband ISP except on conditions that disfavor Internet 
telephony. The scenarios are virtually limitless.
    The point is that the exemption effectively removes a large 
part of the Government's resources, antitrust resources from 
being available to address competition problems in markets that 
are highly important to consumers and to our economy. Removal 
of the exemption is in the public interest. The FTC is well-
equipped to address competition issues in markets undergoing 
deregulation and technological change, as it has already in 
natural gas, electricity, and cable.
    The FTC was specifically created as an expert 
administrative body with economic expertise to address complex 
competition issues. In sum, American consumers will benefit if 
the Congress repeals the communications common carrier 
exemption from the FTC Act, and I urge this Subcommittee to 
take the leadership in doing so.
    Thank you.
    Senator Dorgan. Thank you.
    Commissioner Thompson.

                    FEDERAL TRADE COMMISSION

    Mr. Thompson. Good morning, and thank you, Chairman Dorgan 
and Members of the Subcommittee, for the opportunity to appear 
before you today and offer testimony in support of the FTC's 
    Today, I would like to talk to you about a vital and 
increasingly important area of the agency's work, the area of 
international consumer protection. It is a unique time in our 
history where improvements in communications and technology 
have created a global marketplace where American consumers and 
businesses play an active role. It is also a special time in 
our economic history, where people in the United States and 
throughout the world recognize that consumer confidence is a 
necessary element for the global marketplace to survive. 
Finally, it is an important time because people around the 
world are looking to America for leadership on these issues.
    The FTC has a long history of protecting consumers in the 
American marketplace, which is the most vibrant, transparent, 
and diverse in the world. Therefore, it is not surprising that 
the FTC would now be called upon to play an important role 
internationally in the area of consumer protection, 
enforcement, and policy development. This leadership role is 
evidenced by work in international organizations like the OECD 
Committee on Consumer Policy, where I was recently honored to 
be elected chair, and since it is the only international 
policymaking forum that focuses solely on consumer policy 
issues and the IMSN, or International Marketing Supervision 
Network, an organization of international law enforcement 
Agencies that share information about how to protect consumers 
against fraud.
    In addition, we work with important regional organizations, 
whether it is APEC, Asia Pacific Economic Cooperation forum, or 
the Free Trade Association of the Americas, as well as 
stakeholder organizations like the Transatlantic Consumer 
Dialogue and the Global Business Dialogue for Electronic 
    These last two organizations in particular provide us with 
an opportunity to hear from businesses, consumers, and 
Governments about international consumer issues.
    Of course, all of these efforts benefit from the support of 
Chairman Muris and his recognition that the FTC's role in 
international consumer protection is of great benefit to both 
American consumers and businesses.
    Now, I would like to talk a little bit about the specific 
areas that we are working on in international consumer 
protection, since they help to illustrate our commitment and 
the commitment of our international colleagues to the important 
issue of consumer confidence. At both the OECD and the IMSN, we 
are working with our international counterparts to develop a 
common understanding of what constitutes core consumer 
protection. We are beginning with work on a statement about 
cross-border fraud. By working on such issues, we hope to 
develop more effective means of going after those who commit 
harm across national boundaries.
    We are also continuing to develop bilateral relationships 
that enable us to share information and take coordinated 
enforcement action to protect consumers. Among the countries we 
have entered into agreements with are Canada, Australia, and 
the United Kingdom. These relationships have resulted in an 
increase this year in cross-border prosecutions of cases that 
have been developed, for example, between the FTC's regional 
offices and our Canadian colleagues, but these international 
efforts are not limited to simply consumer protection 
    We have also worked with our colleagues in a number of 
other consumer protection areas, beginning, for example, with 
our work with the OECD's groundbreaking guidelines for consumer 
protection in the electronic marketplace, which was released in 
2000, and at latest count has been translated into 17 
languages. There, the Committee on Consumer Policy has also 
examined questions of online ADR, or alternative dispute 
resolution, that might provide cross-border consumers with 
inexpensive alternatives to courts.
    They have also worked on summaries and surveys of various 
countries' protections for credit and debit card holders 
because of the frequency with which such cards are used in 
cross-border transactions.
    To conclude, I expect the Commission will continue its work 
in these areas, and will seek to actively participate in 
international fora that reach out to countries such as those in 
Asia, Latin America, and Eastern Europe. These international 
relationships will continue to be important, because mutual 
understanding about consumer protection is a key element in 
ensuring that there will be consumer confidence in an American, 
as well as a world marketplace.
    I continue to have confidence that our economic system 
produces the strongest, most transparent, and safest markets in 
the world. However, our economic well-being in part comes from 
active involvement of agencies like ours taking appropriate law 
enforcement action and by providing leadership in a global 
setting about appropriate as well as inappropriate business 
conduct. In that way, I believe the FTC has a very important 
place in making markets accountable to consumers in both our 
antitrust and consumer protection missions, and I believe we 
are demonstrating why we are among the most effective in the 
world in doing so.
    Thank you for your consideration, and I will be happy to 
answer any questions you may have.
    Senator Dorgan. Mr. Thompson, thank you very much.
    Commissioner Swindle.

                    FEDERAL TRADE COMMISSION

    Mr. Swindle. Thank you, Mr. Chairman. I would like to 
comment briefly about the Commission's activities in both the 
security and privacy agenda.
    Security and privacy of confidential personal information 
have been concerns at the Federal Trade Commission for many 
years, especially in the context of online technologies and 
electronic commerce. In the wake of the September 11 tragedies, 
all levels of Government and industry have directed an enormous 
amount of attention to the critical nature of information 
systems and network security. Adequately enhancing this 
security is a complex challenge requiring a new way of thinking 
for everyone involved.
    The FTC's consumer security agenda complements the FTC's 
privacy agenda, as set forth by Chairman Muris in October of 
2001, which encompasses all aspects of consumer privacy both 
online and offline. By protecting consumer privacy and 
security, we hope to increase consumer trust in e-commerce, and 
reap the benefits of this extraordinary tool for education, 
entertainment, consumer interest, and commerce.
    In May, the Commission held a 2-day workshop on consumer 
security. We sought to identify critical topics that were 
demanding attention in order to enhance consumer security and 
minimize the vulnerabilities of the Nation's critical 
infrastructure. Workshop participants, including experts from 
academia, Government, and the private sector examined the most 
relevant security threats that consumers may face on the 
Internet. We explored best practices and how consumers' 
activities in today's interconnected world might make them 
unwitting participants in various security incidents. The 
workshop will serve as a building block for future Commission 
education and outreach efforts.
    The Commission's Offices of Public Affairs and Consumer and 
Business Education, in consultation with security and 
technology experts inside and outside of Government are 
developing a comprehensive, long-term education campaign aimed 
at promoting a culture of security among consumers, businesses, 
and organizations in the United States and beyond. The 
education campaign will offer practical tips and best practices 
such as encouraging home broadband users to install firewalls 
to protect their computers from unwanted infiltration.
    With the assistance of industry and consumer advocates, we 
are currently determining what kinds of messages can and should 
be delivered to ensure the largest possible number of groups 
and individuals become aware of the challenges that we face 
today. We hope that information about good security practices 
will be available to consumers in virtually every aspect of 
daily life: the workplace, schools, libraries, homes, and, of 
course, on the Internet.
    Our goal is to achieve a level of awareness where good 
security practices become second nature to consumers. Ideally, 
all of us will one day engage in sensible security practices in 
the same way that we put on our seatbelts in the car before 
starting it, or look both ways before crossing a street.
    On the international front, the Commission is playing an 
active role in the policy debate over information systems and 
network security, especially as these topics relate to 
consumers. Between December 2001 and June 2002, I served as the 
head of the U.S. delegation to the Organization of Economic 
Cooperation and Development experts' group charged with 
revising the 1992 guidelines for security of information 
systems. Originally written over 10 years ago, the OECD's 
guidelines lacked relevance in today's interconnected world of 
information systems and networks.
    In light of contemporary threats, new technologies, and the 
essential nature of these systems and networks to our critical 
infrastructure, the OECD recognized that the guidelines should 
be updated. The revised guidelines, which I expect to receive 
formal approval later this month, apply to anyone involved with 
computers, the Internet, and information systems and networks. 
The guidelines will be available to both member and non-member 
countries developing best practices for security in our global 
    The revised guidelines will be user-friendly and relevant 
to the current times and the roles of all participants in the 
information economy. The spirit of that document provides many 
important messages that will be incorporated into the 
Commission's outreach and education campaign to create a new 
way of thinking, or a culture of security, among all members of 
society when participating in information systems and networks.
    Security is on our minds at the FTC, and we hope that 
greater public awareness will soon follow.
    Thank you, Mr. Chairman.
    Senator Dorgan. Commissioner Swindle, thank you very much.
    Commissioner Leary.

                    FEDERAL TRADE COMMISSION

    Mr. Leary. Mr. Chairman, Members of the Subcommittee, I 
would like to amplify on some earlier comments and emphasize an 
aspect of our work that is sometimes overlooked. The Federal 
Trade Commission does, indeed, have important law enforcement 
responsibilities, but it is also supposed to investigate and to 
    People will be surprised if they study the legislative 
history of this agency. When the Commission was created in 
1914, President Wilson and Congress then recognized that the 
commercial world was becoming increasingly complex, and that 
people needed some guidance on what practices were reasonable 
or unreasonable, fair or unfair. At the same time, we know that 
the Commission members who provide that guidance cannot just 
rely on their own preferences. They need to be educated, too, 
because no single person can be expert on the myriad facets of 
a complex economy. So, the ideal educational process should be 
a two-way communication between the agency and people with 
experience and expertise of their own.
    For a variety of reasons, that historic mission of the FTC 
has sometimes been neglected. However, it was revived in 1995, 
when Bob Pitofsky, our former Chairman, scheduled extensive 
hearings on global and innovation-based competition. Since that 
landmark event, similar hearings or workshops have continued at 
an accelerated pace. You have heard about some of them today. 
Let me mention some more.
    We have, for example, had hearings on so-called slotting 
allowances and on issues in the B2B marketplace. We have had 
public hearings on the complex factors affecting gasoline 
prices--and I might just say in passing, if in any of our 
inquiries we uncover any evidence of unlawful activity, we will 
act, I promise you.
    Most recently, we have had a series of hearings on the 
interface between competition law and intellectual property 
law. If these legal regimes have a common objective to promote 
innovation and consumer welfare, they approach the objective 
from opposite directions, and this can create tensions in 
particular cases. These issues are complex. Opinions differ, 
and some court decisions are hard to reconcile.
    Commission hearings on this subject and others can be 
helpful in a variety of ways. They provide a reality check on 
our own enforcement agenda. They help to inform statements we 
might make to legislative or administrative bodies at the 
Federal or State level. They inform lawyers in the private 
sector who advise clients day to day on compliance issues. They 
also help to build some policy agreement among the diverse 
interests that participate. We do not resolve all differences 
by talking, of course. You people know that much better than we 
do. But, it is encouraging to see how the debate becomes 
narrowed and focused when people sit down together to address 
these difficult issues in a forum that we provide.
    Finally, you should be aware of the Commission's massive 
educational efforts aimed at consumers as a whole. We actively 
monitor the marketplace, particularly the Internet, in search 
of consumer frauds, and we prosecute these frauds whenever we 
find them. An equally important weapon in the battle against 
fraud, however is consumer education. Consumers who are better 
informed about the most common scams are less likely to be 
victims. We have provided you today with a representative 
package of these educational materials, and you can see that 
they are prepared in a consumer-friendly format.
    Last year, the FTC distributed over 5 million print 
publications of this kind, and there were over 10 million hits 
on our website. This is a very important part of what we do.
    Thank you.
    Senator Dorgan. Commissioner Leary, thank you very much. 
Let me say to the Commissioners, we appreciate your testimony 
and appreciate the work of your agency. I want to ask you a 
series of questions, and did you arrange that ambient noise 
just when we began to ask questions?
    Mr. Muris. We are not that good.
    Mr. Swindle. It is a new form of unrequested spam.
    Senator Dorgan. I am going to ask you a series of questions 
about what you are not doing and what you think you can not do, 
and I would like to understand a little more why that is the 
    Example: We had testimony at this table within recent weeks 
by the Attorney General of New York. His investigation showed 
that there were some firms on Wall Street that were saying to 
the consumers ``Buy this stock, it is a great stock, we 
recommend it.'' Internally in memorandums in their companies 
they were saying, ``This stock is a dog, this is awful.'' So 
they were cheating, defrauding the consumer, and using 
deceptive advertising. Why can you not get a suit of armor on 
and go get that? What prevents the FTC from involving 
themselves in that situation?
    Mr. Muris. If I could respond first, and then some of my 
colleagues might want to chime in.
    With advertising of any sort, we have a good argument that 
we could act. I will say that in the specific case that you are 
talking about, there are potential legal difficulties. As I 
understand the situation, the individuals who are making these 
claims have licenses and are regulated through the NASD and the 
SEC. They have a whole series of regulations dealing with 
advertising. Our normal practice as a matter of comity between 
agencies would--we sit on a committee, at the Justice 
Department that talks about who will do what with various sorts 
of stock fraud.
    Because the SEC has 1,000 people, as many people as we have 
in our whole agency, that deal with stock fraud, we would tend 
to defer to them.
    But on a second point, we could run into legal 
difficulties. We would have to look at the specific fact 
situations, because of specific regulations that may be 
implicated. There have been cases, in both the antitrust and 
consumer protection contexts, where if someone was doing 
something pursuant to and in compliance with the regulations of 
another agency, then it would be very difficult for us legally 
to act.
    Senator Dorgan. Well, let us have you give me some 
information about that, then. I would like to understand--if 
you think there are some legal difficulties, let us think about 
what they are.
    Second, you are saying maybe the SEC has the jurisdiction 
here. Do you think the SEC is doing anything about this?
    Mr. Muris. Particularly since we had our initial 
conversations, I think it was in January, I have met and had 
continued conversations with people at the SEC and with people 
at the Justice Department in many of these areas. I understand 
they have a criminal task force. I do not personally know 
everything they are doing.
    They have told me that there are many individuals working 
on these issues. I believe that they have briefed your staff, 
although I do not know that for a fact, and I am sure they 
would, if asked. The addition of criminal investigations causes 
another complication for us, because law enforcers, including 
the FTC, are quite reluctant to proceed civilly when there is a 
criminal investigation.
    Senator Dorgan. But in order to get to the evaluation of 
whether there is a criminal act, someone has to investigate it. 
When you have a company out there saying, ``Buy this stock, 
this is a good deal, it is very important that you buy this 
stock,'' and internally, they are saying ``this is a dog.'' It 
seems to me that is deceptive advertising. Frankly, I think the 
cracks are bigger than the platform when you talk about things 
falling through the crack at the SEC, but that is a different 
    Let me ask--now, I understand a bit, and you will send me 
some information about this issue. I understand why you are not 
too involved in that.
    Railroad pricing: Our public service commission in North 
Dakota estimates that we are overcharged $100 million in North 
Dakota for rail service by a monopoly rail service. Are you 
able to be involved in price investigations with respect to the 
    Mr. Muris. Commissioner Anthony, go ahead.
    Ms. Anthony. I think that would be considered a common 
carrier, and we again fall under that.
    Senator Dorgan. So who would be working on that? Who in the 
Federal Government would be working on that issue in a 
regulatory way?
    Mr. Muris. Well, the Department of Transportation and the 
Surface Transportation Board have authority. The Justice 
Department has tended to do antitrust in that area, and I know 
they have had input into decisions of the Surface 
Transportation Board involving mergers.
    Senator Dorgan. Let me say, the Surface Transportation 
Board is sort of driven into the same corral as the SEC on most 
of these issues with respect to enforcement.
    If you, God forbid, would have breast cancer and are taking 
Tamoxifin for breast cancer, you are paying 10 times the price 
for Tamoxifin that is paid in Winnipeg, Manitoba. Who would 
look at that and see whether that might be a pricing problem? 
They are charging not double, triple, or quadruple the price, 
but 10 times the price that is charged 5 miles north of North 
Dakota in a one-room drugstore in Emerson, Canada. Would that 
be a pricing issue the FTC would have any jurisdiction in 
looking at?
    Mr. Muris. We have been quite active in the pharmaceutical 
area for monopolization activities, but under the law there has 
to be an act other than the charging of a high price. We have 
been extremely active, and we have drastically increased our 
resources in the pharmaceutical area, and I think we are 
helping in many cases to lower the price of drugs.
    Senator Dorgan. The same issue with respect to farm 
chemicals that they tweak with respect to a formula sold in 
Canada. They sell it here for double or triple the price, the 
price-gouging, but let me go to the things we talked about just 
very briefly, and I will not extend it.
    The common carrier issue, is it the FTC's feeling that the 
FCC is not doing its job in this area?
    Commissioner Anthony.
    Ms. Anthony. I would not like to characterize it that way, 
Mr. Chairman. However, I do believe that the Commission, the 
Federal Trade Commission is competent to tackle this problem 
with a great deal of expertise. That is what we do day in and 
day out.
    Senator Dorgan. Could I ask it a different way, 
Commissioner Anthony? If you felt that the Federal 
Communications Commission was doing a bang-up job on consumer 
issues, just one of these things you look at and say, that is a 
sterling job, would you be asking us to deal with this rule in 
this way?
    Ms. Anthony. I know the Chairman will realize that I am 
reluctant to criticize our sister agencies, and we try to work 
with them in a harmonious fashion, so what I would just say is 
that we do work with FCC frequently, and they have cooperated 
with us often on our cramming cases and in our AOL-Time Warner 
antitrust investigations in this area. Our job is to protect 
consumers, and that is what we do day in and day out. We bring 
value to the table, I think.
    Senator Dorgan. Well, will rescinding the common carrier 
exemption provide some benefits for the American people? In 
other words, would you do something better than you are doing 
now? Will rescinding the common carrier exemption improve 
things, and if that is the case, I think I have my answer.
    Ms. Anthony. We would like to think that we could certainly 
add to the improvement of protecting consumers in this country, 
    Senator Dorgan. You should be in the State Department.
    Senator Dorgan. So diplomatic, the FCC will appreciate 
    Let me ask just one additional question on the Do-Not-Call 
registry. We will have testimony in the second panel saying 
that the way it has developed will be devastating to certain 
charitable groups and others. Who can respond to that?
    Mr. Muris. Under the Patriot Act, telemarketing for 
charities by for-profit entities is now covered. I do believe 
that the proposed rule as we stated, and we are still 
evaluating it, has problems vis-a-vis charities. I believe that 
for both constitutional and policy reasons. However, our law 
applies to for-profit telemarketers on behalf of charities. We 
should do it carefully, and I am still working my way through 
this. We have not received materials from the staff to the 
Commission yet, but I do believe there are bases to treat 
charities differently.
    Senator Dorgan. And with respect to financial institutions 
and common carriers, your Do-Not-Call list would not apply, 
would it, to those financial institutions or common carriers?
    Mr. Muris. That is correct, but we are optimistic that the 
Federal Communications Commission, if we adopt a rule, would 
adopt a similar rule, and that that would apply.
    Senator Dorgan. Are they talking about that?
    Mr. Muris. I believe they are internally, yes.
    Senator Dorgan. Commissioner Anthony, I was, of course, 
being complimentary when I was talking about the diplomacy with 
which you discussed your relationship with other agencies.
    Well, I have some other questions that I am going to submit 
in writing. I was asking a series of questions at the front end 
describing areas where you are not involved. In some areas I 
hope you would be, and lacking the authority, I would like to 
explore with you the opportunity to have some additional 
    Let me thank you for your testimony once again. I would 
call on Senator Smith.

                    U.S. SENATOR FROM OREGON

    Senator Smith. Thank you, Mr. Chairman. I would like to 
follow up on your last question, which is the national Do-Not-
Call list. Senator Wyden and I have the privilege of 
representing many telemarketers. There are 70,000 in the State 
of Oregon. Our State leads the Nation in unemployment right 
now, so we are concerned about those jobs. We certainly 
understand the motive behind the establishment of this list. 
none of us likes to be bothered by telemarketers, but on the 
other hand, I am wondering that in the formulation of this 
rule, have you done any studies on the economic impact to the 
country, to the industry, to employment in this country?
    Mr. Muris. Our record is voluminous. There are materials on 
this issue. We held a 3-day workshop in June where we discussed 
a variety of issues. My impression, Senator, from talking to 
telemarketers is, they do not want to call people who do not 
want to be called, and they could do their telemarketing more 
efficiently on that basis.
    We certainly have not reached final decisions. The staff is 
in the process of assembling the comments and digesting them. 
They will make recommendations to the Commission, and the 
Commission will decide based upon the full rulemaking record. 
Of course, what is said here will become a part of our record.
    Senator Smith. Might you make an exception for businesses 
to contact those consumers with whom they have an established 
business relationship? Is that part of your rulemaking 
    Mr. Muris. Some very persuasive points were made at our 3-
day workshop. Again, I have not discussed this issue with my 
colleagues, but I think that in certain limited circumstances 
such an exemption, if narrowly tailored, might make sense. We 
are evaluating it. Many states who have Do-Not-Call lists have 
such a provision.
    Senator Smith. I for one would encourage that exemption, or 
exception, and I wonder if you have plans to harmonize with the 
20 states that already have these Do-Not-Call lists? Have you 
got coordination with the states on that?
    Mr. Muris. Well, I think that is very important. I think we 
all have the same goals and desires. At the staff level we have 
been talking extensively with the state officials who are 
involved with this issue, the State Attorneys General. That is 
certainly desirable, and I personally do not see any reason why 
we cannot accomplish harmonization.
    Senator Smith. I think that is critical.
    And finally, I wonder, can you share with us how you 
propose to keep your list, the national list, current and 
accurate, as that seems a fairly daunting task. Do you have a 
system for keeping it current?
    Mr. Muris. Thanks to modern technology, it is not nearly as 
daunting a task as it would have been several years ago. We 
have learned a lot from the various states. Some of the states, 
for example, were keeping a list with index cards, and I think 
that would not be practical on a national basis.
    Senator Smith. I would not suggest that, either.
    Mr. Muris. We have solicited request proposals from various 
contractors on how we would implement a list. We have spent a 
lot of time on that issue, and I do believe it is feasible if 
it is done using modern technology.
    Senator Smith. Thank you, Mr. Chairman. That is all my 
    Senator Dorgan. Senator Wyden.
    Senator Wyden. Thank you, and I want to begin on this West 
Coast gasoline pricing issue. You have got three West Coast 
Senators here. We consistently pay higher gasoline prices than 
the rest of the country, and I think the discussion begins with 
last year's report where the Commission found that red-lining 
anticompetitive practices were rampant in those West Coast 
markets and did not take any action. I want to read you exactly 
what the Commission said, Mr. Muris, and what the oil companies 
are admitting to contradicts it, and let me just read you from 
your report on it.
    Your report said, the investigation uncovered no evidence 
that any refiner had the ability profitably to raise prices 
market-wide or reduce output at the wholesale level. That was 
the finding at page 4 of the Commission's report, yet Chevron, 
their president, Chevron-Texaco, told the Senate that his 
company had sufficient market power to influence prices on its 
own. He testified--and I will quote here--``the West Coast 
gasoline market is dominated by a limited number of refiner 
marketers whose individual actions can have significant market 
impact, so what you have is an oil company executive telling 
the U.S. Senate that he can do what the Federal Trade 
Commission says it cannot find evidence of.''
    So my question to you, Mr. Muris--and this has great impact 
on all of us who represent the West Coast gasoline markets--
given the fact that a major oil company executive is 
contradicting what your Commission found, does that indicate 
that the study was flawed, or does it indicate that you all 
just do not have the authority to go out and get the facts?
    Mr. Muris. In fairness to my colleagues, all four of them 
participated in that study, but I did not. If I could allow 
them to respond, and then I could address your comments.
    Senator Wyden. That would be fine. I would just like to 
know how you reconcile something which has enormous impact for 
consumers with two statements that are just directly 
    Mr. Leary. Well, Senator, I am willing to step into the 
breach on that. I was here at the time. I would really like to 
amplify on what I am about to say in writing to put this all in 
the full context. However, just facially, there is a tremendous 
difference between one company saying another company has big 
influence on pricing in a marketplace, and that company 
admitting that people have engaged in anticompetitive 
activities, or that they can profitably restrict output in 
order to raise prices.
    You can have tremendous influence on a marketplace in a 
downward direction as well, so the two statements that you are 
talking about are, first, not necessarily internally 
contradictory. Second, that report was about 100 pages long and 
canvassed a vast amount of information. The Commission at that 
time, on the information before it, unanimously concluded that 
we could not find evidence of law violation.
    Senator Wyden. You have an oil company executive admitting 
to Congress that individual companies have sufficient market 
power to be able to affect the West Coast gasoline market. You 
said in your report that that could not be done.
    Mr. Leary. No.
    Senator Wyden. I read it to you. It says, ``The 
investigation uncovered no evidence that any refiner had the 
ability profitably to raise prices.''
    Mr. Leary. That is not the same thing.
    Mr. Swindle. Senator Wyden.
    Senator Wyden. I do not know, a clear meaning to me is that 
you all found that one company could not drive the market, and 
yet you have Chevron and Texaco saying one can. I mean, 
certainly the other point is right, you could drive it 
downward, too. Nobody disputes that. I just do not see anybody 
pushing real hard to drive things downward, and I see a lot of 
people pushing to drive them upward.
    Mr. Leary. I do not hear the executive you are quoting, 
Senator, to be saying another company has the ability to 
restrict output and raise prices.
    Senator Wyden. He is saying one company, their individual 
actions can drive the market, and you are saying you found 
    Mr. Swindle. Senator Wyden, if I may comment, the key word 
here is profitably, and I think most companies are in the 
business to make profit. We see examples every year of a single 
refinery having an effect on the market oftentimes because it 
had a fire, it had to shut down. No one is contesting the 
capacity to affect the market, but the intentional conduct to 
affect the market, I would think, in most companies, would have 
to be accompanied by the ultimate goal of making profits.
    I think it is a pretty dangerous game, even though there 
are, as we all realize, limited numbers of competitors on the 
West Coast. For them to jump in and try to do something 
dastardly to the market by their own conduct and then suffer 
the consequences themselves, it does not make sense. I think 
there is a distinction between those two statements.
    Senator Wyden. They do not suffer any dastardly 
consequences. Basically, in much of the West Coast area three 
companies control 75, 80 percent of the market, and you can 
stick it to consumers when you couple it with red-lining, and I 
guess if it is the position of the Federal Trade Commission 
that when they said that they found nobody had the ability to 
drive the market, and Chevron-Texaco says one company can drive 
the market on the West Coast, I mean, if you all do not read 
this the way I do, then we can just move on, but it sure looks 
pretty clear to me.
    Now, Commissioner Thompson, in your concurring opinion you 
raised additional concerns about red-lining, but you also said 
that there really was not much that could be done, or I guess 
that you wanted to see done. Was that because you did not have 
sufficient evidence, or what was the motivating factor with 
respect to your joining the majority there?
    Mr. Thompson. At the time, I believe that we did not have 
sufficient evidence. Now, what I would say to you, my view 
today is, if we have evidence, or have information that tells 
me that we are likely to find evidence someplace, I would 
support us going after it, but at the time of that report we 
conducted a fairly thorough investigation and we could not find 
that evidence, but my view is that we at the Commission are 
always looking for opportunities to ferret out anticompetitive 
behavior, and if you or anyone else can bring us information 
that tells us that there is evidence, then I am sure that my 
colleagues and I would be willing to go for it.
    Senator Wyden. Well, with all due respect--my time is up. I 
am going to return to this subject--I brought you that 
evidence. I brought you case after case from the West Coast of 
companies that were shellacked by anticompetitive practices, 
and I will return to this on another round.
    Senator Dorgan. There are 9 minutes remaining on the vote 
that is occurring on the Senate floor. Let us try to get in as 
much as we can before we break for the vote.
    Senator McCain.

                STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    Senator McCain. I want to thank the witnesses for being 
here, and I think you are doing a fine job. I appreciate the 
many contributions you are making.
    Mr. Muris, in a recent ``Seinfeld'' episode, Mr. Seinfeld's 
phone rang. He picked up the phone and it was a telemarketer 
and he said, ``You know, I am busy right now. Can I have your 
home phone number and call you back?'' And the telemarketer 
said ``No, I cannot be called at home.'' And he said ``Well, 
neither should I,'' and hung up the phone. Could we allow 
something like that to happen? Should the telemarketer's home 
phone number be able to be revealed to the caller so that the 
caller can call the telemarketer back at his or her 
convenience? Do you think Seinfeld was onto something there?
    Mr. Muris. I think he was certainly onto something about 
the frustration people feel about this practice. We received 
over 40,000 comments. It was the most we have ever received, 
other than in one case where someone had gone to stock car race 
tracks and passed out free comment cards. These comments are 
all different. Everyplace we go, many people comment, and 
comment favorably.
    As I said, we need to do this rule right, we need to do it 
sensibly, and we are moving in that direction. We also need 
authority from Congress. The law allows us to raise the money 
through fees, but we need authority from Congress to spend the 
money, so under the proposal we have we will need legislation 
before we can implement the rule.
    Senator McCain. I think we can go to work on that. It seems 
to me that that would be appropriate. I have a media report 
here that says even with a list in place consumers could still 
get phone pitches from industries and groups, including some 
heavyweight telemarketers regulated by agencies other than the 
FTC. Among them are phone companies, airlines, banks, brokers, 
charities, and political campaigns. Is that true?
    Mr. Muris. There are people we cannot reach. We are 
optimistic that the Federal Communications Commission, if we 
adopt a rule, will adopt a similar rule. We believe in the 
aggregate that approximately 80 percent of the telemarketing 
calls would be reached. The calls from politicians, however, 
neither the FCC nor the Federal Trade Commission has authority 
to regulate those calls.
    Senator McCain. We would never want anything like that to 
happen, would we?
    Senator McCain. Because we have a vote now, I would like to 
ask one more question and switch gears. You recently issued 
another report on the marketing of violence to children by the 
television, music, and movie industry. Again, I want to point 
out: The whole point here was not that anyone was trying to 
impose any kind of censorship. The problem we had was these 
entertainment organizations marketing to children content that 
they themselves had judged was not suitable for children.
    I mean, I have to keep repeating that over and over again, 
because I keep being accused of trying to impose some kind of 
censorship. We think it is fair that when the movie industry 
judges a certain movie not suitable for children below a 
certain age, that they not market that product to children 
below that certain age. That is what this is really all about. 
I hate to be so redundant, but I keep hearing the charge that 
we are trying to impose acts of censorship on the industry.
    How is the industry doing, and how would you rate their 
performance so far?
    Mr. Muris. Well, let me respond briefly. I know 
Commissioner Swindle has paid a lot of attention to this, and 
maybe Orson wants to respond as well.
    We just issued our fourth report. We have found more 
progress, quite frankly, in the movie industry and in the video 
game industry than in the music industry. If Commissioner 
Swindle wants to elaborate.
    Mr. Swindle. I think the Senator is right, the advertising 
to children below the acceptable level of content----
    Senator McCain. That they determine themselves.
    Mr. Swindle. They are still doing it. It is rather complex, 
in that we have markets that are obviously for children, we 
have markets that our children watch, and then we have markets, 
obviously, for adults, and it is that middle ground that I 
think we see most of the violations today.
    There have been great improvements, or there have been good 
improvements, I should not say great. I think that could be 
spun be the wrong way.
    The movie industry has made progress. The video game 
industry has made progress. The music industry for all 
practical purposes is literally just putting a stick in our 
eye. They do not choose to pursue this. They will plead First 
Amendment over and over and over, which is absolutely not the 
case. I do not think any of us really care what they publish, 
but we do care about the marketing of it to children, 
obviously, below the age level that should be listening to this 
kind of stuff, and by their own standards they somewhat suggest 
that there is a delineation here, but they simply are not 
    Senator McCain. You know the sad thing about it, 
Commissioner Swindle, is that they sat here, where you are 
sitting, and said that they would make changes to stop 
marketing this. So, it is remarkable that they would testify 
before Congress that they would take certain actions, 
particularly the record industry, and in your view, which is 
far more informed than mine, then make little or no progress in 
the direction that they committed to. It is really 
    Mr. Swindle. I was at the hearing and heard that statement. 
I would point out something here that I think is critical. We 
all--I mean, the First Amendment is the cornerstone of our 
society and our way of Government. We do not want to infringe 
on that. If consumers do not like what is coming at them, they 
have a manner in which they can correct that. Unfortunately, as 
long as sufficient consumers buy the stuff, in particular, what 
the music industry is putting out, they will continue to do it. 
It is economics.
    Senator McCain. But, to entice children to purchase a 
product that they have deemed unsuitable for that child's 
consumption seems to me to have nothing to do with the First 
Amendment, but a whole lot to do with unsavory practices.
    I thank you, Mr. Chairman. I thank the Commission.
    Senator Dorgan. Senator Nelson.

                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Including, Senator--including Alcopops, 
which is marketing alcohol to minors, and you all have a 
lawsuit on that right now.
    We have got to go vote, and I am going to have my questions 
asked by the Chairman, but just let me say hello to my good 
friends Orson Swindle and Sheila Anthony. It is good to see you 
all, and as Sheila said, your role is to protect the consumer, 
and please be very vigorous in what you are doing on protection 
of the consumer. I will have the Chairman ask my questions.
    Senator Dorgan. Thank you. Senator Wyden left to vote, and 
he will be back early, so I expect within 5 minutes Senator 
Wyden will pick up the gavel. We will recess for 5 minutes 
until Senator Wyden is back. The hearing stands in recess.
    Senator Wyden. Let us resume the hearing, if we could have 
all of our guests take their seats, please.
    Senator Fitzgerald has joined us, and I think with the 
Senator's leave, I will finish some additional questions, and 
then we will recognize the Senator.
    To continue on this West Coast gasoline pricing issue, 
Chairman Muris, let me review what you have done since you have 
been named Chairman. You were appointed Chairman and the agency 
initiated daily monitoring of prices in 300 gasoline markets 
around the country. You directed the FTC staff to review the 
oil company mergers that the FTC allowed to go through in the 
past several years to determine if the agency did not do enough 
to remedy the anticompetitive impact of the mergers, and you 
held a number of very widely publicized conferences on gasoline 
    If you do not believe that there are anticompetitive 
problems in the gasoline market, what is the purpose of 
spending all this taxpayer money?
    Mr. Muris. That is a very good question. Let me address 
what we have done and why we have done it.
    First of all, there are a variety of issues besides the 
ones that you raise. There are concerns about the volatility of 
prices. There are also, as Senator Levin's committee and their 
report noted, concerns about increases in concentration. We 
have taken four steps, because these are serious issues that 
need to be addressed, and because I think it is important that 
we continually reevaluate our work, particularly in the merger 
area, where the standards are so factual, specific, and in some 
ways ad hoc.
    We are producing, based on the conferences you mentioned, a 
study about gas price volatility that is underway right now. We 
are updating an oil merger study that was done twice in the 
1980s, which I think will address some of the issues that 
Senator Levin addressed. We are looking at the impact of past 
mergers, particularly a few mergers that the Commission did not 
challenge. There has been a recent working paper that raises 
some questions about the aftermath of one of the mergers. 
Finally, we are, for the first time, tracking prices in real 
    We are doing these things for several reasons, including 
the educational function that Commissioner Leary mentioned, of 
understanding what goes on in the marketplace; the function 
that Commissioner Thompson and others have mentioned, of 
looking for possible anticompetitive problems; and the function 
of, quite frankly, I think Government agencies should 
continually reevaluate the standards that they apply.
    In terms of the gas price tracking, although we just 
started it, we have found some anomalies. One of the anomalies, 
for example, in California was attributable to an unreported 
problem in a refinery. We are at an early stage in this 
project. We have a few leads that may be anticompetitive 
problems, and I believe it is appropriate for us to engage in 
these activities because energy is a very important part of our 
domain. I think what you heard, and this investigation 
concluded before I arrived, was that people felt there was not 
sufficient evidence to proceed; I think it is important that we 
continue to look for evidence both to explain to the public why 
there are problems, and to see if there are anticompetitive 
    Senator Wyden. In effect, what the Federal Trade Commission 
is doing with the merger reviews and reconsidering the merger 
reviews is, it is reconsidering merger reviews that it did 
before the deals were allowed to go through, and what I am 
wondering about is why we are not protecting consumers, doing 
something to protect their interest at the outset instead of 
essentially doing merger reviews twice, and as you know, I 
would like to see the Commission particularly try to help 
consumers in these highly concentrated industries at the front 
end before the merger goes through.
    I mean, you are going to go back and look at the whole slew 
of mergers, BP and Amoco, Exxon and Mobil, BP-Amoco and Arco, 
Chevron and Texaco, Phillips and Tosco. Would it not be better 
to have a policy to try to protect the consumer at the front 
    Mr. Muris. I am sorry if I left the wrong impression. That 
is not what I am suggesting, and I will ask my colleagues if 
they want to comment in a moment here. The Commission has been 
quite aggressive in merger enforcement. Most of those mergers 
occurred before I arrived, some have occurred since, the 
Commission has taken remedial action in a large number of oil 
industry mergers, requiring divestitures in the tens of 
billions of dollars.
    Some of what we are looking at in these retrospectives are 
mergers that the Commission did not challenge. One of the 
things we are particularly looking at, not just in oil but in 
other areas, is the impact of those mergers we did not 
challenge. Again, I will ask my colleagues if they want to 
comment on our oil industry policy, merger policy.
    Mr. Leary. Well, Senator, I was present for some of those 
oil industry mergers, and I can assure you that they were 
looked at very carefully, and there were gigantic divestitures 
required at the level where it has the particular impact on 
consumers. Divestitures were required at lower levels of 
concentration than we have done for any other industry of which 
I am aware.
    However, foresight is never perfect. There is nothing 
inconsistent at all, in my view, with having an extensive 
review up front but, in an area that is of such significant 
concern to people like yourself and others, going back to take 
another look at it and see whether or not we got it right.
    Senator Wyden. I do not quarrel with that. What has 
happened in the West Coast, though, is nobody really does 
anything until the damage is done. I mean, we have had the 
competitive juices sucked out of the West Coast gasoline 
markets. We have lost hundreds of stations. We have got in most 
towns in my State a couple of companies driving the market, 
documented red-lining. Commissioner Thompson asked, could we 
have it. I have given you all of the cases. You found it, and 
yet everybody says, ``Well, gosh, we do not have any evidence 
of collusion.''
    Well, of course you are not going to have a couple of big 
oil company executives go somewhere and say, ``this is a great 
day, let's set the market,'' but I will tell you, I find what 
you have done with respect to the West Coast gasoline market, I 
think it is a textbook case of how you do not do consumer 
protection. I see absolutely no evidence of anybody trying to 
stand up for West Coast gasoline consumers. I think all of the 
studies and conferences and seances that you all seem to be 
having really are not going to lead to much of anything.
    I hope the merger issue produces something. I guess if it 
generates a bunch of new reports that are going to collect dust 
and not lead to any real enforcement action, I may do something 
I have not done in all my years in the Congress, in 21 years in 
the House and Senate, and I will move to cut off the money for 
exercises that are just a joke with respect to consumer 
    I want to recognize my colleague, Senator Fitzgerald, and 
then I will come back for some additional questions on other 
    Senator Fitzgerald.

                   U.S. SENATOR FROM ILLINOIS

    Senator Fitzgerald. Well, thank you, Chairman Wyden. I 
would also like to thank the Subcommittee Chairman Dorgan for 
putting this hearing together. I know that the FTC has not been 
reauthorized since 1996. I think it would be appropriate at 
some point to reauthorize the FTC. You probably feel like 
Rodney Dangerfield, you can't get no respect if you cannot get 
reauthorized, but we are glad you are still operating. We 
appreciate all of you being here today.
    In my 3\1/2\ years in the Senate, I have already seen a 
couple of situations in which oil prices spiked, and there were 
demands for FTC investigations. I think oil prices spiked in 
1999. My colleague from Illinois, Senator Durbin, asked the FTC 
for an investigation. Chairman Pitofsky at that time undertook 
an investigation to see whether there was any collusion or 
price-fixing in the industry, and the FTC could not find 
evidence of that. I think instead, the FTC found evidence that 
supplies of petroleum were tight. There had been fires at a 
pipeline, only one refinery in Illinois, and a declining supply 
of oil that caused the price spikes.
    Then last year, we had another price spike in oil. My 
colleague from Illinois asked for another investigation, and I 
believe that similar conclusions were reached. So I think there 
is always a potential that people can figure that there is some 
kind of conspiracy going on when oil prices go up, but I think 
it primarily concerns the supply and demand.
    Let me ask you a question along those lines, starting with 
Chairman Muris. If you were to find evidence of illegal 
collusion amongst oil companies, I take it that you would take 
action to go after whoever was involved in such collusion? Is 
that not correct?
    Mr. Muris. Yes, Senator, absolutely. One of the reasons 
that we are tracking prices on a real-time basis is to better 
understand the reasons for price volatility. I have recently 
sent a letter to all of the State Attorneys General, asking for 
their help. If we do find localized problems we hope to be able 
to work together to understand them, and if there are law 
enforcement violations, to move on them.
    An additional point I forgot to mention to Senator Wyden 
is, I think one useful thing that has come out of the 
Commission's work is the role of the EPA rules in terms of so-
called boutique fuels in contributing to the price spikes. Our 
staff has submitted comments to the EPA and offered to work 
with them to try to get competitive concerns considered as a 
part of the calculus in what they are doing with these rules, 
because when you divide up the country by requiring so many 
different fuel blends, you are exacerbating problems that are 
caused by refinery fires and other incidents.
    Senator Fitzgerald. I think in Illinois, at one point, we 
had four different types of fuel used in different parts of the 
State, so clearly that presents a problem if the refineries 
have to gear up for narrowly targeted markets. That is 
happening all across the country.
    Let me ask this. What does the FTC do if they find evidence 
of collusion or price-fixing in an industry? Do they refer it 
to the Justice Department for prosecution? What happens? What 
are the mechanics when this is found?
    Mr. Muris. It depends upon the nature of the collusion, and 
what is going on. The Justice Department has criminal authority 
and we do not, so they do criminal investigations. We have 
brought price-fixing cases, and cases that look much like 
price-fixing. Recently, for example, we brought three price-
fixing cases involving physicians, one in the Napa area in 
California, and two in the Denver area.
    Senator Fitzgerald. Did you do the investigation?
    Mr. Muris. Yes, we did.
    Senator Fitzgerald. And do you have authority to do 
criminal investigations?
    Mr. Muris. No. We brought these cases civilly, and the 
Justice Department sometimes proceeds civilly as well. They 
often proceed criminally. Quite frankly, it is very difficult 
to convict professionals of criminal price-fixing.
    Senator Fitzgerald. What did you find they had been doing, 
and what did you allege?
    Mr. Muris. We accepted consent agreements. What the consent 
agreements alleged was that groups of physicians got together 
and essentially hired an agent to negotiate. The only 
integration that the doctors had was that an agent who they 
hired negotiated with the managed care plans to raise the 
reimbursement rates substantially, and we have obtained consent 
agreements stopping those practices. The Justice Department 
sometimes proceeds civilly and sometimes criminally. If we 
really found evidence of a criminal violation, by virtue of our 
relationship with the Justice Department, we would refer it to 
them for criminal prosecution.
    Senator Fitzgerald. On that issue, physicians have begun to 
talk about asking for the right to collectively bargain, 
because they feel they are excessively hampered. There are 
hundreds of thousands of physicians in this country, and they 
have to negotiate with a handful of HMOs in their areas. They 
feel that the deck is stacked against them, and that every year 
their reimbursements are cut, their cost goes up, and there is 
nothing that they can do about it.
    You may not want to get into this issue and recommend 
anything for Congress, but it is possible that Congress is 
going to be confronted with voting on legislation. I think 
legislation that would give physicians the right to 
collectively bargain has been introduced in the House and has 
passed at least a committee in the House. Do you think it is 
right that physicians, if they band together even in a small 
group to negotiate with an HMO, should be subject to the 
Federal Government coming after them?
    Mr. Muris. First of all, there was a bill that passed the 
House. The Commission opposed it. I believe all of my 
colleagues--I was not on the Commission at the time--were 
    Senator Fitzgerald. The Commission opposed the bill?
    Mr. Muris. Yes.
    Senator Fitzgerald. Why was that?
    Mr. Muris. Because the bill would raise prices to 
consumers. The Commission and the Justice Department have a 
long history of bringing these cases, and these few cases that 
we recently brought indicate what such a bill would do. It 
would give people a license to raise prices, and that would be 
    I do think there are steps that physicians can take to get 
together to improve their practices, to improve quality. Our 
staff recently issued an advisory opinion for the first time 
recognizing so-called clinical integration, which is where 
doctors get together to try to share with each other 
information on how to treat patients more effectively. That 
does not violate the antitrust laws. In fact, we should 
encourage that activity, but if the doctors are simply getting 
together to fix prices, as they did in the cases that I 
mentioned, then it does not make any sense, I believe, to 
create a special class of people who can fix prices outside the 
antitrust laws.
    Senator Fitzgerald. And the reason would be that the 
doctors are all self-employed businessmen. Typically, if they 
are not employees of a company, their getting together to 
negotiate with an HMO becomes businesses conspiring with each 
other to fix prices. I am hearing a lot from doctors in 
Illinois about how they feel that they have absolutely no 
leverage when they are negotiating individually with an HMO.
    The HMO tells the doctors that ``If you want to get patient 
referrals, you must accept our price schedule,'' which is 
typically low. The doctor, being one doctor when there are tens 
of thousands in the area, feels overwhelmed, and that he or she 
has no bargaining power. They feel that they are just getting 
crushed to the point that medical school applications are 
declining rapidly in this country because the practice of 
medicine has become much less attractive.
    Mr. Muris. There are serious issues about the relationship 
between managed care and physicians, particularly on quality 
issues. The antitrust laws should not be a bar to doctor's 
dealing with those issues. Doctors do join together in many 
areas now where they are not just individual practitioners, but 
if what the doctors simply want to do is get together to fix 
prices, I have no understanding in the world why public policy 
should allow that to happen. That is anticonsumer, and it is 
not helpful to the problems we have in the medical area.
    Inflation is growing rapidly again in health care. We have 
an active program, not just with doctors. By far most of our 
resources go to pharmaceuticals. We are also looking at 
hospital mergers in which concentration has increased. 
Competition has a role in health care, but I do believe, and I 
will say it again, that physicians--in terms of paperwork, in 
terms of quality control, in terms of a lot of issues that do 
not directly affect prices--can legally get together under the 
antitrust laws.
    Senator Fitzgerald. You think right now they have the power 
to do that, to negotiate amongst themselves to set a unified 
front in other areas besides the actual prices?
    Mr. Muris. Absolutely, and this advisory opinion, which we 
will be glad to send to you, will allow them to integrate for 
the purposes of improving quality. In fact, we have non-public 
investigations, and in some of them we are seeing doctors who 
are engaged in such clinical integration. If they are doing 
that, then I think that is commendable.
    Senator Fitzgerald. When did you issue that advisory 
opinion? Was it recent?
    Mr. Muris. Yes. I believe it was in March.
    Senator Fitzgerald. I would like to get a copy of that, if 
I could, and with that, Mr. Chairman, I thank the panel for 
being here.
    Senator Wyden. I thank my colleague.
    I want to go now with the Commission to another area of the 
energy business, where troubling anticompetitive practices have 
been uncovered as well. The Enron memos reveal significant 
evidence that Enron was engaged in a deliberate scheme to 
manipulate the West Coast electric market. Transcripts provided 
to the Federal Energy Regulatory Commission by Portland General 
Electric raise questions about the role of transactions between 
utilities and their affiliates engaged in energy trading 
activities that may have been used as part of the Enron scheme.
    For example, one trader was quoted as saying, ``Enron wants 
to do something kind of squirrely.'' Another transmission 
employee is quoted as saying, ``They are doing that, selling 
power to Enron, across the Bonneville Power Agency going down 
to California again. They did that before, remembering there 
are all those extra accounts, and then you guys have to make 
sure you do whatever extra input you have to do.''
    Now, these statements--and this is a question for you, Mr. 
Muris--clearly suggests that these employees had concerns about 
these transactions that their parent companies wanted to engage 
in. My question is, to begin this area, Mr. Muris, doesn't the 
Federal Trade Commission have jurisdiction over utilities 
engaging in transactions with their subsidiaries and affiliates 
that have anticompetitive impact on a wholesale market?
    Mr. Muris. Yes, I believe we do, although there is 
regulation by FERC, which applies directly to many of these 
provisions. It is possible, because there may be an implied 
exemption doctrine under the antitrust laws, depending on what 
the FERC regulation is, that the antitrust laws do not apply.
    Senator Wyden. Well, our reading again is that the FTC does 
have authority here, and I would like to know whether the 
Federal Trade Commission has ever used its authority to 
investigate the use of affiliate transactions by Enron or 
others in the electric utility business as part of a scheme to 
manipulate a wholesale market.
    Mr. Muris. I believe there are potential anticompetitive 
problems here. This happens to raise an issue with which we had 
some friction with Chairman Hollings. The Justice Department 
and the FTC have, for over 5 decades, agreed with each other 
that they would not investigate the same matters. Indeed, in 
mergers, that is a legal requirement.
    Historically, the Federal Trade Commission has done all of 
energy except for electricity. We had agreed with DOJ that we 
would change that, and that the FTC would do all of energy. 
Pursuant to some problems Senator Hollings had that were not 
related to that issue, the agreement was abrogated, and now 
electricity remains with the Justice Department in terms of 
antitrust issues. In terms of which agency has the expertise, 
it has historically been the Antitrust Division, and under the 
1993 Clearance Agreement which is now in place, since the 2002 
Clearance Agreement was abrogated, it is the Justice Department 
that has primarily been looking at electricity.
    Senator Wyden. I again have to just walk away with all of 
these problems, and the FTC certainly before anything you have 
described had authority over wholesale market impacts in the 
energy field. I cannot understand why, when there is an 
egregious case of an electric utility engaging in an abusive 
transaction with a subsidiary that has significant price impact 
on the wholesale market, which is what happened on the West 
Coast, I cannot see why the Federal Trade Commission is 
unwilling to get involved.
    Mr. Muris. Well, I completely agree with your premise. 
Before we abrogated the agreement, in fact, the newspaper 
stories which came out within a week of the agreement being 
abrogated raised suspicions of anticompetitive conduct. Let me 
be clear, I have no idea whether there are, in fact, violations 
of the antitrust laws, but certainly the material I read in the 
paper raises suspicions. Under our scheme, however, for decades 
the two agencies have agreed that only one will investigate a 
particular area and particular kinds of conduct. After we 
abrogated the agreement, electricity returned to the Justice 
    Senator Wyden. Do you think that ought to be changed?
    Mr. Muris. Well, I signed an agreement that was abrogated 
that gave all of energy to the FTC. I thought that was 
appropriate. For reasons unrelated to energy, Senator Hollings 
wanted the agreement abrogated. The Justice Department 
abrogated the agreement, and we returned to our prior state of 
    Senator Wyden. It just looks to me like when you deal with 
energy at the Federal Trade Commission, if you want to have a 
conference you have gone to the right place. The Federal Trade 
Commission will do it for you. If you want to do anything that 
is going to protect the consumer to get a real enforcement 
action, you have got to go elsewhere.
    Mr. Muris. If I could just respond, most of this happened 
before I was there, but I think the Commission was extremely 
aggressive on the merger front, Senator
    Senator Wyden. Well, what do you want to have changed? I 
mean, you have said this happened before you, but I do not see 
anything going to change. What I see is what I have described 
in Oregon with respect to the West Coast gasoline market. We 
have handed you the evidence of red-lining, of a whole host of 
anticompetitive practices. That did not seem to be sufficient. 
Here I am talking about areas where the Federal Trade 
Commission has had authority, and you said you had given it up, 
and I said, ``well, it is your watch now, you have got a chance 
to lead, do you want to lead?'', and you have said, ``well, I 
guess not.''
    Mr. Muris. No. What I have said is, I preferred to lead. 
Not by my choice was the agreement abrogated. We have returned 
to the state of affairs that existed before we signed the 
agreement, and under that state of affairs, it is the Justice 
Department that has handled electricity. We were in the process 
of hiring people to look at electricity mergers. I met with the 
Chairman of FERC. We were trying to work out a process where we 
could more actively participate in electricity issues and 
electricity mergers, but if we did that now, I am sure I would 
be accused of--in fact, I know I would be accused of--violating 
something that we promised not to do, which was to implement 
that agreement, so whatever else you think, or whatever other 
charges you may want to lay, we are not guilty on that one.
    Senator Wyden. Out of curiosity, Mr. Muris, on your watch 
have Federal Trade Commission employees gone out at the state 
level and testified on State deregulation issues with respect 
to energy?
    Mr. Muris. In gas prices, yes, sir.
    Senator Wyden. But not on electric issues?
    Mr. Muris. On electric issues, let me distinguish law 
enforcement from advocacy and studies. The House Energy and 
Commerce Committee asked the Commission a few years ago to 
produce some studies on electricity deregulation. The 
Commission has produced two studies, one a few years ago, one 
last year just as I arrived, and we have used those studies to 
talk to people at the State level, and we have also talked to 
FERC about the state of competition in electricity.
    On gasoline, we recently filed comments criticizing a 
proposal that would have made it more difficult in the 
Commonwealth of Virginia--this is at the staff level we have 
done this--that would have made it more difficult to lower 
    The Commission has filed several comments like that in the 
late 1980s and 1990s, and we filed this one last year. These 
were laws aimed at some of these new hypermarket firms that 
were coming into markets and selling gasoline at lower prices. 
They were going to make it harder for those firms to lower 
prices. We filed a comment with a Virginia legislative 
committee. The committee, in fact, voted the bill down.
    Senator Wyden. Well, that certainly sounds useful, I guess. 
What I was driving at is that if you have told us you do not 
have any authority in these energy matters any more really, and 
that has essentially been your testimony, I am curious about 
what is going on at the State level that sounds like what you 
did at the Virginia initiative sounded useful.
    Mr. Muris. Well, let me make clear, we have authority--
first of all, we have jurisdiction. We cannot divest ourselves 
of our jurisdiction. Only Congress can do that, but for over 5 
decades, since 1948, the two agencies have agreed that they 
will not duplicate each other in terms of investigations. When 
it comes to electricity mergers and electricity cases, those 
have been done historically by, and the expertise resides in, 
the Department of Justice. After we abrogated the agreement in 
the middle of May, that expertise remains with the Department 
of Justice. We are applying the rules we had in place pursuant 
to the 1993 Clearance Agreement.
    Senator Wyden. One last question on the energy question. 
Commissioner Thompson, were you concerned at all with respect 
to whether the rules are ones that will make it virtually 
impossible to prove collusion, or anticompetitive practices. 
When you wrote your opinion in the gas pricing question you 
raised some issues, at least in my mind, with respect to what 
you thought the rules should be on evidence. You heard me say 
that I just do not think oil companies in 2002 show up 
somewhere and say, ``Let us go fix prices.'' I am curious what 
you meant with respect to the rules on proving collusion and 
anticompetitive practices.
    Mr. Thompson. I was concerned about whether we had 
significant groundwork, enough to bring an action based on a 
claim of site-specific pricing. Now, I think one of the things 
the Chairman outlined is that the work that we are doing now in 
examining what we looked at and whether they were effective in 
remedying some of the conditions we are seeing now will help to 
inform us as to whether we should be changing how we look at 
those questions, and what kind of remedial action we should be 
taking, but I raise the concern because I thought it was an 
important one to consider and examine, and that is why I think 
one of the things we are doing now is to actually look 
carefully at whether some of the assumptions and some of the 
conduct that we were concerned about and some of the remedies 
that we in fact put into place actually get at----
    Senator Wyden. What remedies were put in place? I cannot 
find a single remedy, I cannot find a single thing that was 
done for the West Coast consumer on this. Please enlighten me 
with respect to the remedies you put in place.
    Mr. Thompson. I am talking in a more general fashion about 
things like divestitures, what we did in Exxon-Mobil, what we 
did in a number of different cases. Now, I have not been around 
for all of the mergers, but I think we have taken a very 
aggressive position with regard to challenging the most recent 
oil company mergers, but I think that we need to go back and 
take a look and find out whether that aggressive position 
actually resulted in the kinds of positive benefits that we had 
    Senator Wyden. I will hold the record open for anybody on 
the Commission, either the Chairman or any individual Member 
who can give me some information with respect to anything 
concrete, specific, that was done to help the West Coast 
consumer, because I cannot find a single thing out there, and 
in the interest of fairness the record will be open and we will 
await the Commission or any individual commissioner's opinion 
on it.
    Unless you all have anything further, we will excuse you at 
this time. Does anybody want to add anything further?
    [No response.]
    Senator Wyden. You are excused.
    Our next panel, Mr. Charlie Mendoza, member, Board of 
Directors, AARP; Mr. Lawrence Sarjeant, U.S. Telecom 
Association; Mr. Robert Wientzen, Direct Marketing Association; 
Mr. Harry Schwartz, Center for Democracy and Technology; Dennis 
Alldridge, President, Special Olympics-Wisconsin; and Mr. Lou 
Cannon, President of the DC Lodge of the Fraternal Order of 
Police. If you all would come forward.
    All right, gentlemen, we welcome you, and it is gentlemen 
on this panel. Mr. Mendoza, we note that you have got kind of a 
time crunch, so why don't we begin with you. We are going to 
make your prepared statements a part of the record in their 
entirety. I note that there is almost a kind of physical 
compulsion to read a statement when you come, but we will put 
it in the record in its entirety, and if you can just talk a 
few minutes, that will give us a chance to get into your 
    Mr. Mendoza, welcome.

                    AARP BOARD OF DIRECTORS

    Mr. Mendoza. Thank you very much, Mr. Chairman. I really 
appreciate--and I apologize, I have to be sneaking out of here, 
but I am Charlie Mendoza, and I am a member of the AARP Board 
of Directors, and on behalf of our membership, I really want to 
thank you for allowing us to be here this morning to discuss 
the performance of the Federal Trade Commission in fulfilling 
its mission, and I think that our constituency, which is now 
over 35 million consumers over the age of 50, we recognize the 
importance of the role that the Federal Trade Commission plays 
in protecting the wide interests of consumers on many, many 
issues, and we do support the FTC in its efforts to serve the 
Nation as its consumer protection agency, and we really do 
commend it for adapting to address these evolving deceptive 
practices despite, I guess, many limited resources.
    But my testimony here today will focus on the Commission's 
proposal to amend the telemarketing sales rule, and AARP 
strongly supports the FTC's goal of implementing a national Do-
Not-Call category, or registry, preventing interference with 
the caller's identification services and eliminating the 
improper use by telemarketers of preacquired account 
    Additionally, you will see in our submission that it 
touches on other issues under the jurisdiction of the 
Commission such as the FTC's work on the funeral rule identity 
theft and misleading or deceptive product advertisements. 
AARP's interest, though, in the telemarketing sale rules and 
the concerns about telemarketing are longstanding.
    We have been doing this for a long, long time, the 
educative effort, and since the adoption of the rule in 1995 we 
at AARP have really dedicated significant resources in 
educating the consumers about telemarketing fraud, and I have 
been personally all across the Nation talking on this issue 
with Federal, State, and local law enforcement agencies.
    We have also worked with State legislators to enact 
telemarketing legislation. In fact, my own State of Georgia was 
one of the first to enact a telemarketing law. AARP is a strong 
supporter of the existing rule, and we believe that the 
Commission's recommended additions to the rule will make it 
even better.
    The rule has empowered law enforcement agencies to 
prosecute unlawful telemarketers, and I think it has held 
legitimate telemarketers to established standards of conduct. 
It also has provided the States with a floor of consumer 
protection, and many States have been successful in raising 
that floor. Close to 30 States have expanded upon the rule's 
protections and prohibitions in developing State-specific laws 
and regulations that better protect the consumers within their 
    The Commission's proposal to implement a national Do-Not-
Call registry, I think, is a well-reasoned approach to address 
the concern that our members have expressed regarding their 
inability to stem the volume of telemarketing calls, 
particularly in States that lack Do-Not-Call laws.
    Provided it is properly implemented to benefit the 
consumers, the establishment of the registry should be 
substantial. A national Do-Not-Call listing would supply 
consumers with a sense of comfort along with a return of 
control over their telephone.
    We are pleased that the prohibition applies to all calls 
within the jurisdiction of the Commission, including calls 
soliciting charitable contributions initiated by a for-profit 
entity. We think that the expanded jurisdiction which has been 
afforded the FTC through the enactment of the USA Patriot Act 
and its amendments is welcome. It now prevents questionable 
organizations soliciting on behalf of sound-alike charities 
from calling consumers, while allowing the local church, fire 
department, and fraternal organization to continue their 
legitimate funding appeals.
    Doing so allows credibility to the caller, and allows the 
call recipient to make contribution decisions based on the 
merits, with less concern about whether the caller is 
representing a legitimate group.
    AARP is also pleased that the FTC is considering expanding 
the scope of the rule's coverage by eliminating the exemption 
for common carriers. Taking such action is consistent with the 
purpose of implementing a Do-Not-Call registry, which is 
reducing the number of unwanted telemarketing calls to the 
consumer. We believe that a joint effort between the Federal 
Communications Commission and the Federal Trade Commission to 
include common carriers under the Do-Not-Call provision of the 
telemarketing sales rules would reduce confusion and lead to a 
more comprehensive registry. The national Do-Not-Call registry 
would complement the existing State Do-Not-Call lists.
    The continued ability of the States to protect their 
residents and to enforce their rules is a strong reason not to 
preempt them with the establishment of the registry. While the 
registry will provide much needed relief to consumers across 
the country, some States will offer consumers even more.
    AARP fully supports the Commission's efforts to prohibit 
the blocking of caller identification, Caller ID. The proposed 
changes to the rules that will require the disclosure of the 
caller or the organization's actual name and telephone number 
are to be applauded. We believe that consumers who spend money 
on Caller ID services should be able to use the product for its 
intended purpose. Adoption of the call blocking provision of 
the rule will return control of the telephone where it belongs, 
in the hands of the consumer.
    I see the amber light is coming on, and they wrote more 
than I really need to say, but the bottom line here is that we 
believe this registry will support, will strengthen 
particularly our consumers, people like me who have a heck of a 
time hanging up. We listen to these calls. We have had the 
training, we have had the education, but it is still difficult, 
and so on behalf of our members, we would like you to consider 
that, Mr. Chairman.
    [The prepared statement of Mr. Mendoza follows:]

 Prepared Statement of Charles Mendoza, Member, AARP Board of Directors
    Chairman Dorgan and Members of the Committee:

    My name is Charlie Mendoza and I am a member of AARP's Board of 
Directors. On behalf of AARP and its 35 million members, thank you for 
inviting us here this morning to discuss the performance of the Federal 
Trade Commission (FTC) in fulfilling its mission. AARP recognizes the 
important role that the Federal Trade Commission plays in protecting 
the interests of consumers on a wide range of issues. We support the 
FTC in its efforts to serve as the Nation's consumer protection agency 
and commend it for adapting to address evolving and troublesome 
deceptive practices despite limited resources.
    Our testimony today will focus on the Commission's proposal to 
amend the Telemarketing Sales Rule. AARP strongly supports the FTC's 
goals to implement a national Do Not Call registry, prevent 
interference with Caller Identification services and eliminate the 
improper use by telemarketers of preacquired account information. 
Additionally, our testimony will touch on other issues under the 
jurisdiction of the Commission such as death care, identity theft and 
advertising restrictions.

Telemarketing Sales Rule
    AARP's interest in the Telemarketing Sales Rule and concerns about 
telemarketing abuses are long-standing. Seven years ago we were active 
participants in the original rulemaking proceeding. Since the adoption 
of the Rule in 1995, AARP has dedicated significant resources to 
educating consumers about telemarketing fraud and to working with 
federal, state and local law enforcement agencies to combat it. We have 
also worked with state legislatures to enact state telemarketing 
legislation. The existing Rule has supported these efforts and we 
believe that the Commission's recommended additions will strengthen the 
    AARP's strong support of the Telemarketing Sales Rule is well 
documented both at the Commission and here in the Congress through our 
filed comments, testimony and participation in FTC-led workshops. The 
Rule has served as a foundation from which AARP has been able to mount 
education and awareness campaigns. Our advocacy efforts have built upon 
the Rule's provisions regarding disclosures, prohibitions, and 
enforcement mechanisms. We have also conducted research related to the 
Rule, some of which will be described later in these comments.
    The Rule has also empowered law enforcement agencies to prosecute 
unlawful telemarketers and helped legitimate telemarketers to establish 
standards of conduct. The existence of the Telemarketing Sales Rule has 
improved the ability of federal, state, and local law enforcement 
officials to take action against telemarketing firms, and specific 
violations of the Rule have led to prosecutions and, in some cases, 
remuneration for victims.
    Finally, the Rule has provided the states with a floor of consumer 
protection--and many have been successful in raising that floor. Close 
to thirty states have expanded upon the Rule's protections and 
prohibitions in developing state-specific laws and regulations that 
better protect consumers. At least eleven of the states have enacted 
laws using provisions from an AARP model law building upon the Rule, 
and additional states are in the process of considering comprehensive 
telemarketing legislation. In fact, recent AARP surveys conducted in 
New Jersey, Minnesota and Michigan found that an overwhelming 
percentage of survey participants favor additional state laws to 
prevent unfair, misleading, or deceptive telemarketing practices. \1\
    \1\ AARP NJ Telemarketing and ``Do Not Call'' List Survey (January 
2002); AARP Michigan Telemarketing and ``Do Not Call'' List Survey 
(April 2002); AARP Minnesota Telemarketing and ``Do Not Call'' List: An 
AARP Survey (December 2001).
National Do-Not-Call Registry
    AARP supports the Commission's decision to introduce a national Do-
Not-Call registry, asking only that it not preempt states' efforts to 
establish stronger protections for consumers. As proposed, the national 
Do-Not-Call registry would enable a consumer to call a toll-free number 
to place his or her phone number on a national list. Telemarketers 
would then be required to access the FTC's list, removing the numbers 
of all consumers whose numbers appeared on the registry.
    The Commission's proposal is a well-reasoned approach to address 
concerns AARP's members have expressed regarding their inability to 
stem the volume of telemarketing calls, particularly in states that 
currently lack Do-Not-Call laws. Provided it is properly implemented 
and strictly enforced, the benefit to consumers of the establishment of 
the registry should be substantial. A national Do-Not-Call listing 
would supply consumers with a sense of comfort along with a return of 
control over their telephone.
    We are pleased that the prohibition applies to all calls within the 
jurisdiction of the Commission, including calls soliciting charitable 
contributions initiated by for-profit entities. The expanded 
jurisdiction accorded the FTC through enactment of the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act (USA PATRIOT Act) amendments is 
welcome. It now prevents questionable organizations soliciting on 
behalf of sound-alike charities from calling consumers, while allowing 
the local church, fire department, and fraternal organizations to 
continue their legitimate fundraising appeals. Doing so adds 
credibility to the caller and allows the call recipient to make a 
contribution decision on the merits, with less concern about whether 
the caller is representing a legitimate group.
    AARP is also pleased that the FTC is considering expanding the 
scope of the Rule's coverage by eliminating the exemption for common 
carriers. Taking such action is consistent with the purpose of 
implementing a Do Not Call registry, which is to reduce the number of 
unwanted telemarketing calls to the consumer. We believe that a joint 
effort between the Federal Communications Commission and the FTC to 
include common carriers under the Do Not Call provisions of the 
Telemarketing Sales Rule would reduce confusion, leading to a more 
comprehensive registry.
    The national Do-Not-Call registry would complement existing state 
Do-Not-Call lists. AARP has been an active participant across the 
country on behalf of state Do-Not-Call lists. The continued ability of 
the states to protect their residents and to enforce their rules is a 
strong reason not to preempt them with the establishment of the 
registry. Statements by the Commission that ``state requirements should 
be preempted only to the extent that the national Do-Not-Call registry 
would provide more protection to consumers'' support our position and 
are consistent with AARP principles that federal consumer protections 
should serve as a floor, not a ceiling. While the registry will provide 
much needed relief to consumers across the country, some states will 
offer consumers even more.

Call Blocking
    AARP fully supports the Commission's efforts to prohibit the 
blocking of caller identification (Caller ID) information. The proposed 
changes to the Rule that will require the disclosure of a caller or 
organization's actual name and telephone number is to be applauded. 
AARP has strongly advocated for this change in business practices. In 
previous comments at the Commission and in support for legislation in 
both the House and the Senate, we have urged implementation of this 
type of requirement. We believe that consumers who spend money on 
Caller ID services should be able to use the product for its intended 
purpose. Increasingly, consumers are asked to ``take responsibility'' 
and ``make the best choice,'' and become ``empowered.'' Inasmuch as 
consumers' purchase Caller ID services to become empowered and screen 
telemarketers, they should be able to use these services for this 
purpose. Why would legitimate telemarketers want their name and/or 
phone number concealed, effectively rejecting a free advertisement? The 
existing environment that allows telemarketers to block their 
identifiers places consumers at a disadvantage. Not only are consumers 
unable to identify who is calling as the call arrives, but also they 
cannot return a call because the number is unavailable. Adoption of the 
call blocking provision of the Rule will return control of the 
telephone where it belongs, in the hands of the consumer.
    Additionally, AARP has recommended that the name of the charitable 
organization with a verifiable phone number of the organization appear 
on the display. This would provide consumers with the information 
necessary to decide if they want to pick up the call. It also supplies 
the consumer with a phone number to call to verify that the 
telemarketer is indeed calling on behalf of the organization and gives 
the consumer a direct link to the charity if questions arise. Further, 
this approach enables consumers to contact government agencies such as 
the Better Business Bureau or state Attorney General to verify the 
legitimacy of the organization, and helps prevent consumers from 
becoming victims. Such a requirement would likely benefit legitimate 
telemarketers as well, since a consumer is more likely to accept a call 
from the American Cancer Society than from a telemarketing firm.

Preacquired Account Information
    AARP strongly supports the proposed revision to the Telemarketing 
Sales Rule that prohibits the practice of receiving any consumer's 
billing information from any third party for use in telemarketing, or 
disclosing any consumer's billing information to any third party for 
use in telemarketing.
    A telemarketer's ability to use preacquired account information 
without the obtaining this information directly from the consumer is a 
major concern. Historically, preacquired account information has been 
used in conjunction with free trial offers that end up being paid 
subscriptions, and complimentary memberships in travel clubs that show 
up at the consumer's doorstep as negative option solicitations, with 
dues or membership fees assessed for inaction. In these cases, not only 
did consumers honestly believe that they were agreeing to a free-of-
charge service, they clearly were unaware of the fact that the 
telemarketer was already in possession of billing information. Over and 
over we hear from consumers that they had no idea that money could be 
taken from their account without their providing an account number. 
This is a deceptive, unfair, and abusive practice that should be 
    As with any rule or regulation, enforcement of the Telemarketing 
Sales Rule is critical. Equally important is the disclosure of 
information regarding enforcement actions. AARP is very concerned with 
the lack of national data regarding enforcement actions, the 
effectiveness of the Rule or even the amount of money that currently 
being spent on telemarketing. Absent this type of information, it is 
extremely difficult to measure the success of various education efforts 
and enforcement partnerships, including those in which AARP is engaged. 
Collecting national telemarketing data that is accessible to the 
general public would prove beneficial to all interested parties.
    In sum, AARP supports the FTC's efforts to amend the Telemarketing 
Sales Rule to include a national Do Not Call registry with as few 
exemptions as possible. Implementation of such a rule is clearly in the 
public's best interest and should not be delayed or weakened.

Death Care
    Another industry sales rule within the jurisdiction of the FTC that 
is of importance to AARP and its members is the Funeral Rule. Over the 
past decade significant change has taken place in the funeral and 
burial industries. Changes include: consolidation of funeral homes and 
cemeteries; cemeterians providing funeral goods and services and 
funeral directors providing burial goods and services; an increase in 
third-party providers; Internet shopping; and the proliferation of 
preneed contracts.
    These changes provide consumers with a mixed bag of results--some 
good, some not so good. The Funeral Rule, implemented by the Federal 
Trade Commission in 1984, was designed to ensure that ``consumers have 
access to sufficient information . . . '' and prohibited 
misrepresentations ``used to influence consumers' decisions on which 
goods and services to purchase.'' The original Rule, however, could not 
have anticipated the changes the industry has undergone. In the 
interest of both consumers and industry, AARP has recommended that the 
Rule be expanded to include all providers of funeral and burial goods 
and services.
    Expansion of the Funeral Rule by the FTC would better protect 
consumers and provide a ``level playing field'' to all participants in 
the funeral and burial goods and services marketplace. Even this type 
of expansion, however, would not alleviate some of the problems 
associated with the sale of preneed contracts. We have therefore also 
recommended that the Commission include minimum contract standards in 
the revised Rule. We believe that the FTC's current review of the 
Funeral Rule should lead to action that will address our concerns.
    Regarding the current review, while AARP recognizes the difficulty 
the Commission has with the many demands on their limited resources, we 
believe the FTC should respond to the Funeral Rule review process in 
the very near future. It will be three years next month since comments 
were due to the Commission. During that same interval, the industry has 
continued to evolve and consumers have continued to fall victim to 
misleading, deceptive and sometimes criminal behavior on the part of 
death care providers. A Commission decision might not right all the 
wrongs, but it could provide some clarity for consumers and providers 

Other Issues
    An alarming problem confronting consumers is that of identity 
theft. The act happens quickly and quietly, yet the effects can be 
devastating and can take literally years to clean up. However, the FTC 
is to be commended for working on behalf of consumers to make the 
rehabilitation of one's identity a little bit easier. Thanks to the 
Commission's adoption of the ID Theft Affidavit, a consumer can now 
fill out one form that will alert all of the credit agencies at one 
time to the plight. Previously, victims were required to report the 
theft to a number of different credit agencies.
    Another area for which the Commission has responsibility are laws 
that prohibit misleading or deceptive advertising. This oversight 
authority can be particularly important in areas such as labels of 
foods and nutritional supplements where false and misleading claims in 
advertising may cause persons with serious illness and disease to 
forego proven medical treatments in favor of products glamorized by 
unsubstantiated claims and potentially risk even greater harm to their 
health. Inadequate resources unfortunately limit the FTC's reach in 
this area.
    That leads to our final point: concern over limited funds. When 
provided with the resources necessary to carry out its mission, the FTC 
does an excellent job of enforcing the law. Inadequate funding clearly 
hampers the agency's effectiveness.
    Despite uneven enforcement, we support the Commission's efforts to 
crack down on false and misleading advertising, deter fraudulent 
telemarketers and uncover Funeral Rule infractions. We ask the Congress 
to recognize the importance of the FTC to consumers when making 
appropriations decisions, granting them the resources to effectively 
enforce the rules they have promulgated.

    Mr. Chairman, AARP appreciates having the opportunity to testify 
today in support of the Federal Trade Commission's efforts to protect 
consumers. In particular, we strongly support the proposed revisions to 
the Telemarketing Sales Rule, including the national Do Not Call 
registry, which will benefit consumers and should be adopted as 
proposed with as few exemptions as possible.
    In addition, we hope that the Congress will adequately fund the 
Commission so that it can accomplish the mission it has been given: to 
enforce consumer protection laws. Thank you for providing us with the 
opportunity to voice our views.

    Senator Wyden. Thank you. Very good.
    Mr. Sarjeant.


    Mr. Sarjeant. Good morning, Mr. Chairman. Thank you and 
Members of the Subcommittee for giving the United States 
Telecom Association the opportunity to testify and present its 
views on the issue of whether the Federal Trade Commission 
should be authorized by Congress to have concurrent 
jurisdiction with the Federal Communications Commission over 
common carrier marketing and advertising practices.
    USTA is the Nation's oldest trade organization representing 
local telephone companies. USTA's carrier members provide a 
full array of voice and data and video service over wire line 
and wireless networks. USTA is opposed to giving the FTC 
concurrent jurisdiction with the Federal Communications 
Commission. USTA is opposed to conferring regulatory authority 
over telecommunications common carriers upon another Federal 
agency, resulting in potentially duplicative, conflicting, and 
costly new regulatory requirements, especially where there is 
not a clearly demonstrated public interest benefit in doing so.
    The FTC, since its creation in 1914, has not had regulatory 
authority with respect to common carriers. The reason for this 
exemption is, there is no absence of regulations. There is no 
void to fill. Those who would suggest that the Congress and the 
FCC have dismantled the regulatory apparatus applicable to the 
common carrier industry are simply wrong. Incumbent local 
exchange carriers are still pervasively regulated by the FCC 
and the States.
    Yesterday, the FCC adopted revised rules implementing 
Section 222 of the Telecommunications Act of 1996 concerning 
carriers' use of customer proprietary network information, 
CPNI, in marketing products and services. If one looks at 47 
Code of Federal Regulations Section 64-2400, one would see that 
the FCC has detailed requirements for common carriers in 
rendering customer bills.
    The stated purpose and scope of these truth-in-billing 
rules is to, among other things, aid customers in understanding 
their telecommunications bills, and to provide them with the 
tools they need to make informed choices in the market for 
telecommunications services. The FCC also has rules 
implementing Section 227 of the Act known as the 
Telecommunications Consumer Protection Act, which limits 
unsolicited advertisements that use automatic telephone dialing 
systems, artificial or prerecorded voice messages, and fax 
    It was during the William Kennard administration that the 
FCC established an enforcement bureau, and the then-Consumer 
Information Bureau, which is now the Consumer and Governmental 
Affairs Bureau. Both have made it a priority to ensure that 
consumers have access to both information about 
telecommunications services and assistance in resolving 
disputes with common carriers providing interstate 
telecommunications services.
    One of the many responsibilities of the Consumer and 
Governmental Affairs Bureau is to provide staff assistance to 
the Consumer and Disabilities Telecommunications Advisory 
Committee, a Federal advisory committee that provides feedback 
to the FCC on a regular basis on issues of interest and concern 
to consumers generally and the disabilities community.
    The FCC has determined that Section 201(b) of the 
Communications Act of 1934, as amended, requires that common 
carriers practices for and in connection with communications 
services shall be just and reasonable, and any such practice 
that is unjust or unreasonable is unlawful. The FCC has used 
this Section 201(b) authority to determine that unfair and 
deceptive marketing practices by common carriers constitute 
unjust and unreasonable practices. The FCC has indicated that 
its authority and actions pursuant to 201(b) of the 
Communications Act, as amended, would be guided by the 
principles of truth in advertising, developed by the FTC under 
Section 5 of the FTC Act.
    There is no existing lack of authority. The FCC has already 
fully occupied the field when it comes to interstate 
communications carriers. Nonetheless, the FCC has worked 
jointly with the FTC to make sure that there are no gaps left 
between the respective jurisdictions of the two agencies, and I 
would direct the Subcommittee to the joint policy statement of 
the FCC and FTC on March 1 of 2000. The FCC has been very 
active from an enforcement perspective in a variety of areas 
that impact consumers, such as telephone solicitation, 
marketing, slamming, and unsolicited facsimiles. This 
enforcement is accomplished through the Telecommunications 
Consumer Division of the FCC Enforcement Bureau. I will not 
identify all of the enforcement actions, but there is a website 
that the FCC has, and this division has listed all the 
different enforcement actions and the fines that have been 
    As Chairman Powell has indicated in testimony before both 
the House and the Senate, the FCC is dedicated to putting more 
resources into enforcement, including litigation resources. 
Chairman Powell also called upon the Congress to substantially 
raise the forfeiture amounts for violations of the 
Communications Act, and Congress has responded. Extending 
concurrent jurisdiction to the FTC over telecommunications 
common carriers would be counterproductive, as it would lead to 
confusion. Common carriers would not know which agency to rely 
on for advice, or which agency's compliance standards to 
    The FTC request for concurrent jurisdiction appears to be a 
solution in search of a problem. There is no barrier to 
effective consumer protection with respect to common carriers. 
There being no compelling demonstration of a problem in need of 
fixing, USTA ask that you not authorize the FTC to assert 
concurrent jurisdiction with the FCC over telecommunications 
common carriers.
    Thank you.
    [The prepared statement of Mr. Sarjeant follows:]

  Prepared Statement of Lawrence E. Sarjeant, Vice President, Law and 
               General Counsel, U.S. Telecom Association

    Thank you Mr. Chairman and Members of the Committee for giving the 
United States Telecom Association (USTA) the opportunity to testify and 
present its views on the issue of whether the Federal Trade Commission 
(FTC) should be authorized by Congress to have concurrent jurisdiction 
with the Federal Communications Commission (FCC) over common carrier 
marketing and advertising practices. I am Lawrence E. Sarjeant and I 
serve as Vice President Law and General Counsel of USTA. I appear at 
the hearing today on behalf of the entire association. USTA is the 
nation's oldest trade organization for the local telephone industry. 
USTA's carrier members provide a full array of voice, data and video 
services over wireline and wireless networks.

A. Telecommunications Common Carriers Are Already Subject to 
        Regulation of Their Market and Advertising Practices by the FCC 
        and the States
    USTA would be strongly opposed to giving the FTC concurrent 
jurisdiction. USTA is not opposed to regulatory authorities both state 
and federal having the jurisdiction to police, enforce, remedy and 
regulate these practices. What USTA is opposed to is adding one more 
federal regulatory body resulting in potentially duplicative, 
conflicting and costly new regulatory requirements.
    The FTC since its creation in 1914 has not had regulatory authority 
with respect to common carriers. This exemption for common carriers has 
been recognized by the federal judiciary (See, e.g., FTC v. Miller, 549 
F.2d. 452, 7th Cir, 1977), and it has been reaffirmed by Congress. The 
reason for this exemption is that there is no absence of regulation--
there is no void to fill. Common carriers were regulated in 1914 by the 
Interstate Commerce Commission, and when the FCC was created by 
Congress in 1934, the regulatory authority over telephone common 
carriers was transferred to it. The exemption from FTC authority was 
continued. Incumbent local exchange carriers are still pervasively 
regulated by the FCC and the States.

B. The FCC Has Determined That Telecommunications Carrier Marketing 
        Practices Is Subject to Section 201(b)
    The FCC has determined that Section 201(b) of the Communications 
Act of 1934, as amended ``requires that common carriers' practices . . 
. for and in connection with . . . communication service, shall be just 
and reasonable and any such . . . practice . . . that is unjust or 
unreasonable is hereby declared to be unlawful . . . '' (FCC-FTC Joint 
Policy Statement, FCC 00-72, 2/29/2000, para. 4). The FCC has used this 
Section 201(b) authority to determine that unfair and deceptive 
marketing practices by common carriers constitute unjust and 
unreasonable practices. In February 2000, when the FCC and the FTC 
issued a Joint Policy Statement for Advertising of Dial-Around and 
other long distance services to consumers, the FCC indicated that its 
authority and actions pursuant to Section 201(b) of the Communications 
Act, as amended, would be guided by the ``principles of truth in 
advertising developed by the FTC under Section 5 of the FTC Act.'' 
Consequently, there is no existing lack of legal authority. The FCC has 
already fully occupied the field when it comes to interstate 
communications carriers. With respect to intrastate communications, the 
states continue to have full authority, pursuant to existing state 

C. The FCC Has Taken Enforcement Actions Against Telecommunications 
        Carriers' Marketing Practices
    The FCC has not only recognized that it has statutory authority to 
take action against unfair and deceptive practices by common carriers, 
it has taken affirmative enforcement actions pursuant to that 
authority. The FCC has been very active from an enforcement perspective 
in a variety of areas that impact consumers such as telephone 
solicitation marketing, slamming, and unsolicited facsimiles. This 
enforcement is accomplished through the Telecommunications Consumers 
Division of the FCC Enforcement bureau. The following are marketing 
enforcement actions taken by the FCC as identified on its' website--


    04-01-2000  $1,000,000 in total fines proposed in Notice of 
            Apparent Liability against NOS Communications, Inc. (NOS) 
            and Affinity Network Incorporated (ANI) for apparent unfair 
            and deceptive marketing practices

    12-07-2000  Order on Reconsideration of 7/17/00 Order imposing a 
            forfeiture against Business Discount Plan, Inc. (denied in 
            part, granted in part). Forfeiture adjusted to $1,800,000.

    03-01-2000  $100,000 Consent Decree with MCI WORLDCOM for marketing 
            and advertising practices

    As Chairman Powell has indicated in testimony before both the House 
and Senate, the FCC is dedicated to putting more resources into 
enforcement, including litigation resources. Chairman Powell has also 
called upon the Congress to substantially raise the forfeiture amounts 
for violations of the Communications Act. The House in H.R.1542, has 
responded to this request by means of the Upton Amendment added H.R. 
1542 on the House floor. H.R.1542 as passed by the House, provides the 
FCC with cease and desist authority in common carrier matters, while 
also increasing the future amount to up to $10,000,000. Violations of 
cease and desist orders will result in forfeitures of up to 
    USTA, therefore, believes that the FCC has taken steps to enhance 
enforcement efforts, and it has taken enforcement actions with respect 
to the marketing and advertising issues in question. There is, in 
USTA's judgment, no need to complicate the issue by adding still 
another independent regulatory commission to the mix. It would be one 
thing if the FCC did not have the requisite authority, or if it did 
have the authority, but failed to exercise it or exercise it properly. 
This is not the case. There is no regulatory failure that USTA has 
observed. Certainly, USTA members do not think so.

D. Adding Concurrent FTC Jurisdiction Over Marketing Practices of 
        Telecommunications Carriers Would Be In Conflict with 
        Congressionally Developed Regulatory Scheme
    The FCC comprehensively regulates marketing, including 
telemarketing, by common carriers and their agents. To add concurrent 
FTC jurisdiction would be in conflict with the comprehensive regulatory 
scheme developed by Congress and enforced by the FCC.
    Relevant cases in point are: first, under Section 227 of the 
Communications Act of 1934, as amended (Telephone Consumer Protection 
Act, TPCA), the FCC exercises general jurisdiction over telemarketing 
by common carriers as well as by their non-carrier affiliates. 
Significantly, the TPCA and the FCC's implementing regulations apply to 
both interstate and intrastate telemarketing by all carriers, non-
carriers and their agents; second, Section 222 of the Communications 
Act, as amended and the FCC's implementing regulations address how 
telecommunications carriers may use Customer Proprietary Network 
Information (CPNI) they obtain from their customers in marketing 
products and services, including in the course of inbound 
telemarketing; and third, Sections 272 through 276 of the 
Communications Act of 1934, as amended and the FCC's implementing 
regulations create an additional set of rules governing marketing 
activities by Bell Operating Companies and their non-carrier 
    Extending concurrent jurisdiction to the FTC over 
telecommunications common carriers would be counterproductive, as it 
would lead to confusion. Common carriers would not know which agency to 
rely on for advice or which agency's compliance standards to follow. 
There being no compelling demonstration of a problem in need of a 
solution, USTA asks that you not authorize the FTC to assert concurrent 
jurisdiction with the FCC over telecommunications common carriers.
    Thank you.

    Senator Wyden. Very good.
    Mr. Wientzen.


    Mr. Wientzen. Thank you, Mr. Chairman. I am Bob Wientzen. I 
am President and CEO of the Direct Marketing Association. We 
are the largest trade association for businesses interested in 
interactive and database marketing. We have about 5,000 member 
organizations here in the United States and 50 other countries. 
We represent all aspects of the teleservices industry both on 
the profit and non-profit side. They are members of our 
association, and any change in the legal requirement for this 
segment is necessarily going to have a significant impact on 
our members and on that segment of the industry.
    Telemarketing makes an important contribution to the U.S. 
economy. Outbound consumer telemarketing generated about $274 
billion in sales in 2001, and it is estimated to employ a 
little over 4 million workers. The telemarketing industry 
employs a high number of minorities and individuals in welfare 
to work programs, and telemarketing companies often are located 
in small towns, where they are the primary employer. It is an 
inseparable part of an even larger $661 billion industry that 
contributes close to 6 percent of the U.S. GDP, and more than 6 
million jobs to the U.S. economy.
    In addition, telemarketing is a mainstay for obtaining 
charitable contributions in the United States.
    I want to acknowledge the Commission for its efforts in 
stopping fraud and deception through increased enforcement of 
existing laws, rather than pushing for new laws. The Commission 
already has broad authority to enforce against bad actors in 
the marketplace. We have heard a good bit about that this 
morning, and we at the DMA continue to work closely with the 
Commission on stopping fraud through referrals of cases on a 
regular basis.
    I want to focus our testimony this morning on the 
Commission's Do-Not-Call registry proposal and related issues. 
The DMA believes the Commission has laudable goals in proposing 
an amendment to the telemarketing sales rule and has filed 
comments in the proceedings, as well as participated in its 
workshops. I believe that a focus on enforcement rather than 
additional regulation is the appropriate course to take in 
respect to combatting what is admittedly cases of abusive 
telemarketing. For this reason, the DMA opposes the creation of 
a Government-administered Do-Not-Call list as currently 
proposed by the Commission.
    We believe the Commission's proposal extends way beyond the 
Telemarketing Consumer Fraud and Abuse Prevention Act's purpose 
of reducing abusive and deceptive practices, and that it will 
interfere with legitimate telemarketing activities that 
comprises a significant portion of our economy.
    Likewise, we believe the proposal restricts legitimate 
commercial speech that is protected by the First Amendment. 
This is particularly the case with respect to the limitation on 
businesses being able to communicate with their existing 
customers who are on a national Do-Not-Call list.
    Now, we believe the Commission's authority under the TSR 
does not extend to the creation of a national Do-Not-Call list. 
At the time of the enactment, the Congress specifically stated, 
and I quote, ``The Committee does not intend to limit 
legitimate telemarketing practices.'' There is no reference to 
a Do-Not-Call list in either the statutory texts or the 
legislative history of the Act. However, the Telephone Consumer 
Protection Act, referred to as the TCPA, demonstrates that 
where Congress wanted the agency to consider such a mechanism, 
it did so in a statute.
    Specifically, the TCPA authorized the Federal 
Communications Commission to conduct a rulemaking proceeding in 
which it was to consider a number of measures to protect 
residential telephone subscribers' rights in an efficient, 
effective, and economic manner, and without the imposition of 
any additional charge to telephone subscribers.
    Now, the Commission's current proposal would directly 
contradict the FCC's consideration and rejection of a national 
Do-Not-Call registry in its rulemaking in 1992. In its 
rulemaking, the FCC found that a national Do-Not-Call list 
would be costly, and I will quote here again: ``Costly and 
difficult to establish and maintain in a reasonably accurate 
form.'' Attached to this testimony and submitted for the record 
are the comments we have submitted in this proceeding in 
conjunction with the U.S. Chamber of Commerce, which set forth 
in detail the legal and policy reasons against the Commission's 
creating a Do-Not-Call list.
    Now, we are not opposed to the concept of a national Do-
Not-Call list. The DMA has, in fact, had its telephone 
preference service in place since 1985. There are currently 
about 4.7 million consumers on our Do-Not-Call list. The TPS 
file covers consumer telemarketers with no exceptions or 
exemptions. Any consumer who wants to reduce the number of 
unwanted telemarketing calls they receive can have the name 
placed on the list for free, and I note with emphasis that the 
proposed commission's list, unlike the DMA list, would not 
cover common carriers, as you have already heard, or the 
airlines, or banking, or insurance industries, among others, 
whereas our list does apply to those.
    With this background, I want to address specific concerns 
that the DMA has regarding the Commission going ahead with such 
a list. These areas are set forth in more detail in a letter we 
have submitted and filed with the Commission on behalf of not 
only the association, the Direct Marketing Association, but 
five other associations. * These issues include the need for an 
exemption to the list that would allow businesses to contact 
customers with whom they already have an existing relationship, 
harmonization of the national list with more than the 20-state 
list that already exists, measures to ensure the accuracy of 
the list, and we have significant concerns in that area, and 
further evaluations of the actual cost of the list so as not to 
impose a prohibitive cost on telemarketers.
    * The information referred to has been retained in Committee files.
    We think there are key reasons for these issues to be 
considered, and again would stress the fact that we believe 
that the existing private list conducted for a number of years 
more than adequately deals with the concerns of consumers as 
evidenced, Senator, by the fact that in those States that have 
do-not-call lists, the vast majority of the people who have 
already been on the DMA's list do not sign up for these lists. 
They in fact find that they work just fine, and so we would 
submit to you that the current FTC proposal is inappropriate, 
and duplicative of the private sector and the States' existing 
    [The prepared statement of Mr. Wientzen follows:]

     Prepared Statement of H. Robert Wientzen, President and CEO, 
                   Direct Marketing Association, Inc.
I. Introduction
    Good morning, Senator Dorgan, and Members of the Subcommittee, and 
thank you for the opportunity to appear before you as the Subcommittee 
discusses reauthorization of the Federal Trade Commission. I am Robert 
Wientzen, President and CEO of the Direct Marketing Association, Inc. 
(``The DMA'').
    The Direct Marketing Association is the largest trade association 
for businesses interested and involved in interactive and database 
marketing, with approximately 5,000 member organizations from the 
United States and more than 50 other nations. Founded in 1917, its 
members include direct marketers from every business segment, as well 
as the non-profit and electronic marketing sectors. All aspects of the 
teleservices industry, both profit and non-profit, are represented in 
The DMA's membership. Any change in the legal requirements for this 
segment necessarily would have an impact on The DMA and its members.
    Telemarketing makes an important contribution to the United States 
economy. Outbound consumer telephone marketing generated $274.2 billion 
in sales in 2001 and is estimated to employ 4.1 million workers. \1\ 
The telemarketing industry employs a high number of minorities and 
individuals in welfare-to-work programs, and telemarketing companies 
often are located in small towns where they are a primary employer. \2\ 
It is an unseparable part of an even larger $661 billion industry that 
contributes almost 6 percent of U.S. GDP and more than 6 million jobs 
to the U.S. economy. In addition, telemarketing is a mainstay for 
obtaining charitable contributions in the United States.
    \1\ These numbers are from a forthcoming WEFA Group study, Economic 
Impact, U.S. Direct and Interactive Marketing Today, 2002 Forecast
    \2\ The Faces and Places of Outbound Teleservices in the United 
States: The People and Places that Would Be Harmed by a Decline in 
Telemarketing, The Direct Marketing Association, Inc., June 2002.
    I want to acknowledge the Commission for its approach in stopping 
fraud and deception through increased enforcement of existing laws 
rather than through pushing for new laws or adopting new rules. The 
Commission already has broad authority to enforce against bad actors in 
the marketplace. We at The DMA continue to work closely with the 
Commission on stopping fraud through referral of cases to the 
Commission on a regular basis and industry and consumer education on 
fraud prevention. I would like to focus our testimony today on the 
Commission's do-not-call registry proposal and related issues. The DMA 
believes that the Commission has laudable goals in its proposed 
amendments to the Telemarketing Sales Rule (``TSR''), and has filed 
comments in the proceeding as well as participated in its workshop. I 
believe that the focus on enforcement rather than additional regulation 
also is the appropriate course to take with respect to combating 
abusive telemarketing.
    For this reason, The DMA opposes the creation of a government-
administered national do-not-call list as currently proposed by the 
Commission. We believe that the Commission's proposal extends beyond 
the Telemarketing and Consumer Fraud and Abuse Prevention Act's purpose 
of reducing abusive and deceptive practices and will interfere with the 
legitimate telemarketing activities that compose this significant 
portion of the economy. Likewise, we believe that the proposal 
restricts legitimate commercial speech that is protected by the First 
Amendment. This is particularly the case with respect to the limitation 
on businesses being able to communicate with their existing customers 
who are on a national do-not-call list.
    We believe that the Commission's authority under the TSR, 
prescribed by the Congress, does not extend to the creation of a 
national do-not-call list. At the time of enactment, the Congress 
specifically stated that `` . . . the Committee does not intend to 
limit legitimate telemarketing practices.'' \3\ There is no reference 
to a do-not-call list in either the statutory text or the legislative 
history of the Act. However, the Telephone Consumer Protection Act, 
referred to as the ``TCPA,'' demonstrates that where Congress wanted an 
agency to consider such a mechanism, it did so in a statute. 
Specifically, the TCPA authorized the Federal Communications Commission 
to conduct a rulemaking proceeding in which it was to consider a number 
of measures to protect residential telephone subscriber rights in an 
``efficient, effective, and economic manner and without the imposition 
of any additional charge to telephone subscribers.'' \4\
    \3\ H.R. Rep. No. 103-20, at 9 (1993), reprinted in 1993 
U.S.C.C.A.N. 1626.
    \4\ 47 U.S.C. Sec. 227(c)(2).
    The Commission's proposal would directly contradict the FCC's 
consideration--and rejection of--a national call registry in its 
rulemaking implementing the TCPA in 1992. In its rulemaking, the FCC 
found that a national do-not-call list would be ``costly and difficult 
to establish and maintain in a reasonably accurate form.'' \5\ Attached 
to this testimony and submitted for the record are the comments that 
The DMA submitted in this proceeding in conjunction with the United 
States Chamber of Commerce, which set forth in detail the legal and 
policy reasons against the Commission creating a do-not-call list. *
    \5\ Rules and Regulations Implementing the Telephone Consumer 
Protection Act of 1991, 7 FCC Rcd 8752, para. 14 (1992) (the ``TCPA 
    * The information referred to has been retained in Committee files.
    The DMA, of course, is not opposed to the concept of a national do-
not-call list. The DMA has had its Telephone Preference Service 
(``TPS'') in place since 1985. There are currently 4.7 million 
consumers on the TPS do-not-call list. The TPS covers consumer 
telemarketers with no exceptions or exemptions. Any consumers who want 
to reduce the number of unwanted national telemarketing calls they 
receive can have their names placed on the TPS list for that purpose 
free of charge. I note that the proposed Commission list, unlike the 
DMA list, would not cover common carriers, or the airline, banking, or 
insurance industries, among others.
    With this background, I want to address specific concerns with the 
Commission's proposal that The DMA believes should be addressed if the 
Commission proceeds with a do-not-call list. These areas are set forth 
in more detail in a letter also submitted for the record with my 
testimony that was filed with the Commission on behalf of The Direct 
Marketing Association, the American Teleservices Association, the 
Electronic Retail Association, the Magazine Publishers of America, the 
National Retail Federation, and the Promotion Marketing Association 
collectively. *

    These include:

   The need for an exemption to the list that would allow 
        businesses to contact customers with whom they have an 
        established business relationship.

   Harmonization of any national list with the more than 20 
        states that have do-not-call lists, so that businesses and 
        consumers can deal with one list.

   Measures to ensure the accuracy of the list.

   Further evaluation of the actual costs of such a list so as 
        not to impose prohibitive costs on businesses to comply.

II. An Exemption to the Proposed National Do-Not-Call List Should be 
        Created to Allow Businesses to Contact Individuals with Whom 
        They Have an Established Business Relationship.
    Of these issues, the most critical to The DMA is the creation of an 
exemption that will preserve the ability of businesses to contact those 
individuals with whom they have an established business relationship 
who register for the do-not-call list. In other areas of the law 
governing marketing, exemptions exist for contacting individuals when 
such a relationship exists. For example, the FCC in its rules 
implementing the TCPA provides for marketing to established customers 
using both fax and telemarketing. The FCC concluded in this rulemaking 
that ``a solicitation to someone with whom a prior business 
relationship exists does not adversely affect subscriber privacy 
interests. Moreover, such a solicitation can be deemed to be invited or 
permitted by a subscriber in light of the business relationship.'' \6\ 
This reasoning is equally applicable under the TSR.
    \6\ TCPA Order at para. 34. The sponsors of federal legislation to 
regulate unsolicited commercial electronic mail have incorporated a 
similar established business relationship exemption in their bills, 
including H.R. 3113, which passed the U.S. House of Representatives by 
a vote of 427 to 1 in 2000.
    It is unrealistic to expect consumers who sign on to a national do-
not-call list to understand that, by doing so, businesses with which 
they have relationships will no longer be permitted to contact them to 
offer goods and services. It is for this very reason that almost all of 
the states that have implemented do-not call lists have created 
exemptions for customers with a pre-established business relationship. 
The Commission proposes that, after signing onto the do-not-call list, 
consumers with existing business relationships can exercise their 
choice to receive calls from specific companies through the companies' 
obtaining ``express verifiable written authorization.'' In these tough 
economic times, where businesses are struggling to attract new 
customers, it hardly seems appropriate to require written permission to 
call an existing customer.

III. Any National Do-Not-Call List Should Be Harmonized with State 
        Do-Not-Call Lists.
    The next issue that I would like to discuss is that of 
harmonization of any national list with state lists. Any government-
mandated national do-not-call list that is established must be 
harmonized with state lists so that companies could comply with one 
list. In the past several years, many states have enacted do-not-call 
lists. The current framework, in which telemarketers are required to 
comply with more than 20 state laws, creates significant burdens on 
businesses. A preferable approach would limit such burdens by creating 
one list to which marketers could subscribe that would encompass state 
lists and a national list.
    This harmonization must extend beyond compilation and 
administration of the list to include exemptions and enforcement 
standards as well for interstate calls. However, such is not the case 
as envisioned by the FTC in its TSR proposed revisions.

IV. Steps Should Be Taken to Help Ensure the Accuracy of a Do-Not-Call 
    The national do-not-call list as proposed by the Commission will 
not accurately reflect individuals who place their names on the list 
because society is highly mobile, with telephone numbers changing 
regularly. The Commission proposes that its list be based upon a 
person's placement of his or her ``name and/or telephone number'' on 
the Commission-maintained registry and the capture of Automatic Number 
Identification (``ANT'') information. It is estimated that phone 
numbers change for 16 percent of the U.S. population on an annual 
basis. Phone numbers are usually reassigned approximately 90 days after 
an individual has moved and is no longer using the number.
    A list with solely name or phone number would be outdated annually, 
if not sooner. Such a scenario would not honor consumers' preferences. 
In fact, it could result in individuals who did not place their names/
numbers on the list not receiving calls that they may want. The DMA's 
TPS, by obtaining name, address, and telephone number, can regularly be 
checked against the U.S. Postal Service's National Change of Address 
List. The Commission's proposal would not employ similar measures to 
ensure an accurate list. An approach that solely captures name and 
phone number would require at a minimum an annual renewal to afford 
meaningful choice.

V. The Costs Estimated by the Commission Do Not Accurately Reflect the 
        Costs of Running a National List.
    The Commission's forecasted annual $5 million cost of administering 
a national do-not-call list far underestimates the true costs of 
administering such a list. Under the current proposal based on this 
estimate, the Commission will charge national telemarketers $3,000 per 
year to purchase the do-not-call list. The Commission does not specify 
who will bear the burden of the additional costs in the probable event 
that this estimated cost for administration of the do-not-call list 
proves inadequate. The DMA and its members are concerned that, if in 
fact it costs significantly more to administer the do-not-call list, 
such costs not be passed on to marketers.
    As described above, the Commission's current proposal will not 
create an accurate list. It will be far more expensive to compile a 
list that is capable of being accurate and authenticated because 
obtaining additional information beyond name and/or number cannot be 
automated. For example, Experian, Inc., a company that offers marketing 
lists to businesses, offers a consumer opt-out from being placed on 
marketing lists that result from ``prescreening.'' In order to ensure 
accuracy and verification to honor the opt-out, Experian uses automated 
technology that confirms an individual's telephone number, address, and 
Social Security Number. Experian estimates the cost per person solely 
to collect and input a consumer's information to be $1.28. This does 
not include the costs of administering the list. If, as some project, 
the Commission's proposed list will result in 64 million names, using 
the $1.28 figure, such a list would cost more than $80 million in the 
first year alone. Similarly, the FCC found the high costs of such a 
database, ranging from $20 million to $80 million in the first year and 
$20 million per year thereafter, to be prohibitive.
    Additionally, we note our belief that the Commission's proposal to 
assess such fees violates both OMB Circular A-25 and the Independent 
Offices Appropriations Act, both of which we believe would require a 
specific delegation from Congress to assess such charges. For the 
record, we have attached our filing to the Commission regarding the 
issue of do-not-call list user fees, which sets forth our legal 
analysis of this issue. *
    * The information referred to has been retained in Committee files.
VI. Agents of Charities Should Not Be Subject to the Do-Not-Call List.
    The DMA, through its Nonprofit Federation, has members who are very 
concerned about an imposition of a do-not-call list on charities. The 
Commission proposes that agents who perform telemarketing for non-
profit charitable organizations would be subject to the list. 
Charitable organizations themselves would not be subject to the list. 
The Commission should not extend the do-not-call list to non-profit 
organizations' agents. Such an extension would have devastating 
economic effects on charities' ability to raise funds as the number of 
individuals whom they could contact would be severely limited. 
Likewise, this type of extension to agents of charities would create an 
uneven playing field between those non-profits that have to hire a 
telemarketing firm for cost efficiency reasons, and those that can use 
internal staff to telemarket.

VII. Transfer of Preacquired Account Information Should Be Permitted 
        for Legitimate Business Practices.
    Finally, we would like to take this opportunity to discuss one 
additional proposed amendment to the TSR other than the do-not-call 
list. The Commission proposes a flat ban on the transfer of a 
consumer's account information. The Commission bases its proposed 
prohibition on the transfer of preacquired billing information on the 
belief that ``the sharing of consumers' pre-acquired billing 
information is likely to cause unauthorized charges to consumers.'' 
While again the Commission has laudable goals, its proposal goes beyond 
deceptive and abusive practices and will limit useful and legitimate 
practices. There are numerous transfers of account information that 
provide practical efficiencies and benefits to both consumers and 
businesses. We believe that the Commission's concerns can best be 
addressed through appropriate informed consent from consumers.
    For example, if a consumer calls and orders outdoor clothing from a 
merchant and is offered by the same sales agent another merchant's fly-
fishing magazine, transfer of information should not be prohibited if 
the customer agrees to the transfer. Likewise, it is a significant 
benefit to consumers when the customer calls the merchant and is then 
transferred for the second seller to be able to obtain and use 
information such as address and credit card information generated from 
the first sale. This eliminates the need for a consumer to restate to 
the second sales representative information that was just provided to 
the first sales representative. Transfer and/or use of account 
information in such scenarios with disclosure to and consent by the 
consumer is inherently more efficient for both the merchant and 
    Similarly, legitimate marketers may elect to conduct joint 
marketing programs pursuant to which one marketer, e.g. an airline, may 
provide its customers' names and telephone numbers to a hotel chain so 
that the hotel can solicit that customer to book hotel space for the 
customer's business or vacation travel. Allowing the marketers to share 
consumer billing information with the consumer's informed and express 
verifiable consent again makes the transaction easy, convenient, and 
efficient for marketers and consumers alike.

VIII. Conclusion
    I thank the Chairman and the Members of Subcommittee for the 
opportunity to express the views of The DMA. We know that Congress and 
this Subcommittee will continue to monitor these issues closely and we 
look forward to working with you.

    Senator Wyden. Very good.
    Mr. Schwartz.


    Mr. Schwartz. Senator Wyden, I would like to thank you, 
Senator Dorgan and the rest of the Subcommittee for having the 
Center for Democracy and Technology here to testify today. As 
you know, the Center has been following the Federal Trade 
Commission's work in the area of privacy closely during the 
last 7 years. During that time, we have been impressed with the 
Commission's commitment of resources and intellectual capital 
on this increasingly important issue.
    In my written testimony, I have documented 10 areas where 
the Commission has focused its privacy efforts over the past 2 
years. Most of the Commission's privacy work has been tied 
directly to its mission of preventing deceptive and fraudulent 
business practices. For example, in an area where you have 
concerns, unsolicited commercial e-mail, commonly known as 
spam, the Commission has focused action on the area of 
fraudulent scams. I think that the Chairman went into the 
details of some of these scams they have gone after.
    In their web privacy sweeps, the Commission has conducted 
detailed reviews of privacy notices. This has allowed them to 
convince companies to post online privacy notices while helping 
to prevent vague and even fraudulent policies. While this work 
has been largely successful, the actions of the Commission in 
privacy areas enabled by specific statutes demonstrates that 
the FTC already has sufficient expertise to take on general 
privacy protection responsibilities.
    The Commission has demonstrated the thoughtful and patient, 
yet innovative and ultimately very workable, approach to 
addressing privacy issues that has transcended through the 
administrations. An example of this is the Commission's work to 
enforce the Children's Online Privacy Protection Act, also slow 
but steady improvement in the complex area of financial privacy 
education and enforcement.
    In each of these cases the Commission has brought a wide 
range of players to the table to work out difficult issues 
through an iterative and inclusive process. The Commission's 
work on the do-not-call telemarketing registry also shows this 
comprehensive approach to developing sound privacy protections. 
The Commission has made it clear that it has no intention to 
ban telemarketing outright, but instead to give consumers more 
control over how and why calls come to their home during dinner 
    CDT and the broad coalition of consumer and citizen groups 
are generally pleased with the current rule as proposed. 
However, we would support any effort to give consumers more 
choices and more controls at the time of signing up for the 
registry and after as the Commission continues to investigate a 
balanced approach.
    To give the Commission general authority and other consumer 
privacy related areas, Congress must now pass privacy 
legislation. The Full Commerce Committee has already taken up 
this step by voting in favor of the Online Privacy Protection 
Act earlier this year. We hope that the rest of Congress will 
follow your leadership on this critical issue of corporate 
trust and accountability.
    Thank you.
    [The prepared statement of Mr. Schwartz follows:]

  Prepared Statement of Ari Schwartz, Associate Director, Center for 
                        Democracy and Technology

I. Summary
    Chairman Dorgan and Members of the Committee, the Center for 
Democracy and Technology (CDT) is pleased to have this opportunity to 
testify about the Federal Trade Commission (FTC) and its role in 
consumer and privacy protection.
    Over the past seven years the FTC's activities in the area of 
information privacy have expanded. The Commission has convened multiple 
workshops to explore privacy, issued several reports, conducted 
surveys, and brought several important enforcement actions in the area 
of privacy. The Commission's work has played an important role in 
bringing greater attention to privacy issues and pushing for the 
adoption of better practices in the market place.
    Two years ago, CDT testified that ``(t)he work of the Federal Trade 
Commission--through its public workshops, hearings . . . provides a 
model of how to vet issues and move toward consensus.''
    Chairman Muris has successfully continued the consultation and 
education process, working with public interest groups and industry on 
key issues and taking enforcement actions or instituting rulemakings on 
several important new fronts.
    CDT and other public interest and consumer groups have been pleased 
with the Commission's thoughtful approach to creating a National ``Do 
Not Call Registry.'' The registry will provide consumers with an easy 
way to cut down on unwanted telephone calls and will offer industry a 
streamlined means of complying with the growing number of state and 
self-regulatory ``Do Not Call'' lists.
    CDT has also been pleased with the Commission's extensive new 
educational effort with the public and industry on privacy notices, ID 
theft, wireless privacy, spam, and other issues. It should be noted 
that each of these areas is clearly within the FTC's jurisdiction to 
prevent deceptive trade practices.
    However, CDT would like to see the Commission use its new resources 
to stop unfair information practices as well as deceptive ones. These 
unfair practices include: lack of meaningful notice and choice; the 
ability to correct and amend personal information; and inadequate 
security safeguards.
    It has long been CDT's belief that unfair information practices are 
already covered by the Commission's current authority. Yet, the long-
standing hesitancy of the Commission to proceed has made it necessary 
for Congress to confirm this authority in law. Although Chairman Muris 
has suggested that general federal privacy legislation is unnecessary, 
CDT sees an urgent need for legislation similar to S. 2201, the Online 
Privacy Protection Act, as passed by the full Senate Commerce Committee 
earlier this year. Privacy protections in law--enforced by the FTC--are 
an essential ingredient of building and maintaining consumer confidence 
in the networked economy. We thank you, Chairman Dorgan, as well as 
Chairman Hollings and the other Senators who worked so hard to move 
this issue forward in the Committee. CDT looks forward to continuing to 
work with you to see such a measure signed into law.

II. About CDT
    CDT is a non-profit, public interest organization dedicated to 
developing and implementing public policies to protect and advance 
civil liberties and democratic values on the Internet. One of our core 
goals is to enhance privacy protections for individuals in the 
development and use of new communications technologies. We thank the 
Chairman for the opportunity to participate in this hearing and look 
forward to working with the Committee to develop policies supporting 
civil liberties and a vibrant communications infrastructure.

III. The Role of the FTC as the Federal Government's Leader on Consumer 
        Privacy Issues
    The FTC has used its current jurisdiction to take basic steps to 
protect the privacy of Americans in several innovative and balanced 
ways. The Commission is the government's leader in consumer privacy 
policy and should be commended for its current work in the area given 
its limited view of its own jurisdiction.
    Last fall, Chairman Muris said that the Commission would increase 
privacy enforcement by 50 percent. According to internal figures, the 
Commission believes it is on track to reach this goal. This dramatic 
increase was on top of the new attention given to privacy issues that 
had begun five years earlier.
    In particular, over the past two years, the Commission has worked 
in ten areas of interest to CDT:

1. Telemarketing Sales Rule--``Do Not Call'' Registry
    Under the 1994 Telemarketing and Consumer Fraud and Abuse 
Prevention Act, \1\ the Commission was given the authority to regulate 
telemarketing sales. The Commission's regulations, named the 
Telecommunications Sales Rules (TSR), were put into effect in 1995. \2\ 
The TSR placed some basic time, place and manner restrictions on calls 
and left the door open to revisiting the rule if it was not adequately 
protecting consumers.
    \1\ 15 U.S.C. 6101-6108
    \2\ 16 CFR Part 310
    Some have said that telemarketing is merely an annoyance and not a 
privacy concern and therefore stronger rules are not necessary. CDT 
disagrees. We define privacy as individual control over one's personal 
information. Control over one's telephone number and other personal 
information is central to the privacy issue in the modern world.
    The American public seems to agree with us. An AARP study of New 
Jersey residents showed that 77 percent viewed telemarketing first and 
foremost as an invasion of privacy; 10 percent a consumer rip-off, and 
only 2 percent a consumer opportunity. \3\
    \3\ http://research.aarp.org/consume/nj_telemarketing.pdf
    The Commission has responded to the public concern about 
telemarketing by issuing a notice of proposed rulemaking, reopening the 
TSR and seeking public comment about how the rule could be rewritten to 
put consumers back in control of their telephones. \4\ As a part of 
this process, the Commission has proposed the creation of a ``do not 
call'' registry, similar to those already in existence in 15 states. On 
this proposal, over 42,000 public comments have been submitted to the 
Commission. Over 90 percent of them support the proposed ``Do Not 
Call'' registry.
    \4\ http://www.ftc.gov/bcp/conline/edcams/donotcall/pubs/NDNCR--
    CDT believes that consumer choice should play an essential role in 
telemarketing: Telemarketing should not be banned, but consumers should 
be able to decide what kind of marketing calls they want and when they 
want to receive them. Currently, consumers must take one of several 
different approaches to remove their names from telemarketing lists. 
They must (1) sign up for the Direct Marketing Association's do-not-
call list; (2) enlist the help of some or all of twenty different state 
laws that include do-not-call provisions; and/or (3) contact individual 
companies to direct them to place them on a company-based do-not-call 
list. Currently, consumers must find their way through this complex 
maze of options.
    CDT, in coalition with other consumer groups, filed extensive 
comments with the Commission supporting the proposed new Do-Not-Call 
list. \5\ (The coalition were also the creators of 
ConsumerPrivacyGuide.org--a Web site designed to educate consumers on 
what they can do to protect their own privacy.) Our joint comments 
state that institution of a national ``Do-Not-Call'' list by the FTC 
would provide consumers with a straightforward, easy-to-exercise 
mechanism to remove their names from telemarketing lists. The FTC 
initiative would lift the burden from consumers who must either use the 
DMA service or a state do-not-call request on a company-by-company 
    \5\ http://www.ftc.gov/os/comments/dncpapercomments/04/
    We stressed in our comments that the FTC's ``Do-Not-Call'' 
initiative should not dilute or undercut the protections afforded 
consumers by the states against invasive telemarketing. Further, as we 
pointed out, it is critical that consumers are not charged a fee to be 
placed on the ``Do-Not-Call'' list--consumers' ability to protect the 
privacy of their personal information should not be contingent upon 
their ability to pay a fee.
    CDT has been pleased with how the public process on this important 
issue has progressed. To date it has been a model example of how a 
complex but important issue can be addressed through an open, public 
process. We hope that the Commission will follow an equally inclusive 
process when it issues its final draft of the rule.

2. Privacy Education
    The FTC has generally served a valuable role working with and 
educating the business community about privacy best practices and 
implementation of fair information practices. An important example is 
the work the FTC has undertaken in the area of privacy notices. The 
millions of confusing privacy notices mailed to consumers under the 
Graham-Leach-Bliley Act highlighted the difficulties encountered in 
providing consumers with clear, comprehensive and easily understood 
    While significant work had been undertaken by the business 
community and advocates to explore and develop better ways to effect 
good notice, the FTC workshop held in late 2001 was an important 
opportunity to raise issues to be resolved and share findings in a 
public discussion. Participants were able to voice concerns, note 
accomplishments and chart out areas for future research.
    Forums such as these are important tool in highlighting and 
encouraging efforts to address specific privacy issues.

3. Unsolicited Commercial Email (Spam)
    The Commission taken several useful steps regarding the issue of 
unsolicited commercial email, or ``spam:''

   The Commission has created an educational Web site for 
        consumers and businesses. The site provide consumers with 
        helpful information on how spam works, why they get spam, and 
        how to decrease the amount of spam they receive. The site 
        advises businesses on how to comply with a user's unsubscribe 

   The FTC also conducted a study to test whether 
        ``unsubscribe'' or ``remove me'' requests were being honored. 
        The study reported that the majority of consumer requests were 
        not getting through. The Commission thereupon sent out warning 
        letters to spammers.

   In April of 2002, the FTC filed a complaint against Internet 
        spammers who allegedly sent out deceptive, unsolicited 
        commercial emails and participated in Web fraud. The FTC joined 
        several state law enforcement officials in the United States as 
        well as four Canadian law enforcement agencies in bringing 63 
        different actions against various Web schemes and scams that 
        targeted victims through spam.

    While the Commission, given its limited view of its jurisdiction, 
has taken these exemplary first steps in research, education and 
enforcement regarding unsolicited commercial email, CDT would like to 
see it given more power to tackle fraudulent spam Further appropriate 
steps could be taken under provisions in the CAN SPAM Act (S. 
630),sponsored by Senators Burns and Wyden and recently passed by the 
full Commerce Committee. CDT is hopeful that we can begin to turn the 
tide on spam while still protecting the First Amendment right of 
anonymous non-commercial/political speech online. \6\
    \6\ For more information on CDT's views on the CAN SPAM act, please 
see our recent Policy Post http://www.cdt.org/publications/
4. Gramm-Leach-Bliley Compliance
    Under the new financial services law, the Commission has 
jurisdiction over important financial institutions such as insurance 
and mortgage companies. In an August 2001 survey, CDT found that these 
companies were among the worst in posting privacy notices on Web sites. 
That month, we filed a complaint with the FTC about several mortgage 
companies that were not posting notices as required by the FTC's GLB 
regulations. While the Commission has not officially closed the case, 
the five remaining Web sites have now posted privacy policies.
    CDT believes that there is probably still more basic, but important 
enforcement work that the Commission could to do in the area of privacy 
notice for insurance and mortgage companies.

5. Identity Theft and Identity Fraud
    The FTC has been a leading agency in the prevention and prosecution 
of identity theft through its identity theft program. The program 
contains three key elements: the Identity Theft Data Clearinghouse; \7\ 
consumer education and assistance resources; collaborative enforcement 
efforts involving criminal law officers and private industry.
    \7\ http://www.consumer.gov/idtheft/
    The Identity Theft Clearinghouse currently holds more than 170,000 
victim complaints and serves as an important tool for 46 federal and 
306 state and local law enforcement agencies, including the US Secret 
Service, the Department of Justice, the US Postal Inspection Service, 
and the International Association of Chiefs of Police. The FTC has also 
been increasing outreach programs to educate law enforcement officials 
on how the Clearinghouse database can be used to enhance investigations 
and prosecutions.
    In regards to consumer education and assistance resources, the FTC 
has held training seminars for law enforcement officials at all levels 
in an attempt to give law enforcement the necessary tools they will 
need to combat identity theft. The FTC has also implemented a 
nationwide, toll-free hotline that consumers can call if they have 
become a victim and a Web site that consumers can access to file a 
complaint and gain helpful prevention tips.
    The Commission's work in this area shows that it can be a leader 
with other law enforcement agencies, serving as the main contact to the 
public. Hopefully the Commission's work, along with the passage of new 
legislation in this area, can help to cut down on what many believe to 
be the fastest growing crime in the country.

6. Wireless Privacy
    In December 2000, the Commission held a workshop entitled ``The 
Mobile Wireless Web, Data Services and Beyond: Emerging Technologies 
and Consumer Issues.'' \8\ As this subcommittee knows well, the 
wireless privacy issues have been a growing concern for consumers due 
to the emerging use of location tracking technologies to provide 
consumers with enhanced services. It was clear from the workshop that 
the staff and Commissioners have the understanding and skills necessary 
to undertake a serious privacy or security investigation in this area 
if it is warranted. However, the Commission has taken little action in 
this area since the workshop. CDT urges the Commission to follow-up 
with another workshop in this area as wireless technologies and 
location applications progress.
    \8\ A staff summary of the event was released in February 2002 
7. Online Profiling and Data Mining
    Online profiling is the practice of aggregating information about 
consumers' preferences and interests, gathered primarily by tracking 
their movements online. It remains one of the most complex and opaque 
issues in privacy. Consumers are concerned because they know someone is 
watching, but they don't know who, how or to what end.
    In November 1999, FTC examined online profiling, focusing on the 
use of the resulting profiles to create targeted advertising on Web 
sites. \9\ In June and July of 2000, the FTC issued a two-part report 
on online profiling and industry self-regulation. \10\ The 
Commissioners unanimously commended the Network Advertising Initiative 
(NAI) for its self-regulatory proposal that seeks to implement Fair 
Information Practices for the major Internet advertisers' collection of 
online consumer data. The July report also asked Congress to enact 
baseline legislation to protect consumer privacy. In addition to its 
several reports, the FTC has also held a series of public workshops on 
data mining in an effort to educate consumers as well as it itself. 
    \9\ Public Workshop on ``On-Line Profiling''--http://www.ftc.gov/
    \10\ http://www.ftc.gov/os/2000/06/
onlineprofilingreportjune2000.pdf and http://www.ftc.gov/os/2000/07/
    \11\ http://www.ftc.gov/bcp/workshops/infomktplace/index.html
    The reports and workshops that the FTC has undertaken in this area 
have represented the best work done in this area internationally. 
Unfortunately, since Chairman Muris has taken office, little public 
work has been continued in this area. We hope that the Commission will 
return to this area, one that causes concern to so many consumers.

8. Computer Security Education
    The FTC has taken several steps to educate consumers on computer 
security. In addition to holding workshops, the FTC is drafting a guide 
for consumers on how to stay safe online using a high-speed Internet 
connection. The guide details how users can protect their computers 
from viruses and hackers by explaining security features such as 
firewalls and updating virus protection software. The FTC has worked 
diligently to make the report both understandable and appealing to the 
average consumer through careful analysis and easy to read text. The 
Commission has continued to work with consumer groups to ensure that 
the guide is easy to use and contains the necessary information. In 
addition, FTC held a public workshop in May to examine issues 
surrounding the security of consumers' computers. \12\
    \12\ http://www.ftc.gov/bcp/workshops/security/index.html
9. Internet Privacy Sweeps
    Earlier this year, the Commission continued its ongoing assessment 
of the state of Internet privacy which began five years ago and has 
been repeated twice since. This year, the Commission embraced a report 
\13\ organized by the Progress and Freedom Foundation and conducted by 
the Ernst and Young accounting firm. The results show significant 
improvement in the number of privacy policies posted and the growth of 
the new privacy protocol, the Platform for Privacy Preferences (P3P). 
\14\ This positive growth is due, in part, to the educational work of 
the Commission.
    \13\ http://www.pff.org/pr/pr032702privacyonline.htm
    \14\ CDT was the originator of the P3P concept and has continued to 
work on the specification and its adoption. More information about P3P 
can be found at http://www.w3.org/p3p and http://www.p3ptoolbox.org
    On the other hand, the study found that self-regulatory seal 
programs have actually been shrinking. This is mainly due to the 
bankruptcy of many dot com players, but it also indicates that we are 
entering a time of a major privacy gap. Some companies are actively 
involved in the privacy issue and are doing their best to build trust. 
Meanwhile, a small number of free-rider companies are doing no work on 
privacy. The marketplace has remained confusing to the average consumer 
and many prefer to sit on the sidelines until baseline privacy is 
assured. \15\
    \15\ Business Week has conducted a number of surveys showing that 
privacy is the number one concern of both those who are not online and 
those who are online, but do not shop online. The most recent is 
available at http://businessweek.com/2000/00_12/b3673006.htm. Jupiter 
Communications has estimated that $18 billion in consumer transactions 
did not take place online because of privacy concerns (McCarthy, John, 
``The Internet's Privacy Migraine,'' presentation, SafeNet2000, 
December 18, 2000).
    CDT hopes that Congress will continue to support and monitor the 
FTC's privacy sweeps--and we urge the Commission to work with a wide 
range of organizations and academics, including consumer groups, when 
preparing the parameters and methodology for future sweeps.

10. COPPA Compliance
    In 1998, Congress passed the Children's Online Privacy Protection 
Act (COPPA) \16\ in order to protect children's personal information in 
interactions with commercial sites. The FTC was required to enact a 
rule to implement COPPA and in doing so it clarified issues concerning 
coverage and liability, modified several definitions that would have 
interfered with children's ability to participate, speak and request 
information online, and made every effort to create a predictable and 
understandable environment for the protection of children's privacy 
    \16\ 15 U.S.C. 6501
    Since issuing its final Rule implementing COPPA, the FTC has taken 
several effective and necessary steps to enforce and enhance compliance 
with COPPA. This past spring, the FTC released a package of initiatives 
that included:

   The announcement of a settlement in its sixth COPPA 
        enforcement case, against the operators of the ``Etch-A-
        Sketch'' Web site, resulting in a $35,000 civil penalty.

   The release of an FTC COPPA compliance survey and a business 
        education initiative, including the publication of ``You, Your 
        Privacy Policy and COPPA'' to help children's Web site 
        operators draft COPPA-compliant privacy policies.

   The announcement of warning letters to more than 50 
        children's sites alerting them to the notice provisions of 
        COPPA and the requirement that they comply with the provisions.

   In response to public input, the decision to extend COPPA's 
        sliding scale mechanism for obtaining verifiable parental 
        consent until 2005.

    While there is still work to be done, the COPPA experience 
demonstrates that the FTC can develop workable privacy rules in complex 
and sensitive areas that go well beyond its traditional arenas.

IV. The Future Role of the FTC in Privacy Issues
    While the Commission's privacy work has been successful, it has 
also been limited mainly to areas of deceptive or fraudulent practices. 
CDT believes that this limited focus is preventing the Commission from 
taking on urgently needed actions in the privacy area.

   Proposed Privacy Legislation

    CDT believes that a comprehensive, effective solution to the 
privacy challenges posed by the information revolution must be built on 
three components: industry best practices propagated through self-
regulatory mechanisms; privacy as a design feature in products and 
services; and some form of federal legislation that incorporates Fair 
Information Practices--long-accepted principles specifying that 
individuals should be able to ``determine for themselves when, how, and 
to what extent information about them is shared.'' \17\ Legislation 
need not impose a one-size-fits-all solution. However, as a starting 
point, strong privacy legislation is urgently needed to cover sensitive 
personal information such as privacy of medical and financial records. 
For broader consumer privacy, there need to be baseline standards and 
fair information practices to augment the self-regulatory efforts of 
leading Internet companies, and to address the problems of bad actors 
and uninformed companies. Finally, there is no way other than 
legislation to raise the standards for government access to citizens' 
personal information increasingly stored across the Internet, ensuring 
that the 4th Amendment continues to protect Americans in the digital 
    \17\ Alan Westin. Privacy and Freedom (New York: Atheneum, 1967) 7.
    On May 17, 2002 the Senate Commerce Committee passed S. 2201, the 
Online Privacy Protection Act. S.2201 would set a true baseline of 
privacy protection and would give the FTC the clear authority to go 
after companies engaging in unfair information practices.
    During the Committee process, Senator McCain asked the FTC 
Commissioners to give their views on S.2201. In response, Chairman 
Muris gave five reasons that such a bill was not necessary at that 
time. \18\ CDT disagrees strongly with the Chairman. While CDT 
continues to work with the FTC to help advance self-regulatory efforts, 
privacy enhancing technologies and public education, we believe that 
these efforts alone are not and cannot be enough to protect privacy or 
instill consumer confidence on their own.
    \18\ http://www.ftc.gov/os/2002/04/sb2201muris.htm
    CDT commends the Senate Commerce Committee for its excellent work 
in improving S.2201 during the Committee process. We hope that the 
Committee continues to push for the FTC's expanded jurisdiction in this 

   Proposed Rescinding of Common Carrier Exemption

    The Committee also asked CDT to address the issue of rescinding the 
exemption that prevents the Commission from exercising general 
jurisdiction over telecommunications ``common carriers.''
    The idea of creating a level playing field is appealing, 
particularly when some communications services fall within the 
jurisdiction of the FTC. In particular, lifting the restriction in 
certain areas--such as billing, advertising and telemarketing--could 
ensure that the agency with the most expertise in these areas is taking 
a leading role.
    However, rescinding the exemption completely could lead to 
duplication of government regulation and/or confusion for consumers in 
certain areas. For example, telecommunications companies are already 
subject to the Customer Proprietary Network Information (CPNI) rules 
administered by the Federal Communications Commission, which limit 
reuse and disclosure of information about individuals' use of the phone 
system including whom they call, when they call, and other features of 
their phone service. At this point, we are not sure it would be wise to 
take this issue away from the FCC. Similar questions may arise with 
other issues: Which agency would take the lead? By which rules would a 
complaint about deceptive notice be addressed? How will these decisions 
be made?
    The Commission has been thoughtful in these areas in the past, so 
it is likely that any concerns could be addressed. Yet, if this 
proposal moves forward, the Commission would need to be able to have a 
detailed examination and plan for dealing with similar areas of 

    The FTC is to be commended for taking some very laudatory steps to 
address the serious and widely shared concerns of the American public 
about privacy. Indeed, as the foregoing review of issues demonstrates. 
The FTC already has sufficient expertise to take on general privacy 
protection responsibilities. However, the Commission has, in our view, 
taken an unduly narrow view of its jurisdiction, such that 
Congressional action is needed to establish a baseline of fair 
information practices in law. We will continue to work with this 
Committee and the Commission to find innovative, effective and balanced 
solutions to the privacy problems posed by the digital age.

    Senator Wyden. Thank you.
    Mr. Alldridge.


    Mr. Alldridge. I thank the Subcommittee and its fine staff 
for allowing me to appear this morning regarding the Federal 
Trade Commission's proposed national Do-Not-Call registry. My 
perspective is that of President of Special Olympics-Wisconsin. 
I speak on behalf of the Not-for-Profit and Charitable 
Coalition. The Not-for-Profit Coalition has 277 member 
    All are non-profit or charitable organizations. About 2 
dozen are national groups such as Mothers Against Drunk 
Driving, the Leukemia and Lymphoma Society, the National U.S. 
Junior Chamber of Commerce, and Amvets, American Veterans. 
About 250 are State and local groups and include scores of 
charities, veterans groups, law enforcement, fire fighter, 
paramedic and other public safety organizations.
    Special Olympics-Wisconsin is a non-profit member of the 
coalition. Our mission is to provide year-round sports training 
and athletic competition in a variety of Olympic-like sports 
for children and adults with cognitive disabilities, 9000 
athletes who are currently being served by our program each 
year. These athletes are helped along the way by 3,500 coaches 
and more than 17,000 volunteers. We have 220 registered local 
agencies, each under the direction of a volunteer agency 
    Our volunteers put in more than 350,000 hours of service 
annually, which allow our athletes to log over 500,000 hours of 
training and competition. Last year, we conducted 72 state-wide 
competitions and Special Olympics-Wisconsin was proud to award 
more than 27,000 medals and ribbons to deserving young men and 
women who overcame disabilities that few of us can even 
comprehend. Inspiring greatness in our athletes each and 
everyday is our goal.
    I speak only for the coalition, but I am confident that 
thousands of non-profits and charities totally agree with our 
views with respect to the Commission's proposed rulemaking. The 
common thread is that we all use and rely upon public appeals 
by professional representatives. These representatives perform 
at least two critical functions. First, they account for the 
lion's share of our revenue. For example, public appeals made 
by professional representatives account for more than 37 
percent of Special Olympics-Wisconsin's annual revenue.
    Second, and I emphasize this as an often overlooked point, 
they carry our program and mission to the general public, they 
put out the call for volunteers, and they build attendance at 
our games and competitions. That is very critical for a 
volunteer-driven organization like Special Olympics.
    Also, Mothers Against Drunk Driving often launches, 
advocates, and supports national, State, and local legislative 
and administrative campaigns. Their professional 
representative's telephone calls serve as a public alert and 
general call to arms with respect to those campaigns. Often, 
appeals for financial support are not made until the end of the 
    Fully two-thirds of all legitimate non-profits and 
charities rely upon professional representatives to make these 
public appeals. The Commission's proposed Do-Not-Call registry 
would irreparably harm every single one of these organizations, 
and it would deal a death blow to thousands of them. While the 
Commission predicts that its national registry would cut the 
potential donor call pool by 40 percent, knowledgeable 
observers suggest that the FTC's guesstimate is extremely low, 
and as if that were not enough, please allow me to explain how 
the Do-Not-Call registry further terrorizes non-profits and 
    Special Olympics-Wisconsin has individuals who have donated 
money to support our program in each of the last 5 years. 
Motivated by their understandable desire to avoid commercial 
telemarketing calls, one of these individuals may place their 
name on the FTC's Do-Not-Call registry. The professional 
representative for Special Olympics-Wisconsin would be 
prohibited from calling that proven donor supporter unless that 
individual had given his prior explicit consent to receiving a 
telephone call from our representative.
    Thus, by placing his name on the FTC's Do-Not-Call 
registry, that long-time donor supporter has unwittingly shut 
out contacts by Special Olympics-Wisconsin made by our 
representative. Ironically, because the FTC's Do-Not-Call 
registry totally exempts telemarketing calls for credit cards, 
banks, insurance, airlines, long distance services, and 
political candidates, they have left themselves open to many of 
the types of commercial calls they were hoping to avoid in the 
first place.
    While the not-for-profit and charitable community is 
bewildered and alarmed, we do not ascribe bad faith to the 
Commission for including our professional representatives and 
thus ourselves in this proposal. In Wisconsin, we had hearings 
on the Do-Not-Call laws. They passed a law which specifically 
exempts calls made on behalf of the not-for-profits. Also, as 
you all know, charitable calling in Wisconsin and every other 
State is highly regulated, so we respectfully ask that they 
reconsider their position and completely exempt these public 
appeals by our professional representatives and us.
    Finally, we seek the Subcommittee's active support of our 
efforts. Thank you.
    [The prepared statement of Mr. Alldridge follows:]

Prepared Statement of Dennis H. Alldridge, President, Special Olympics-
     Wisconsin, Non-profit and Charitable Coalition Representative

I. Introduction
    Mr. Chairman and Members of the Subcommittee, my name is Dennis H. 
Alldridge. I am the President of the Special Olympics Wisconsin 
(``SOWI''). I appear today before the Subcommittee on behalf of the 
Not-For-Profit and Charitable Coalition (``Coalition'') to offer 
testimony on the irreparable harm on nonprofit and charitable 
organizations that will result from the Federal Trade Commission's 
(``Commission'') implementation of a national ``Do-Not-Call'' registry 
pursuant to proposed amendments to the Telemarketing Sales Rule, 16 
C.F.R. Sec. 310 et seq. (``TSR''). At the outset, I want to clarify 
that my testimony is limited to the negative impact of the ``Do-Not-
Call'' registry as applied to nonprofit and charitable organizations 
and their professional fundraisers, that is, noncommercial conduct that 
is not intended to induce purchases of goods or services under the TSR 
and the Telemarketing Consumer Fraud and Abuse Prevention Act, 15 
U.S.C. Sec. 6101 et seq. (``Telemarketing Act'').
    As discussed in written comments filed with the Commission \1\ in 
response to the Commission's Notice of Proposed Rulemaking, see Notice 
of Proposed Rulemaking, 67 FED. REG. 4492 (Jan. 30, 2002) (``Notice''), 
SOWI and the Coalition strongly oppose the proposed TSR amendments and 
the national ``Do-Not-Call'' registry as applied to nonprofit and 
charitable organizations. \2\ The ``Do-Not-Call'' registry will 
decimate an already cash poor nonprofit and charitable industry. By the 
Commission's own estimates, up to 40 percent of all households will 
sign up with the ``Do-Not-Call'' registry. See Federal Trade 
Commission, Fiscal Year 2003 Congressional Justification Budget 
Summary, at 6. This probably is a conservative estimate based on 
information cited by the Commission. But even assuming the accuracy of 
the estimate, there is no doubt that most nonprofit and charitable 
organizations will not survive with a 40 percent reduction in 
communications with current and prospective donors and commensurate 
erosion of their charitable message and donations.
    \1\ SOWI's comment is available on the Commission's website at 
http:///www.ftc.gov/os/ comments/dncpapercomments/04/sowisconsin.pdf. 
The Coalition's comments are available at (1) http://www.ftc.gov/os/
comments/dncpapercomments/04/notfor profit.pdf, and (2) http://
www.ftc.gov/os/comments/dncpapercomments/supplement/npcc.pdf. These 
written comments are incorporated by reference into this Prepared 
    \2\ The Coalition participated in the public forum on the proposed 
TSR amendments held by the Commission on June 5-7, 2002. A transcript 
of the proceeding has not been released by the Commission.
    The Coalition has three major concerns. First, the ``Do-Not-Call'' 
registry as applied to professional fundraisers soliciting 
contributions on behalf of nonprofit and charitable organizations will 
devastate these organizations. It will reduce funding, impede the 
fulfillment of mission objectives, and silence the constitutionally 
protected dissemination of the nonprofit and charitable message. 
Second, the Uniting and Strengthening America by Providing Appropriate 
Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 
107-56 (Oct. 25, 2001) (``USA PATRIOT Act'') did not give the 
Commission jurisdiction to regulate nonprofit and charitable 
institutions and their professional fundraisers. Nor did it give the 
Commission authority to restrain nondeceptive, nonabusive, and 
legitimate charitable solicitations by professional fundraisers acting 
on behalf of legitimate nonprofit and charitable organizations. The 
Commission's contrary interpretation departs from its 1995 Advisory 
Opinion that the TSR generally imposes no restrictions on the 
legitimate fundraising activities of nonprofits and their professional 
fundraisers because a donation is not ``telemarketing'' under the 
Telemarketing Act and the TSR. Finally, the Coalition believes that the 
``Do-Not-Call'' registry is unconstitutional as applied to professional 
fundraisers who solicit charitable donations on behalf of nonprofit and 
charitable organizations. Such conduct by professional fundraisers is 
fully protected noncommercial speech under the First Amendment.
    We appreciate the willingness of the Subcommittee and staff to 
listen to the concerns of the nonprofit and charitable community, and 
we look forward to continuing our work with the Subcommittee in order 
to achieve a resolution. We respectfully submit that the only viable 
resolution is to permit nonprofit and charitable organizations to 
continue to fulfill their vital public functions by excluding from the 
Telemarketing Act and the proposed TSR amendments (including the 
proposed national ``Do-Not-Call'' registry) charitable solicitations by 
professional fundraisers on behalf of nonprofit and charitable 

II. Overview of Special Olympics Wisconsin and the Coalition
    My testimony today is based on more than twenty years experience in 
the nonprofit sector with the Special Olympics. I have been President 
of SOWI since 1989. Prior to my position with SOWI, I was the Executive 
Director of Illinois Special Olympics, Inc. between 1980-1989. As the 
Chief Executive Officer of SOWI, I have responsibility for the 
organization's planning, budgeting, public relations, and fundraising. 
These responsibilities are conducted in accordance with the standards, 
policies and procedures of the Special Olympics International and SOWI 
including, for example, SOWI's fundraising guidelines and ``Do-Not-
Solicit'' list.
    SOWI is an accredited program of Special Olympics, Inc. (``SOI''). 
SOI is an international nonprofit organization founded by Eunice 
Kennedy Shriver in 1968 to provide sports training and competition to 
persons with cognitive disabilities. \3\ SOI programs are patterned 
after the Olympic Games. In fact, SOI is the only organization 
authorized by the International Olympic Committee to use the word 
``Olympics'' in its corporate name. Similar to the Olympics, SOI has a 
global presence, with programs in every state and in 150 countries. It 
serves nearly 1,000,000 athletes and 500,000 volunteers who take part 
in more than 15,000 Special Olympics games around the world, involving 
24 summer and winter sports.
    \3\ Special Olympics' mission is to provide year-round sports 
training and athletic competition in a variety of Olympic-type sports 
for persons eight years of age and older with cognitive disabilities, 
giving them continuing opportunities to develop physical fitness, 
demonstrate courage, experience joy and participate in a sharing of 
gifts, skills and friendships with their families, other Special 
Olympics athletes and the community.
    SOWI alone serves 9,000 athletes in 220 Wisconsin communities 
participating in 72 statewide competitions. Participation in sports 
brings significant benefits to people with cognitive disabilities of 
all ages and abilities. Through the work of SOWI, persons with 
disabilities are given physical benefits (fitness, increased 
coordination, cardiovascular fitness and endurance), mental benefits 
(knowledge of rules and strategy, along with increased selfesteem, 
self-confidence, and pride), and social benefits (teamwork, interaction 
with peers and people without cognitive disabilities, opportunity to 
travel and learn about other places and interests, family pride, and 
increased community awareness and acceptance). These benefits empower 
SOWI athletes to lead richer, more rewarding lives by applying new 
skills and confidence to school, work, home and social life.
    SOWI's nonprofit mission is reflective of other members of the 
Coalition. The Coalition is composed of 277 national, state, and local 
nonprofit and charitable organizations with tax-exempt status under the 
United States Internal Revenue Code, 26 U.S.C. Sec. 501(c), that oppose 
the Commission's proposed rule. The Coalition includes a broad spectrum 
of organizations in the nonprofit and charitable sectors that provide 
highly diversified program benefits to the public and their members. It 
includes national nonprofits devoted to fighting disease and improving 
the quality of life for Americans such as Mothers Against Drunk 
Driving, The National Federation for the Blind, the Cancer Federation, 
and the Leukemia and Lymphoma Society. Many Coalition members target 
the special needs of sick or missing children such as The Kids Wish 
Network, Miracle Flights for Children, National Children's Cancer 
Society, and the Committee for Missing Children. In addition to these 
national charities, the Coalition consists of more than 180 statewide 
membership organizations representing hundreds of thousands of active 
and retired law enforcement officers, professional and volunteer fire 
fighters, Jaycees, and veterans.
    The public benefits created by the Coalition members are 
substantial and unparalleled. The various public safety organizations 
represent police chiefs, sheriffs, highway patrol, state and municipal 
police, narcotic officers, fire chiefs, professional fire fighters, 
paramedics and state investigatory personnel. As full time public 
safety personnel, the organizations are a unique and unrivaled source 
of knowledge and expertise on law enforcement, the fire service, and 
emergency medical services. They offer advice and counsel on criminal 
apprehension, detention, enforcement, fire safety, delivery of fire 
fighting services, and anti-terrorism expertise. They provide training 
and education on topics such as enhancements in law enforcement and 
fire fighting technology which improve the quality of services realized 
by the public. And many of the organizations sponsor comprehensive 
public service and educational programs on issues such as seat belt 
usage, home fire prevention, alcohol abuse, safe driving, illegal 
drugs, missing children, and community policing.
    Thousands of charitable causes and state and local community 
programs are sponsored, supported or funded by these public safety 
organizations. A few examples illustrate the connection between the 
Coalition members and community programs. Professional fire fighters 
represented in the Coalition provide extensive volunteer and financial 
support for The Muscular Dystrophy Association, and similar national 
support is provided by law enforcement organizations to the Special 
Olympics. Other examples include death benefit and benevolent programs 
for public safety officers killed or injured in the line of duty, 
scholarship programs for high school students, summer camps for 
underprivileged youths, hospital visits to children with terminal 
illnesses, and support of burn camps and burn victims.
    The Coalition also includes a significant number of state military 
veterans organizations affiliated with the American Legion, Military 
Order of the Purple Heart, Veterans of Foreign Wars, AMVETS, and the 
Vietnam Veterans of America. Together, these organizations facilitate, 
support, and fund countless public initiatives such as emergency 
financial aid; relocation, medical, employment and educational services 
for veterans; support for orphans and widows of veterans killed in the 
line of duty; assistance to disabled veterans in securing Veteran's 
Administration benefits and obtaining medical treatment, coordinating 
volunteer efforts that provide hundreds of thousands of hours of 
uncompensated services to hospitals; assisting veterans in obtaining 
employment; and providing transitional housing for homeless veterans.

III. Summary of the Proposed TSR Amendments
    The TSR regulates specific deceptive and abusive telemarketing 
practices as defined by the Telemarketing Consumer Fraud and Abuse 
Prevention Act, 15 U.S.C. Sec. 6101 et seq. (``Telemarketing Act''). 
Enacted in 1994, the Telemarketing Act represents an effort by Congress 
to address fraudulent commercial telemarketing conduct harmful to 
consumers. That mandate, however, does not support a regulatory 
interpretation that creates a government-imposed prohibition against 
communicating with certain consumers--upon risk of federal, state or 
civil liability. Nor does it support a regulatory scheme creating a 
mandatory fee-based telephone registry that will eliminate or 
significantly reduce all nonprofit and charitable telephone calls 
regardless of whether they are fraudulent, abusive or deceptive.
    Under the Telemarketing Act, the Commission's regulatory authority 
has been limited to deceptive and abusive telemarketing acts and 
practices intended to induce the purchase of goods or services, that 
is, commercial conduct. The Commission now proposes a fundamental 
departure from this approach that will compromise substantially the 
ability of nonprofit and charitable organizations to generate funding 
necessary to fulfill their vital missions and silence their nonprofit 
message. First, the Commission seeks to expand its jurisdiction by 
regulating nondeceptive, nonabusive, noncommercial and admittedly 
legitimate charitable solicitations by professional fundraisers acting 
on behalf, and as an extension, of nonprofit and charitable 
organizations. \4\ And second, the Commission seeks to implement a 
national ``Do-Not-Call'' registry applicable equally to commercial 
telemarketers and noncommercial charitable solicitations by 
professional fundraisers on behalf of nonprofit and charitable 
organizations. Combined, the proposed amendments will give the 
Commission the authority to do indirectly what it acknowledges cannot 
be done directly under the Telemarketing Act, that is, regulate 
nonprofit and charitable organizations by asserting jurisdiction over 
their inextricably linked agents and service providers that perform 
charitable solicitations on their behalf and function as an extension 
of these organizations.
    \4\ In fact, the Commission cites implicit Congressional support 
for the ``Do-Not-Call'' registry to regulate nondeceptive and entirely 
legitimate nonprofit and charitable communications. The Commission 
states that ``Congress recognized that telemarketers' right to free 
speech is in tension with and encroaches upon consumers' right to 
privacy within the sanctity of their homes . . . Congress provided 
authority for the Commission to curtail these practices that impinge on 
consumers' right to privacy but are not likely deceptive under FTC 
jurisprudence. This recognition by Congress that even non-deceptive 
telemarketing business practices can seriously impair consumers' right 
to be free from harassment and abuse and its directive to the 
Commission to reign in these tactics, lie at the heart of Sec. 310.4 of 
the TSR.'' See Notice, 67 FED. REG. at 4543. 16 C.F.R. Sec. 310.4, as 
proposed, will make it an abusive telemarketing act or practice in 
violation of the TSR if a professional fundraiser--acting on behalf of 
a nonprofit and charitable organization--places an outbound telephone 
call to any donor who subscribes to the ``Do-Not-Call'' registry.
    The Commission purportedly justifies the amendments on the grounds 
that consumers have a heightened interest in residential privacy and 
need protection against unscrupulous telemarketers that may perpetrate 
fraudulent charitable solicitations, see, e.g., Notice, 67 FED. REG. at 
4497 n.51. These are laudable goals, but there can be no serious 
question by the Commission that SOWI and members of the Coalition are 
not fraudulent. In fact, in the past, the Commission has found 
comparatively little evidence of charitable solicitation fraud. \5\ The 
vast majority of TSR comments filed with the Commission did not 
identify fraud as an issue, much less alleged nonprofit and charitable 
solicitation fraud. Notice, 67 FED. REG. at 4495 (``A majority of the 
comments received during the Rule review focused on issues relating to 
consumer privacy and consumer sovereignty, rather than on fraudulent 
telemarketing practices''). Indeed, the Better Business Bureau and 
other organizations consistently rank charitable solicitation fraud 
extremely low on complaint lists. \6\ To the extent that residential 
privacy is at stake, the Commission's broad and indiscriminate approach 
to regulate all telephone calls is neither constitutional nor 
reasonable based on the clear damage to nonprofit and charitable 
    \5\ Prepared Statement of the Federal Trade Commission on 
Charitable Solicitation Fraud before the Subcommittee on Oversight and 
Investigations of the Committee on Energy and Commerce, United States 
House of Representatives (Nov. 6, 2001) (``To date, the findings of 
fraud are few and far between, and the Commission continues to monitor 
this situation as aggressively as any the Commission has ever 
    \6\ See, e.g., Better Business Bureau Annual Complaint Summary--
1999 (ranking complaints against national charities as 524th on its 
list of complaints by type of business, with complaints against local 
charities ranking 271st); National Fraud Information Center, 
Telemarketing Fraud Statistics (charitable solicitation fraud not 
listed in the ``Top 10 Frauds'' in 2000 and 2001).
IV. The Proposed TSR Amendments Will Have a Devastating Impact on 
        Nonprofit and Charitable Organizations by Interfering with 
        Nonprofit and Charitable Missions
    The proposed TSR amendments will have an irreparable negative 
impact that will limit dramatically the ability of nonprofit and 
charitable organizations to use the services of professional 
fundraisers. The consequences will be devastating for members of the 
Coalition and include, but are not limited to, massive reductions in 
donations, diminished ability to satisfy important public safety and 
community functions based on limited resources, and substantial harm to 
consumers who benefit from, and rely upon, these functions. Perhaps the 
most significant harm will be silencing the communication and 
fulfillment of the mission objectives of nonprofit and charitable 
organizations. As noted by the United States Supreme Court, nonprofit 
and charitable organizations use professional fundraisers ``who 
`necessarily combine' the solicitation of financial support with the 
`functions of information dissemination, discussion, and advocacy of 
public issues.''' Village of Schaumburg v. Citizens for a Better Env't, 
444 U.S. 620, 632 (1980) (citation omitted). See Riley v. Nat'l Fed. of 
the Blind, 487 U.S. 781, 798 (1988) (``where the solicitation is 
combined with the advocacy and dissemination of information, the 
charity reaps a substantial benefit from the act of solicitation 
itself'') (citations omitted). Interfering with the solicitation of 
support likely would end the advocacy of ideas. Schaumburg, 444 U.S. at 
    Professional fundraisers are essential to the fulfillment of the 
nonprofit and charitable mission and necessarily involve the 
fundraisers' communication of the nonprofit message. For example, SOWI 
receives no federal funding. To provide expensive year-round program 
benefits, SOWI relies on nonprofit contributions from organizations, 
individuals, corporations, foundations, and fundraising by professional 
fundraisers. Indeed, professional fundraisers provide approximately 68 
percent of SOWI's annual income. 85 percent of these donations are from 
individual donors with long and reciprocally valued relationships 
involving financial support and volunteering with SOWI. These 
relationships are jeopardized by the proposed TSR amendments. 
Ultimately, the donations are used to fund competitions, training, and 
programs that not only help our athletes improve their skills, but also 
build self-esteem and confidence. In summary, SOWI fulfills its mission 
only through small donations from a large number of donors. Fundraising 
by professional fundraisers is essential to the survival of SOWI.
    12 SOWI's reliance on professional fundraising is not unique. By 
necessity or choice, many nonprofit and charitable organizations rely 
on professional fundraisers to solicit charitable donations on their 
behalf. An estimated 60 percent to 70 percent of nonprofit and 
charitable organizations use professional fundraisers to deliver their 
messages to consumers and solicit donations. Jeff Jones, Do Not Call: 
Proposed FTC Rules Could Hurt, THE NONPROFIT TIMES (Mar. 2002) (citing 
Paulette Maehara, CEO of the Association of Fundraising Professionals). 
Similar to SOWI, many of these organizations have small staffs in 
relation to the program benefits delivered. They simply do not have the 
infrastructure, personnel, operational efficiencies, and expertise to 
impart the fundraising message currently imparted by professional 
    Many nonprofit and charitable organizations have built 
constituencies through grass roots support. Telephones are the most 
practical and cost effective interactive medium for these organizations 
in recognition of the fact that direct (e.g., face-to-face) 
solicitation is logistically impossible and direct mail is cost 
prohibitive. Telephone calls by professional fundraisers confer obvious 
benefits. Trained professional fundraisers deliver prepared scripts, 
often created or approved by the nonprofit and charitable clients, to 
communicate the clients' messages. The fundraisers understand the 
unique state law requirements governing the communications. Most states 
require registration, bonds, and point-of-solicitation disclosures. \7\ 
Ultimately nonprofit and charitable organizations reap benefits from 
this process including (1) donations from consumers to support the 
needs of the organization, and (2) delivery of the central message of 
the nonprofit and charitable organization. In the case of SOWI, 
telephone calls to current and prospective donors by professional 
fundraisers allow us to (1) recruit volunteers to participate in SOWI 
athletic competitions, \8\ (2) spread the special message of SOWI to 
elicit public support for our programs, and (3) request donations.
    \7\ Donations to nonprofit and charitable organizations are 
regulated extensively under state laws. The overwhelming majority of 
states that have passed ``Do-Not-Call'' statutes of one form or another 
expressly exempt or exclude coverage of nonprofit and charitable 
solicitations including solicitations by professional fundraisers on 
behalf of these entities--a approach rejected by the Commission here. 
And virtually every state imposes statutory and regulatory requirements 
on professional fundraisers soliciting donations on behalf of nonprofit 
and charitable organizations such as registration and licensing, 
posting of bonds, point-of solicitation disclosures, fraud protection 
provisions, record keeping provisions, and annual reporting of 
financial information. These requirements serve numerous functions. 
They offer public information on the activities of charities, and they 
also allow state enforcement authorities to identify violations and 
prosecute where necessary.
    \8\ SOWI relies on approximately 17,000 volunteers to contribute 
350,000 hours to train our 9,000 athletes for 72 statewide 
    Nonprofit and charitable organizations rely on the expertise and 
operational efficiencies of professional fundraisers to conduct their 
fundraising campaigns and disseminate their message. SOWI employs 
several professional fundraising firms to provide these services with 
an extremely low incidence of complaints. There are advantages to this 
approach. Successful and cost-effective fundraising requires basic 
resources and specialized knowledge that nonprofit and charitable 
organizations lack. There must be a substantial investment of capital, 
a highly trained and supervised work force, and thorough knowledge of 
the state and federal regulatory requirements. Trained professionals 
offer significant resources, expertise and operational efficiencies 
that cannot be duplicated by nonprofit and charitable organizations. 
Indeed, that is why the substantial majority of nonprofit and 
charitable organizations rely on professional fundraisers.
    The implications of the proposed TSR amendments are staggering as 
applied to nonprofit and charitable solicitations. The nature of 
nonprofit and charitable organizations' communications with current and 
prospective donors will change fundamentally. Nonprofit and charitable 
organizations will be forced to assume this communications role 
because, as the Commission advises, solicitation by their employees or 
volunteers is not covered by the Telemarketing Act and the TSR. This 
creates government imposed competitive disadvantages on smaller and 
mid-sized nonprofit and charitable organizations that do not have the 
resources, personnel and constituencies to take up the slack as 
compared to larger, national nonprofit and charitable organizations 
that are better funded and more capable of engaging in fundraising. \9\ 
Many nonprofit and charitable organizations--including SOWI--would lack 
the ability and expertise to perform these functions. To be sure, the 
proposed TSR amendments will have an adverse effect on SOWI by 
eliminating a major source of support for our athletes, interfering 
with the recruiting of support from volunteers and solicitation of 
donations, and reducing our ability to provide our athletes with 
programs including competitions and other education endeavors. 
Comparable adverse results would be experienced by all nonprofit and 
charitable organizations that depend on the services provided by 
professional fundraisers.
    \9\ A compelling argument can be made that it would create an 
appearance of impropriety for the many state trooper and police 
organizations in the Coalition directly to contact donors.
V. The Commission Has Exceeded its Authority Under the Telemarketing 
        Act and the USA PATRIOT Act by Expanding its Jurisdiction to 
        Include Professional Fundraisers Acting on Behalf of Nonprofit 
        and Charitable Organizations
    The proposed TSR amendments misconstrue the Congressional purpose 
of the USA PATRIOT Act. Although the Commission acknowledges that the 
USA PATRIOT Act does not authorize the agency to regulate directly 
nonprofit and charitable organizations, Notice, 67 FED. REG. at 4497, 
nonetheless the agency employs a strained and flawed statutory 
construction that the USA PATRIOT Act amended the Telemarketing Act in 
a manner that ``compels the conclusion that for-profit entities that 
solicit charitable donations now must comply with the TSR, although the 
Rule's applicability to charitable organizations is unaffected.'' 
Notice, 67 FED. REG. at 4497 (footnote omitted).
    In reaching this conclusion, the Commission attributes three 
fundamental changes to the Telemarketing Act as a consequence of the 
USA PATRIOT Act. First, it contends that Section 1011(b)(3) of the USA 
PATRIOT Act amended and broadened the definition of ``telemarketing'' 
in the Telemarketing Act, 15 U.S.C. Sec. 6306(4), by adding the term 
``charitable contribution,'' although excluding contributions to 
political and religious organizations. Notice, 67 FED. REG. at 4496. 
Second, it asserts that Section 1011(b)(2) added to the ``abusive 
telemarketing acts or practices'' listed in the TSR certain disclosures 
by persons engaged in ``telemarketing for the solicitation of 
charitable contributions.'' Notice, 67 FED. REG. at 4496. And third, 
the Commission asserts that the USA PATRIOT Act amended the ``deceptive 
telemarketing acts or practices'' in the Telemarketing Act to include 
``fraudulent charitable solicitations.'' Notice, 67 FED. REG. at 4496.
    The Commission correctly notes a defect in the USA PATRIOT Act that 
is relevant to understanding the underlying Congressional intention. 
That is, Congress expressed no intention to expand upon the 
Commission's jurisdictional limitations under the Telemarketing Act. 
Notice, 67 FED. REG. at 4496 (``Notwithstanding its amendment of these 
provisions of the Telemarketing Act, neither the text of section 1011 
nor its legislative history suggest that it amends Sections 6105(a) of 
the Telemarketing Act--the provision which incorporates the 
jurisdictional limitations of the FTC Act into the Telemarketing Act 
and, accordingly, the TSR'') (emphasis added). One such jurisdictional 
limitation is the well-established lack of authority by the Commission 
over nonprofit and charitable organizations. Notice, 67 FED. REG. at 
4497 & n.49. And, as Congress unambiguously expressed in the 
Telemarketing Act, the Commission has no authority under the statute to 
regulate any activity not committed to the Commission's jurisdiction 
under the Federal Trade Commission Act. 15 U.S.C. Sec. 6105(a). Accord 
Notice, 67 FED. REG. at 4496-4497.
    The Commission claims that the failure of Congress to remove the 
jurisdictional limitations of the Telemarketing Act, when read in 
conjunction with the USA PATRIOT Act's mention of fraudulent charitable 
solicitations, ``compels the conclusion'' that the Congressional 
purpose in the USA PATRIOT Act was to regulate professional fundraisers 
soliciting charitable donations on behalf of nonprofit and charitable 
organizations. Notice, 67 FED. REG. at 4497. This interpretation is 
anything but compelled. It opens a Pandora's Box of inconsistencies and 
inequities under the Telemarketing Act and TSR that certainly were not 
intended by Congress. For example, though motivated by fraudulent 
charitable solicitations, there is no basis in the USA PATRIOT Act nor 
the legislative history to reach the conclusion that Congress believed 
that consumers are in more need of the Telemarketing Act protections 
where the charitable solicitation is performed by professional 
fundraisers on behalf of nonprofit and charitable organizations, as 
opposed to directly by the employees and volunteers of nonprofit and 
charitable organizations. And yet, under the proposed rule, this 
precisely is the outcome.
    A more plausible interpretation of the USA PATRIOT Act is that 
Congress intended to regulate bogus charitable solicitations where the 
nonprofit or charitable cause itself is of a criminal or fraudulent 
nature. This is vastly different from regulating all professional 
fundraisers soliciting donations on behalf of legitimate nonprofit and 
charitable organizations such as SOWI. The most compelling evidence of 
this Congressional purpose is not even addressed in the Commission's 
proposed rulemaking, that is, the legislative history of the USA 
PATRIOT Act. The ``Crimes Against Charitable Americans Act'' was 
introduced by Sen. Mitch McConnell (R-KY) on October 2, 2001. In his 
explanation of the need for the legislation and its intended purpose, 
Sen. McConnell consistently stated that the bill was intended to 
address fraudulent charitable solicitations by ``crooks'' and ``false 
charities'' of a ``criminal'' nature:

   ``But this largess have proven an irresistible target to 
        criminals who prey upon the generous and good-hearted nature of 
        Americans in this time of national emergency.'' 147 CONG. REC. 
        S10059, S10065 (daily ed. Oct. 2, 2001) (statement of Sen. 
        McConnell) (emphasis added).

   ``We heard reports of false charities exploiting well-
        intentioned Americans during the Gulf War and after the 
        Oklahoma City bombing and we now hear similar reports that the 
        September 11 attacks have given these unusually heartless 
        criminals new opportunities to perpetrate fraud.'' 147 CONG. 
        REC. S10059, S10065 (daily ed. Oct. 2, 2001) (statement of Sen. 
        McConnell) (emphasis added).

   ``Almost daily we hear of American citizens receiving 
        solicitations from phony charities.'' 147 CONG. REC. S10059, 
        S10065 (daily ed. Oct. 2, 2001) (statement of Sen. McConnell) 
        (emphasis added).

   ``News reports from more than a dozen States, from New York 
        to Florida to California, reveal that Americans are being asked 
        to contribute to what turn[s] out [sic] to be bogus victim 
        funds, phony firefighter funds and questionable charitable 
        organizations.'' 147 CONG. REC. S10059, S10065 (daily ed. Oct. 
        2, 2001) (statement of Sen. McConnell) (emphasis added).

   ``Instead, this money is siphoned into the pockets of cold-
        hearted criminals.'' 147 CONG. REC. S10059, S10065 (daily ed. 
        Oct. 2, 2001) (statement of Sen. McConnell) (emphasis added).

   ``These crooks often try to confuse their victims by using 
        names that sound like reputable charities and relief efforts.'' 
        147 CONG. REC. S10059, S10065 (daily ed. Oct. 2, 2001) 
        (statement of Sen. McConnell) (emphasis added).

   ``Other crooks use the name `firefighter fund' or `victim's 
        survivors fund' in their fraudulent appeals.'' 147 CONG. REC. 
        S10065 (daily ed.) (Oct. 2, 2001) (emphasis added).

   ``Not only do they steal valuable resources from the most 
        worthy of recipients, but they erode the trust of the American 
        people in legitimate charitable organizations.'' 147 CONG. REC. 
        S10059, S10065 (daily ed. Oct. 2, 2001) (statement of Sen. 
        McConnell) (emphasis added).

    The legislative history confirms that Congress sought to authorize 
the Commission to address criminal and fraudulent charities, not the 
legitimate nonprofit and charitable organizations now singled out by 
the Commission. Sen. McConnell advised the Commission as such on June 
14, 2002, when he wrote Chairman Muris and stated that ``[w]hen 
Congress enacted this legislation, it did not envision, nor did it call 
for, the FTC to propose a federal `do-not- call' list, and certainly 
not a list that applied to charitable organizations or their authorized 
agents . . .[T]he Crimes Against Charitable Americans Act never 
intended, called-for, required, or even envisioned the `do-not-call' 
list that the FTC is now proposing.'' June 14, 2002 Letter from Senator 
Mitch McConnell to The Honorable Timothy J. Muris (available at http://
wwwgrandlodgefop.org/letters/ltr--020614--ftc.pdf) (accessed July 14, 
    In fact, the best evidence in support of this interpretation is a 
Commission-issued Advisory Opinion interpreting the TSR and carefully 
distinguishing between legitimate professional fundraisers as opposed 
to fraudulent telemarketing. In an 1995 Advisory Opinion issued to 
American Telephone Fundraisers Association, Inc., a professional 
fundraiser, the Commission concluded that the TSR generally imposes no 
restrictions on the legitimate fundraising activities of nonprofits, 
including professional fundraisers, because seeking donations is not 
``telemarketing'' under the statute and rule. See The Applicability of 
the Telemarketing Sales Rule--The Telemarketing Rule generally Imposes 
No Restrictions on the Legitimate Fundraising Activities of Nonprofit 
Organizations, 120 F.T.C. 1154 (Dec. 15, 1995). The advisory opinion 

        The Commission's understanding is that telephone fundraising on 
        behalf of nonprofit organizations is not, in fact, typically 
        undertaken as part of a ``plan, program or campaign . . 
        .conducted to induce the purchase of goods or services.'' . . 
        .Legitimate fundraising activity is conducted primarily to 
        elicit donations and not to induce purchases. Even when donors 
        receive gifts, premiums, memberships or other incentives, 
        representatives of the non-profit sector have advised the 
        Commission that legitimate charities generally do not conduct 
        telephone solicitations in which the stated or actual value of 
        goods or services offered exceeds the amount of a donor's 
        payment. The Commission's enforcement experience suggests that 
        fraudulent telemarketers, in contrast, obtain money from 
        consumers by promising goods or services with inflated values 
        as consideration for smaller ``donations.''

    Id. (emphasis added). The Advisory Opinion also acknowledges that 
the ``Commission's construction of the term `telemarketing,' as defined 
in the Act and the Rule, is fully consistent with the legislative 
purpose of the Telemarketing Act. The Commission's interpretation 
permits efficient interdiction of fraud without encumbering the 
legitimate use of telemarketing by sellers of good or services or by 
non-profit entities. In summary, until the proposed TSR amendments were 
introduced, the Commission's interpretation was that the Telemarketing 
Rule generally imposes no restrictions on the legitimate fundraising 
activities of nonprofit organizations.'' Id. (emphasis added).

VI. The ``Do-Not-Call'' Registry is Unconstitutional as Applied to the 
        Noncommercial Speech of Nonprofit and Charitable Organizations 
        and Their Professional Fundraisers
    As applied to the noncommercial speech of nonprofit and charitable 
organizations and their professional fundraisers, the proposed ``Do-Not 
Call'' registry is unconstitutional because it violates the First 
Amendment right to freedom of speech. \10\ The Commission acknowledges 
that the First Amendment protections for nonprofit and charitable 
organizations ``extend to their for-profit solicitors.'' Notice, 67 
FED. REG. at 4497 n.51 (citation omitted). \11\ The Commission concedes 
a ``strong First Amendment protection of charitable fundraising.'' 
Notice, 67 FED. REG. at 4522 n.286. And it agrees that solicitations by 
professional fundraisers on behalf of nonprofit and charitable 
organizations is fully protected speech, not commercial speech. 
Ultimately, the proposed TSR amendments and the ``Do-Not-Call'' 
registry ``unduly intrude[s] upon the rights of free speech.'' 
Schaumburg, 444 U.S. at 633.
    \10\ U.S. Const. amend. I (``Congress shall make no law respecting 
an establishment of religion, or prohibiting the free exercise thereof; 
or abridging the freedom of speech, or of the press; or the right of 
the people peaceably to assemble, and to petition the Government for a 
redress of grievances'').
    \11\ See Riley v. Nat'l Fed. of the Blind, 487 U.S. 781 (1988) 
(``Our prior cases teach that the solicitation of charitable 
contributions is protected speech, and that using percentages to decide 
the legality of the fundraiser's fee is not narrowly tailored to the 
State's interest in preventing fraud''); Village of Schaumburg v. 
Citizens for a Better Env't, 444 U.S. 620, 632 (1980) (``Prior 
authorities, therefore, clearly establish that charitable appeals for 
funds . . . involve a variety of speech interests--communication of 
information, the dissemination and propagation of views and ideas, and 
the advocacy of causes--that are within the protection of the First 
    The regulation of charitable solicitations by professional 
fundraisers on behalf of nonprofit and charitable organizations does 
not survive strict scrutiny, because charitable solicitations are fully 
protected speech. Memorial Hosp. v. Maricopa County, 415 U.S. 250 n.21 
(1974). The proposed rule is not narrowly tailored to further a strong 
interest that the Commission is entitled to protect without interfering 
with the First Amendment protections of members of the Coalition. 
Secretary of the State of Md. v. Joseph H. Munson Co., Inc., 467 U.S. 
947, 959-61 (1984); Schaumburg, 444 U.S. at 636-37. Where, as here, the 
Commission attempts to regulate the content of protected speech, it 
must employ the least restrictive means to advance the articulated 
interest. Sable Communications of Cal., Inc. v. Federal Communications 
Comm'n, 492 U.S. 115, 126 (1989). Clearly the Commission has not 
satisfied this burden.
    Even assuming that the privacy protection and fraud prevention 
interests cited by the Commission warrant some change in the current 
regulatory scheme, it does not follow that the ``Do-Not-Call'' registry 
is narrowly tailored enough to accomplish this objective 
constitutionally. Time and again, the Supreme Court has held 
unconstitutional any effort by government to impinge upon free speech 
rights by imposing unreasonable restrictions on professional 
fundraisers acting on behalf of nonprofit and charitable organizations. 
In Riley, as in Munson and Schaumburg, the government imposed 
restrictions focused on unconstitutional economic regulations. Here, 
the Commission proposes an equally infirm national ``Do-Not-Call'' 
registry (1) to which all professional fundraisers acting on behalf of 
nonprofit and charitable organizations must subscribe, (2) through 
which all communications with prospective donors must be filtered 
monthly, and (3) by which the Commission will prohibit certain 
solicitations or face federal, state or civil penalties.
    Other constitutional problems are created by exempting specific 
industries that engage in inherently commercial telemarketing (for 
example, airlines, insurance companies, credit unions, telephone 
companies, banks) and specific types of conduct (for example, religious 
and political telemarketing and solicitations directly by nonprofit and 
charitable organizations). This facially discriminatory approach raises 
grave equal protection issues. By exempting certain commercial 
telemarketing from the TSR \12\ but not excluding professional 
fundraising on behalf of nonprofit and charitable organizations, the 
Commission favors commercial speech over protected speech. The Supreme 
Court has held unconstitutional a government ordinance that accorded a 
greater degree of protection to commercial speech than noncommercial 
protected speech. Metromedia, Inc. v. City of San Diego, 453 U.S. 490, 
513 (1980). This is exactly what is accomplished by the proposed rule--
the commercial speech freedoms of banks, insurance companies and other 
exempt industries would be unregulated by the Telemarketing Act, while 
the fully protected speech of the nonprofit and charitable 
organizations in the Coalition would be burdened.
    \12\ See Notice, 67 FED. REG. at 4493 n.17 (``In addition to these 
exemptions, certain entities including banks, credit unions, savings 
and loans, companies engaged in common carrier activity, non-profit 
organizations, and companies engaged in the business of insurance are 
not covered by the Rule because they are specifically exempt from 
coverage under the FTC Act'').
    No less of a concern is the proposal to exclude political and 
religious contributions from the TSR based on a policy decision that 
religious discourse is a ``paramount societal value'' and a legal 
conclusion that political contributions are neither commercial nor 
charitable within the meaning of the USA PATRIOT Act. Notice, 67 FED. 
REG. at 4499. The exclusions only reinforce the discriminatory effects 
and unconstitutionality of the proposed rule. Under the proposed rule, 
contributions for ``political parties and candidates'' are not covered 
by the TSR because ``they involve neither purchases of goods or 
services nor solicitations of charitable contributions, donations or 
gifts . . . '' Notice, 67 FED. REG. at 4499. And, purely ``as a matter 
of policy,'' the Commission proposes to exclude religious contributions 
because ``the risk of actual or perceived infringement on a paramount 
societal value--free and unfettered religious discourse--likely 
outweighs the benefits of protection from fraud and abuse that might 
result from including contributions to such organizations . . . '' 
(emphasis added).
    In doing so, the Commission favors political and religious speech 
over fully protected free speech and discriminates against nonprofit 
and charitable organizations. As the Supreme Court has explained, 
however, appeals for charitable contributions are inextricably 
intertwined with the underlying conveyance of information and ideas--
that is, speech. Schaumburg, 444 U.S. at 632 (``solicitation is 
characteristically intertwined with informative and perhaps persuasive 
speech seeking support for particular causes or for particular views on 
economic, political, or social issues, and for the reality that without 
solicitation the flow of such information and advocacy would likely 
cease''). These protections are fully vested even where a professional 
fundraiser is the conduit of the nonprofit and charitable 
organization's speech. These speech rights are entitled to the full 
protection of the First Amendment, and must receive no less protection 
than political speech or religious discourse. \13\
    \13\ The Coalition's written comments to the Commission discuss 
other constitutional infirmities with the proposed TSR amendments 
including unconstitutional prior restraint and content based 
restrictions and are incorporated by reference.
VII. Conclusion
    Thank you for the opportunity to share the views of SOWI and the 
Coalition on the substantial harm to nonprofit and charitable 
organizations as a result of the Commission's proposed TSR amendments 
and, specifically, the ``Do-Not-Call'' registry. We look forward to 
working with the Subcommittee to assure that the many important 
consumer benefits conferred by nonprofit and charitable organizations 
are not reduced or eliminated by the Commission's proposed TSR 

    Senator Wyden. Very good.
    Mr. Cannon.

                        ORDER OF POLICE

    Mr. Cannon. Good morning, Mr. Chairman. I would like to 
especially thank you, Ranking Member Fitzgerald and Senator 
McCain for allowing me to appear before you here today.
    My name is Lou Cannon. I am the President of the District 
of Columbia Lodge Number 1. I am here this morning at the 
request of the National President of the FOP, Steve Young, to 
provide the Subcommittee with the concerns of the more than 
300,000 members of the FOP with respect to the recent proposed 
rulemaking by the FTC and specifically the proposed national 
Do-Not-Call registry.
    The FOP is the Nation's largest law enforcement labor 
organization, with members in 43 State lodges and more than 
2,000 local lodges. The majority of these lodges and members 
are constantly engaged in charitable endeavors, and play an 
active role in the life of the communities they serve. Here in 
the District of Columbia, for example, the FOP is actively 
supporting such worthwhile organizations as the Boys & Girls 
Club, Concerns of Police Survivors, Easter Seals, Mothers 
Against Drunk Driving, Special Olympics, and in conjunction 
with the Washington Times, a local youth education program. All 
of these charitable enterprises are supported in part by the 
D.C. Lodge.
    In turn, we depend on the generosity of the community 
through grassroots fundraising efforts which enable us to 
support these community-wide programs and services. Since our 
organization is voluntary in nature, we do not have the staff 
nor the resources to raise the necessary funds to carry out 
these programs, and many of our State and local lodges must 
rely on the efforts of professional fundraisers.
    Sound public policy dictates that it would be inappropriate 
for public safety personnel themselves to call residents of 
their community and seek financial support. Indeed, in some 
jurisdictions it is illegal to do so. Thus, the use of an 
outside commercial telemarketing service bureau is a necessity 
for the FOP.
    The State and local lodges that hire these firms mandate 
that they maintain their own Do-Not-Call lists, placing the 
names of those who request it on the list. The creation of a 
second Do-Not-Call list would cause unnecessary confusion, and 
essentially mean that the firms employed by the FOP would be 
forced to follow two sets of rules on behalf of a single 
    In January of this year, the FTC published in the Federal 
Register a notice of proposed rulemaking to amend the 
Telemarketing Sales Rule, (TSR), which will negatively impact 
organizations like the FOP. As you know, the TSR prohibits 
specific deceptive and abusive telemarketing acts or practices, 
and it is currently limited to telemarketing for commercial 
purposes only.
    The proposed rule is aimed to implement Section 1011 of the 
USA Patriot Act, also known as the Crimes Against Charitable 
Americans Act. Although Section 1011 did not call for the FTC 
to establish a national Do-Not-Call registry, it has been 
included in the provisions of the proposed rule to implement 
that Act. The intent of Section 1011 was to crack down on 
fraudulent telemarketers using the September 11 terrorist 
attacks to pose as fake charities in order to take advantage of 
the compassion of American citizens.
    The FOP strongly opposes the establishment of this national 
Do-Not-Call registry. We further believe that the Government 
should not restrict the right of non-profit organizations to 
deliver their message and seek public support based solely upon 
who compensates the caller. This proposed list would not apply 
to all non-profits, only to those calls made on behalf of non-
profits by paid telemarketers, an issue on which the FOP has no 
choice. We must hire telemarketers.
    The fact that non-profits using paid employees to make the 
same calls will not be subject to the Do-Not-Call list creates 
a prohibited prior restraint on the non-profit organization 
that does not have the resources to use its own employees. The 
proposed rule places our regular supporters out of reach. 
Individuals wishing to minimize or eliminate calls received 
from annoying long distance companies will not realize they 
have placed themselves in a position whereby they cannot be 
called by organizations with which they have a prior, 
longstanding existing relationship.
    An added layer of the Do-Not-Call regulation will also have 
the unintended effect of raising the costs of fundraising by 
increasing compliance costs, and thereby reducing the net 
amount of funds available for community services and 
    In conclusion, the FOP believes the FTC's proposed 
amendments to the Telemarketing Sales Rules should be revised 
so that it does not apply to calls made by, or on behalf of, 
non-profit organizations that are not selling goods or 
services. We further believe that the Commission's proposed Do-
Not-Call registry is outside of the scope or intent of the 
Crimes Against Charitable Americans Act and should be 
eliminated from the proposed rule.
    On behalf of the membership of the FOP, let me thank you 
again, Mr. Chairman, for the opportunity to appear here and 
testify. I would be pleased to answer any questions you may 
    Senator Wyden. Thank you very much.
    My first question for the panel--and anyone who wants to 
respond is welcome to. Twenty-two States have enacted Do-Not-
Call lists. Do any of you believe that there have been 
significant--and I want to emphasize that--significant problems 
for consumers, businesses, non-profits, others at the State 
    Let me just go down the row, just significant problems.
    Mr. Mendoza.
    Mr. Mendoza. I do not think there have been significant 
    Mr. Sarjeant. I do not have any input on that.
    Mr. Schwartz. I have not heard of any significant input. I 
have spoken to many of the States.
    Mr. Alldridge. Indiana has lost a significant amount of 
money in charities because of the law.
    Senator Wyden. One State out of 22. Any others?
    Mr. Alldridge. Not that I am aware of.
    Mr. Cannon. I do not have the specific States, but talking 
to some of the telemarketers, they have said there have been 
significant reductions.
    Senator Wyden. We can keep it open if you folks at the 
Fraternal Order of Police want to give us a further answer. 
What I am looking for, obviously, I want to find out first if 
there are any big problems for anybody at the State level of 
the 22 States.
    Mr. Wientzen. Senator, I think a number of small businesses 
are telling us that they have had significant reductions in 
their revenue as a result of lost business, and certainly the 
teleservices industry has suffered in many of those States 
where there is a large number of people who have signed up, and 
the teleservices industry reports in a recent conference we 
held that they are having a rather significant amount of 
difficulty integrating the different rules that many of those 
States have imposed.
    Senator Wyden. If you all could get us some specific 
examples, and particularly what I would like to know is, four 
States, eight States, 12 States, every State, and some specific 
examples so we can really kind of get our teeth into some of 
the concrete problems that some seem to be concerned about.
    Mr. Alldridge. Senator, Indiana is one of only two States 
that does not have an exemption for the charitable call.
    Mr. Schwartz. Can I add something, too? I have had a 
problem doing the education, as someone who does education on 
privacy issues, educating different States on what the Do-Not-
Call lists are.
    One of the advantages of the national list is the ability 
to give one number, one easy way to be able to do this.
    Senator Wyden. Thank you for, in that adroit way, getting 
into a new argument.
    Mr. Wientzen. Senator, can I add one other point?
    Senator Wyden. Then I want to move on.
    Mr. Wientzen. Most of the States that have implemented Do-
Not-Call lists have prior business relation exemptions, I think 
21 of the existing State laws exempt any prior business 
relationship. If you start to have a situation where you cannot 
call your customers, I think you will see a very significant 
difference in a national list reaction.
    Senator Wyden. For the DMA, how different is your list from 
what the Federal Trade Commission is proposing?
    Mr. Wientzen. Well, I do not think it is different. That is 
one of our arguments. We have allowed people to get on this 
list. It is free. In our case, people stay on for 5 years. 
Perhaps the biggest difference is, we ask the individuals to 
give their address as well as their name and phone number in 
order that we can update that list as people change addresses.
    You know, America is a very changing society. About 16 to 
17 percent of the American society moves each year, gets a new 
telephone number for the most part. With the Federal Trade 
Commission proposal, we seriously doubt that those people will 
have their new number put on the list and the old number 
removed, and so our system is different in that regard.
    Senator Wyden. Well, my only point for all of you at DMA, 
and we have worked with you on a great many things, and I 
appreciate it, I would urge you to work with the Federal Trade 
Commission and see if we can find a way to resolve this, 
because if you all believe that your list is a lot like theirs, 
there ought to be at least some common ground here to see if we 
can come up with something.
    Mr. Schwartz. Can I also make an additional point here? I 
have to disagree with Mr. Wientzen. His list is not free for 
people who want to sign up on the Internet. It costs $5 if you 
want to sign up on the Internet, and then also you cannot call 
in to a toll-free number, as Chairman Muris suggested they 
would allow at the FTC. You have to mail the piece in as well. 
It is much more complex for consumers than the system that the 
FTC is proposing.
    Senator Wyden. Well, that is fair to comment on, but I do 
think that the DMA folks, to their credit, if they are saying 
what you are doing is in many respects like the Federal Trade 
Commission, we ought to have an opportunity to bring people 
    Mr. Wientzen. We are prepared to have those discussions, 
Mr. Chairman.
    Senator Wyden. Good. That is the point. For our non-profit 
friends, tell us what percentage of the organization's funds 
come from unsolicited telephone solicitations by professionals. 
Even a ballpark sense would be good.
    Mr. Alldridge. In the State of Wisconsin, that is 37 
percent of our revenue out of a $5.5 million budget.
    Mr. Cannon. It can vary depending on the amount of the 
agreements, anywhere from, I would say 20 percent on up, and 
there is a wide range across, with different agreements that 
you have with the telemarketers.
    Senator Wyden. Now, the Chairman, Chairman Muris said 
earlier the Federal Trade Commission ought to consider whether 
non-profits ought to be treated differently with respect to Do-
Not-Call lists. For those of you in the non-profits, what is 
your view of what different could mean, and what would be 
appropriate? Should soliciting by non-profits be totally 
unregulated, or the other modifications that could help you? 
Give us your sense of what that might consist of in a way, 
again, that would strike a balance, and would allow an effort 
to move forward.
    Mr. Cannon. As I testified, we have our own Do-Not-Call 
lists in place, so if you come across somebody that wishes to 
be removed, we automatically take them off. We tried to do this 
internally by using retired officers, and it was virtually 
impossible to do, because of the nature of the equipment that 
is needed, the cost of that equipment, and the amount of time 
that has to be dedicated to that, thereby making it impossible 
for it to be done internally, whereas the companies that do 
this have all the necessary resources.
    Also, we have developed longstanding lists that we have as 
contributors, so to be able to force us to remove them because 
of somebody that is calling for communications or something 
puts us at an extreme disadvantage.
    Senator Wyden. What if the Federal Trade Commission--and 
this is for the two non-profits--gave consumers the option of 
requesting to be put on the Do-Not-Call list for commercial 
calls only? Would that be helpful to you?
    Mr. Cannon. I think that would be extremely helpful, and 
that it would also solve part of the problem, that you do not 
want to be inundated by three or four long distance companies, 
as I can tell you I personally have over the course of a week. 
But, if you are interested, all of these deal with the 
community which they are in.
    It is not like DCFOP is going to call Wisconsin or 
something like that. You are dealing with your community base. 
You are bringing issues to the forefront that they may not know 
about, affording them an opportunity to help their own 
community by doing this. So I think that would certainly be a 
step in the right direction, by eliminating the commercial 
calls or separating them from your charitable calls.
    Senator Wyden. Mr. Mendoza I know has to leave. Is there 
anything you would like to add further?
    Mr. Mendoza. No, thank you.
    Senator Wyden. Anyone else?
    Mr. Alldridge. That is exactly what happened in Wisconsin. 
They were able to exempt the professional representatives and 
the non-profits.
    Senator Wyden. I am going to move on to cover a couple of 
matters on the common carrier issue. I would only say I just 
think this is doable, folks. I look at all of you, and I think 
there ought to be a way to find common ground. The DMA people 
have indicated they will talk to the Federal Trade Commission. 
That sounds constructive. Our folks with the non-profits have 
talked about various exemptions that could be helpful. I hope 
you will leave this and go out and try to find a way to put 
this together and do it in a way that works for all of the 
    A question for USTA and the Center for Democracy and 
Technology, and that relates to the proposal to end the 
exemption for the common carriers. Are there some areas like 
the Telephone Consumer Protection Act, where the FTC and the 
FCC both currently have some jurisdiction and responsibilities, 
and are working together?
    Mr. Sarjeant. Well, I think from an enforcement standpoint 
with respect to common carriers, it is principally the FCC. 
There may be some incidental areas where the FTC has been 
involved with common carriers, but I think it is almost 
exclusively the FCC.
    Mr. Schwartz. Actually, there is one area that we are 
focusing on that we focus on in our written testimony, which 
was the customer privacy network information rule that the FCC 
has really had quite a bit of back-and-forth on with the 
courts, and actually just came up with a new ruling yesterday. 
It would cover privacy of customer information, and that is 
where our concerns lay. How will the jurisdictional issues on 
privacy may go forward if the exemption is lifted. We would 
just like more information on that. That was really our main 
point here. How would the FTC deal with those issues where the 
jurisdiction does overlap? Currently, the FCC has stronger 
rules for consumers in some privacy areas.
    Senator Wyden. Mr. Sarjeant, the FTC Commissioners 
indicated that when the FTC tries to pursue enforcement against 
a company that has got common carrier activities, the agency 
goes out, spends a lot of resources and time repeatedly 
litigating the question of whether the common carrier exemption 
applies. What is your reaction to that? It does not look like a 
good use of the FTC's limited resources. I want them to go out 
and help my people with gas prices rather than wasting money.
    Mr. Sarjeant. As I listened to the Commissioners speak this 
morning, they seemed to be fairly accepting of the fact that 
the jurisdiction as established by statute over common carriers 
rests with the FCC. Certainly it is within their prerogative to 
test judicially whether or not there may be some areas where 
the statute may permit them concurrent jurisdiction, but what 
little case law exists that I have seen would seem to suggest 
that the courts have fairly well settled that the jurisdiction 
over common carriers rests with the FCC or those other agencies 
that regulate common carriers.
    Senator Wyden. I think that essentially what we are trying 
to do is make sure that we are not talking about common carrier 
activities like phone service and not the other lines of 
business the company may engage in like Internet services. 
Those are kind of the lines we are trying to draw here, and it 
seems to me that the Federal Trade Commission has got a good 
argument here. We will want to follow it up again with you. Is 
there anything you would like to add?
    Mr. Sarjeant. Well, I would just say Internet is a very 
good example. As the Senator probably knows, today the FCC has 
before it several proceedings where it is wrestling with just 
exactly what is Internet, and access to the Internet, whether 
or not you are a common carrier providing transport and you are 
connecting with an affiliated or an unaffiliated Internet 
service provider.
    The FCC is trying to get its arms around just exactly what 
that is. I think this would be a very bad time, in particular, 
for the FTC to begin to assert jurisdiction when we do not even 
have clarity concerning exactly what the appropriate regulatory 
classification for access to the Internet is.
    Senator Wyden. I guess we could continue this. I am the 
author of the Internet Tax Freedom Act, the Senate sponsor, so 
I think I have a pretty decent sense of what the Internet is, 
but I think we have gotten the drift with respect to your 
    Does anybody want to add anything further? We wanted you 
all to give us good information with respect to the do-not-call 
issue and also on the common carrier exemption. I think it has 
been constructive. We will give you the last word if anybody 
wants to add anything.
    Mr. Wientzen. Mr. Chairman, I think the Subcommittee would 
be well-served to spend some energy looking into the proposed 
cost, the estimated cost of a national Do-Not-Call registry 
both to put it together and how it will be maintained. I think 
it is far more complicated than perhaps has been uncovered to 
this point.
    Some of our folks are telling me that it is estimated it 
will cost $80 million to put it together to start with, which 
is way more, I think, than some of the initial estimates.
    Senator Wyden. You might have quit while you were ahead, 
because it sure is not going to cost $80 million if your good 
people who are operating something that seems to be close to 
the FTC work together with the FTC.
    Mr. Wientzen. That might well be the case, Mr. Chairman. 
That is why we are willing to talk about it.
    Senator Wyden. Good. That is the bottom line, is trying to 
figure out a way to get the stakeholders together and to get it 
    We appreciate all of you. We have worked with you on many 
occasions, and your organizations, and it has been very 
constructive, and we look forward to working with you in the 
days ahead.
    The hearing is adjourned.
    [Whereupon, at 12:15 p.m., the hearing adjourned.]