[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]




 
   REAUTHORIZATION OF THE FEDERAL TRADE COMMISSION: POSITIONING THE 
                COMMISSION FOR THE TWENTY-FIRST CENTURY

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                COMMERCE, TRADE, AND CONSUMER PROTECTION

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 11, 2003

                               __________

                           Serial No. 108-30

                               __________

      Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

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                            WASHINGTON : 2003

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                    COMMITTEE ON ENERGY AND COMMERCE

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

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                      Ranking Member
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
CLIFF STEARNS, Florida               EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio                RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania     RICK BOUCHER, Virginia
CHRISTOPHER COX, California          EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina         SHERROD BROWN, Ohio
  Vice Chairman                      BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia             BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois               BART STUPAK, Michigan
HEATHER WILSON, New Mexico           ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING,       GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        TOM ALLEN, Maine
MARY BONO, California                JIM DAVIS, Florida
GREG WALDEN, Oregon                  JAN SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho

                   Dan R. Brouillette, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

        Subcommittee on Commerce, Trade, and Consumer Protection

                    CLIFF STEARNS, Florida, Chairman

FRED UPTON, Michigan                 JAN SCHAKOWSKY, Illinois
BARBARA CUBIN, Wyoming                 Ranking Member
JOHN SHIMKUS, Illinois               HILDA L. SOLIS, California
JOHN B. SHADEGG, Arizona             EDWARD J. MARKEY, Massachusetts
  Vice Chairman                      EDOLPHUS TOWNS, New York
GEORGE RADANOVICH, California        SHERROD BROWN, Ohio
CHARLES F. BASS, New Hampshire       JIM DAVIS, Florida
JOSEPH R. PITTS, Pennsylvania        PETER DEUTSCH, Florida
MARY BONO, California                BART STUPAK, Michigan
LEE TERRY, Nebraska                  GENE GREEN, Texas
ERNIE FLETCHER, Kentucky             KAREN McCARTHY, Missouri
MIKE FERGUSON, New Jersey            TED STRICKLAND, Ohio
DARRELL E. ISSA, California          DIANA DeGETTE, Colorado
C.L. ``BUTCH'' OTTER, Idaho          JOHN D. DINGELL, Michigan,
W.J. ``BILLY'' TAUZIN, Louisiana       (Ex Officio)
  (Ex Officio)

                                  (ii)




                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Leary, Hon. Thomas B., Commissioner, Federal Trade Commission    35
    Muris, Hon. Timothy J., Chairman, Federal Trade Commission...    10
    Swindle, Hon. Orson, Commissioner, Federal Trade Commission..    33
    Thompson, Hon. Mozelle W., Commissioner, Federal Trade 
      Commission.................................................    30
Additional material submitted for the record:
    Federal Trade Commission, letter dated July 2, 2003, 
      enclosing response for the record..........................    58

                                 (iii)




   REAUTHORIZATION OF THE FEDERAL TRADE COMMISSION: POSITIONING THE 
                COMMISSION FOR THE TWENTY-FIRST CENTURY

                              ----------                              


                        WEDNESDAY, JUNE 11, 2003

              House of Representatives,    
              Committee on Energy and Commerce,    
                    Subcommittee on Commerce, Trade and    
                                       Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2123, Rayburn House Office Building, Hon. Cliff Stearns 
(chairman) presiding.
    Members present: Representatives Stearns, Shimkus, Shadegg, 
Bass, Ferguson, Otter, Tauzin (ex officio), Schakowsky, Markey, 
Stupak, Green, McCarthy, and Strickland.
    Staff present: Kelly Zerzan, majority counsel; Ramsen 
Betfarhad, majority counsel and policy coordinator; Jill 
Latham, legislative clerk; Jon Tripp, deputy communications 
director; and Jonathan Cordone, minority counsel.
    Mr. Stearns. Good morning. I would like to welcome all of 
you to the Reauthorization of the Federal Trade Commission: 
Positioning the Commission for the 21st Century hearing at the 
Subcommittee on Commerce, Trade, and Consumer Protection. I 
would like to welcome and thank the Chairman of the Federal 
Trade Commission, Mr. Muris, and three of the FTC 
Commissioners, Mr. Leary, Thompson, Swindle, for appearing 
before the committee on the matter of this reauthorization.
    In working with the Commission we had specifically 
scheduled the hearing today as the schedule of all five 
Commissioners permitted them to be here. Unfortunately, due to 
urgent family matters, Commissioner Sheila Anthony is not 
available to testify this morning.
    As I have suggested in the past, I think the Congress must 
undertake its basic household duties, and this is one of them, 
more diligently. One such duty is reauthorizing the various 
agencies of the Federal Government. That is what we are trying 
to accomplish starting this morning with this hearing.
    Now, my colleagues, the last time we reauthorized the 
Commission was in 1996, some 7 years ago, when we authorized it 
through fiscal year 1998. The reauthorization process accords 
us with the opportunity to carefully examine the mission of the 
agency, its effectiveness in advancing the mission. In that 
light I am pleased that the Commission is presenting a number 
of legislative proposals to the committee this morning that it 
deems necessary for its better fulfillment of its mission, in 
particular its consumer protection mission.
    I commend the Commission for being proactive on these 
matters. I do want to perhaps express a little concern I had 
that the committee was not informed in a timely manner of the 
Commission's intent to present its legislative proposal with 
respect to spam at today's hearing.
    That said, this hearing is a good opportunity for us to 
hear the Commission's argument in support of its three major 
legislative proposals. The first FTC legislative proposal calls 
for the elimination of the FTC Act's common carrier exemption. 
The statutory exemption precludes the Federal Trade Commission 
from investigating and prosecuting common carriers for both 
anticompetitive behavior and deceptive, unfair and fraudulent 
activities. The Commission seeks a revisit of that exemption, 
in particular with respect to its ability to pursue deceptive, 
unfair, fraudulent non-common carrier activities of a 
telecommunications common carrier.
    As the subtitle of this hearing is ``Positioning the 
Commission for the 21st Century,'' I will obviously listen very 
carefully to the Commission's arguments that the exception--
exemption rather--was written into the statutes some 70 years 
ago. So this is sort of a landmark discussion that we are 
having here, and so I think everybody in the industry and here 
in government will follow this discussion very carefully 
because of its huge implications.
    Now, my colleagues, the second Federal Trade Commission 
legislative proposal addresses spam, the modern scourge of e-
mail users everywhere. The legislative proposal as opposed to 
the procedural one especially calls for investing the Federal 
Trade Commission with broad rulemaking authority addressing 
deceptive and abusive practices with respect to unsolicited 
commercial e-mail along the lines of similar authority granted 
to it with respect to telemarketing by Congress in the 
Telemarketing Consumer Fraud and Abuse Prevention Act of 1991.
    What I find curious about the proposal, an issue that I 
would like to further explore with the Commissioners, is the 
qualifying language that surrounds the proposal making the 
proposal seem tentative. Specifically the Commission's 
testimony prefaces the proposal by stating that, ``section 5 of 
the FTC Act provides a firm footing for spam prosecution. 
Additional law enforcement tools could make more explicit the 
boundaries of legal and illegal conduct.'' More significantly, 
the statement concludes by stating that, ``admittedly the 
Commission recognized that these legal systems will not solve 
the growing spam problem, nor is it clear what impact these 
systems will have on some of the other problems associated with 
spam; for example, volume and security.''
    Mr. Tauzin, the chairman of this committee, the full 
committee, drafted a bill, H.R. 2214. I am an original 
cosponsor of that bill, Reduction and Distribution of Spam Act 
2003. So we could be interested in working closely with the 
Commission so that we can advance from this committee and the 
Congress an effective spam legislation in light of some of your 
comments.
    Another issue, the Commission's sweeping cross-border fraud 
legislative proposal is one that I think is quite worthy of 
careful consideration by members. I believe if we derive the 
right formulation of that language it could indeed empower the 
FTC to be more effective in tackling this challenge in this 
century. It is important that the proposal be rigorously 
debated, making sure that civil liberties are not compromised.
    Still, as the Commission is well aware, we need to respond 
more effectively to fraud that finds its genesis overseas. For 
example, one reason that spam has problems--as a problem defies 
easy solution is the fact that even if we combat it effectively 
within the United States, within our borders, spam will 
continue to be a serious nuisance and a costly problem because 
it is dispatched from overseas. Thus it is imperative that we 
explore ways to better protect our consumers from unfair, 
deceptive and fraudulent activities that increasingly have 
international dimensions to them.
    I will work closely with the Commission in further 
developing its cross-border fraud proposals in ways that do not 
abridge our civil liberties with the objective of enacting 
legislation, if possible, this year.
    In conclusion, I would like to raise a number of issues for 
the Commission's consideration. First, I think it is imperative 
that the Commission focus more resources on its efforts 
fighting ID theft and assisting the victims of this crime. I 
ask that the Commission consider any and all ideas that would 
help consumers find speedy redress. Time permitting, I will 
raise with you a few thoughts that I have during the question 
and answer session.
    Second, I think it is time for the Commission to seriously 
consider promulgating a rule separate and distinct from the 
franchise rule addressing business opportunities.
    Third, I have followed the Commission's activities with 
respect to information security, specifically the Eli Lilly and 
Microsoft consent agreements. I again commend the Commission 
for being proactive on an issue of very substantial importance. 
Still, I am concerned that consent decrees concluded at the 
agency level may now effectively become the corpus of legal 
guidance on information security obligations with respect to 
their customer's personal data. I seek to explore this issue 
this morning and in the near future with the Commission.
    I thank all of them for coming and their participation this 
morning, and I look forward to their testimony. And with that, 
the ranking member is welcome for an opening statement.
    Ms. Schakowsky. I thank you, Mr. Chairman, and I thank the 
chairman of the full committee for holding this important 
hearing today as well. I want to thank the Commissioners from 
the Federal Trade Commission for being here today. I am sorry 
that Commissioner Sheila Anthony was not able to be here and 
hope the other Commissioners will extend to her my gratitude 
for all her work on behalf of the consumers.
    It is my understanding that later this session the 
subcommittee will consider legislation that will reauthorize 
the Federal Trade Commission for the next several years. The 
FTC is here today to share its views on what should be included 
in this legislation, and I look forward to hearing from all of 
you.
    That being said, I hope that in the near future the 
subcommittee will have an opportunity to hear from consumers 
and law enforcement officials and other experts on FTC 
reauthorization. I hope that the chairman will agree to hold 
more hearings to ensure that we have a record that includes a 
diverse range of views before we consider legislation that 
would reauthorize the FTC.
    The FTC is responsible for protecting consumers and 
businesses from unfair deceptive trade practices. The FTC is 
responsible for policing the marketplace and holding bad actors 
accountable. This is an extremely important mission because our 
constituents are far too vulnerable to unscrupulous companies 
that put their own bottom line above all else, including 
obeying the law. And whether it is at the gas pump, while at 
the pharmacy, while purchasing a home, families need to be 
protected from unfair and deceptive business practices and 
other types of fraud.
    It is very important that our laws and regulations are 
vigorously enforced by the FTC. Perpetrators of fraud need to 
know that they will be held accountable for their actions. The 
public needs to be assured that their rights are being 
protected. It is the FTC's job to put the interest of consumers 
first and foremost at all times without exceptions. It is the 
subcommittee's responsibility to ensure that the FTC enforces 
the law and vigorously protects the public from unfair and 
deceptive trade practices.
    The FTC works to prevent fraud and deception from occurring 
in the first place. This is an increasingly difficult job 
because identity thieves and other scam artists are always 
working to be one step ahead of the law. The Internet and other 
technological advances have made it increasingly difficult to 
find perpetrators and protect consumers. No crime provides a 
better example of this challenge than the problem of identity 
theft.
    And according to the Federal Trade Commission, in 2002 
identity theft was the No. 1 consumer complaint for the third 
year in a row. The number of identity thefts doubled in 2002. 
In 2002, there were at least 7,400 victims in Illinois and over 
2,700 in Chicago. This is--and I represent a district on the 
North Side of Chicago. This is probably just the tip of the 
iceberg. Leading consumer groups estimate that there were 
800,000 victims last year.
    Victims are frequently unaware that their identity has been 
stolen in the first place. Thieves can use stolen personal 
information to create fake IDs, cash checks, apply for credit 
cards, loans and mortgages. Consumers have spent years and 
thousands of dollars attempting to clear their credit reports. 
Many have lost their ability to borrow, buy a new home or 
refinance a mortgage through no fault of their own. I have 
heard from constituents who have had their identities stolen, 
and it is a difficult ordeal.
    The FTC has worked hard to educate consumers on how they 
can protect their identity. The FTC has also worked to create a 
master complaint form that is used by the public and private 
institutions, and I commend the FTC for these efforts. 
Nevertheless, the fact remains that victims have a very, very 
difficult time restoring their credit record. I hope the FTC 
will take additional steps to help consumers.
    I want to work with my colleagues to assist in your efforts 
to turn the tide on these serious problems. We also need to 
look at ways in which we can help the FTC work closer with 
foreign governments while at the same time ensuring that the 
constitutional privacy rights of our constituents are not 
infringed upon. I want to hear the FTC's views on this issue.
    Today the Commission will testify on a proposal to remove 
the FTC's exemption from regulating the advertisements of long 
distance telephone companies. Some telecommunication companies 
have evoked the common carriage exemption to prevent the FTC 
from taking enforcement actions. I question if the common 
carriage exemption serves the public interest. The FTC has 
expertise in fighting unfair and deceptive trade practices. I 
also look forward to hearing about the Commission's efforts to 
implement the National Do Not Call List, fight predatory 
lending and combat spam.
    Thank you.
    Mr. Stearns. I thank the gentlelady. And the gentleman from 
Illinois, Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman. Let me welcome the 
Commissioners back to this hearing to talk about the 
reauthorization. The FTC has an important role because it is 
one that the public really understands for the most part. I 
mean, they understand the issue of the Do Not Call List. They 
understand the crisis of identity theft. They understand the 
problems with spam. They may not have a full understanding nor 
do many legislators on the common carrier exemption, which will 
be addressed and discussed and debated. But that is why we are 
having this hearing today, to get in a position to move on a 
reauthorization bill and tweak the legislative language that we 
need to do to face a new era with new technology and new 
challenges.
    So we are really pleased to have you here. I want to 
apologize up front. I have another competing hearing at 11, so 
I am going to stay to hear most of your statements. I don't 
know if I will be around to ask some questions, but I look 
forward to hearing your testimony. And with that, Mr. Chairman, 
I yield back my time.
    Mr. Stearns. I thank the gentleman. The gentleman from 
Michigan, Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman, and thank you for 
holding this hearing, and I welcome our distinguished panel 
here today. First, I would like to commend the Commissioners 
and the FTC for their aggressive pursuit of the Federal Do Not 
Call Registry. I have had countless constituents express 
frustration to me about the frequent telemarketing calls that 
they receive. I have been pleased to report to them that both 
Congress and the FTC have sought to address this problem and 
that help is on the way in the form of the FTC Do Not Call 
List.
    Along these lines is my concern about another abusive 
practice, spam. I believe that Congress must take action on 
this subject, and I would support providing the FTC with 
greater authority to address the rise of spam. These 
unsolicited e-mails range from commercial e-mail that clog up 
Internet service providers and frustrate customers to offensive 
pornographic e-mails that can be opened by unsuspecting 
children. I support cracking down on spam so we can protect 
business, consumers and our children, and pledge to work with 
the FTC on the necessary measures that are needed.
    Last, but certainly not least, I am very interested in the 
hearings the FTC is conducting on health care issues and 
competition, particularly as they relate to insurance 
companies, and I look forward to reviewing the results of the 
FTC report.
    The FTC is involved in issues that are of the utmost 
importance to consumers: telemarketers, spam, health care as 
well as the ongoing antitrust enforcement in the oil and gas 
industries and identity theft. While I do not believe the FTC 
enforcement should take the place of the rights of individual 
consumers or the State Attorney Generals who seek remedies, I 
believe that by providing all of these parties with sufficient 
remedies we can make real progress in the area of consumer 
fraud and abuse.
    Like Mr. Shimkus, I will have to leave shortly for another 
hearing in the Telecommunications and Internet Subcommittee, 
but I hope to hear some of the testimony today and look forward 
to proceeding with the reauthorization of the FTC.
    And with that, Mr. Chairman, I would yield back the balance 
of my time.
    Mr. Stearns. Thank the gentleman. And the vice chairman of 
the subcommittee, the gentleman from Arizona, Mr. Shadegg.
    Mr. Shadegg. Thank you, Mr. Chairman. And first let me 
thank you for holding this important hearing. And let me also 
thank Chairman Muris and Commissioners Thompson, Swindle and 
Leary for their testimony today.
    I am particularly interested to hear about the Commission's 
efforts to educate consumers and help them deal with and combat 
identity theft. My personal interest in identity theft began 
about 5 years ago when two of my constituents, Bob and JoAnn 
Hartle of Phoenix, Arizona, were the victims of an identity 
theft. My constituents were instrumental in securing passage of 
the first State law in the Nation to criminalize identity theft 
as a crime in and of itself.
    Mr. And Mrs. Hartle suffered the devastation of identity 
theft when a convicted felon took Mr. Hartle's identity and 
made purchases totaling more than $100,000. This individual 
also used Mr. Hartle's identity to obtain a pass to the secure 
areas of Phoenix Sky Harbor International Airport, an offense 
which today following 9/11 would be considered extremely grave. 
On top of that he obtained handguns using Mr. Hartle's clean 
record to get around the Brady gun law. As a result of their 
victimization, Mr. and Mrs. Hartle were forced to spend more 
than 4 years of their lives and more than $15,000 of their own 
money to restore their credit because there were no Federal 
penalties for identity theft.
    Their case led me to introduce a bill in the House that was 
eventually signed into law. The Identity Theft and Assumption 
Deterrence of 1998 gave Federal law enforcement agencies the 
authority to investigate and prosecute identity theft as a 
Federal crime for the first time. Mr. and Mrs. Hartle also 
turned their unfortunate circumstance into something positive 
by establishing a nonprofit organization to assist other 
victims of identity theft. Their website, www.idfraud.net, is 
available to provide guidance to identity theft victims 
nationwide.
    Identity theft ranges from single individuals, like the 
criminal who victimized the Hartles, involving small or large 
amounts of money, to large organized professional crime rings. 
TriWest Healthcare Alliance, a company located in my district, 
may have been the victim of a professional crime ring. On 
December 14, 2002, computer hard drives containing their 
clients' sensitive, personally identifiable information were 
stolen from TriWest's Phoenix office. The stolen data included 
personally identifiable information such as Social Security 
numbers, birth dates and addresses for military personnel, one 
quarter of whom were on active duty at the time, retirees and 
family members who were served by TriWest under a contract with 
the Department of Defense.
    The nature of identity theft has changed over time and 
today it is more likely than ever to involve breaches of 
security data. According to an identity fraud manager at the 
Federal Trade Commission, there is a shift by identity thefts 
from going after single individuals to going after mass amounts 
of information. Law enforcement experts now estimate that half 
of all cases involve thefts of business data banks as more and 
more information is stored in computer data bases that are 
vulnerable to hackers.
    The identity theft legislation that I introduced was signed 
into law in 1998 and was an important first step to crack down 
on identity fraud and identity theft. However, more legislation 
is needed in this area to protect consumers from identity theft 
and to ensure the soundness and secureness of our economy. I am 
currently in the process of developing a legislative response. 
I will look forward to hearing your testimony on this and other 
issues and appreciate your presence here today.
    Yield back the balance of my time.
    Mr. Stearns. Thank the gentleman. The gentleman from Texas, 
Mr. Green.
    Mr. Green. Thank you, Chairman Stearns and Ranking Member 
Schakowsky, for holding this important hearing on the 
reauthorization of the Federal Trade Commission. As the agency 
dedicated to protecting the interests of American consumers, 
the FTC has the important and admirable mission of ensuring 
both competition and consumer protection in the marketplace.
    Like my colleagues, I would like to thank the FTC for its 
swift implementation of the Do Not Call Registry. While I 
initially urged that Congress approve stronger language, I am 
glad that beginning this summer consumers will have the power 
to reduce the number of annoying telemarketing calls that too 
often interrupt precious and yet increasingly limited time that 
the American families have to spend together. The 
implementation of this registry is truly a victory for our 
consumers.
    Additionally, I would like to offer my personal thanks to 
the FTC for its role in protecting Spanish speaking consumers 
in my hometown of Houston and across America who have been 
victimized by deceptive and unfair debt collecting practices. 
As a result of the Commission's actions against Houston based 
United Recovery Systems, our Spanish speaking consumers can be 
assured that they are afforded the same consumer protections as 
English speaking consumers.
    I understand our witnesses will be offering several 
specific legislative proposals to enhance the FTC's ability to 
protect consumer interests, and I agree with the Commission 
that the common carrier exemption is outdated and the FTC's 
ability to protect consumers from anticompetitive and deceptive 
practices should also apply to the telecommunications industry. 
Times have changed and the telecommunications industry is no 
longer a government regulated monopoly. Telecommunications is a 
deregulated, competitive industry and its customers should be 
afforded the same consumer protections that they receive when 
dealing with our competitive industry.
    Additionally, I am pleased that the Commission wishes to 
broaden its authority to address the problematic issue of spam. 
Last year Congresswoman Heather Wilson and I introduced spam 
legislation. We are putting together the final touches on 
similar but updated legislation for this Congress. Our 
legislation will provide for broad strong enforcement and seeks 
to eliminate loopholes, to provide consumers a true and 
effective opt out option from unwanted e-mail, much of what is 
pornographic.
    One spam bill, H.R. 2214, imposes a knowledge standard that 
the Commission must prove to successfully bring a civil action 
for violations of three provisions of the bill. I am concerned 
with how this unusual proposal compares with traditional 
enforcement authority, and I would hope that would be addressed 
by our witnesses. It seems safe to say that the FTC would less 
likely bring an action in situations where it would be required 
to prove a knowledge standard.
    Again, I look forward to working with you to crackdown on 
spammers, and I will listen with interest to the legislative 
proposals and further that goal. And again thank you, Mr. 
Chairman and ranking member, and for our witnesses being here 
today.
    Mr. Stearns. I thank the gentleman. Gentleman from Idaho.
    Mr. Otter. I will pass.
    Mr. Stearns. Okay. The gentleman from Idaho passes. Mr. 
Ferguson.
    Mr. Ferguson. Thank you, Mr. Chairman. I appreciate your 
holding this hearing. I thank Chairman Muris and the 
Commissioners for participating.
    Mr. Chairman, the FTC provides a substantial service to the 
consumers of our country and to our economy as a whole. In many 
instances the FTC is the watchdog that stands up for consumers 
against bad actors in the marketplace who engage in deceptive 
marketing or other fraudulent activities. Whether combating 
telemarketing fraud, Internet scams or price fixing schemes, 
the FTC's primary mission is to protect consumers.
    Today I look forward to hearing from the panel regarding 
their recommendations as the FTC looks forward in their role to 
protecting consumers in the future. We must, however, recognize 
that when reassessing the role of the FTC, that we do not 
duplicate authority or create further jurisdictional ambiguity. 
We all know that today's budgets are tight. It simply doesn't 
make sense to give one agency new authority to enforce laws and 
regulations already enforced by another agency. Our Nation's 
telecommunications sector has seen some tough times recently 
and it seems foolish to me to add one more layer of government 
red tape to stifle innovation and hamper growth.
    I look forward to hearing the testimony of our panel today 
and also to hearing specifics on why the FTC needs perhaps a 
new and broader mandate. Thank you again, Mr. Chairman. I thank 
the members of the panel for coming here today, and I yield 
back.
    Mr. Stearns. Thank the gentleman. Gentlelady from Missouri, 
Ms. McCarthy.
    Ms. McCarthy. Thank you, Mr. Chairman. I am going to submit 
my remarks for the record. They touch on many of the issues my 
colleagues on the committee have already raised. I am very 
grateful to you for this hearing and the Chairman and 
Commissioners for sharing their thoughts with us today. I yield 
back.
    Mr. Stearns. All right. I thank the gentlelady.
    [Additional statements submitted for the record follow:]
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming
    Thank you, Mr. Chairman, for holding this hearing. I commend your 
continued leadership of this Subcommittee, as we explore another timely 
and important matter in the reauthorization of the Federal Trade 
Commission.
    I would also like to thank the distinguished panelists for coming 
before the subcommittee. It is appropriate for the Chairman and 
Commissioners to come before the subcommittee today and share with us 
the proposals for ensuring that the core mission of the FTC can 
continue to be effectively accomplished.
    The Federal Trade Commission (FTC) has grown to play an invaluable 
role in the marketplace. In the presence of ever-changing economies 
both nationally and internationally, we must thoroughly examine the 
FTC's operating parameters and determine their relevance, effectiveness 
and flexibility when expansion might be necessary.
    The FTC has already implemented a number of initiatives addressing 
recently raised consumer concerns. The ``Do-Not-Call'' registry is an 
excellent example. In reauthorizing the FTC, we must ensure its ability 
to examine, assess and enforce regulations in the marketplace remains 
intact and vibrant without exceeding its charter.
    I look forward to reviewing the proposals before us today and 
continuing the dialogue throughout the reauthorization process.
    I thank the Chairman again and yield back the remainder of my time.
                                 ______
                                 
 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce
    Thank you, Mr. Chairman, for holding this important hearing. We 
have nearly all of the Federal Trade Commissioners here today, and I 
thank them for coming.
    The authorization for the Federal Trade Commission lapsed in fiscal 
year 1998, so it is time for this Committee to examine what the FTC 
does, how it does it, and where the Commission plans to move in the 
future.
    The Federal Trade Commission has been remarkably active in the past 
two years. Its mission, which is to prevent unfair competition and 
unfair or deceptive acts or practices in the marketplace, has guided 
the Commission in vigorously pursuing bad actors, scam artists and 
hucksters.
    We have seen a crack down on a range of deceptive marketing 
practices including identity theft and Internet fraud, enforcement of 
privacy policies, and the creation of a national do-not-call list. 
Today we will hear about a number of new proposals the FTC would like 
to tackle, including cross-border fraud, common carrier regulation, and 
spam.
    I was surprised to find the FTC has a legislative proposal for spam 
included in its reauthorization package, although I'll note that many 
of the issues raised by the FTC are included in Mr. Burr's anti-spam 
bill, H.R. 2214. That bill provides the FTC with more streamlined APA 
rulemaking authority to give the Commission more flexibility to respond 
to changes in the marketplace. In addition, H.R. 2214 gives the FTC and 
the Department of Justice all of the enforcement powers they currently 
enjoy under the FTC Act--the same powers the Commission is requesting 
here today. Since H.R. 2214 does not supercede the FTC's authority to 
enforce against spam under its unfair and deceptive trade practices 
authority, it should be a nice supplement to the Commission's existing 
authority. In fact, H.R. 2214 may go even further than the FTC proposal 
as it allows consumers the opportunity to opt out of ALL commercial 
email, not just unsolicited commercial email.
    I look forward to working with the FTC to refine and improve H.R. 
2214, the Reduction in Distribution of SPAM Act. I encourage you, 
Chairman Muris, to continue to communicate your ideas and concerns 
regarding H.R. 2214 to this Committee.
    Another aspect of the Commission's proposal is the removal of the 
jurisdictional exemption over telecommunications common carriers. 
Currently, common carriers are subject to rigorous regulation by the 
Federal Communications Commission as well as by the states. Moreover, 
to the extent that common carriers are engaged in non-common carrier 
activities, courts have found that the FTC has the jurisdiction 
necessary to enforce its regulations. If there is a need to codify this 
judicial interpretation, that is a course of action we can discuss.
    I do not, however, believe that a wholesale removal of the 
exemption is necessary. If there are instances where common carrier 
activities are so intertwined with non-common carrier activities, I 
encourage the FTC and the FCC to work together and coordinate a joint 
enforcement response. However, dual regulation is not the answer.
    Thank you again, Mr. Chairman for calling this hearing, and I look 
forward to hearing from our distinguished panel of witnesses.

    Mr. Stearns. And with that, we will have our witnesses, and 
I welcome the Honorable Timothy Muris, Chairman; the Honorable 
Mr. Thompson, Commissioner, Federal Trade Commission; Honorable 
Mr. Swindle, Commissioner; and the Honorable Mr. Leary. I think 
you have heard both sides of our opening statements, so you 
have created a little interest in the Federal Trade Commission 
with your proactive proposals. So we are anxious to hear, Mr. 
Chairman, your opening statement.

 STATEMENTS OF HON. TIMOTHY J. MURIS, CHAIRMAN, FEDERAL TRADE 
  COMMISSION; HON. MOZELLE W. THOMPSON, COMMISSIONER, FEDERAL 
 TRADE COMMISSION; HON. THOMAS B. LEARY, COMMISSIONER, FEDERAL 
TRADE COMMISSION; AND HON. ORSON SWINDLE, COMMISSIONER, FEDERAL 
                        TRADE COMMISSION

    Mr. Muris. Thank you very much, Mr. Chairman. We certainly 
appreciate the opportunity to testify today to support the 
FTC's reauthorization request. On behalf of the Commission, let 
me first start by expressing our sincere thanks to you, Mr. 
Chairman, and all the members of the subcommittee for your 
continued support of the FTC. Our dedicated staff has continued 
to take innovative and aggressive actions to protect consumers 
and promote competition.
    Today I would like to briefly outline our missions and some 
of our recent accomplishments. My colleagues will then each 
discuss specific legislative proposals that you mentioned that 
we are recommending. The FTC consumer protection mission 
focuses on attacking fraud and deception, consumer privacy, 
deceptive lending practices, and cross-border consumer 
protection. This program provides Americans with impressive 
results.
    Since April 1, 2002, the FTC has organized 12 joint law 
enforcement efforts or sweeps with more than 165 partners. 
These sweeps resulted in more than 400 cases targeting Internet 
scams and telemarketing fraud, including deceptive work-at-home 
opportunities, deceptive health claims, advanced fee credit 
related fraud, fundraising fraud, and Internet auction fraud. 
Overall, since April 2002 we have obtained more than 65 final 
judgments, ordering more than $865 million in consumer redress.
    In addition to attacking fraud, the Commission devotes 
significant resources to protecting privacy. This year, the 
Commission, with assistance from Congress, is set to launch its 
National Do-Not-Call Registry. Implementation of this registry 
will begin soon. Once it is in place, consumers who have 
registered will begin to review fewer and fewer unwanted 
telemarketing calls.
    I want to thank you, Mr. Chairman, and this committee for 
your support of this important initiative. In addition to 
unwanted telemarketing calls, unsolicited commercial e-mail or 
spam is a growing concern. We are addressing consumer concerns 
about spam through law enforcement, consumer and business 
education and research. In addition, the Commission has several 
legislative ideas that Commissioner Swindle will discuss.
    We have been equally as active protecting consumers from 
anticompetitive conduct that can raise prices, particularly in 
the health care, energy and high tech sectors. In health care, 
a number of our activities will likely provide consumers with 
more affordable drugs. For example, we published a study 
examining the frequency of anticompetitive abuses to block 
market entry of lower cost generic drugs, provided comments to 
the FDA on the potential for misusing the Hatch-Waxman Act 
procedures governing generic entry, and brought law enforcement 
actions against branded drug companies alleging improper 
efforts to delay generic entry. We recently announced a 
settlement with Bristol-Myers Squibb concerning alleged abuses 
of the Hatch-Waxman process to obstruct the entry of generic 
competition for two anti-cancer drugs and one anti-anxiety 
agent.
    The FTC has also been active in protecting consumers from 
anticompetitive conduct that may raise the price of oil and 
gas. This year, we filed a complaint alleging that Unocal 
improperly manipulated the process through which California set 
regulations for the formulation of low emissions gasoline. We 
have also begun a project that monitors wholesale and retail 
prices of gasoline in approximately 360 cities across the 
United States in an effort to identify possible anticompetitive 
activity.
    This year we are making, as the chairman noted, several 
recommendations for legislative changes. We would be happy to 
work with the committee staff on these recommendations. First, 
Commissioner Thompson will provide an overview of the 
Commission's recommendations to improve cross-border fraud 
enforcement. These proposals are also critical to the FTC fight 
against deceptive spam, as spammers often send their messages 
from anywhere in the world to anyone in the world.
    Second, Commissioner Swindle will discuss the agency's 
recommendations to enhance the FTC's effectiveness in fighting 
fraudulent spam. These proposals will improve our ability to 
investigate and sue possible spam targets.
    Finally, Commissioner Leary will discuss our recommendation 
to eliminate the FTC Act's exemption for communications common 
carriers.
    Thank you very much for your attention, and I will turn it 
over, if I may, to Commissioner Thompson.
    [The prepared statement of Hon. Timothy J. Muris follows:]
           Prepared Statement of The Federal Trade Commission
    Mr. Chairman, the Federal Trade Commission (``Commission'' or 
``FTC'') is pleased to appear before the Subcommittee today to support 
the FTC's reauthorization request for Fiscal Years 2004 to 
2006.1 Since the last reauthorization hearing, the FTC has 
continued to take innovative and aggressive actions to protect 
consumers and promote competition. The Commission would like to thank 
the Chairman and members of the Subcommittee for their continued 
support of the agency's missions.
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    \1\ This written statement represents the views of the Federal 
Trade Commission. My oral presentation and responses to questions are 
my own and do not necessarily reflect the views of the Commission or 
any other Commissioner.
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                            i. introduction
    The FTC acts to ensure that markets operate efficiently to benefit 
consumers. The FTC's twin missions of competition and consumer 
protection serve a common aim: to enhance consumer welfare. The FTC's 
competition mission promotes free and open markets, bringing consumers 
lower prices, innovation, and choice among products and services. The 
FTC's consumer protection mission fosters the exchange of accurate, 
non-deceptive information, allowing consumers to make informed choices 
in making purchasing decisions. Because accurate information in the 
marketplace facilitates fair and robust competition, the FTC's twin 
missions complement each other and maximize benefits for consumers.
    Five principles guide the FTC's agenda for consumers. In exercising 
its competition and consumer protection authority, the FTC:

 Promotes competition and the unfettered exchange of accurate, 
        non-deceptive information through strong enforcement and 
        focused advocacy;
 Stops conduct that poses the greatest threat to consumer 
        welfare, such as anticompetitive agreements among rivals and 
        fraudulent and deceptive practices;
 Employs a systematic approach for identifying and addressing 
        serious misconduct, with special attention to harmful behavior 
        in key economic sectors;
 Uses the agency's distinctive institutional capabilities by 
        applying its full range of tools--prosecuting cases, conducting 
        studies, holding hearings and workshops, engaging in advocacy 
        before other government bodies, and educating businesses and 
        consumers--to address competition and consumer protection 
        issues; and
 Improves the institutions and processes by which competition 
        and consumer protection policies are formulated and applied.
    During the past year, the FTC has applied its unique complement of 
law enforcement and policy instruments to address critical consumer 
concerns. Highlights include:

 Privacy: ``Do-Not-Call.'' The Commission promulgated far-
        reaching amendments to its Telemarketing Sales Rule (``TSR''). 
        Among the most important changes, the agency is poised to 
        launch its National Do-Not-Call registry, one of the most 
        significant consumer protection initiatives in recent years. 
        The registry will be a central database of telephone numbers of 
        consumers who choose not to receive telemarketing calls. Once 
        the registry is in place this summer, telemarketers will pay a 
        fee to gain access to the registry and then must scrub their 
        telemarketing lists against the telephone numbers in the 
        database. This fall, consumers who have placed their telephone 
        numbers on the registry will begin to receive fewer and fewer 
        unwanted telemarketing calls.
 Health Care: Prescription Drugs. Medical therapy increasingly 
        relies on new pharmaceuticals as alternatives to more invasive 
        treatments, such as surgery. A number of FTC activities will 
        likely, directly or indirectly, help consumers to afford drugs 
        to meet their needs. The FTC published a study examining the 
        frequency of anticompetitive abuses to block market entry of 
        lower-cost generic drugs; provided comments to the Food and 
        Drug Administration (``FDA'') on the potential for misusing the 
        Hatch-Waxman Act procedures governing generic entry; and 
        brought law enforcement actions against branded drug companies 
        alleging improper efforts to delay generic entry. Among other 
        significant matters, the Commission reached a settlement with 
        Bristol-Myers Squibb (``BMS'') resolving charges that BMS 
        abused the Hatch-Waxman process to obstruct the entry of 
        generic competition for two anti-cancer drugs and an anti-
        anxiety agent.
 Financial Practices: Fraudulent Lending. In May 2003, the 
        court finalized a settlement to resolve FTC charges that The 
        Associates (now owned by Citigroup, Inc.) had engaged in 
        widespread deceptive and abusive practices involving subprime 
        home mortgage lending. The settlement is expected to provide 
        $215 million in redress through cash refunds and reduced loan 
        balances to approximately 2.2 million consumers in the U.S., 
        Puerto Rico, and the Virgin Islands. A related class action 
        settlement is expected to yield an additional $25 million, for 
        total relief to consumers of $240 million.
 E-Commerce: A Unified Approach to Maintaining Efficient 
        Markets. The development of the Internet has created a host of 
        consumer issues, requiring the FTC to draw on all its consumer 
        protection and competition capabilities. Among other 
        activities, the FTC has formed an Internet Task Force to 
        analyze state regulations that may restrict the entry of new 
        Internet competitors; hosted public workshops on both spam and 
        potential anticompetitive barriers to e-commerce; and brought 
        significant law enforcement actions that continue its 
        historical role of leading efforts to keep e-commerce free from 
        fraud, deception, and unfair or anticompetitive practices.
 Energy: Gasoline. In an administrative complaint issued in 
        March 2003, the FTC alleged that Unocal improperly manipulated 
        the process through which the California Air Resources Board 
        set regulations for the formulation of low-emissions gasoline. 
        The FTC contended that Unocal's anticompetitive conduct 
        potentially could cost California consumers hundreds of 
        millions of dollars per year in higher gasoline prices.
 Innovation: Intellectual Property and Competition. With the 
        growth of the knowledge-based economy, the relationship between 
        competition and patent policy as spurs to innovation has become 
        increasingly important. The FTC, together with the Antitrust 
        Division of the Department of Justice, held hearings over 24 
        days, with more than 300 participants, to explore this topic. A 
        report will issue later this year.
    In the next two years, the FTC will continue to address significant 
law enforcement and policy issues and to devote its resources to those 
areas in which it can have a major impact on behalf of consumers. With 
respect to the consumer protection mission, the focus will be on broad 
efforts to fight fraud and deception, as well as on consumer privacy 
and security initiatives, including efforts to address spam and ID 
theft. With respect to the competition mission, the FTC will continue 
merger and nonmerger policy development and law enforcement, with 
particular emphasis on health care, energy, high technology, and 
international issues.
    This testimony addresses areas of FTC focus with discussions of 
specific activities and accomplishments on behalf of consumers. To 
further improve the FTC's ability to implement its mission and serve 
consumers, this testimony concludes with legislative recommendations to 
(1) eliminate the FTC Act's exemption for communications common 
carriers, (2) enact measures to improve the FTC's ability to combat 
cross-border fraud, (3) enact measures to improve the FTC's ability to 
combat spam, and (4) make technical changes to allow the agency to 
accept reimbursements and certain gifts and services that can enhance 
our mission performance.
                        ii. consumer protection
A. Fraud and Deception
    The FTC targets the most pervasive types of fraud and deception in 
the marketplace, drawing substantially on data from Consumer Sentinel, 
the agency's award-winning consumer complaint database, 2 
and from Internet ``surfs'' that focus on specific types of claims or 
solicitations that are likely to violate the law. Since April 1, 2002, 
the FTC has organized 12 joint law enforcement efforts (``sweeps'') 
with more than 165 law enforcement partners.3 These sweeps 
resulted in more than 400 law enforcement actions targeting Internet 
scams and telemarketing fraud, including deceptive work-at-home 
opportunities, deceptive health claims, advance-fee credit-related 
fraud, fundraising fraud, and Internet auction fraud. The FTC filed 70 
of these law enforcement cases.
---------------------------------------------------------------------------
    \2\ In 2003, Consumer Sentinel was named one of the top 25 E-
Government programs by the Industry Advisory Council and the Federal 
Chief Information Officer Council.
    \3\ The FTC works with various federal and state law enforcement 
agencies, as well as Canadian, Mexican, and other international 
authorities. See, e.g., FTC Press Release, State, Federal Law Enforcers 
Launch Sting on Business Opportunity, Work-at-Home Scams (June 20, 
2002), available at . See 
also FTC Press Release, FTC, States Give ``No Credit'' to Finance 
Related Scams in Latest Joint Law Enforcement Sweep (Sept. 5, 2002), 
available at .
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    Overall, since April 2002, the FTC has filed more than 145 cases 
involving fraud or deception and has enjoyed significant success in 
obtaining redress orders to provide relief for defrauded consumers, 
with more than 65 final judgments to date ordering more than $865 
million in consumer redress.4 The agency continues to ensure 
compliance with district court orders by bringing civil contempt 
proceedings when appropriate, and by assisting in criminal prosecution 
of FTC defendants who flagrantly violate court orders.
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    \4\ This figure represents the amount of redress that has been 
ordered by the courts in more than 65 orders from April 2002 to May 
2003. The figure does not represent the actual amount of money that has 
been or will be collected pursuant to those orders.
---------------------------------------------------------------------------
    The FTC's actions against fraud and deception directly affect 
consumers. For example, in November 2002, the FTC finalized a consent 
order against Access Resource Services, Inc. and Psychic Readers 
Network, the promoters of ``Miss Cleo'' psychic services, who allegedly 
engaged in deceptive advertising, billing, and collection practices. 
The defendants stipulated to a court order requiring them to stop all 
collection efforts on accounts against consumers who purchased or 
purportedly purchased defendants' pay-per-call or audiotext services, 
to pay $5 million in equitable relief, and to forgive an estimated $500 
million in outstanding consumer charges.5
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    \5\ FTC v. Access Resource Services, Inc., Civ. Action No. 02-
60226-CIV Gold/Simonton (S.D. Fla. Nov. 4, 2002).
---------------------------------------------------------------------------
    In January 2003, the FTC obtained a permanent injunction against 
SkyBiz.com, Inc., an alleged massive international pyramid scheme. The 
final settlement includes $20 million in consumer redress to be 
distributed to both domestic and foreign victims. The settlement also 
bans the principal individual defendants from multi-level marketing for 
a period of years.6
---------------------------------------------------------------------------
    \6\ FTC v. SkyBiz.com, Inc., Civ. Action No. 01-CV-396-EA (M) (N.D. 
Okla. Jan. 28, 2003).
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    In March 2003, the FTC announced settlements with five individual 
defendants who allegedly engaged in deceptive charitable telemarketing 
by misrepresenting both the charities that donations would benefit and 
the percentage of donations that the charities would 
receive.7 Between 1995 and early 1999, the defendants raised 
more than $27 million. Among other terms of the settlements, defendant 
Mitchell Gold is subject to a $10 million judgment. Following an FTC 
criminal referral, Gold was indicted for mail and wire fraud in 
connection with the fundraising business and another fraudulent 
telemarketing scheme. Gold pled guilty and was sentenced to 96 months 
in prison.
---------------------------------------------------------------------------
    \7\ FTC v. Mitchell Gold, Civ. Action No. SAcv 98-968 DOC (Rzx) 
(C.D. Cal. Mar. 7, 2003).
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B. Consumer Privacy
    The FTC will continue to devote significant resources to protecting 
consumer privacy. Consumers are deeply concerned about the security of 
their personal information, both online and offline. Although these 
concerns have been heightened by the rapid development of the Internet, 
they are by no means limited to the cyberworld. Consumers can be harmed 
as much by the thief who steals credit card information from a mailbox 
or from a discarded billing statement in the trash as by one who steals 
that information over the Internet. Of course, the nature of Internet 
technology raises its own special set of issues.
    1. Do-Not-Call. As highlighted above, the FTC has initiated a 
national Do-Not-Call registry, a centralized database of telephone 
numbers of consumers who have asked to be placed on the list. The Do-
Not-Call registry--part of the FTC's 2002 amendments to the TSR--will 
help consumers reduce the number of unwanted telemarketing phone calls.
    2. Identity Theft. The FTC's toll-free number 1-877-ID-THEFT is the 
nation's central clearinghouse for identity theft complaints. Calls 
regarding identity theft have increased from more than 36,000 calls in 
FY 2000 to more than 185,000 calls in FY 2002. These complaints are 
available to the FTC's law enforcement partners through an online 
database, and now more than 620 law enforcement agencies can access 
this data. In addition, FTC investigators, working with the Secret 
Service, develop preliminary investigative reports that are referred to 
regional Financial Crimes Task Forces for possible prosecution.
    Continuing a program begun in March 2002, the FTC, the Secret 
Service, and the Department of Justice (``DOJ'') conduct training 
seminars to provide hundreds of local and state law enforcement 
officers with practical tools to combat identity theft. To date, the 
FTC and its partners have conducted six regional training sessions for 
620 law enforcement officers.
    The FTC also engages in extensive education of both businesses and 
consumers about preventing and responding to identity theft. One of the 
agency's most popular publications is ``Identity Theft: When Bad Things 
Happen to Your Good Name.'' 8
---------------------------------------------------------------------------
    \8\ Since the FTC first published the booklet in February 2002, the 
FTC has distributed more than 1.2--million paper copies and logged more 
than 1 million ``hits'' accessing the booklet on the FTC web site. The 
publication is available at .
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    3. Safeguarding Consumer Information. In May 2002, the FTC 
finalized an order settling charges that Eli Lilly & Company 
unintentionally disclosed e-mail addresses of users of its Prozac.com 
and Lilly.com sites as a result of failures 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 reasonably anticipated threats 
or risks to its security, confidentiality, or integrity.9
---------------------------------------------------------------------------
    \9\ Eli Lilly & Co., Dkt. No. C-4047 (May 10, 2002).
---------------------------------------------------------------------------
    In December 2002, the FTC settled charges against Microsoft 
Corporation that, among other things, the company misrepresented the 
measures it used to maintain and protect the privacy and 
confidentiality of consumers' personal information collected through 
its Passport web services.10 Microsoft has agreed to 
implement a comprehensive information security program for Passport and 
similar services. The FTC will continue to bring actions involving 
claims deceptively touting the privacy and security features of 
products and services, as well as failures to maintain adequate 
security for personal information.
---------------------------------------------------------------------------
    \10\ Microsoft Corp., Dkt. No. C-4069 (Dec. 24, 2002).
---------------------------------------------------------------------------
    In May 2002, the Commission finalized its Safeguards Rule to 
implement the security provisions of the Gramm-Leach-Bliley Act 
(``GLB'').11 The Rule establishes standards for financial 
institutions to maintain the security of customers' financial 
information, and became effective in May 2003. To help businesses 
comply with the Rule, the agency issued a new business education 
publication, and will conduct other initiatives to inform businesses of 
the Rule and provide compliance guidance.12
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    \11\ Standards for Safeguarding Customer Information; Final Rule, 
67 Fed. Reg. 36,484 (May 23, 2002) (to be codified at 16 C.F.R. Part 
314).
    \12\ FTC Facts for Businesses, Financial Institutions and Customer 
Data: Complying with the Safeguards Rule, available at .
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    Commissioner Orson Swindle, in particular, has focused on issues 
involving information security. During the past year, he has served as 
head of the U.S. delegation to the Organization for Economic 
Cooperation and Development (``OECD'') Experts Group for Review of the 
1992 OECD Guidelines for the Security of Information Systems. The group 
released revised guidelines in August 2002 that consist of nine 
principles promoting a ``culture of security.''
    The FTC has promoted the dissemination of these principles among 
industry and consumer groups. The FTC's consumer security web site, 
, contains practical tips for staying secure 
online and features ``Dewie the Turtle,'' a colorful cartoon mascot to 
promote effective online security. In addition, the FTC has worked with 
the White House Office of Cyberspace Security and the Department of 
Homeland Security to develop consumer awareness aspects of the National 
Strategy to Secure Cyberspace.
    4. Children's Online Privacy Protection Act 
(``COPPA'').13 COPPA requires commercial web sites to give 
notice of their information practices and to obtain parental consent 
before collecting, using, or disclosing personal information about 
children under the age of 13. Since April 2001, the FTC has brought 
eight COPPA cases and obtained agreements requiring payment of civil 
penalties totaling more than $350,000.14 The two most recent 
cases involved settlements with Hershey Foods and Mrs. 
Fields.15 Both companies agreed to settle charges that their 
web sites allegedly collected personal data from children without 
complying with COPPA requirements.
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    \13\ 15 U.S.C. Sec. Sec. 6501-6506.
    \14\ United States v. Hershey Foods Corp., Civ. Action No. 4:03-cv-
00350-JEJ (M.D. Pa. Feb. 26, 2003); United States v. Mrs. Fields Famous 
Brands, Civ. Action No. 2:03cv00205 (D. Utah Feb. 25, 2003); United 
States v. The Ohio Art Co., Civ. Action No. 3:02CV7203 (N.D. Ohio Apr. 
30, 2002); United States v. American Pop Corn Co., Civ. Action No. C02-
4008DEO (N.D. Iowa Feb. 28, 2002); United States v. Lisa Frank, Inc., 
Civ. Action No. 01-1516-A (E.D. Va. Oct. 3, 2001); United States v. 
Looksmart, Ltd., Civ. Action No. 01-606-A (E.D. Va. Apr. 23, 2001); 
United States v. Bigmailbox.com, Inc., Civ. Action No. 01-605-A (E.D. 
Va. Apr. 23, 2001); United States v. Monarch Servs., Inc., Civ. Action 
No. AMD 01 CV 1165 (D. Md. Apr. 20, 2001).
    \15\ United States v. Hershey Foods Corp., Civ. Action No. 4:03-cv-
00350-JEJ (M.D. Pa. Feb. 26, 2003); United States v. Mrs. Fields Famous 
Brands, Civ. Action No. 2:03cv00205 (D. Utah Feb. 25, 2003).
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    5. Spam. The problems caused by unsolicited commercial e-mail 
(``spam'') 16 go well beyond the annoyance spam causes to 
the public. These problems include the fraudulent and deceptive content 
of most spam messages, the sheer volume of spam being sent across the 
Internet, and the security issues raised because spam can be used to 
disrupt service or as a vehicle for sending viruses.
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    \16\ Unsolicited commercial e-mail (``UCE'' or ``spam'') is any 
commercial e-mail message that is sent--typically in bulk--to consumers 
without the consumers' prior request or consent.
---------------------------------------------------------------------------
    In particular, deceptive spam is an ever-growing problem that the 
FTC is addressing through law enforcement efforts, consumer and 
business education, and research. An important tool the FTC uses to 
target law violations, identify trends, and conduct research for 
education is its spam database. Consumers forward spam they receive to 
the FTC database at [email protected]. The database receives, on average, 
more than 110,000 e-mail messages each day, and currently contains a 
total of approximately 42 million pieces of spam.
    In April 2003, the FTC released a report analyzing false claims 
made in spam. To prepare the report, the FTC staff reviewed a sample of 
approximately 1,000 pieces of spam, taken from a pool of more than 11 
million e-mails in the FTC's database. Of the 1,000 pieces, 66 percent 
contained facial elements of deception in the ``from'' line, the 
``subject'' line, or the text of the message.17
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    \17\ FTC Staff Report, False Claims in Spam (Apr. 2003), available 
at . The 
remaining spam messages were not necessarily truthful, but they did not 
contain any obvious indicia of falsity.
---------------------------------------------------------------------------
    The FTC shares the database information with other federal and 
state law enforcement agencies to broaden the fight against deceptive 
spam. In November 2002, the FTC and 12 law enforcement partners brought 
30 enforcement actions as part of an ongoing initiative to fight 
deceptive spam and Internet scams.18 The FTC also announced, 
with ten participating agencies, a ``Spam Harvest,'' a study designed 
to identify online actions that may put consumers at the greatest risk 
for receiving spam.19
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    \18\ FTC Press Release, Federal, State, and Local Law Enforcers 
Tackle Deceptive Spam and Internet Scams (Nov. 13, 2002), available at 
.
    \19\ See FTC Consumer Alert, E-mail Address Harvesting: How 
Spammers Reap What You Sow (Nov. 13, 2002), available at .
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    The FTC recently settled an action against a company that allegedly 
profited from a particularly insidious spam scam. According to the 
complaint, the subject line of the e-mail said ``Yahoo sweepstakes 
winner,'' and the message congratulated the recipient for being chosen 
as a winner of a prize in a recent Yahoo sweepstakes contest. Most 
often, the message mentioned that the prize was a Sony Playstation 2, 
making it particularly attractive to adolescents. But the message was 
not from Yahoo, and the recipients had not won anything. Instead, after 
clicking through five web pages, consumers were connected to a 
pornographic web site at a cost of up to $3.00 a minute. The settlement 
enjoins the defendants from making misleading representations of 
material facts in e-mail and other marketing, including deceptive e-
mail header information. The settlement also requires the defendants to 
prevent third parties that promote their videotext services, through e-
mail or other means, from making deceptive statements.20
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    \20\ FTC v. BTV Indus., Civ. Action No. CV-S-02-0437-LRH-PAL (D. 
Nev. Jan. 6, 2003).
---------------------------------------------------------------------------
    In April, the FTC filed an action against an allegedly illegal spam 
operation for using false return addresses, empty ``reply-to'' links, 
and deceptive subject lines to expose unsuspecting consumers, including 
children, to sexually explicit material.21 The FTC alleged 
that the defendant used the spam in an attempt to drive business to an 
adult web site, ``Married But Lonely.'' The FTC obtained a stipulated 
preliminary injunction to halt false or misleading spam.
---------------------------------------------------------------------------
    \21\ FTC v. Brian D. Westby, Civ. Action No. 03-C-2540 (N.D. Ill. 
filed Apr. 15, 2003).
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    The FTC recently hosted a three-day public forum to analyze the 
impact spam has on consumers' use of e-mail, e-mail marketing, and the 
Internet industry and to explore solutions in addition to law 
enforcement.22 A major concern expressed at the forum was 
the dramatic rate at which spam is proliferating. For example, one ISP 
reported that in 2002, it experienced a 150 percent increase in spam 
traffic. America Online reported that it recently blocked 2.37 billion 
pieces of spam in a single day. Indeed, spam appears to be the 
marketing vehicle of choice for many fraudulent and deceptive 
marketers. In addition, and of particular concern, panelists noted that 
spam is increasingly used to disseminate malicious code such as viruses 
and ``Trojan horses.''
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    \22\ Draft transcripts of the forum are available at .
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    Solutions to the problems posed by spam will not be quick or easy; 
nor is one single approach likely to provide a cure. Instead, a 
balanced blend of technological fixes, business and consumer education, 
legislation, and enforcement will be required. Technology that empowers 
consumers in an easy-to-use manner is essential to getting immediate 
results for a number of frustrated end-users. Any solution to the 
problems caused by spam should contain the following elements:

1. Enhanced enforcement tools to combat fraud and deception;
2. Support for the development and deployment of technological tools to 
        fight spam;
3. Enhanced business and consumer education; and
4. The study of business methods to reduce the volume of spam.
    The Commission's legislative recommendations, outlined in Part IV, 
would enhance the agency's enforcement tools for fighting spam. In 
addition, the FTC will continue vigorous law enforcement and reach out 
to key law enforcement partners through the creation of a Federal/State 
Spam Task Force to strengthen cooperation with criminal authorities. 
The Task Force can help to overcome some of the obstacles that spam 
prosecutions present to law enforcement authorities. For example, in 
some instances, state agencies spent considerable front-end 
investigative resources to find a spammer, only to discover at the back 
end that the spammer was located outside the state's jurisdiction. 
State and federal agencies recognize the need to share the information 
obtained in investigations, so that the agency best placed to pursue 
the spammer can do so more efficiently and quickly. The Task Force 
should facilitate this process. Further, it can serve as a forum to 
apprise participating agencies of the latest spamming technology, 
spammer ploys, and investigational techniques.
    Through the Task Force, the FTC will reach out not only to its 
civil law enforcement counterparts on the state level, but also to 
federal and state criminal authorities. Although few criminal 
prosecutions involving spam have occurred to date,23 
criminal prosecution may well be appropriate for the most egregious 
conduct. The FTC and its partners in criminal law enforcement agencies 
continue to work to assess existing barriers to successful criminal 
prosecutions. The FTC will explore whether increased coordination and 
cooperation with criminal authorities would be helpful in stopping the 
worst actors.
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    \23\ See, e.g., United States v. Barrero, Crim. No. 03-30102-01 DRH 
(S.D. Ill. 2003) (guilty plea entered May 12, 2003). Like the related 
case, FTC v. Stuffingforcash.com Corp., Civ. Action No. 02 C 5022 (N.D. 
Ill. Jan. 30, 2003), the allegations in this criminal prosecution were 
based on fraud in the seller's underlying business transaction.
---------------------------------------------------------------------------
    Improved technological tools will be an essential part of any 
solution as well. A great deal of spam is virtually untraceable, and an 
increasing amount crosses international boundaries. Panelists estimated 
that from 50 percent to 90 percent of e-mail is untraceable, either 
because it contains falsified routing information or because it comes 
through open relays or open proxies.24 Because so much spam 
is untraceable, technological development will be an important element 
in solving spam problems. To this end, the FTC will continue to 
encourage industry to meet this challenge.
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    \24\ An open relay is an e-mail server that is configured to accept 
and transfer e-mail on behalf of any user anywhere, including unrelated 
third parties, which allows spammers to route their e-mail through 
servers of other organizations, disguising the origin of the e-mail. An 
open proxy is a mis-configured proxy server through which an 
unauthorized user can connect to the Internet. Spammers use open 
proxies to send spam from the computer network's ISP or to find an open 
relay.
    Brightmail recently estimated that 90% of the e-mail that it 
analyzed was untraceable. Two panelists at the forum estimated that 40% 
to 50% of the e-mail it analyzed came through open relays or open 
proxies, making it virtually impossible to trace. Even when spam cannot 
be traced technologically, however, enforcement is possible. In some 
cases, the FTC has followed the money trail to pursue sellers who use 
spam. The process is resource intensive, frequently requiring a series 
of ten or more CIDs to identify and locate the seller in the real 
world. Frequently the seller and the spammer are different entities. In 
numerous instances, FTC staff cannot initially identify or locate the 
spammer and can only identify and locate the seller. In many of those 
cases, in the course of prosecuting the seller, staff has, through 
discovery, sought information about the spammer who actually sent the 
messages. This, too, involves resource-intensive discovery efforts. 
While the FTC actions have focused more on deception in the content of 
the spam message, recent actions have begun to attack deception in the 
sending of spam. As discussed above, the FTC has brought law 
enforcement actions targeting false subject lines and false ``from'' 
lines.
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    Action by consumers and businesses who may receive spam will be a 
crucial part of any solution to the problems caused by spam. A key 
component of the FTC's efforts against spam is educating consumers and 
businesses about the steps they can take to decrease the amount of spam 
they receive. The FTC's educational materials provide guidance on how 
to decrease the chances of having an e-mail address harvested and used 
for spam, and suggest several other steps to decrease the amount of 
spam an address may receive. The FTC's educational materials on spam 
are available on the FTC website.25
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    \25\ See .
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    Finally, several initiatives for reducing the overwhelming volume 
of spam were discussed at the FTC's Spam Forum. At this point, 
questions remain about the feasibility and likely effectiveness of 
these initiatives. The FTC intends to continue its active role as 
catalyst and monitor of technological innovation and business 
approaches to addressing spam.
    6. Pretexting. Through its Section 5 authority as well as its 
jurisdiction under the GLB Act, the FTC is also combating 
``pretexting,'' the use of false pretenses to obtain customer financial 
information. The agency has obtained stipulated court orders to halt 
these practices 26 and has sent warning letters to nearly 
200 others about apparent violations of the GLB pretexting 
prohibitions.
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    \26\ FTC v. Information Search, Inc., Civ. Action No. AMD 01 1121 
(D. Md. Mar. 15, 2002); FTC v. Guzzetta, Civ. Action No. CV-01-2335 
(E.D.N.Y. Feb. 25, 2002); FTC v. Garrett, Civ. Action No. H 01-1255 
(S.D. Tex. Mar. 25, 2003).
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C. Deceptive Lending Practices
    As highlighted above, the FTC has been aggressive in its fight 
against deceptive lending practices. Unscrupulous lenders can deceive 
consumers about loan terms, rates, and fees, and the resulting injury 
can be severe--including the loss of a home. Over the last year, the 
FTC has obtained settlements for nearly $300 million in consumer 
redress for deceptive lending practices and other related law 
violations. The FTC has settled cases against Associates First Capital 
Corporation (now owned by Citigroup) 27 for alleged 
deceptive sales of credit insurance and alleged violations of the Equal 
Credit Opportunity Act 28 and the Fair Credit Reporting Act; 
29 against First Alliance Mortgage 30 for alleged 
deceptive loan terms and origination fees; and against Mercantile 
Mortgage 31 for alleged deception of consumers about loan 
terms and alleged violations of the Truth in Lending Act.32 
In addition to monetary relief, the Mercantile settlement gives 
hundreds of consumers the opportunity to refinance loans at low or no 
cost.33
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    \27\ FTC v. Associates First Capital Corp., Civ. Action No. 1:01-
CV-00606 JTC (N.D. Ga. Feb. 26, 2002).
    \28\ 15 U.S.C. Sec. Sec. 1691-1691f, as amended.
    \29\ Id. Sec. Sec. 1681-1681(u), as amended.
    \30\ FTC v. First Alliance Mortgage Co., Civ. Action No. SACV 00-
964 DOC (MLGx) (C.D. Calif. Nov. 26, 2002).
    \31\ U.S. v. Mercantile Mortgage Co., Civ. Action No. 02C 5079 
(N.D. Ill. Aug. 15, 2002).
    \32\ 15 U.S.C. Sec. Sec. 1601-1667f, as amended.
    \33\ The FTC continues its litigation against Chicago-area mortgage 
broker Mark Diamond and against D.C.-area mortgage lender Capital City 
Mortgage Corporation. FTC v. Mark Diamond, Civ. Action No. 02C-5078 
(N.D.Ill. filed Nov. 1, 2002); FTC v. Capital City Mortgage Corp., Civ. 
Action No. 1: 98-CV-00237 (D.D.C. Jan. 29, 1998). The Diamond case 
represents the FTC's first litigated case against a mortgage broker. In 
Capital City, the FTC alleges that Capital City deceived consumers into 
taking out high-rate, high-fee loans and then foreclosed on consumers' 
homes when they could not afford to pay.
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D. Health Fraud and Deception
    Truthful and substantiated advertising can serve as an important 
source of useful information for consumers about health care. 
Inaccurate information, on the other hand, can cause serious financial 
as well as physical harm. For that reason, combating deceptive health 
claims, both online and off, continues to be a priority for the FTC.
    1. Dietary Supplements. Challenging misleading or unsubstantiated 
claims in the advertisement of dietary supplements is a significant 
part of the FTC's consumer protection agenda. During the past decade, 
the FTC has filed more than 80 law enforcement actions challenging 
false or unsubstantiated claims about the efficacy or safety of a wide 
variety of supplements.34 The agency focuses its enforcement 
priorities on claims for products with unproven benefits or that 
present significant safety concerns to consumers, and on deceptive or 
unsubstantiated claims that products treat or cure serious diseases. 
The FTC has taken action against all parties responsible for the 
deceptive marketing, including manufacturers, advertising agencies, 
infomercial producers, distributors, retailers, and endorsers.
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    \34\ See, e.g., FTC v. Dr. Clark Research Ass'n, Civ. Action No. 1-
03-00054-TRA (N.D. Ohio Jan. 8, 2003); FTC v. Vital Dynamics, Civ. 
Action No. 02-CV-9816 (C.D. Calif. Jan 17, 2003) (consent decree); FTC 
v. Rexall Sundown, Inc., Civ. Action No. 00-CV-7016 (S.D. Fla. Mar. 11, 
2003) (proposed consent decree subject to court approval).
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    2. Weight Loss Advertising. Since the 1990s, the FTC has filed 
nearly 100 cases challenging false or misleading claims for all types 
of weight loss products, including over-the-counter drugs, dietary 
supplements, commercial weight loss centers, weight loss devices, and 
exercise equipment.35 In September 2002, the FTC issued a 
``Report on Weight-Loss Advertising: An Analysis of Current Trends,'' 
36 which concludes that false or misleading claims for 
weight loss products are widespread and, despite an unprecedented level 
of FTC enforcement activity, appear to have increased over the last 
decade.
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    \35\ See, e.g., Enforma Natural Prods., Inc., Civ. Action No. 
2:00cv04376JSL (CWx) (C.D. Cal. Dec. 9, 2002) (consent decree); Weider 
Nutrition Int'l, Dkt. No. C-3983, 2001 WL 1717579 (Nov. 15, 2000); FTC 
v. SlimAmerica, Inc., 77 F. Supp. 2d 1263 (S.D. Fla.1999); Jenny Craig, 
Inc., 125 F.T.C. 333 (1998) (consent order); Weight Watchers Int'l, 
Inc., 124 F.T.C. 610 (1997) (consent order); NordicTrack, Inc., 121 
F.T.C. 907 (1996) (consent order).
    \36\ FTC Staff Report, Weight Loss Advertising: An Analysis of 
Current Trends (Sept. 2002), available at .
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    The FTC continues to explore ways to reduce the number of deceptive 
weight loss claims. On November 19, 2002, the FTC held a public 
workshop on the Advertising of Weight Loss Products.37 
Workshop participants included government officials, scientists, public 
health groups, marketers of weight loss products, advertising 
professionals, and representatives of the media. Participants explored 
both the impact of deceptive weight loss product ads on the public 
health and new approaches to fighting the proliferation of misleading 
claims, including a more active role for the media in screening out 
patently false weight loss advertising. Also, in an opinion piece in 
Advertising Age, Commissioner Sheila Anthony noted that the FTC cannot 
solve this problem alone and challenged the industry and the media to 
play their part.38
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    \37\ See Public Workshop: Advertising of Weight Loss Products, 67 
Fed. Reg. 59,289 (Sept. 20, 2002).
    \38\ Commissioner Sheila Anthony, Let's clean up the diet-ad mess, 
Advertising Age, Feb. 3, 2003, at 18.
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E. Cross-Border Consumer Protection
    The Internet and electronic commerce know no boundaries, and cross-
border fraud is a growing problem for consumers and businesses in the 
U.S. and abroad. During 2002, approximately 14% of the complaints 
collected in the Consumer Sentinel complaint database involved a cross-
border element. The number of FTC cases involving offshore defendants, 
offshore evidence, or offshore assets also has increased. In 2002, the 
FTC brought approximately 22 law enforcement actions involving cross-
border fraud.
    Those who defraud consumers take advantage of the special problems 
faced by law enforcers in acting against foreign companies, including 
difficulties in sharing information with foreign law enforcement 
agencies, exercising jurisdiction, and enforcing judgments abroad. 
Thus, law enforcers worldwide, now more than ever, need to cooperate 
and expand their consumer protection efforts.
    To address the growing problem of cross-border fraud, in October 
2002, Chairman Muris announced a Five-Point Plan to Combat Cross-Border 
Fraud. Since then, the FTC has been implementing this plan by:

 Developing OECD guidelines on cross-border fraud. Commissioner 
        Mozelle Thompson of the FTC chairs the OECD Committee on 
        Consumer Policy and leads the U.S. delegation to the Committee, 
        which is developing guidelines for international cooperation 
        concerning cross-border fraud. The FTC is working with its 
        foreign counterparts, and soon expects to finalize these 
        guidelines.
 Strengthening bilateral and multilateral relationships. The 
        FTC already has bilateral consumer protection cooperation 
        agreements with agencies in Australia, Canada, and the U.K., 
        and is working to strengthen these relationships and develop 
        new ones. The FTC also participates in a network of consumer 
        protection enforcement officials from more than 30 countries. 
        Finally, the FTC has joined other agencies in various cross-
        border task forces, such as the Toronto Strategic Partnership, 
        Project Emptor with British Columbia authorities, and MUCH--the 
        Mexico-U.S.-Canada Health fraud task force. In the past year, 
        the FTC has announced numerous joint law enforcement actions 
        taken with the assistance of these task forces, including 
        actions involving credit card loss protection,39 
        advance fee credit cards, 40 and bogus cancer 
        clinics.41
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    \39\ FTC v. STF Group, Civ. Action No. 03-C-0977 (N.D. Ill. filed 
Feb. 10, 2003).
    \40\ FTC v. Pacific First Benefit, LLC, Civ. Action No. 02-C-8678 
(N.D. Ill. filed Dec. 2, 2003).
    \41\ FTC v. CSCT, Inc., Civ. Action No. 03-C-00880 (N.D. Ill. filed 
Feb. 6, 2003).
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 Continuing public-private partnerships. The FTC continues to 
        ask responsible industry to help fight cross-border fraud, 
        which hurts businesses as well as consumers. The FTC held a 
        workshop on this issue in February 2003 and continues to work 
        with the private sector to follow up on some ideas discussed at 
        the workshop, including better sharing of information between 
        the private sector and the FTC.
 Providing technical assistance. The FTC wants to ensure that 
        no developing country becomes a haven for fraud. Therefore, it 
        is conducting U.S. AID-funded technical assistance on consumer 
        protection issues in various developing countries. Last year, 
        the FTC conducted technical assistance missions for consumer 
        protection authorities from 13 Eastern European countries, 
        including Hungary and Slovenia. This year, the FTC is planning 
        to conduct missions in Romania, Russia, and Peru.
 Recommending proposals for legislative amendments. Many of the 
        challenges the FTC faces in combating cross-border fraud might 
        best be addressed through legislative changes. The FTC's 
        proposals for legislative changes are described in Section IV 
        of this testimony.
F. Initiatives Designed to Reach Specific Consumer Groups
    The FTC has implemented a variety of initiatives that assist 
particular consumer groups, including children, Spanish-speaking 
consumers, and military personnel and their families.
    1. Protecting Children. The agency maintains an active program to 
monitor, report on, and provide educational materials about marketing 
activities affecting children. The FTC continues to monitor the 
marketing of violent entertainment products to children. Since 
September 2000, the agency has issued a series of reports on this 
issue.42 The FTC intends to issue a fourth follow-up report 
on the industries' practices. The staff also is working with retailer 
trade groups to devise a consumer education message for parents, and is 
preparing to hold a public workshop on these issues later this year.
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    \42\ FTC, Marketing Violent Entertainment to Children: A Review of 
SelfRegulation and Industry Practices in the Motion Picture, Music 
Recording & Electronic Game Industries (Sept. 2000), available at 
; FTC, Marketing 
Violent Entertainment to Children: A SixMonth FollowUp Review of 
Industry Practices in the Motion Picture, Music Recording & Electronic 
Game Industries (Apr. 2001), available at ; FTC, Marketing Violent Entertainment to 
Children: A OneYear FollowUp Review of Industry Practices in the Motion 
Picture, Music Recording & Electronic Game Industries (Dec. 2001), 
available at ; FTC, 
Marketing Violent Entertainment to Children: A Twenty-One Month 
FollowUp Review of Industry Practices in the Motion Picture, Music 
Recording & Electronic Game Industries (June 2002), available at 
.
---------------------------------------------------------------------------
    The FTC also conducted an informal survey of online gambling sites 
and published a consumer alert warning parents and their children that 
online gambling can pose huge risks, including money loss, impaired 
credit ratings, and addiction to gambling.43
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    \43\ FTC Consumer Alert, Online Gambling and Kids: A Bad Bet (June 
26, 2002), available at .
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    Finally, the FTC monitors alcohol advertising to ensure that ads 
for these products do not involve potentially unfair or deceptive 
practices, including the targeting of alcohol advertisements to minors. 
In response to a Congressional request, the agency will prepare reports 
on two subjects related to alcohol advertising and youth: (1) the 
impact on underage consumers of the significant expansion of ads for 
new alcoholic beverages, and (2) the industry's response to 
recommendations for improved self-regulation contained in the FTC's 
1999 report to Congress.44
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    \44\ Conference Report on the Omnibus Appropriations Bill for FY 
2003, H. Rep. No. 108-10 (Feb. 13, 2003)
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    2. Spanish-Speaking Consumers. In FY 2002, the FTC instituted a 
Hispanic Outreach Program, which resulted in hiring a Hispanic Outreach 
Coordinator. This effort includes the creation of a dedicated page on 
the FTC site, Protection Para el Consumidor (``Consumer Protection''), 
which mirrors the English version of the consumer protection page and 
provides Spanish translations of several popular consumer education 
publications. The FTC also has created an online Spanish-language 
consumer complaint form and has undertaken outreach efforts to Hispanic 
media.
    In addition, the FTC has taken action against alleged law 
violations affecting Spanish-speaking consumers. The agency settled a 
civil penalty action against a Houston-based debt collection company 
for alleged violations of the rights of Spanish- and English-speaking 
consumers under the Fair Debt Collection Practices Act.45 
The settlement requires, among other things, that the company make 
disclosures in Spanish where applicable.
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    \45\ United States v. United Recovery Systems, Inc., Civ. Action 
No. H-02-1410 (sl) (S.D. Tex. Apr. 22, 2002).
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    3. Military Sentinel. In September 2002, the FTC and the Department 
of Defense (``DOD'') launched Military Sentinel, the first online 
consumer complaint database tailored to the unique needs of the 
military community. The system offers members of the military and their 
families a way to file complaints and gain immediate access to the 
FTC's full range of educational materials and information.46 
It also gives DOD and law enforcement officers secure access to the 
complaints entered into the database.
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    \46\ FTC Facts for Consumers, Military Sentinel: Fact Sheet, 
available at .
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                      iii. maintaining competition
    The FTC's competition mission, as its name suggests, promotes 
competition in the marketplace to give consumers the best products at 
the lowest prices. The FTC employs a variety of tools to promote and 
protect competition: in addition to enforcing the antitrust laws, the 
agency holds workshops, conducts studies, writes reports, and monitors 
the marketplace. The agency will continue to focus both its law 
enforcement activity and other initiatives in key sectors of the 
economy, such as health care, energy, and high-tech industries. The 
global economy also requires the FTC's competition mission, like its 
consumer protection mission, to be increasingly concerned with 
international issues.
A. Health Care
    The health care sector remains enormously important to both 
consumers and the national economy. Health-related products and 
services account for more than 15 percent of the U.S. gross domestic 
product (``GDP''), and that share has grown by about 25 percent since 
1990. Without effective antitrust enforcement, health costs would be 
greater and the share of GDP would be even higher.
    1. Prescription Drugs. As previously mentioned, the FTC recently 
reached a major settlement with Bristol-Myers Squibb (``BMS'') to 
resolve charges that BMS engaged in a series of anticompetitive acts 
over the past decade to obstruct entry of low-price generic competition 
for three of BMS's widely-used pharmaceutical products: two anti-cancer 
drugs, Taxol and Platinol, and the anti-anxiety agent 
BuSpar.47 Among other things, the FTC's complaint alleged 
that BMS abused FDA regulations to obstruct generic competitors; misled 
the FDA about the scope, validity, and enforceability of patents to 
secure listing in the FDA's ``Orange Book'' list of approved drugs and 
their related patents; breached its duty of good faith and candor with 
the U.S. Patent and Trademark Office (``PTO''), while pursuing new 
patents claiming these drugs; filed baseless patent infringement suits 
against generic drug firms that sought FDA approval to market lower-
priced drugs; and paid a would-be generic rival $72.5 million to 
abandon its legal challenge to the validity of a BMS patent and to stay 
out of the market until the patent expired. Because of BMS's alleged 
pattern of anticompetitive conduct and the extensive resulting consumer 
harm, the Commission's proposed order necessarily contains strong--and 
in some respects unprecedented--relief.48
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    \47\ Bristol-Myers Squibb Co., Dkt. No. C-4076 (Apr. 14, 2003).
    \48\ The proposed order includes a provision prohibiting BMS from 
triggering a 30-month stay for any BMS product based on any patent BMS 
lists in the Orange Book after the filing of an application to market a 
generic drug.
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    The settlement with BMS represents the latest FTC milestone in 
settlements regarding allegedly anticompetitive conduct by branded or 
generic drug manufacturers designed to delay generic entry. Other 
recent FTC successes in this area include:

 Biovail. An October 2002 consent order settling charges that 
        Biovail Corporation illegally acquired a license to a patent 
        and improperly listed the patent in the FDA's Orange Book as 
        claiming Biovail's high blood pressure drug Tiazac (under 
        current law, the listing of the patent and the subsequent 
        lawsuit brought by Biovail against a potential generic entrant 
        triggered an automatic 30-month stay of FDA approval of the 
        generic competitor); 49 and
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    \49\ Biovail Corp., Dkt. No. C-4060 (Oct. 2, 2002).
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 Biovail/Elan. An August 2002 settlement with Biovail and Elan 
        Corporation, plc resolving charges that the companies entered 
        into an agreement that provided substantial incentives for the 
        two companies not to compete in the markets for 30 milligram 
        and 60 milligram dosage strengths of the generic drug Adalat CC 
        (an anti-hypertension drug).50
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    \50\ Biovail Corp. and Elan Corp., Dkt. No. C-4057 (Aug. 15, 2002).
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    2. Health Care Providers. For decades, the FTC has worked to 
facilitate innovative and efficient arrangements for the delivery and 
financing of health care services by challenging artificial barriers to 
competition among health care providers. These efforts continue. In the 
last year, the FTC settled with seven groups of physicians for 
allegedly colluding to raise consumers' costs.51 These 
settlements involved significant numbers of doctors--more than 1,200 in 
a case in the Dallas-Fort Worth area and more than three-quarters of 
all doctors in the Carlsbad, New Mexico area. The Commission's orders 
put a stop to allegedly collusive conduct that harms employers, 
individual patients, and health plans by depriving them of the benefits 
of competition in the purchase of physician services.
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    \51\ Grossmont Anesthesia Servs. Med. Group, Inc., File No. 021-
0006 (May 30, 2003) (agreement accepted for public comment); Anesthesia 
Serv. Med. Group, Inc., File No. 021-0006 (May 30, 2003) (agreement 
accepted for public comment); Carlsbad Physicians, File No. 031-0002 
(May 2, 2003) (agreement accepted for public comment); System Health 
Providers, Dkt. No. C-4064 (Oct. 24, 2002); R.T. Welter & Assoc., Inc. 
(Professionals in Women's Care), Dkt. No. C-4063 (Oct. 8, 2002); 
Physician Integrated Servs. of Denver, Inc., Dkt. No. C-4054 (July 16, 
2002); Aurora Associated Primary Care Physicians, L.L.C., Dkt. No. C-
4055 (July 16, 2002).
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    3. Health Care Mergers. The FTC has taken action regarding a number 
of proposed mergers in the health care sector to ensure that consumers 
continue to receive the benefits of competitive markets. In April, the 
Commission reached a settlement with Pfizer Inc., the largest 
pharmaceutical company in the United States, and Pharmacia Corporation 
to resolve concerns that their $60 billion merger would harm 
competition in nine separate and wide-ranging product markets, 
including drugs to treat overactive bladder, symptoms of menopause, 
skin conditions, coughs, motion sickness, erectile dysfunction, and 
three different veterinary conditions.52 Annual sales in the 
nine product markets currently total more than $3 billion. The 
settlement will require divestitures to protect consumers' interests in 
those markets while allowing the remainder of the transaction to go 
forward.
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    \52\ Pfizer Inc., Dkt. No. C-4075 (Apr. 14, 2003) (proposed consent 
agreement accepted for public comment).
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    Other recent health care mergers investigated by the FTC include:

 Cytyc/Digene. In June 2002, the Commission authorized the 
        staff to seek a preliminary injunction blocking Cytyc 
        Corporation's proposed acquisition of Digene 
        Corporation,53 involving the merger of two 
        manufacturers of complementary cervical cancer screening tests. 
        The complaint alleged that the combined firm would have an 
        incentive to use its market power in one product to stifle 
        increased competition in the complementary product's market. 
        Thus, if the merger had been consummated, rivals would have 
        been substantially impeded from competing. Following the 
        Commission's decision, the parties abandoned the transaction.
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    \53\ FTC Press Release, FTC Seeks to Block Cytyc Corp.'s 
Acquisition of Digene Corp. (June 24, 2002), available at .
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 Baxter/Wyeth. The FTC alleged that Baxter International's $316 
        million acquisition of Wyeth Corporation raised competitive 
        concerns in markets for a variety of drugs. Of particular 
        concern were the $400 million market for propofol, a general 
        anesthetic commonly used for the induction and maintenance of 
        anesthesia during surgery, and the $225 million market for new 
        injectable iron replacement therapies used to treat iron 
        deficiency in patients undergoing hemodialysis.54 To 
        settle this matter, the parties agreed to divestitures that are 
        expected to maintain competition in those markets.
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    \54\ Baxter International Inc. and Wyeth, Dkt. No. C-4068 (Feb. 3, 
2003).
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 Amgen/Immunex. The FTC obtained an agreement settling 
        allegations that Amgen Inc.'s $16 billion acquisition of 
        Immunex Corporation would reduce competition for three 
        important biopharmaceutical products: (1) neutrophil 
        regeneration factors used to treat a dangerously low white 
        blood cell count that often results from chemotherapy; (2) 
        tumor necrosis factors used to treat rheumatoid arthritis, 
        Crohn's disease, and psoriatic arthritis; and (3) interleukin-1 
        inhibitors used in the treatment of rheumatoid 
        arthritis.55 The settlement required that the 
        companies divest certain assets and license certain 
        intellectual property rights in these markets.
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    \55\ Amgen Inc. and Immunex Corp., Dkt. No. C-4056 (Sept. 3, 2002).
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    4. Promoting Competition in Prescription Drugs. The FTC also has 
sought to promote competition in the pharmaceutical industry through 
published reports and speeches. Commissioner Leary has a special 
interest in pharmaceutical competition and has addressed this topic in 
speeches to solicit input from affected parties and to promote dialogue 
regarding practical solutions.56
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    \56\ See Thomas B. Leary, Antitrust Issues in Settlement of 
Pharmaceutical Patent Disputes (Nov. 3, 2000), available at ; Thomas B. Leary, Antitrust 
Issues in the Settlement of Pharmaceutical Patent Disputes, Part II 
(May 17, 2001), available at .
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    In July 2002, the FTC issued a report entitled ``Generic Drug Entry 
Prior to Patent Expiration: An FTC Study,'' 57 which 
evaluated whether the Hatch-Waxman Amendments to the Federal Food, 
Drug, and Cosmetic Act are susceptible to strategies to delay or deter 
consumer access to generic alternatives to brand-name drug products. 
The report recommended changes in the law to ensure that generic entry 
is not delayed unreasonably, including through anticompetitive 
activity. In October 2002, President Bush directed the FDA to implement 
one of the key findings identified in the FTC study.58 
Specifically, the FDA has proposed a new rule to curb one of the abuses 
uncovered by the FTC study--pharmaceutical firms' alleged misuse of the 
Hatch-Waxman patent listing provisions--to speed consumer access to 
lower-cost generic drugs.59
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    \57\ Generic Drug Entry Prior to Patent Expiration: An FTC Study 
(July 2002), available at .
    \58\ President Takes Action to Lower Prescription Drug Prices by 
Improving Access to Generic Drugs (Oct. 21, 2002), available at .
    \59\ Applications for FDA Approval to Market a New Drug: Patent 
Listing Requirements and Application of 30-Month Stays on Approval of 
Abbreviated New Drug Applications Certifying That a Patent Claiming a 
Drug Is Invalid or Will Not Be Infringed; Proposed Rule, 67 Fed. Reg. 
65448 (Oct. 24, 2002).
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    5. Hearings on Health Care and Competition Law and Policy. To keep 
abreast of developments in the dynamic health care market, the FTC, 
working with DOJ's Antitrust Division, commenced a series of hearings 
on ``Health Care and Competition Law and Policy'' on February 26, 
2003.60 Over a seven-month period, the FTC and DOJ will 
spend almost 30 days of hearings in a comprehensive examination of a 
wide range of health care issues, involving hospitals, physicians, 
insurers, pharmaceuticals, long-term care, Medicare, and consumer 
information, among others. To date, the hearings have focused on the 
specific challenges and complications involved in applying competition 
law and policy to health care; issues involved in hospital merger cases 
and other joint arrangements, including geographic and product market 
definition; horizontal hospital networks and vertical arrangements with 
other health care providers; the competitive effects of mergers of 
health insurance providers; and consumer information and quality of 
care issues. A public report that incorporates the results of the 
hearings will be prepared after the hearings.
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    \60\ The FTC web site for the hearings is http://www.ftc.gov/ogc/
healthcarehearings/index.htm. To date, the FTC has released a detailed 
agenda for the hearings' sessions in February through June. All of the 
documents relating to the hearings appear on the web site.
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B. Energy
    Antitrust law enforcement is critical in the oil and gas industry. 
Fuel price increases directly and significantly affect businesses of 
all sizes throughout the U.S. economy and can strain consumer budgets.
    1. Oil Merger Investigations. In recent years, the FTC has 
investigated numerous oil mergers. When necessary, the agency has 
insisted on divestitures to cure potential harm to competition. In the 
most recent case, Conoco/Phillips, the Commission required the merged 
company to divest two refineries and related marketing assets, terminal 
facilities for light petroleum and propane products, and certain 
natural gas gathering assets.61
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    \61\ Conoco Inc. and Phillips Petroleum Company, Dkt. No. C-4058 
(Feb. 7, 2003) (consent order).
---------------------------------------------------------------------------
    2. Natural Gas Merger Investigations. The FTC also has investigated 
mergers in the natural gas industry and taken necessary action to 
preserve competition. Just two weeks ago, the Commission accepted for 
public comment a consent order designed to preserve competition in the 
market for the delivery of natural gas to the Kansas City 
area.62 The proposed order conditionally would allow 
Southern Union Company's $1.8 billion purchase of the Panhandle 
pipeline from CMS Energy Corporation, while requiring Southern Union to 
terminate an agreement under which one of its subsidiaries managed the 
Central pipeline, which competes with Panhandle in the market for 
delivery of natural gas to the Kansas City area. Absent the settlement 
agreement, the transaction would have placed the two pipelines under 
common ownership or common management and control, eliminating direct 
competition between them, and likely resulting in consumers' paying 
higher prices for natural gas in the Kansas City area.
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    \62\ Southern Union Co., File No. 031-0068 (May 29, 2003) 
(agreement accepted for public comment).
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    3. Gasoline Monopolization Case. As highlighted above, the 
Commission recently issued an administrative complaint in an important 
nonmerger case involving the Union Oil Company of California 
(``Unocal'').63 The complaint alleges that Unocal violated 
Section 5 of the FTC Act by subverting the California Air Resources 
Board's (``CARB'') regulatory standard-setting procedures of the late 
1980s relating to low-emissions reformulated gasoline (``RFG''). 
According to the complaint, Unocal misrepresented to industry 
participants that some of its emissions research was non-proprietary 
and in the public domain, while at the same time pursuing a patent that 
would permit Unocal to charge royalties if CARB used such emissions 
information. The complaint alleged that Unocal did not disclose its 
pending patent claims and that it intentionally perpetuated the false 
and misleading impression that it would not enforce any proprietary 
interests in its emissions research results. The complaint states that 
Unocal's conduct has allowed it to acquire monopoly power for the 
technology to produce and supply California ``summer-time'' RFG, a low-
emissions fuel mandated for sale in California from March through 
October, and could cost California consumers five cents per gallon in 
higher gasoline prices. This case is pending before an Administrative 
Law Judge.
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    \63\ Union Oil Co. of California, Dkt. No. 9305 (complaint issued 
Mar. 4, 2003).
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    4. Study of Refined Petroleum Product Prices. Building on its 
enforcement experience in the petroleum industry, the FTC is studying 
the causes of volatility in refined petroleum products prices. In two 
public conferences, held in August 2001 and May 2002, 64 
participants discussed key factors that affect product prices, 
including increased dependency on foreign crude sources, changes in 
industry business practices, and new governmental regulations. The 
information gathered through these public conferences will form the 
basis for a report to be issued later this year.
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    \64\ FTC Press Release, FTC to Hold Public Conference/Opportunity 
for Comment on U.S. Gasoline Industry in Early August (July 12, 2001), 
available at ; FTC Press 
Release, FTC Chairman Opens Public Conference Citing New Model To 
Identify and Track Gasoline Price Spikes, Upcoming Reports (May 8, 
2002), available at .
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    5. Gasoline Price Monitoring. In May 2002, the FTC announced a 
project to monitor wholesale and retail prices of gasoline in an effort 
to identify possible anticompetitive activities to determine if a law 
enforcement investigation would be warranted. This project tracks 
retail gasoline prices in approximately 360 cities nationwide and 
wholesale (terminal rack) prices in 20 major urban areas. The FTC 
Bureau of Economics staff receives daily data purchased from the Oil 
Price Information Service (``OPIS''), a private data collection 
company. The economics staff uses an econometric (statistical) model to 
determine whether current retail and wholesale prices each week are 
anomalous in comparison with historical data. This model relies on 
current and historical price relationships across cities, as well as 
other variables.
    As a complement to the analysis based on OPIS data, the FTC staff 
also regularly reviews reports from the Department of Energy's Consumer 
Gasoline Price Hotline, searching for prices significantly above the 
levels indicated by the FTC's econometric model or other indications of 
potential problems. Throughout most of the past two years, gasoline 
prices in U.S. markets have been within their predicted normal bounds. 
Of course, the major factor affecting U.S. gasoline prices is the 
substantial fluctuation in crude oil prices. Prices outside the normal 
bounds trigger further staff inquiry to determine what factors might be 
causing price anomalies in a given area. These factors could include 
supply disruptions such as refinery or pipeline outages, changes in 
taxes or fuel specifications, unusual changes in demand due to weather 
conditions and the like, and possible anticompetitive activity.
    To enhance the Gasoline Price Monitoring Project, the FTC has 
recently asked each state Attorney General to forward to the FTC's 
attention consumer complaints they receive about gasoline prices. The 
staff will incorporate these complaints into its ongoing analysis of 
gasoline prices around the country, using the complaints to help locate 
price anomalies outside of the 360 cities for which the staff already 
receives daily pricing data.
    The goal of the Monitoring Project is to alert the FTC to unusual 
changes in gasoline prices so that further inquiry can be undertaken 
expeditiously. When price increases do not appear to have market-driven 
causes, the FTC staff will consult with the Energy Information Agency 
of the Department of Energy. The FTC staff also will contact the 
offices of the appropriate state Attorneys General to discuss the 
anomaly and the appropriate course for any further inquiry, including 
the possible opening of a law enforcement investigation.
C. High Technology
    With its history of keeping pace with marketplace developments, the 
FTC is well-positioned to take a leading role in assessing the impact 
of technology on domestic and world markets. In addition to bringing 
enforcement actions in high tech areas, the FTC is studying the impact 
of the Internet and intellectual property on competition law and 
policy.
    1. Standard-Setting Cases. As technology advances, efforts will 
increase to establish industry standards for the development and 
manufacture of new products. Standard setting is often procompetitive, 
but anticompetitive abuses can take place during the standard-setting 
process. When the standard-setting process appears to have been 
subverted, the FTC will take action. In addition to Unocal, discussed 
previously, the agency is currently conducting an administrative 
adjudication regarding Rambus, Inc. A June 2002 complaint alleges that 
Rambus, a participant in an electronics standard-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.65 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 Commission'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.66 Because standard-
setting abuses can harm robust and efficiency-enhancing competition in 
high tech markets, the FTC will continue to pursue investigations in 
this area.67
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    \65\ Rambus, Inc., Dkt. No. 9302 (complaint issued June 18, 2002).
    \66\ Id.
    \67\ In 1996, the FTC settled a similar complaint against Dell 
Computer, alleging that Dell had failed to disclose an existing patent 
on a personal computer component that was adopted as the standard for a 
video electronics game. Dell Computer Co., 121 F.T.C. 616 (1996).
---------------------------------------------------------------------------
    2. Intellectual Property Hearings. In 2002, the FTC and DOJ 
commenced a series of ground-breaking hearings on ``Competition and 
Intellectual Property Law and Policy in the Knowledge-Based Economy.'' 
68 These hearings, which took place throughout 2002 and were 
held in Washington and Silicon Valley, heard testimony from academics, 
industry leaders, technologists and others about the increasing need to 
manage the issues at the intersection of competition and intellectual 
property law and policy. The FTC anticipates releasing a report on its 
findings later this year.
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    \68\ FTC Press Release, Muris Announces Plans for Intellectual 
Property Hearings (Nov. 15, 2001), available at .
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    3. Internet Task Force. In 2001, the FTC's Internet Task Force 
began to evaluate potentially anticompetitive regulations and business 
practices that could impede e-commerce. The Task Force has discovered 
that some state regulations may have the effect of protecting existing 
bricks-and-mortar businesses from new Internet competitors. The Task 
Force also is considering whether private companies may be hindering e-
commerce through the use of potentially anticompetitive tactics. In 
October 2002, the Task Force held a public workshop to: (1) enhance the 
FTC's understanding of these issues; (2) educate policymakers about the 
potential anticompetitive effects of state regulations; and (3) educate 
private entities about the types of business practices that may be 
viewed as problematic.69
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    \69\ FTC Press Release, FTC to Host Public Workshop to Explore 
Possible Anticompetitive Efforts to Restrict Competition on the 
Internet (July 17, 2002), available at .
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D. International Competition
    Because competition increasingly takes place in a worldwide market, 
cooperation with competition agencies in the world's major economies is 
a key component of the FTC's 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 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.
    1. ICN and ICPAC. In the fall of 2001, the FTC, DOJ, and 12 other 
antitrust agencies from around the world launched the International 
Competition Network (``ICN''), an outgrowth of a recommendation of the 
International Competition Policy Advisory Committee (``ICPAC''). ICPAC 
suggested 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. The 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-seven jurisdictions already have joined the ICN, and the 
FTC staff is working on initial projects relating to mergers and 
competition advocacy.
    2. OECD. The FTC continues to participate in the 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.
E. Other Enforcement
    1. General Merger Enforcement. The FTC reviews and challenges 
mergers in any economic sectors that have significant potential to harm 
competition and consumers. For example, last summer the Commission 
settled allegations that Bayer AG's $6.2 billion purchase of Aventis 
S.A.'s crop science business raised antitrust concerns in the markets 
for a number of crop science products, including markets for (1) new 
generation chemical insecticide products and active ingredients; (2) 
post-emergent grass herbicides for spring wheat; and (3) cool weather 
cotton defoliants. These new generation products are at the forefront 
of pesticide, insecticide, and herbicide products, and maintaining 
competition in these markets is significant because they appear to 
offer greater effectiveness, with less environmental impact than 
current generation products. In settling this matter, the Commission 
required Bayer to divest businesses and assets used in the manufacture 
of these products to parties capable of maintaining competitive 
conditions in these markets.70
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    \70\ Bayer AG and Aventis S.A., Dkt. No. C-4049 (July 24, 2002) 
(consent order).
---------------------------------------------------------------------------
    Also, in October 2002, the Commission authorized the staff to seek 
a preliminary injunction in federal court blocking the proposed 
acquisition of the Claussen Pickle Company by the owner of the Vlasic 
Pickle Company.71 If allowed to proceed, the combined firm 
would have had a monopoly share of the refrigerated pickle market in 
the United States. Following the FTC's decision, the parties abandoned 
the proposed acquisition.
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    \71\ FTC v. Hicks, Muse, Tate & Furst Equity Fund V, LP, Civ. 
Action No. 1:02-cv-02070-RWR (D.D.C. filed Oct. 23, 2002). A notice of 
voluntary dismissal was filed on October 31, 2002.
---------------------------------------------------------------------------
    2. Mergers Not Reportable Under HSR. The FTC will continue to 
devote resources to monitoring merger activities that are not subject 
to premerger reporting requirements under HSR, but that could be 
anticompetitive. In 2000, Congress raised the HSR size-of-transaction 
filing threshold to eliminate the reporting requirement for smaller 
mergers, but of course it did not eliminate the substantive prohibition 
under Section 7 of the Clayton Act 72 against smaller 
mergers that may substantially lessen competition. Consequently, the 
FTC must identify--through means such as the trade press and other news 
articles, consumer and competitor complaints, hearings, and economic 
studies--and remedy those unreported, usually consummated mergers that 
could harm consumers.
---------------------------------------------------------------------------
    \72\ 15 U.S.C. Sec. 18.
---------------------------------------------------------------------------
    One notable example is the case against MSC.Software 
Corporation.73 In this case, the company ultimately agreed 
to settle FTC allegations that MSC's 1999 acquisitions of Universal 
Analytics, Inc. and Computerized Structural Analysis & Research 
Corporation violated federal antitrust laws by eliminating competition 
in, and monopolizing the market for, advanced versions of Nastran, an 
engineering simulation software program used throughout the aerospace 
and automotive industries. Under the terms of the settlement agreement, 
MSC must divest at least one clone copy of its current advanced Nastran 
software, including the source code. The divestiture will be through 
royalty-free, perpetual, non-exclusive licenses to one or two acquirers 
who must be approved by the FTC.
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    \73\ MSC.Software Corp., Dkt. No. 9299 (Oct. 29, 2002).
---------------------------------------------------------------------------
    3. Enforcement of FTC Merger Orders. The FTC also will litigate, 
when necessary, to ensure compliance with Commission orders protecting 
competition. In March, a federal judge fined Boston Scientific 
Corporation (``BSC'') for violating a licensing requirement in a merger 
settlement involving medical technology used to diagnose and treat 
heart disease.74 To preserve competition in the market for 
intravascular ultrasound catheters following its acquisition of two 
competitors, BSC had agreed to license its catheter technology to 
Hewlett-Packard Company. Finding that BSC ``acted in bad faith'' and 
took an ``obstreperous approach'' to its obligation, the court assessed 
a civil penalty of more than $7 million. This represents the largest 
civil penalty ever imposed for violation of an FTC order.
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    \74\ United States v. Boston Scientific Corp., Civ. Action No. 00-
12247-PBS, Memorandum and Order (D. Mass. Mar. 28, 2003).
---------------------------------------------------------------------------
                    iv. legislative recommendations
    To improve the agency's ability to implement its mission and to 
serve consumers, the FTC makes the following recommendations for 
legislative changes. The FTC staff will be happy to work with 
Subcommittee staff on these recommendations.
A. Elimination of 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 or deceptive acts or practices and 
unfair methods of competition. This exemption dates from a period when 
telecommunications services 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 replaced much of the economic regulatory 
apparatus formerly applicable to the industry with competition. 
Moreover, technological advances have blurred traditional boundaries 
between telecommunications, entertainment, and high technology. 
Telecommunications firms have expanded into numerous non-common-carrier 
activities. For these reasons, FTC jurisdiction over telecommunications 
firms' activities has become increasingly important.
    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, economic, and industry expertise regarding 
competition to mergers and other possible anticompetitive practices, 
not only involving common carriage but also in other high-tech fields 
involving telecommunications. The FTC believes that Congress should 
eliminate the special exemption to reflect the fact that competition 
and deregulation have replaced comprehensive economic regulation.
    The common carrier exemption sometimes has stymied FTC efforts to 
halt fraudulent or deceptive practices by telecommunications firms. 
While common carriage has been outside the FTC's authority, the agency 
believes that the FTC Act applies to non-common-carrier activities of 
telecommunications firms, even if the firms also provide common carrier 
services. 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 may not have 
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. It may have additional 
serious consequences to new areas of industry convergence, e.g., high 
technology and entertainment, where the FTC's inability to protect 
consumers can undermine consumer confidence.
    The FTC has the necessary expertise to address these issues. The 
FTC has 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 
telecommunications.
B. Legislation to Improve the FTC's Ability to Combat Cross-Border 
        Fraud
    As stated earlier, consumer fraud is now more global than ever 
before. To better protect consumers, the FTC requests that Congress 
enact legislation that would better address the changing nature of the 
consumer marketplace and improve the agency's ability to cooperate and 
share information in cases and investigations relating to cross-border 
fraud. The agency's recommendations focus primarily on improving its 
ability to combat fraud involving foreign parties, evidence, or assets. 
At the same time, some of the recommendations may also benefit the 
pursuit of purely domestic investigations and cases. Indeed, it is 
often not immediately evident whether a matter has a cross-border 
component.
    These proposals also would help the FTC fight deceptive spam. As 
the agency has learned from investigations and discussions at the 
recent FTC spam forum, spammers easily can hide their identity, forge 
the electronic path of their e-mail messages, or send their messages 
from anywhere in the world to anyone in the world. Also, a large 
percentage of spam comes from outside our borders. For these reasons, 
the spam forum participants emphasized that successful efforts to 
combat deceptive spam will require international enforcement 
cooperation. These legislative proposals can improve the FTC's ability 
to cooperate with international partners on this issue.
    The FTC staff has discussed these legislative proposals with other 
affected agencies, and these agencies generally support the goals of 
the proposals. The FTC staff is continuing to work with these agencies 
on the details of a few of the proposals. The FTC's cross-border 
proposal includes four main components. First, the FTC is seeking to 
strengthen, in a number of ways, its ability to cooperate with foreign 
counterparts, who are often investigating the same targets. Under 
current law, for example, the FTC is prohibited from sharing with 
foreign counterparts certain information that the FTC has obtained in 
its investigations. Legislation is necessary to allow the agency to 
share such information and provide other investigative assistance in 
appropriate cases.75
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    \75\ The Securities Exchange Commission, the Commodity Futures 
Trading Commission, and the federal financial regulators already have 
the authority to share information and cooperate with their foreign 
counterparts. See 15 U.S.C. Sec. 78x(c); 15 U.S.C. Sec. 78u(a)(2); 7 
U.S.C. Sec. 12(e); 7 U.S.C. Sec. 16(f); 12 U.S.C. Sec. 3109(a)-(b); and 
12 U.S.C. Sec. 1818(v)(2). The FTC's proposal is modeled after these 
statutes.
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    Second, the FTC is seeking enhancements to its information-
gathering capabilities to enable it to obtain more easily information 
from federal financial regulators about those who may be defrauding 
consumers. The FTC is also seeking enhancement of its ability to obtain 
information from third parties without the request triggering advance 
notice to investigative targets and thus prompting the targets to move 
their assets overseas.
    Third, the FTC is seeking improvements to its ability to obtain 
consumer redress in cross-border litigation, by clarifying the agency's 
authority to take action in cross-border cases and expanding its 
ability to use foreign counsel to pursue offshore assets.
    Finally, the FTC is seeking to strengthen international cooperative 
relationships by obtaining authority to facilitate staff exchanges and 
to provide financial support for certain joint projects.
C. Legislation to Enhance the FTC's Effectiveness To Fight Fraudulent 
        Spam
    As discussed earlier, a recent study by the Commission found that 
66 percent of spam contained obvious indicia of falsity. Moreover, a 
significant portion of spam is likely to be routed through foreign 
servers. For these reasons, it would be useful to have additional 
legislative authority, addressing both procedural and substantive 
issues, that would enhance the agency's effectiveness in fighting fraud 
and deception. The procedural legislative proposals would improve the 
FTC's ability to investigate possible spam targets, and the substantive 
legislative proposals would improve the agency's ability to sue these 
targets successfully.
    1. Procedural Proposals. The FTC's law enforcement experience shows 
that the path from a fraudulent spammer to a consumer's in-box 
frequently crosses at least one international border and often several. 
Thus, fraudulent spam exemplifies the growing problem of cross-border 
fraud. Two of the provisions in the proposed cross-border fraud 
legislation discussed above also would be particularly helpful to 
enable the FTC to investigate deceptive spammers more effectively and 
work better with international law enforcement partners.
    First, we request that the FTC Act be amended to allow FTC 
attorneys to seek a court order requiring a recipient of a Civil 
Investigative Demand (``CID'') to maintain the confidentiality of the 
CID for a limited period of time. Several third parties have told us 
that they will provide notice to the target before they will share 
information with us, sometimes because they believe notice may be 
required and sometimes even if such notice clearly is not required by 
law.
    Second, we are requesting that the FTC Act be amended to provide 
that FTC attorneys may apply for a court order temporarily delaying 
notice to an investigative target of a CID issued to a third party in 
specified circumstances, when the Right to Financial Privacy Act 
(``RFPA'') or the Electronic Communications Privacy Act (``ECPA'') 
would require such notice.
    The FTC's experience is that when fraud targets are given notice of 
FTC investigations they often destroy documents or secrete assets. 
Currently RFPA and ECPA provide a mechanism for delaying notice, but 
the FTC's ability to investigate would be improved by tailoring the 
bases for a court-ordered delay more specifically to the types of 
difficulties the FTC encounters, such as transfers of assets offshore. 
In addition, it is unclear whether FTC attorneys can file such 
applications, or whether the Commission must seek the assistance of the 
Department of Justice. Explicit authority for the FTC, by its own 
attorneys, to file such applications would streamline the agency's 
investigations of purveyors of fraud on the Internet, ensuring that the 
agency can rapidly pursue investigative leads.
    Other legislative proposals would enhance the FTC's ability to 
track deceptive spammers. First, we request that the ECPA be clarified 
to allow the FTC to obtain complaints received by an ISP regarding a 
subscriber. Frequently, spam recipients complain first to their ISPs, 
and access to the information in those complaints would help the agency 
to determine the nature and scope of the spammer's potential law 
violations, as well as lead the agency to potential witnesses.
    Second, we request that the scope of the ECPA be clarified so that 
a hacker or a spammer who has hijacked a bona fide customer's email 
account is deemed a mere unauthorized user of the account, not a 
``customer'' entitled to the protections afforded by the statute. 
Because of the lack of a statutory definition for the term 
``customer,'' the current statutory language may cover hackers or 
spammers. Such a reading of the ECPA would permit the FTC to obtain 
only limited information about a hacker or spammer targeted in an 
investigation. Clarification to eliminate such a reading would be very 
helpful.
    Third, we request that the ECPA be amended to include the term 
``discovery subpoena'' in the language of 18 U.S.C. Sec. 2703. This 
change is particularly important because a district court has ruled 
that the FTC staff cannot obtain information under the ECPA from ISPs 
during the discovery phase of a case, which limits the agency's ability 
to investigate spammers.76
---------------------------------------------------------------------------
    \76\ See FTC v. Netscape Comm. Corp., 196 F.R.D. 559 (N.D. Cal. 
2000).
---------------------------------------------------------------------------
    2. Substantive Proposals. Substantive legislative changes also 
could aid in the FTC's law enforcement efforts against spam. Although 
Section 5 of the FTC Act provides a firm footing for spam prosecutions, 
additional law enforcement tools could make more explicit the 
boundaries of legal and illegal conduct, and they could enhance the 
sanctions that the agency can impose on violators. The Telemarketing 
and Consumer Fraud and Abuse Prevention Act (``TCFAPA''), 15 U.S.C. 
Sec. Sec. 6101-6108, provides a model for addressing unsolicited 
commercial e-mail. Amendments to the TCFAPA would authorize the FTC to 
adopt rules addressing deceptive and abusive 77 practices 
with respect to the sending of unsolicited commercial e-mail. 
Approaching spam through this statutory model would provide the market 
with direction, but would do so within a framework that could change as 
the problems evolve. It also would provide several more specific, 
important benefits.
---------------------------------------------------------------------------
    \77\ The FTC has determined, in the Statement of Basis and Purpose 
for the Amended TSR, that the undefined term ``abusive'' used in the 
legislation authorizing that Rule will be interpreted to encompass 
``unfairness.'' 68 Fed. Reg. 4580, 4614 (2003).
---------------------------------------------------------------------------
    First, amendment of the statute would give the FTC general 
discretionary authority via rulemaking to address deceptive practices 
relating to spam. The rule would set out bright lines between 
acceptable and unacceptable practices for the business community. The 
list of deceptive practices could include: the use of false header or 
routing information; the use of false representations in the 
``subject'' line; the use of false claims that an unsolicited 
commercial e-mail message was solicited; and the use of false 
representations that an opt-out request will be honored. As with 
telemarketing, a rule also could prohibit assisting and facilitating 
any of the above, i.e., providing substantial assistance to another 
party engaged in any rule violation knowing or consciously avoiding 
knowing that such party is engaged in such violation.
    Second, amendment of the statute would give discretionary authority 
via rulemaking to address abusive practices relating to spam. Specific 
abusive practices might include: sending any recipient an unsolicited 
commercial e-mail message after such recipient has requested not to 
receive such commercial e-mail messages; failing to provide a 
reasonable means to ``opt out'' of receiving future e-mail messages; 
and sending unsolicited commercial e-mail to an address obtained 
through harvesting or a dictionary attack.
    Third, amendment of the TCFAPA would ensure that the Rule embodies 
the same standard of liability that is embodied in Section--5 of the 
FTC Act, without a general requirement to show intent or scienter. 
Imposition of intent or scienter requirements would unnecessarily 
complicate enforcement, and also would actually constrict the scope of 
the FTC's existing authority under Section 5 to attack spam.
    Fourth, the amended statute would provide that the Rule would be 
enforceable, like all FTC Rules, through FTC actions in federal 
district court, and it further would provide that violators would be 
subject to preliminary and permanent injunctions and could be ordered 
to pay redress to consumers. In addition, in an action brought by DOJ 
on behalf of the FTC, violators would be liable to pay civil penalties 
of up to $11,000 per violation (the amount of civil penalties is 
governed by statutory factors, such as ability to pay, previous history 
of such conduct, egregiousness of the conduct, etc.).
    Like the existing statute, the amended TCFAPA would authorize 
states to enforce the FTC Rule in federal court to obtain injunctions 
and redress for their citizens, but not civil penalties.
    The TCFAPA authorizes a private right of action for any person 
adversely affected by a violation of the FTC's Telemarketing Sales Rule 
if the amount in controversy exceeds $50,000 in actual damages for each 
person adversely affected by such action. The FTC, however, will need 
to assess whether the inclusion of an analogous provision in an amended 
TCFAPA that addresses spam would be appropriate, effective, and 
feasible.
    Finally, the rulemaking authority granted through this amendment 
could be adapted to new changes in technology without hindering 
technological innovation.
    An amended TCFAPA should seek to assure consistency between state 
and federal laws. The scope of the Internet and of e-mail communication 
is global, transcending national boundaries. Congress should seek to 
minimize artificial barriers that would break up this market.
    In addition to the TCFAPA amendments, the possible criminalization 
of false header and routing information should be explored. There is 
some debate over whether the wire fraud statute covers fraud in the 
sending of e-mail communications. The FTC staff is discussing this 
issue with criminal authorities to determine whether a specific statute 
that criminalized this conduct would clear up any statutory confusion 
or encourage spam prosecutions. At this time, the FTC has no 
recommendations on whether changes in the criminal code are necessary 
or appropriate.78 Admittedly, we recognize that these legal 
steps will not solve the growing spam problem. Nor is it clear what 
impact these steps will have on some of the other problems associated 
with spam (e.g., volume and security). These issues may need to be 
addressed separately. Nevertheless, the FTC believes that the proposed 
legislation would provide more effective investigative and enforcement 
tools and would enhance the FTC's continuing law enforcement efforts.
---------------------------------------------------------------------------
    \78\ Any legislation that criminalizes certain types of spam 
activities should not negatively impact the FTC's existing Section 5 
authority or change the present standards of proof, scienter, or 
evidence for cases of civil fraud, deception, or unfairness.
---------------------------------------------------------------------------
D. Technical Changes
    Finally, the FTC requests two new 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 would 
be especially useful in connection with the FTC's close coordination 
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, the FTC's 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.
    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. 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.
                             v. conclusion
    Mr. Chairman, the FTC appreciates the strong support for its agenda 
demonstrated by you and the Subcommittee. I would be happy to answer 
any questions that you and other Senators may have about the FTC's 
reauthorization request.

    Mr. Stearns. Welcome. Thank you, Mr. Chairman. Mr. 
Thompson.

             STATEMENT OF HON. MOZELLE W. THOMPSON

    Mr. Thompson. Good morning. Thank you, Mr. Chairman and 
members of the committee, for the opportunity to appear before 
you today and offer testimony in support of the FTC's 
reauthorization. In recent years the FTC has been doing 
significant work in the area of international consumer 
protection. Improvements in communication and technology have 
created a global marketplace in which American consumers and 
American businesses play an important and active role. But 
these same improvements have left American consumers open to 
new types of harm in numbers that are growing at an exponential 
rate.
    Today, I would like to talk about one of the most 
significant consumer protection problems in the last several 
years; the globalization of fraud and deception and the FTC's 
response, because not only has the marketplace for consumers 
been global, so have the purveyors of fraud and deception.
    Now, as you can see from the first exhibit, right behind 
me, the same technological tools that have expanded markets 
across international boundaries have allowed fraudsters to act 
more effectively and quickly to extend their reach from 
domestic markets. The FTC needs new tools to effectively combat 
cross-border fraud and deception and we ask you for them today.
    Now, this first exhibit shows you just where some of our 
complaints come from, from U.S. consumers to businesses, and 
you can just see this from our data right now, all around the 
world. Now, there was a time not very long ago when the biggest 
challenge to American consumers was whether they wanted to do 
business with a mail order company on the other side of the 
United States. Most of our consumer protection laws are based 
on what we knew then, and they have served us well. Today, 
however, America represents the largest and richest consumer 
marketplace in the world. Improvements in technologies have 
opened world markets to American consumers and vice versa.
    So it is not surprising that American consumers are 
bombarded with new opportunities to spend their money. These 
opportunities arrive from around the world via mail, telephone, 
television and even spam. While many of these opportunities may 
be legitimate, a rapidly growing number are fraudulent and 
deceptive.
    Now, as you can see from the second chart, from some of our 
data, just what is in red are American consumer complaints 
against Canadian companies. And the other, the blue part, 
represents American consumer complaints against other companies 
from around the world. It is amazing what percentage of those 
complaints come from outside of our borders.
    Now, in response to this dramatic increase, the FTC has 
taken a leadership role in reaching a mutual understanding with 
our international colleagues that we must plus bring down 
barriers to prosecuting fraudsters who prey on victims across 
borders. Consumer protection law enforcers around the world now 
agree that this problem is serious and that international 
cooperation is a key to any effort to combat cross-border fraud 
and deception. We work in a variety of international fora to 
address these problems. Our efforts have resulted in bilateral 
memorandum of understanding and include our participation in 
the International Consumer Protection Enforcement Network, a 
group of consumer protection law enforcement agencies from 
around the world.
    The issue of cross-border fraud and deception is also at 
the forefront of our discussions at the Organization for 
Economic Cooperation and Development, the OECD, and their 
Committee on Consumer Policy. That committee, which I chair, 
has worked to develop guidelines that provide the 30 OECD 
governments with a blueprint for cooperation in combatting 
cross-border fraud. We hope those guidelines will be finalized 
and approved later this month.
    But participation in international fora is not enough. 
Criminal law enforcers saw the need for international 
cooperation a long time ago and they found ways to permit 
governments to share investigatory information and to engage in 
cooperative law enforcement. Later, the Federal Government 
recognized the negative market impacts of such activities as 
securities and commodities fraud. Consequently, agencies like 
the SEC and the CFTC were given certain powers that enable them 
to better prosecute such fraud across national borders.
    But unlike our sister agencies, the FTC's tools to combat 
fraud and deception have not quite caught up with the times. In 
many instances the statutes under which we operate do not 
address the increasingly cross-border nature of fraud and 
sometimes even hinder our ability to engage in strong law 
enforcement activity. The growth of cross-border fraud 
demonstrates the pressing need for new tools.
    As you can see from the third exhibit, our statistics show 
a sharp increase in the number of cross-border complaints from 
American consumers about foreign companies, from 7,609 in 
calendar year 1998 to 24,213 in calendar year 2002. In fact, 
from 2001 to 2002 the number of complaints almost doubled. And 
as the chairman recognized in his remarks, participants in our 
spam forum have even noted how much fraudulent and deceptive e-
mail comes from outside of the United States. So for this 
reason alone, cross-border fraud legislation is a necessary 
element to make spam legislation effective.
    So the legislative proposal that we have presented to you 
is intended to address some of the problems that I have 
outlined and improve the FTC's ability to protect consumers in 
cross-border cases. Quite simply, we are asking for the tools 
to make us more effective in meeting the challenges posed by 
cross-border fraud.
    I would be happy to provide you with more details and 
answer any questions you may have on this or any other subject 
of the FTC's activities. Thank you.
    [The prepared statement of Hon. Mozelle W. Thompson 
follows:]
 Prepared Statement of Hon. Mozelle W. Thompson, Commissioner, Federal 
                            Trade Commission
    Good morning Mr. Chairman and members of the Committee, and thank 
you for the opportunity to appear before you and to offer testimony in 
support of the FTC's reauthorization. In recent years, the FTC has been 
doing significant work in the area of international consumer 
protection. Improvements in communication and technology have created a 
global marketplace in which American consumers and American businesses 
play an important and active role. But these same improvements have 
left American consumers open to new types of harm in numbers that are 
growing at an exponential rate.
    Today, I would like to talk about one of the most significant 
consumer protection problems in the last several years--the 
globalization of fraud and deception--and the FTC's response. Because 
not only has the consumer marketplace become global, so have the 
purveyors of fraud and deception. The same technological tools that 
have expanded markets across international boundaries have also allowed 
fraudsters to act more quickly and efficiently--and to extend their 
reach beyond their domestic markets. The FTC needs new tools to 
effectively combat cross border fraud and deception, and we ask you for 
them today.
    There was a time when the biggest challenge to American consumers 
was whether they wanted to do business with a mail order company on the 
other side of the country. Most of our consumer protection laws are 
based on what we knew then, and they have served us well. Today, 
however, America represents the largest and richest consumer 
marketplace in the world. Improved technologies have opened world 
markets to American consumers and vice versa. So, it is not surprising 
that American consumers are bombarded with new opportunities to spend 
their money. These opportunities arrive from around the world via mail, 
telephone, television, and even spam. While many of these opportunities 
may be legitimate, a rapidly growing number are fraudulent or 
deceptive.
    In response to this dramatic increase, the FTC has taken a 
leadership role in reaching a mutual understanding with our 
international colleagues that we have to bring down barriers to 
prosecuting fraudsters who prey on victims across borders. Consumer 
protection law enforcers around the world now agree that this problem 
is serious and that international cooperation is the key to any effort 
to combat cross border fraud and deception.
    We work in a variety of international fora to address the problems 
posed by cross border fraud.
    Our efforts have resulted in bilateral memoranda of understanding, 
and include our participation in the International Consumer Protection 
and Enforcement Network (ICPEN), a group of consumer protection law 
enforcement agencies from around the world.
    The issue of cross-border fraud and deception is also at the 
forefront of our discussions at the Organization for Economic 
Cooperation and Development (OECD) Committee on Consumer Policy (CCP). 
The CCP has worked to develop guidelines that provide the thirty OECD 
governments with a blueprint for cooperation in combating cross-border 
fraud. We hope that the guidelines will be finalized and approved later 
this month.
    But participation in international fora is not enough.
    Criminal law enforcers saw the need for international cooperation 
many years ago. They found ways to permit government authorities to 
share investigatory information and to engage in cooperative law 
enforcement. Later, the Federal government recognized the negative 
market impact of such activities as securities and commodities fraud. 
Consequently, agencies such as the SEC and CFTC were given certain 
powers enabling them to better prosecute such fraud across national 
borders.
    Unlike our sister agencies, the FTC's tools to combat fraud and 
deception have not kept up with the times. In many instances the 
statutes under which we operate do not address the increasingly cross-
border nature of fraud and deception and sometimes even hinder our 
ability to engage in strong enforcement activity against those who use 
international borders to the detriment of consumers.
    The growth of cross-border consumer fraud demonstrates the pressing 
need for new tools to protect consumers. Our statistics show a sharp 
increase in the number of cross-border complaints from American 
consumers about foreign companies, from 7,609 in calendar year 1998 to 
24,213 in calendar year 2002. In fact, from 2001 to 2002, the number of 
complaints almost doubled. Even at our recent Spam Forum, participants 
noted that unsolicited e-mail increasingly crosses borders to subject 
consumers to fraudulent and deceptive offers.
    The legislative proposal that we have presented to you is intended 
to address some of these problems and improve the FTC's ability to 
protect consumers in such cases. Quite simply, we are asking for the 
tools to make us more effective in meeting the challenges posed by 
cross-border fraud.
    I would be happy to answer any questions that you have on this 
subject or any other part of the FTC's activities.

    Mr. Stearns. Thank you, Commissioner. Commissioner Swindle.

                 STATEMENT OF HON. ORSON SWINDLE

    Mr. Swindle. Thank you, Mr. Chairman--pardon me--and 
members of the committee, for this opportunity to appear before 
you and Chairman Muris and----
    Mr. Stearns. You might just pull the mike up a little bit.
    Mr. Swindle. If I turn it on, it would help immensely. 
Modern technology. I will start again with the clearing of the 
throat.
    Thank you, Mr. Chairman and members of the committee, for 
this opportunity to appear before you and with Chairman Muris 
and my fellow Commissioners. Today I would like to briefly 
address a growing problem for all of us, the unsolicited 
commercial e-mail, unwanted e-mail or spam. Consumers must have 
trust and confidence in technology and its uses, particularly 
when it comes to the privacy and security of their personal and 
sensitive information. Spam undermines consumer trust and 
confidence and is rapidly growing threat to Web-based services.
    The Commission's testimony provides the committee with an 
overview of our efforts to combat spam and also legislative 
recommendations to address spam. The legislative 
recommendations are modeled on the Telemarketing Act. However, 
many of the Commission's recommendations are already contained 
in the Burr spam bill. For example, like the Telemarketing Act, 
the Burr bill provides for State law enforcement action in 
Federal court, allows for the collection of civil penalties and 
grants the Commission narrow rulemaking authority to implement 
key provisions of the bill.
    Spam raises a number of concerns. The volume of spam is 
increasing at astonishing rates. In addition, recent Commission 
studies indicate that spam has become the weapon of choice for 
those engaged in fraud and deception. Spam also can transmit 
viruses, Trojan horses and other damaging code capable of 
inflicting major damage on the Internet and our critical 
infrastructure. These concerns represent enormous cost to 
businesses, consumers and the economy.
    There is no easy solution to the spam problem, certainly, 
no single approach that will solve the problem. Nevertheless, 
spam raises problems that demand attention by policymakers and 
industry leaders. First, there is a complex combination of 
technology, market forces and public policy that will be 
evolving for years to come. In addition, the spam problem is 
heavily influenced by the emotions of millions of computer 
users who are literally fed up with spam.
    Spam is about to kill the ``Killer Ap'' of the Internet, 
specifically consumer use of e-mail and e-commerce. If 
consumers lose trust and confidence in Web-based services and 
stop using them as tools for communications and on-line 
commerce, tremendous harm will be done to the economic 
potential of information technology. Solving these problems 
requires innovation, resources and time. However, dealing with 
the emotional reaction of spam by millions of users requires 
our immediate attention before it gets out of hand.
    Internet service providers, software manufacturers and 
those engaged in designing operating systems must empower 
consumers with better control over their incoming e-mail. 
Easing the spam burden on consumers will help to shore up trust 
and confidence.
    Surely this is possible right now. Why has industry not 
done so? Frankly, I am not convinced that industry really wants 
to empower consumers by giving them easy to use tools to 
control their incoming e-mail. Spam is a crisis today. We need 
great minds to quickly find solutions. Empowering consumers 
would be a good first step. Industry must do this and do it 
now.
    The Commission will continue its multifaceted efforts to 
address spam. For example, the Commission will continue its 
aggressive law enforcement programs against deceptive spam. 
However, it is both resource intensive and technically 
challenging to find the guilty parties. Consumer education and 
awareness are also essential. Our Web site, ftc.gov/
infosecurity, our consumer outreach and partnerships with 
industry on fighting spam and promoting safe computing are 
expanding our reach.
    The Commission also conducts research on various aspects of 
spam. Three recent Commission studies helped us to better 
understand the magnitude of deceptive spam and how consumers 
are victimized. The Commission's spam forum in May was intended 
to better inform the dialog and to explore possible solutions 
for spam. The forum was remarkable in its discussions and 
participants. Over 80 panelists and over 400 people attended 
the conference over its 3-day span. I would like to share some 
of the forum's revelations about the realities of spam.
    First and foremost, the private sector must lead the way to 
finding solutions to spam. We likely will not find the perfect 
solution. The target will be constantly moving as technology 
evolves. More laws are not necessarily the right answer. Laws 
bestowing a competitive advantage to larger firms over smaller 
firms are questionable. Unenforceable laws will have little 
real effect. Overreaching laws will have unintended adverse 
consequences. Passing legislation to mandate best practices for 
good actors will not help us track down the bad actors engaged 
in fraud and deception. Industry and government, consumers and 
other user's and civil society organizations must be a part of 
a continuing dialog to find solutions.
    In addition, consumer awareness and developing safe 
computing practices by all participants are essential. 
Developing a culture of security where all participants work to 
enhance consumer security and minimize the vulnerabilities to 
the Internet and our critical infrastructure is an imperative, 
not an option. The effort to solve the spam problem and secure 
our information systems and networks is a journey. It is not a 
destination, and we have miles to go before we sleep.
    Thank you, Mr. Chairman.
    Mr. Stearns. I thank the Commissioner. Commissioner Leary.

              STATEMENT OF THE HON. THOMAS B. LEARY

    Mr. Leary. Yes. Thank you, Mr. Chairman and members of the 
subcommittee. My role here is to discuss our unanimous 
recommendation that the Federal Trade Commission Act be amended 
to eliminate the special exemption for telecommunications 
common carriers. When the common carrier exemption was included 
in the FTC Act many years ago the exemption made sense. It was 
logical to exempt monopoly providers of common carrier services 
who were not disciplined by competition, but rather by detailed 
rate and service regulation. Since that time, the 
telecommunications industry has changed dramatically and, 
perhaps even more important, the regulatory role of the Federal 
Government has also changed dramatically. Let me summarize some 
of the changes that are particularly significant.
    One, the common carrier activities of telecom companies are 
less regulated by government fiat today and more by 
competition. At the same time, telecom companies have been 
allowed to expand into non-common carrier activities like 
Internet services. They provide these services in competition 
with companies that are unqualifiably subject to our 
jurisdiction. These telecom companies no longer occupy a 
special niche in our economy.
    Two, over the last century you have passed myriad laws and 
regulations and created entirely new agencies to monitor and 
regulate specific activities of business enterprises whether 
they are common carriers or not. Sector specific regulation of 
the kind that the FCC or the FDA provides has been supplemented 
everywhere by specific substantive law enforcement of agencies 
like the SEC, OSHA or the EPA--agencies like the FTC that have 
a broad jurisdiction over a large number of sectors, but 
monitor a limited range of activities in any one sector. We no 
longer look to a single government agency to address all 
problems that may appear in a single sector.
    Three, we in the FTC have a long experience cooperating 
with other agencies to avoid duplication or inconsistency in 
these situations. Specifically, we want to cooperate with the 
FCC, and we have no ability or desire to intrude in their core 
mission as gatekeeper into the limited communications spectrum. 
We do not make the same kinds of public interest determinations 
that they do. We are not concerned with the qualifications of 
companies that compete or the nature of services that they 
provide.
    The core mission that you have assigned to us is to see 
that any company, whatever it does, conducts its business with 
fairness and with honesty. In carrying out that mission, we 
have acquired an in-house expertise and a body of precedent 
that I really believe is unmatched anywhere in this country or 
indeed the world.
    Now, some may ask why we are asking for a change after all 
these years, and that is a fair question. The short answer is 
that technologies are continually converging and we have become 
increasingly frustrated by our inability to obtain complete 
relief in situations where (A) there are multiple parties, some 
of whom are common carriers and some who are not; (B) a common 
carrier engages in deceptive practices involving a mix of 
common carrier and non-common carrier activities; or (C) the 
jurisdiction lines are unclear and resources are wasted dealing 
with an issue that has nothing to do with the merits.
    Finally, an admitted common carrier may engage in deceptive 
practices that are similar to those we see all the time, that 
do the same consumer harm and for which we have special 
remedies, but we are paralyzed by the jurisdictional barrier. 
Potential agency overlaps may require discussion and 
cooperation. We have had and continue to have an ongoing 
exchange with the FCC on this subject. We are trying to address 
the situation where companies that engage in the same conduct 
in competition with one another are subject to different 
regulatory regimes. We will not have duplicate regulation, but 
we want to avoid inconsistent regulation.
    In conclusion, let me assure you that we do not want to 
intrude into other agencies' business and we do not seek to 
impose remedial relief absent a need for it. But you decided 
long ago that the issues we are talking about here are our 
business, and we cannot do the best possible job for consumers 
whom we both seek to serve while we are constrained by a 
barrier that has long outlived its usefulness.
    Thank you, Mr. Chairman.
    Mr. Stearns. I thank you. I think we will have two rounds 
of questioning, 5 minutes each, and I will start out with my 
first line of questioning. I think one of the most alarming 
statistics in your testimony deals with identity theft and I 
guess according to your prepared statement regarding ID theft, 
it has increased over 500 percent just in 2 years. In 2002 
identity theft was the No. 1 consumer complaint made to the 
Federal Trade Commission, approximately 43 percent of all 
complaints, from your testimony. I have a person on my staff 
who has actually had identity, ID theft, so he can speak to 
this and he has pointed out to me he has been very happy and 
was very clearly pleased with the response of the Federal Trade 
Commission. So you have one case example where it is working. 
Once a person logs on, in fact, I might point out that I guess 
if a person has a complaint with ID theft, you have a toll free 
number which is 1-877-IDTHEFT. And then you have a Web site, of 
course it is www.consumer.gov/idtheft. But the question is once 
a person logs a complaint into your ID theft data base, what 
can they expect in terms of action at that moment from the law 
enforcement agencies that use this data base? Is there a 
particular threshold as to whether or not an ID theft complaint 
will be investigated by either a local or Federal law 
enforcement agency?
    I will just start with the Chairman.
    Mr. Muris. Well, we provide victim assistance. We don't 
have the ability to bring cases. We also provide assistance to 
law enforcement. In fact, we work with and train law 
enforcement. I have actually sat and listened to several 
consumer calls. When someone calls what we are particularly 
good at is helping walk them through the steps they need to 
take, both in filing a police report and in dealing with their 
creditors and the credit reporting agencies. We published a 
runaway best selling booklet that we can't print enough of, to 
advise people on what to do if they are a victim of identity 
theft. Since I became Chairman 2 years ago now, we now print 
the booklet in Spanish, Robo Identitad. We have a very large 
circulation in Spanish as well.
    We continue to try to improve what we do. We have only very 
recently increased dramatically our training and we are trying 
to work with law enforcement officials. The Secret Service 
works with us on this and we have tried to put together 
packages using our data of possible problems to send to law 
enforcement. Finally, I have supported increased criminal 
penalties in the identity theft area. There are some bills that 
would do that.
    Mr. Stearns. Well, I guess one thing I think we should do 
immediately, once there is suspicion of fraudulent activity 
under his or her name is to file a fraud alert with the three 
credit reporting bureaus and their report will reflect a notice 
for any credit lender to contact the individual directly before 
extending any credit. It is my understanding that some credit 
lenders will continue to extend credit despite the fraud alert 
and subsequently fail to actually contact the consumer.
    I guess the question is, has your agency encountered any 
complaints like that and how do we encourage credit companies 
to heed the fraud alert when a credit report is pulled?
    Mr. Muris. We have been talking to the credit reporting 
agencies and creditors. One thing that we have done in the last 
year or so is created a common form that people who are victims 
of identity theft can use. More and more creditors accept this 
form. In connection with the reauthorization of the Fair Credit 
Reporting Act discussing possible reforms. We haven't come to 
any recommendations yet. But we are considering changes and 
improvements that would make it easier to attack identity 
theft.
    I think that in talking to the credit reporting agencies, 
the problem that you are identifying does not come up very 
often. We are the main regulator of the credit reporting 
agencies and we talk to them quite a bit about this and other 
issues.
    Mr. Stearns. Do these credit reporting agencies talk to 
each other, so once an account is fraudulent by one bureau, 
does that bureau share that information with the other credit 
bureaus if they also have records of the same fraudulent 
account? And so should these companies be required to share 
this information, I think is the question for you.
    Mr. Muris. Well, at the moment I don't think they share the 
information. They have different algorithms for determining 
creditworthiness and this is a good thing in terms of 
competition. They use fairly complex credit scoring models. We 
are trying to work with them though in ways to deal with 
identity theft, such as the common affidavit that I just 
mentioned.
    If you look at the three major credit reporting agencies 
there are significant differences in the information that they 
have and in how they use the information. The information comes 
from so-called furnishers. The people who grant credit are a 
primary example. The big picture is that, since the Congress 
put us in the business of tracking identity theft information 
and providing victim assistance, we have been on a very steep 
curve in providing better assistance to consumers, better 
working with the credit reporting agencies, and better 
assistance to law enforcement. We are also doing, if I could 
add for just a second, a nationally projectable survey which 
will be the first time that we have a systematic estimate of 
the scale of the problem of identity theft. The survey is out 
in the field; they are compiling the results. We hope to 
announce the results fairly soon, and we will do some very 
useful things there. For example, we will look at different 
kinds of problems. The problem of having your account number 
stolen is significantly different, or can be, from someone who 
actually goes out and gets a new credit card in your name. We 
will look at different kind of problems, and I think that will 
allow us to assist victims and law enforcement in a better way. 
Finally, one thing we have encouraged and we are still talking 
to the credit reporting agencies about, is to establish that 
one call to us from a credit reporting agency will place a 
fraud alert with all the three major credit reporting agencies. 
I think that will be a positive step.
    Mr. Stearns. Just in conclusion, TransUnion is one, credit 
reporting, and Equifax is another. And TransUnion let us say, 
takes it off of your report but Equifax doesn't. How do you get 
these two to do it at the same time, so that the consumer isn't 
constantly badgering one while the other did it, and I guess 
how do we do that? Maybe that is not in your jurisdiction but--
--
    Mr. Muris. The credit reporting agencies have been very 
responsive in dealing with us. They understand the problem of 
identity theft. The creditors are, obviously, extremely 
interested. As you know, under current law, the credit card 
companies get left holding a very large bill. ID theft is a 
very damaging problem to consumers because of the time involved 
in getting your good name back. The out-of-pocket costs are 
borne by someone else. So I think the business community has a 
lot of interest. We are working with them, and are making 
progress.
    Mr. Stearns. Thank you.
    Ms. Schakowsky. Thank you, Mr. Chairman. Mr. Muris, I am 
very happy that you put your book out in Spanish because I 
think one of the problems that foreign language speakers may 
find themselves in are immigration complications when there is 
identity theft; so I am glad that you have done that. In my 
district, we could probably use about 50 languages.
    But I wanted to talk to you about the current law that says 
that a person has 2 years from the time of theft, identity 
theft, to seek court action. The Supreme Court in the TRW 
versus Andrews supported this 2-year time limit. The Bush 
Administration, I am happy to say, filed a brief in opposition 
to the Supreme Court decision, and I also oppose that decision. 
And in the last Congress, I introduced bipartisan legislation 
that would have extended the statute of limitation to 5 years 
from the time a victim learned or should have learned that the 
identity theft had occurred. The current statute of limitations 
makes it extremely difficult for victims to seek redress and 
restore their good name in a timely fashion, and it is your 
data that says that it takes on average 12.3 months for a 
consumer to learn of the theft. Sixteen percent of the victims 
are unaware of the theft for 2 years. So I wanted to get your 
feelings on this to see if you support the administration's 
earlier decision and advocate briefing in that case, and to 
find out if you, if the credit, would support the legislation 
to extend the statute of limitations.
    Mr. Muris. I wasn't on the Commission at the time but I 
believe the Commission signed on to that brief. My colleagues 
are shaking their head yes. I guess I am not sure if we have 
taken a position on legislation, but I personally believe that 
2 years is too short. Let me turn to my colleagues.
    Mr. Thompson. I would agree. Extending the time would be 
helpful and especially because this kind of problem poses a 
more heinous risk to underserved communities where people don't 
necessarily know what their rights and remedies are or how to 
exercise them. We have found at the FTC, with our educational 
brochures in different languages and trying to reach out to 
people, they are now getting more sophisticated and even the 
credit reporting agencies are more sophisticated in how they 
approach the problem. But the idea of the fact that the people 
who are most victimized are often the people who are probably 
less equipped to know what to do about it would dictate, at 
least from my perspective, a longer period of time, I think 
that would be helpful.
    Ms. Schakowsky. Anyone else want to comment on that?
    Thank you.
    I wanted to ask about the Fair Credit Reporting Act. This 
year financial institutions and credit bureaus are lobbying 
Congress to extend the FCRA's preemption of State privacy laws. 
While the legislation does not fall in this committee's 
jurisdiction, it is the responsibility of the FTC and the 
subcommittee to ensure that the FTC is enforcing the law. Late 
last year, the Consumer Federation of America and the National 
Credit Reporting Association performed a study that concluded 
29 percent of credit files were inaccurate by a range of 50 
points, and this is a big problem. These errors have serious 
consequences. They can prevent people from being able to get a 
mortgage or a student loan, a new job.
    What steps has the Commission taken to monitor the accuracy 
of the data supplied by credit reporting agencies and also what 
steps has the Commission taken to ensure that credit reporting 
agencies share information in a responsible manner? And, 
finally, do you need additional authority to improve your 
monitoring of credit reporting agencies?
    Mr. Muris. We are the primary regulator over the credit 
reporting agencies. The Fair Credit Reporting Act is quite an 
ingenious statute in certain ways, although, some of its 
complexity leaves something to be desired. The model of the 
statute is extremely important to the credit economy, which has 
been an extremely important part of the growth in our economy 
in the last 10 or 12 years. What the statute does is it allows 
the credit world to receive information on individuals without 
their consent, but the information can only be used for 
permissible purpose. It takes important steps about accuracy. 
The most important step that it takes, and the one in which the 
Commission in the last several years has really dramatically 
emphasized, is when consumers are denied a benefit, when they 
are denied credit insurance employment, because of information 
in the credit report, they are to receive what is called an 
adverse action notice. That way consumers are put on notice to 
correct the information if it is wrong. We have brought a 
recent important case involving that issue. We have other 
investigations underway. We have a compliance project. We did a 
compliance project with landlords, and we found there was 
pretty good compliance with landlords in this. We also have 
outlined additional steps that they could take.
    On the particular study that you mentioned, I looked at 
that with our staff. Unfortunately, I thought that there were 
some problems with that study. There is different information 
in different files as I was mentioning before. Although I 
didn't agree with some of what was in that study, I do agree 
that the accuracy issue is very important, the adverse action 
notice is extremely important. In connection with the 
reauthorization that you mentioned, it may be that we do 
propose some additional legislative steps but we are not there 
yet.
    Ms. Schakowsky. Mr. Chairman, if I could ask unanimous 
consent that all members' statements and extraneous material be 
included in the record?
    Mr. Stearns. By unanimous consent, so ordered.
    The gentleman from New Jersey.
    Mr. Ferguson. Thank you, Mr. Chairman.
    Obviously, I am interested in this common carrier 
exemption. I have a couple of questions for Mr. Leary. I am 
going to try to be brief, and I would to ask you to be brief 
because my time is limited. There are several industries, in 
addition to telecommunications, that are exempt from FTC right 
now. Banks, savings and loan's, airlines, air carriers, others. 
These are all competitive industries. They have all undergone 
enormous changes, convulsions in the last several years, 10 
years or more. They have probably, in many cases, less 
oversight than the telecommunications industry right now does, 
by the FCC. Why is your recommendation to engage the telecom 
sector, which already has substantial FCC oversight and not 
perhaps other industries?
    Mr. Leary. That's a very good question. I guess the short 
and really serious answer is we are trying to be as 
unimperialistic as possible. We don't want to take on an 
enormous range of additional problems in this agency without 
any compelling need for it. This particular one addresses a 
situation where we are running into problems all the time, and 
what we are trying to do is extend our jurisdiction in the 
least intrusive way into the business of another agency or 
indeed into the regulation of common carriers generally.
    Mr. Ferguson. Do you see a scenario whereby--common 
carriers, if they engage in noncommon carrier practices, they 
are already subject to FTC regulation or oversight?
    Mr. Leary. Theoretically, they are. If common carrier's 
engage in noncommon carrier activities, we believe, and I think 
the FCC agrees with us, that they are subject to our 
jurisdiction. The problem is that this jurisdictional issue can 
arise in litigation. Maybe I am anticipating a question that is 
not in your mind, but we have a problem when people say, ``why 
don't you just work it out with the FCC in your own way?'' We 
are trying to do that, but that alone won't do it because any 
deal that we make with the FCC to handle these concurrent 
things won't mean anything if some private party out there says 
that you, the FTC, are exceeding your jurisdiction.
    Mr. Ferguson. But the Communications Act doesn't seem to be 
ambiguous to me in my reading of it, and I will quote from it, 
``A telecommunications carrier shall be treated as a common 
carrier under this act only to the extent that it has engaged 
in providing telecommunications services.'' When a company is 
not engaged in providing telecommunications services, then the 
company is not be considered a common carrier and would, 
therefore, be subject to FTC scrutiny.
    Mr. Leary. That is true, but we have encountered arguments 
in dealing with actual matters where there is some dispute as 
to whether the activity that people are engaged in is or is not 
telecommunications. It is a definitional problem.
    Mr. Ferguson. Just jumping back to something you just said, 
it is not your belief that the FTC and the FCC could sort this 
out?
    Mr. Leary. We can try to sort it out among ourselves 
without a statutory change, theoretically. All I am saying is 
that whatever we agree to between ourselves is not binding on 
some private party which would still be free to raise the 
jurisdictional matter if we were to attempt to act pursuant to 
agreement of the FTC.
    Mr. Ferguson. Are there some examples of specific cases 
that have brought to your attention----
    Mr. Leary. We have specific examples, which quite frankly I 
would rather not identify in a public forum, situations where 
we decided not to sue someone, but we would be delighted to 
supplement the record in any level of detail you would like.
    Mr. Ferguson. I am not interested in the specific cases. I 
am interested in what you do with those cases.
    Mr. Leary. Some cases we take a pass because----
    Mr. Ferguson. Do you ever refer them to the FTC?
    Mr. Leary. Sure. Sure. And they refer them to us. We have 
had an ongoing relationship with them----
    Mr. Ferguson. It sounds like you have got it worked out 
pretty well.
    Mr. Leary. Well, we have a relationship that is working 
better than it used to. You know, up until 5 years ago, the FCC 
took the position they had no jurisdiction over advertising at 
all, which was in some ways unfortunate because there were some 
areas that then fell through the slats completely. The 
situation is improving, but I think an optimal situation would 
be one where the jurisdictional issue was laid to rest.
    Mr. Ferguson. I am out of time.
    Mr. Stearns. Would the chairman or any of the other 
commissioners like to add to that? Feel free to do that.
    Mr. Thompson. I think this is an area where the market 
would probably benefit from some clarification. You know, as 
Commissioner Leary raised, it wasn't very long ago that the FCC 
didn't claim jurisdiction over certain things, and it left a 
gap sort of, where consumers were sort of left in limbo. While 
we are working on--trying to work through those gaps, trying to 
find situations where we can have mutual agreement, it doesn't 
prevent any telecom company which is engaged in nontelecom 
activities from trying to characterize what they are doing as 
telecom anyway, and that presents a certain kind of defense 
within a court challenge, that challenge that could possibly 
lead to some market confusion, and, actually, in the process, 
leaves consumers without very much assistance.
    Mr. Ferguson. Mr. Chairman, could I just respond to that. 
What you are describing sounds in the way you are talking about 
as if we need is an adjustment, we need a modest--we just need 
to kind of sort this out a little bit. My interpretation is 
something much more radical than that. You are talking about a 
repeal of an exemption for an entire sector. My read on that is 
that is not kind of a tweaking, a modest--you are talking about 
an entire industry being subject to the FTC and the FCC. I 
think the potential there for increased ambiguity, increased 
miscommunication, or doubling of oversight sounds a little 
chaotic to me, not a kind of a minor adjustment to oversight.
    Mr. Thompson. I think--well, I guess this is a place where 
I think working together with the FCC, which we have been 
doing--I think we can reach understanding so there wouldn't be 
that kind of overlap.
    Mr. Ferguson. Precisely, but does that require a repeal of 
an exemption of an entire industry? That's my concern.
    Mr. Thompson. I think when you have something that is 70 
years old that is on the books that doesn't really reflect what 
is happening in the marketplace now, I don't think that's 
necessarily helpful to anyone.
    Mr. Leary. I understand what you are saying but we have got 
to be careful if we were to try to fine tune an exemption to 
the exemption, if you will, that addresses today's reality. We 
are dealing in an extremely fast moving situation. As you know, 
and as I think I said in my statement, there is an increasing 
convergence and a blurring of the lines between what is common 
carrier and what is not common carrier. So we don't want to 
substitute one set of jurisdictional issues for another set of 
jurisdictional issues, and that is one of the problems with 
trying to fine tune it.
    Mr. Ferguson. Thank you.
    Mr. Stearns. The gentleman from New Hampshire, Mr. Bass.
    Mr. Bass. Thank you, Mr. Chairman.
    As a follow-up to my friend from New Jersey's question, Mr. 
Leary you requested here an exemption for telecommunications 
common carriers, and in answer to somebody's question, you said 
that you didn't want to expand that request to other common 
carriers. Now, there has been some publicity over the past few 
months involving fraud and abuse in furniture moving companies, 
and I believe if I am not mistaken, that you testified before 
the Transportation and Infrastructure Committee, at some point 
regarding this issue whether or not the Federal Trade 
Commission should take from the Transportation Department some 
jurisdiction over alleged fraud and abuse issues associated 
with moving companies. Is this true or not?
    Mr. Leary. Do you if----
    Mr. Muris. Not to my knowledge but----
    Mr. Leary. It doesn't ring a bell with me. We can look into 
that Congressman, and see----
    Mr. Bass. Is the Federal Trade Commission aware of this 
problem? Is it a problem, and do you have any position on it?
    Mr. Muris. We are certainly going to have to get back to 
you. For the record, my general view is we are the experts of 
dealing with advertising. It would make sense to apply for us, 
with our expertise, to cover as broad a sector of the economy 
as possible. We don't have jurisdiction over airlines. Airlines 
have our statute, and we just filed a comment with the 
Department of Transportation on Monday. In our comment, we 
noted that they have the exact same statutory language we have, 
yet they are relying on FTC cases in proposing the rulemaking 
that the FTC repudiated 20 years ago and that the Congress 
repudiated about 9 years ago. The point is that, if you believe 
in agency expertise, and there is a question on what you could 
disagree, but if you agree with agency expertise, it doesn't 
make a lot of sense to kick us out of areas where there are 
potential problems.
    Mr. Bass. It does or doesn't?
    Mr. Muris. It does not. I personally would repeal a lot 
more than the common carrier exemption.
    Mr. Bass. Are you going to get back to me on the issue of 
whether the Federal Trade Commission feels that it should have 
some regulatory authority with fraud and abuse allegations 
associated with furniture moving companies?
    Mr. Muris. I am told that we testified on this issue about 
2 years ago, and I don't know what we said. So I will have to 
get back to you on the record.
    Mr. Bass. Thank you very much.
    On the other subject, the FTC Do-Not-Call list is moving 
forward, and we all support that effort. But there are some 
concerns about the cost of this Do-Not-Call list that are being 
assessed to the telemarketers. Now, the telemarketers 
themselves apparently have these kinds of lists which they sell 
for something like 10 percent of what the FTC is proposing to 
charge. I understand it is on the order of something like $700 
or $800 versus $5,000. Why does this list cost so much?
    Mr. Muris. Well, first of all, we anticipate having 
something like 60 million telephone numbers. There is no list 
that is in any universe near that amount today. The law that 
Congress passed, at our recommendation, that the President 
signed, I think was based on the premise that if the 
telemarketers can go into your home and force consumers to sign 
up on a list, if they want to prevent that, then the costs 
should be borne by the telemarketers, and we think that the 
cost is a fair estimate. We have a rulemaking which we are 
about to finish, but the size of our list is--borders a 
magnitude bigger than anything else.
    Mr. Bass. So what you are saying is, in essence, the cost 
of your list to telemarketers will reflect what is normally 
charged for lists of that size and will not be higher or out of 
line from what they would normally charge themselves? In other 
words, if they had a list of 60 million individuals on it, 
they'd charge the same thing that you're planning to charge.
    Mr. Muris. Well, let me put it this way. If you are a 
telemarketer right now and you have to comply, there are 27 and 
I think growing number of state lists. It will be much cheaper 
to have one national list than all the individual State lists 
from the standpoint of the telemarketer.
    Mr. Bass. Mr. Chairman, am I on an 8-minute question or a 
5-minute?
    Mr. Stearns. We are going to give you an 8-minute.
    Mr. Bass. I wanted to make sure because I was going to 
yield back. During the 107th, 108th Congress, we had hearings 
on the American Spirit Fraud Bill, which is a bill that doubles 
penalties for charitable organization fraud in the aftermath of 
9/11 and so forth. At that time, you commented that you were 
having difficulty in quantifying the problem of keeping 
records. Is there any progress on this issue? Do you know what 
I am talking about?
    Mr. Muris. Yes. One of the ramifications of Do-Not-Call, 
which we were just talking about, is that the very large 
complaint volume, large relative to the number of complaints 
that we receive now, that we are anticipating is forcing us to 
redesign our system of receiving complaints and getting 
information. We are just in that process now. We are doing it 
in a way that we hope we can better address that issue and a 
myriad of other issues about information of the incidence of 
fraud.
    I mentioned the identity theft survey which is further 
along than a second survey we are doing which is a nationally 
projectable survey of fraud-type problems, and we are hoping 
that these surveys will provide us better information on the 
incidence of problems that consumers have in the economy.
    Mr. Bass. In your proposal, you suggest allowing the FTC to 
obtain ISP consumer complaints on spam. Would you support 
requiring the ISPs to provide clear notice to the consumers of 
this access when they either make a complaint to the ISP or to 
you?
    Mr. Muris. I think, in general, my experience from looking 
at surveys is that consumers understand law enforcement use and 
exceptions to various policies. I certainly wouldn't object to 
that kind of notification, but I think consumers are what 
lawyers like to call ``constructively on notice,'' and it is a 
reasonable expectation.
    Mr. Bass. But you wouldn't oppose having some sort of 
notification on the complaint form that would alert the 
consumer to the effect that that complaint will be going to a 
Federal regulatory agency for their review, and it is 
automatically done or----
    Mr. Muris. Well, no. It certainly wouldn't be automatic. We 
are not asking for the routine forwarding of all complaint 
information. We wouldn't want it. What we are asking for is the 
ability, in a particular case when we are investigating someone 
for violating our statute, to be able to get this information.
    Mr. Bass. So you don't expect, for example, a system that 
would have a consumer complaint to be automatically forwarded 
to you and the ISP at the same time? Rather, you want to be 
able to decide what complaints you ask for from the ISP and 
just have the consumer--you have no objection to the consumer 
knowing that his or her complaint may be forwarded to you if 
you request it?
    Mr. Muris. That's correct. I think if you ask consumers 
now, they understand that for law enforcement purposes, that 
information they share with businesses may go to law 
enforcement agencies.
    Mr. Bass. Thank you, Mr. Chairman.
    Mr. Stearns. I thank the gentleman. Mr. Shadegg you're 
welcome for a first round of questioning.
    Mr. Shadegg. Thank you, Mr. Chairman. I appreciate that.
    I want to ask a series of questions on identity theft to 
begin with. One complaint that I have heard from identity theft 
victims is the lack of accountability between Federal law 
enforcement agencies and also among State law enforcement 
agencies. Usually, one law enforcement agency will refer the 
matter to another State or to another agency and so on and so 
on. Victims do not know where it is they go for help. I think 
that is one of the roles the FTC was supposed to play, was 
assisting victims in finding the agency that would be of 
assistance to them.
    I guess my first question is do you think the FTC's 
regional training sessions have helped alleviate that problem 
by educating law enforcement agencies about their 
responsibility? And what I mean by that is shortly after the 
law passed, we met with a number of enforcement agencies in 
Arizona to try to educate them about the law, and their first 
position was, well, tell us what credit card was stolen, and we 
explained, well, no, there was no credit card stolen. This is 
the theft of an identity, and we had to begin by explaining to 
them the essence of the crime, and then we had to go on and 
explain to them that somebody had jurisdiction and somebody had 
to take it over.
    So my first question is, for any of you, do you think that 
your efforts to educate law enforcement have been of value in 
this regard, and what more could we do to try to assist the law 
enforcement community in accepting and carrying out its 
responsibility for identity theft?
    Mr. Muris. We we are very active in this area, and you 
helped us recently. It was May 22, where we just had a law 
enforcement workshop in your State. We are on a very steep part 
of the curve in improving our relationships with law 
enforcement. In many parts of the country, the reaction that 
you found was there, but we have been training a great many 
people recently. We have been trying to put together a task 
force. We have put together referrals working with the Secret 
Service. I did a press conference recently with the Attorney 
General announcing a very large number of cases including, 
believe it or not, where someone was murdered to obtain the 
particular identity. Fortunately, that is an extremely rare 
event. We are doing a nationally projectable survey, which the 
results are in and they are being tabulated, about various 
kinds of identity theft. I think this will have a significant 
impact on law enforcement. We will share the results with our 
partners.
    It is a fact of life that the system that we have, because 
we don't have the criminal enforcement authority ourselves--
puts us in a coordinating position and not an enforcement 
position, but I think that we are doing this task very well. 
When we were discussing the Fair Credit Reporting Act here a 
few minutes ago, I wouldn't be at all surprised if we make some 
recommendations that will help in the identity theft area in 
terms of the Fair Credit Reporting Act. We are waiting for 
staff recommendations on that. We have some statistics I will 
would be glad to share with you that show just how much more 
active we have been each year. We have only been in this 
business for a few years. Personally, I very much, and I am 
sure my colleagues do as well, appreciate your particular 
interest and help in this area.
    Mr. Shadegg. Let me ask for a quick answer on this 
question. Has the FTC developed guidelines for businesses which 
are themselves victimized by identity theft?
    Mr. Muris. That is an excellent question. With some of 
these very large identity thefts recently, we are also in the 
victims' assistance business. Several of them have called us 
for help. We have developed materials. I'd be glad to supply 
those materials to you, as this is a growing problem. The 
problem of security itself is something that we are very active 
in with consumers. My colleague, Commissioner Swindle, has been 
very active in this. It is very important in the identity theft 
area, particularly with smaller businesses who are not as 
sophisticated, particularly in some of the techniques they need 
to use to protect the security of the on-line information.
    Mr. Shadegg. Third question, there has been some concern 
expressed by victims of identity theft that in order to clean 
up their record, they have to contact multiple credit reporting 
agencies and that takes a substantial amount of time. In some 
instances it is three and in some instances it's more than 
three. Some have proposed, and we are considering in the 
current draft legislation that I am working on, that you be 
given the responsibility for requiring that there be a 
centralization of that process. That is to say, that you would 
report to one credit reporting agency, and they would be 
required to tell the others. So that a victim could only 
contact a single credit reporting agency and explain that they 
have been victimized. Have you looked at that issue? Do you 
think it is a responsible----
    Mr. Muris. We have been encouraging the one call process. 
My understanding is it is happening now. We are also 
encouraging creditors to accept a single form, which we 
developed in working with many in the business community, where 
the victim of identity theft can fill out the relevant 
information and then can submit that form without having to be 
faced with someone asking slightly different variations of the 
questions to some of the creditors. I think all of these 
victims' assistance measures are extremely important, and the 
business community has been very corroborative and quite 
interested, as I mentioned earlier. They are left holding the 
bag, the credit card companies, for example, in a very large 
way, and their cooperation is important to us.
    Mr. Shadegg. My time has expired. I appreciate your efforts 
in this area, and I look forward to working with you in the 
future.
    Mr. Stearns. I thank the gentleman. We will now start a 
second round of questioning.
    In dealing with spam, I guess under Section 5, under 
fraudulent practices is the area that you use your jurisdiction 
for the rulemaking. I see on a lot of publications there is a 
lot of software that is coming out to prevent spam, and I saw 
your opening statement when you mentioned, Mr. Chairman, that 
the Commission's statement on spam legislative proposals 
qualified, ``admittedly, the Commission recognizes that these 
legal steps will not solve the growing spam problem.''
    I guess the question should be how should we interpret 
those words and further explain your statement that, ``nor is 
it clear what impact what these steps--that is, spam 
legislative proposals--will have on some of the other problems 
associated with spam in terms of security and volume.'' How 
best the interrelated problems of volume and security be 
handled?
    So, I mean, that is just the sense I have. I just need an 
explanation.
    Mr. Muris. I will let Commissioner Swindle answer.
    Mr. Stearns. Sure.
    Mr. Swindle. Mr. Chairman, I think your questioning goes 
right to the heart of the problem with spam, and that is its 
complexity. I have stated, and I think I have stated in my 
opening statement, that no single act or device due to a new 
piece of legislation, is really going to solve the problem, and 
I think our statement merely is just recognizing that 
difficulty. Having said that, we have suggested that there are 
steps and we recommend--we are recommending some amendments 
possibly to the Telemarketing Act that would give brighter 
definition to certain things and give more clarity to 
interpreting everybody else as to what is acceptable and what 
is not. Our problem today is not in a sense a lack of laws 
because if you----
    Mr. Stearns. Rules on the books, you mean?
    Mr. Swindle. Yes, sir. If you falsify the from--to put it 
very simply, if you falsify who you are when you send a message 
and you are engaged in spam, that is deception. If you have a 
misleading subject line, that might be considered deception, 
and also unfairness, because it might be something that you 
feel compelled to look at. You know, a subject line ``about 
your recent billing'' or something of this nature. The problem 
is finding these people who do this. And that is more a 
technological problem, than it is a lack of a law problem, and 
the point of my comments is to say we have got a tremendous 
problem that we are all going to have to deal with.
    Representative Shadegg was talking about the education 
program we are on. Awareness alone is probably the biggest 
challenge we have got. Collectively, all of us have got to make 
consumers more aware of some of the dangers here. But we have 
suggested, specifically, some possible amendments to the 
Telemarketing Act, using that model, not all of it, but some 
specific features that might be more precisely written that 
would help us. But, again, it is not going to be the----
    Mr. Stearns. It's not a panacea.
    Mr. Swindle. I don't think there is a panacea, in all 
honesty.
    Mr. Stearns. Right. Like how are you going to handle 
international spam?
    Mr. Swindle. I mean, we could frame up the United States 
with all the great laws and make it all perfect, and we still 
have no control of what is coming from outside because there 
are literally no laws out there, no boundaries.
    Mr. Stearns. Would someone else like to speak?
    Mr. Thompson. I agree with Commissioner Swindle to a 
certain extent, but let me try to frame this a little 
differently. What we learned in our spam forum is that the 
problem is bigger than we may have originally thought. In other 
words, for a long time we thought the problem is the annoyance 
factor of just getting a whole bunch of e-mail in your mailbox. 
What we have learned is that there are a lot of different 
problems going on. One is the fraudulent and deceptive e-mail 
that we are getting that victimizes certain people. The second 
thing is we are learning about the volume, the possibility that 
this inundation of spam actually could clog the arteries of the 
Internet, and that is a real problem, not only in terms of 
national security that this whole channel might be closed down, 
but we also learned that there is another security problem 
because e-mail is the vehicle of choice in many instances of 
viruses. So we cannot address that problem alone just by 
legislation. Legislation may have some piece involved into it, 
but we also have to educate consumers and businesses. We have 
to encourage technological answers that give consumers more 
choices on how this information is managed, and in some areas, 
like the volume problem, we may have to study a little bit 
more. But all of those things--there is no one silver bullet.
    Mr. Stearns. Let me just conclude by this breaching--coming 
about crossborder fraud. Some of the materials you gave us said 
that many of the proposed crossborder provisions were modeled 
after existing authority enjoyed by a number of other Federal 
Government agencies. Could you just explain that for me?
    Mr. Thompson. Sure. That for example the SEC and the CFTC, 
for example, and some other financial regulators already have 
specific provisions that allow them to share information with 
law enforcers, similar types of law enforcers overseas. That is 
their way of being able to combat what we see as financial 
fraud that goes0n around the world. What we are seeing is the 
same kind of invidious action taking place in the consumer 
fraud area where money moves around and people lie outside of 
our borders trying to come in and victimize our citizens. We 
see that all the time. It is a growing problem. So being able 
to share information, for example, with those law enforcers is 
going to be very very helpful. As I said, the CFTC, the SEC has 
similar kinds of provisions right now.
    Mr. Stearns. My time has expired. The gentlelady.
    Ms. Schakowsky. Thank you.
    I wanted to talk about sharing information as well. So I 
understand that part of the proposal is to have Congress grant 
you additional authority to share information, but let me ask 
you some questions that it raises in my mind about privacy, 
protection of that information. How can it be assured that the 
data you share will only go to appropriate officials and will 
not be shared with third parties by the foreign government? I 
am just going to ask them all. Two, how do we guarantee the 
rights of the accused if we share information with foreign 
governments, what are the conditions? Three, how can we assure 
that American citizens are not prosecuted for exercising their 
freedom of speech? I am concerned that this information could 
be used against those who simply have dissenting political 
views from foreign leaders. And I want to understand the 
additional FOIA exemptions that have been asked for. I am 
concerned that this could weaken our oversight, not yours, but 
our oversight of your agency's activities.
    Mr. Thompson. Thank you. Let me first address your first 
point, which is about confidentiality of information in foreign 
governments. I think that the first thing is that we have 
discretion about the information that we share with foreign 
entities, and I think what we would do is ensure that they have 
some of the same safeguards that protect the information that 
we have in the investigatory process. That is a threshold. I 
think right now we are not able to share at all. So for us they 
have the same concerns about us so that information doesn't get 
here either that could help us prosecute cases for our 
citizens. So I think we would look for that kind of protection 
in discussing before we share any information with anyone. But 
as I said, this is similar to the kinds of protocols that exist 
in other areas, for example sharing information about criminal 
prosecutions or in securities or commodities. We would look for 
the same kinds of protection.
    Now, about the rights of the accused, I think that--I guess 
it depends on which way it goes. I would like to understand 
your question a little better. You are talking about American 
companies who might be victimizing citizens overseas? I would 
like to understand that question a little better.
    Ms. Schakowsky. Yes. Exactly what we said, the rights of 
American companies.
    Mr. Thompson. Well, I think that to a certain extent 
American companies who are availing themselves of going 
overseas and dealing with another country's victims, citizens, 
then they are already subject to whatever those countries' laws 
are anyway. I think the kind of information that we have seen 
that is the traditional request is just pretty basic 
information about whether we have a similar type of 
prosecution. Let us say there is a case involving one company 
that victimizes citizens in both places. To be able to share 
witness information or--I think that they have their right in 
court to protect themselves the way they would in any other 
type of legal proceeding.
    The third question you asked about American citizens and 
freedom of speech, I think that in terms of the cases that we 
wind up prosecuting, I think that we are talking about hard-
core fraud and deception here, and I think we are clear in 
looking at the cases that we wind up bringing and we would look 
at those kinds of standards and the requests of other countries 
as the distinction between what we think is a mere freedom of 
speech problem or fraudulent, deceptive solicitations of 
consumers. And I think that this is merely to sharing 
information, I think that we would be free to make our own 
judgments about whether we do share that information and that 
includes inquiring how that information is going to be used.
    You bring up a final question about FOIA, and I think it is 
important to recognize that FOIA, right now, has an exemption 
for prosecution. In other words, there is a protection for the 
sanctity of investigation process when you are prosecuting a 
case. I think that exists now. I think similar kinds of 
protections would still exist here too. In other words, that 
kind of information is not freely available. There is an 
exception for that kind of information under FOIA.
    Ms. Schakowsky. What I am asking is there are currently 
exemptions in FOIA, as you say, business information, personal 
privacy, records of financial institutions. So why do you need 
an extension of the current FOIA exemptions?
    Mr. Thompson. One of the keys is when we wind up sharing 
information or getting information from a foreign entity to 
assist us in a prosecution, that what we would like to have is 
a more express understanding that that information is covered 
under the same umbrella of an investigatory process.
    Ms. Schakowsky. I am wondering if Commissioner Swindle 
wanted to comment at all about this. Let me just say my concern 
is that sometimes when we deal with these privacy questions 
that there are unintended consequences of the goals that we 
have in mind, and I think that Americans are very, very 
concerned both about prosecuting fraud and deception but also 
about the protection of privacy, and maintaining that balance 
is very important.
    Mr. Thompson. Can I add one thing though? Under FOIA we 
provide confidentiality to foreigners the same way that we seek 
assurances when sharing information, and one of the problems is 
the FTC Act doesn't apply to foreign governments. So we need to 
sit down and talk to them. We don't get that information at all 
now if we are not able to at least provide some protection of 
that information and the sanctity of that information because 
there are many witnesses who would not come forward. There is a 
lot of evidence that wouldn't exist, and that prevents us from 
actually helping our consumers.
    I will also say one other thing, that I share your concerns 
about privacy. That is one of the issues that I am particularly 
concerned about at the Commission. I think that this proposal 
does not jeopardize privacy, and, in fact, actually recognizes 
the investigatory process that we have now and allows us to get 
information to protect consumers that we would not be able to 
protect otherwise.
    Mr. Muris. Could I ask Commissioner Swindle to answer the 
question?
    Ms. Schakowsky. Absolutely.
    Mr. Swindle. Thank you. I think I would like to make a 
short general comment to the concerns that you expressed, and I 
guess one big word for it would be the Patriot Act would 
certainty get a lot of attention, and people are a little bit 
squeamish about this, and I am too because we respect 
consumers, we respect the privacy of personal information. But 
I think we are talking about two things here. One is our 
ability to share information, and we sense because things are 
now worldwide, we need the capacity and ability to share 
information. That is one issue and we don't have it in the 
cases where we think we need it. The second issue is protecting 
that information from misuse. The first issue, needing that 
ability, I think, can be debated without emotion to find the 
bad guys and it is the same kind of a situation whether you are 
looking for terrorists or fraud in selling business 
opportunities, ripping people off. We need that as an 
investigative tool.
    The second issue of protecting that information that is 
shared on either end, and then, God forbid, it gets out in all 
the extremities for whom you share it with, this is an age-old 
problem. It will never be solved. We have it right here in this 
body, in Congress. Confidential briefings, things leak out. I 
come from a military background where we have very rigid 
classification of information, confidential secrets, top 
secret, out of this world, and interestingly it is always--not 
always. That is an exaggeration, it is constantly divulged 
wrongfully so. And I think in all honesty the only way we will 
ever solve that problem is just constant awareness, reeducating 
ourselves, reminding ourselves, great leadership that says 
don't you do that, and having people understand what they are 
dealing with. And I don't know the solution to that. We might 
solve it yet in my lifetime. So I think for us, from a law 
enforcement standpoint, we feel a need and we have expressed it 
in recommendations to have this capacity, to share information, 
to retrieve information from other countries. The crossborder 
thing, the jurisdictional issue are extremely complicated and 
we try to work with our associated countries who are concerned 
about these things and we realize right off the bat we agree on 
80 percent of the things, and then there is this 20 percent 
that we have really got some difference of opinion because very 
few people know what we mean when we talk about freedom of 
speech. It is certainly not codified into their constitutions 
and documents that set them up to recognize and respect that 
and honor it; so we have to work out those details, and we are 
in constant contact and dialog with our foreign partners trying 
to work out things such as this, but the need to be able to 
reach out and find the bad guys is an overpowering thing. It is 
made more dramatic by the Internet and the capacity broad 
dissemination. So I think we have got to be rational as opposed 
to being emotional about this and think it through and 
recognize it. And then the last leg of the stool is this goes 
for all of us, the administration, Congress, us and everybody 
else. We have got to learn a way to discuss this without 
creating the emotion of alarm that seems to surround this whole 
issue. We are never going to get to that which we need, if we 
quickly try to point out that there are extremists on both ends 
or the people who are on both ends, acting in a manner that 
conveys the idea that they are extremists. We have really got a 
PR problem here, and I think we all need to get together to 
work on it and do a better job of it.
    Mr. Stearns. The gentleman from Arizona.
    Mr. Shadegg. Thank you, Mr. Chairman. I will endeavor not 
to use my full time.
    From my opening statement, I think you can see that I come 
at the issue of identity theft from the viewpoint of the 
individual victim. My first approach or concern was this needs 
to be a crime and it currently isn't a crime. You can steal 
somebody's identity, but until you have taken the money, 
actually stolen some money from them, or in some other way 
committed a conventional crime, it was not a criminal conduct 
at all, and we dealt with that issue. I think the second 
problem we tried to address, and I think you are trying to 
address, is the problem of convincing law enforcement that the 
mere theft of identity, of inidentity, is in fact a crime and 
that there is somebody that is responsible for it. One of the 
issues is who is responsible? If I live in Virginia, and my 
identity is stolen here, and somebody applies for a credit card 
with Sears which is based in Chicago, but they apply for that 
credit or seek that credit in LA, which one of the U.S. 
Attorneys or which one of the county attorneys is going to take 
care of that crime? What I found early on was they each kind of 
said, well, the site of that crime is Virginia where you live 
or in Chicago where Sears is located or it is LA and they would 
each point at each other and not get anything done. The head of 
your Identity Theft Unit has indicated to my office, as I said 
in my opening statement, that this is now not so much an 
individual case, a crime where an individual identity is 
stolen, as it is the theft of massive amounts of information.
    My first question of you is looking at that trend, No. 1, 
do you agree with that? Is there a trend that it is the theft 
of massive data bases? And No. 2, since we are looking at the 
reauthorization of the FTC, do you need or do you perceive a 
need for additional authority at the FTC to deal with those 
large volume thefts of information?
    Mr. Muris. We clearly see more cases of large-scale 
identity theft. It is very hard since there hasn't been very 
good information for very many years. Our whole process in 
terms of getting the consumer complaints is very new to know 
what the historical trends look like. We also don't have a good 
idea of the national incidence of a lot of these problems. The 
survey that we have just finished and are tabulating the 
results will help there. I personally have supported increased 
penalties at the Federal level for identity theft--I know there 
are bills working their way through Congress--as part of this 
procedure of reauthorizing the Fair Credit Reporting Act. As I 
mentioned, we are getting a recommendation from the staff, and 
we may propose some additional protections or changes in the 
Fair Credit Reporting Act that would help on the identity theft 
front.
    The primary enforcement obviously is not us but the crime 
because we don't do the criminal work.
    Mr. Shadegg. Would any of the others like to comment?
    Mr. Thompson. I think this is a very interesting challenge. 
The bulk theft of the information especially as it appears on 
line is one that may also fall under the umbrella of a Cyber 
Security Act. So that is one area to pursue as well.
    But I think you have highlighted the challenge. One of the 
reasons why we have engaged in a lot of cooperative efforts and 
in education efforts is not just having something on the books 
but raising the priority of that item with law enforcement, 
even criminal law enforcement officials throughout the United 
States so it doesn't fall below the radar screen. That is a 
very interesting challenge. But it is a very difficult 
challenge.
    Because what we see is that some jurisdictions are just 
much more cooperative than others. What we are seeing, and it 
is very helpful, is their willingness to talk to us about it 
raises the profile of the issue; and I am sure that a large 
percentage, for example, of the information and educational 
materials that we put out goes to those localities who are 
using them.
    Mr. Shadegg. Thank you very much.
    I yield back the balance of my time.
    Mr. Stearns. Thank the gentleman.
    The gentleman from Ohio.
    Mr. Strickland. Thank you, Mr. Chairman.
    I have two questions, and I have got 5 minutes, so I am 
going to try to get both of them answered, if I can, as 
succinctly as possible.
    In 1997, the FTC proposed lowering the standards by which 
the agency would determine whether a good could carry the made 
in the USA label to acknowledge the globalization of production 
that is occurring around the world. My question to you, what 
are your views on the present standards that all or virtually 
all of the product must be made in the USA? I think it is a 
standard that we have had for 5 years or more. What is your 
present view regarding that standard? Should it be maintained? 
Should it be weakened or--I am just interested in knowing what 
the thinking of the Commission may be in regard to the made in 
the USA label.
    Mr. Muris. I was on the Commission when it went through all 
of this. I mean, in general, for me, for any issue it is a 
question of consumer interpretation. Let me defer to my 
colleagues who may have been on the Commission when it--oh, no 
one was.
    Mr. Thompson. Well, I think that Commissioner Swindle and I 
came on just after, and I can tell you from talking to staff I 
don't sense that there is a great clamoring of people asking 
for changes here.
    Mr. Strickland. Very good. You know I am willing to settle 
for that answer.
    Mr. Thompson. Okay. So either a lot of people are silent or 
maybe we got it right.
    Mr. Strickland. I think there was rather strong feelings 
expressed on the part of the Congress in regard to that issue.
    The second issue----
    Mr. Thompson. In fact, Congressman, I--the one thing that I 
was warned about when I first came on the Commission was don't 
get involved in the made in the USA because there was a big 
fight over it and people agree on what it is. So----
    Mr. Strickland. Thank you so much.
    The second question deals with gasoline pricing. In the 
summer, spring and summer of 2000, the Midwestern part of the 
country, including my State of Ohio, experienced soaring 
gasoline prices; and at that time we approached the FTC and 
asked for an investigation. In March of 2001, the FTC released 
a report stating, and I am quoting, while the Commission found 
no credible evidence of collusion or other anti-competitive 
conduct by the oil industry, the investigation found a 
combination of many factors that were likely responsible for 
the price spike. These factors included circumstances beyond 
the control of the industry, as well as those within their 
control, quote, conscious but independent choices by industry 
participants to engage in profit-maximizing strategies.
    Now, I understand that the FTC is conducting a relatively 
new and ongoing gasoline price monitoring project. The question 
I would like to ask, would you please share with us the status 
of this 2002 gasoline price monitoring project, and will you 
regularly share updated information regarding that project with 
the Congress?
    Mr. Muris. We have begun in earnest to track gas prices on 
a real-time basis all over the country at retail and also in 
some places at wholesale. What have a model about historical 
relationship of prices and we are looking for what we call 
anomalies, when the price can't be explained by factors that 
normally explain the price. When we find those anomalies, we 
look to see what the source of the problem is.
    I sent a letter to all 50 State attorneys general. The 
response was overwhelmingly positive. One of the things we do--
they are often closer to the facts than we are--is talk to them 
when we find these anomalies in place. When the anomalies can't 
be explained by some natural cause, for example, a refinery 
fire or a refinery outage, we investigate further; and it has 
been a tool that has led us to have a much better understanding 
and in some cases has led to further investigation.
    Mr. Strickland. Do you believe that the FTC may need more 
authority than you currently have to do this monitoring and any 
follow-up corrective or remedial action that may be necessary 
to prevent----
    Mr. Muris. I think our antitrust and consumer protection 
laws are adequate. This is an industry in which we spent a 
tremendous amount of resources. We just brought a very large 
case, which I mentioned in my opening statement, that is in 
litigation now involving Unocal in California. The Commission, 
through its merger review policy, has required more 
divestitures in both size and just the sheer number of 
divestitures than I believe in any other industry. I think our 
presence is important and helpful here.
    We are working on some reports as well to talk about our 
merger enforcement policy and to discuss a couple of 
conferences on the issue of the volatility of changes in gas 
prices. We are going to be issuing reports on that. So this is 
an area that both in the enforcement and trying to explain what 
happens level we are quite active.
    Mr. Strickland. Thank you. And thank you, Mr. Chairman.
    Mr. Stearns. Thank you, gentlemen.
    The gentleman from Massachusetts is recognized.
    Mr. Markey. Thank you, Mr. Chairman.
    Chairman Muris, where do we stand on the implementation of 
the national Do Not Call data base?
    Mr. Muris. We just announced, I believe it was last week--
we had thought we were going to have to roll it out across 
country in terms of--there are two ways you could sign up. One 
is by e-mail, and one is by the telephone. We had thought we 
were going to have eight different zones in the country visa 
telephone and we reduced that to two. We hope to begin the 
launch in the sign-up very shortly, certainly by early next 
month at the latest.
    Mr. Markey. Have you spoken with Chairman Powell of the 
Federal Communication Commission about their role in this?
    Mr. Muris. Well, we have had extensive conversations with 
them. As you know, Congress has directed them--and they were 
working on this anyway--to decide if a similar rule to ours is 
appropriate. I have every expectation that very shortly they 
will make that decision. If they implement a rule like ours, it 
will fill some jurisdictional holes that we have. We filed an 
extensive comment with them, and I am optimistic that we will 
move forward together. I obviously can't speak for the FCC.
    Mr. Markey. So you are hopeful that they will act in a 
timely fashion so that the expectations of consumers with 
regard to those protections will be built in.
    Mr. Muris. Yes, sir.
    Mr. Markey. But you can't speak for them.
    Mr. Muris. That is for sure.
    Mr. Markey. Is it your observation that they are moving in 
a timely fashion?
    Mr. Muris. Yes, they have a rulemaking process. We filed 
comments. We have had extensive discussions with them at the 
staff level. I have--all the indications are they are moving in 
a timely fashion.
    Mr. Markey. Over in the spamming area, can you deal with 
the question of how we are going to regulate off-shore 
spammers? Since it is just as easy to spam from Boston or 
Bermuda, how do we deal with those jurisdictional issues in 
order to ensure that anything that is put on the books 
ultimately winds up working, given all of the jurisdictional 
conflicts issues that are raised?
    Mr. Muris. Let me summarize very briefly. My two colleagues 
have been talking about these issues at some length. We have 
proposals we have been working on for over a year, fairly 
extensive proposals dealing with cross-border fraud. 
Unfortunately, more and more of the fraud in the United States 
comes from outside the borders. A lot of that fraud is done via 
spam, so there is a close intersection between the two.
    We have some suggestions which we have made for dealing 
with the cross-border fraud problem generally and the spam 
problem particularly. They will provide better procedural 
remedies for us and an ability to cooperate with law 
enforcement agencies overseas. Spam is a very specific example. 
When we send a CID to the ISPs--I am speaking jargon here.
    Mr. Markey. CID for our C-SPAN viewers.
    Mr. Muris. It is like a subpoena. It is a civil 
investigative demand. What happens is, we are trying to 
investigate someone who we think is committing fraud. Some of 
the ISPs think that they are required to turn around and inform 
the target that they have a CID from us, and we are asking that 
the law be amended so that they don't have to do that.
    That is just one of many procedural examples.
    Mr. Markey. So we need kind of a spam coalition of the 
willing around the world who will help us to isolate these 
forces of evil.
    Mr. Muris. Spam is the toughest problem I have seen for two 
reasons. One, because of the nature of the Internet protocols, 
you cannot track who is sending the spam. Through the way the 
Internet works you have to follow the money and that could be 
very hard to do. Second, unlike the telephone calls or the 
letters, the cost of sending another 10,000 letters or making 
an additional 10,000 phone calls is real. The cost of sending 
an additional 10,000 spam is effectively zero. That makes an 
extraordinarily difficult problem.
    Mr. Markey. I only have 24 seconds left. It is my 
understanding that the FTC and the State AGs work closely to 
enforce the telemarketing sales rules. Is this a model that 
works?
    Mr. Muris. Yes. Our cooperation with the States is 
excellent.
    Mr. Markey. Is it a model as a result that you believe 
should be included in the spam legislation?
    Mr. Muris. We have suggested a model that follows the 
Telemarketing Act. As Commissioner Swindle mentioned, the bills 
that exist, the bill that has been introduced out of this 
committee could easily follow that act. We think it has been 
successful.
    Mr. Markey. Do you agree with that, Mr. Swindle?
    Mr. Swindle. I think it is a good model, certainly. He is 
my boss. I have to agree with him, Mr. Markey. Thank you for 
putting me in that box.
    Mr. Markey. I have been reading a lot of your interviews.
    Mr. Swindle. Yes, sir. I think it is a good model. Not in 
its entirety, but we have laid out some specific things that we 
think would give us more definition, more clarity.
    It would also be good for industry to know, you know, the 
bright light concept of making sure we all know what we are 
talking about. And I think we are just going to have to grow 
with the problem. I guess a better way to put that is we have 
got to catch up with the problem, then we can grow along with 
it and find solutions to it. But technology is going to have to 
play an incredibly big role in this.
    Mr. Markey. Could I ask do you agree with that, Mr. 
Thompson?
    Mr. Thompson. Sure. If not for any reason, the rulemaking 
process allows a degree of flexibility; and, as we have seen in 
this area, this is an area that changes fairly quickly. The 
spammers are very smart and have every financial incentive to 
be creative. But there are lots of things going on here with 
regard to spam, including technological efforts, et cetera; and 
I think a rulemaking under TSR would allow us to have that kind 
of flexibility.
    Let me just make one other point on your earlier question 
about international spam, that this is a topic that is being 
discussed at the OECD and other forums, that they are looking 
to the U.S. for leadership here. I think we have the floor. I 
think they are looking to find out what kind of balanced 
response that we come up with, and the cross-border fraud 
initiative that we have is also going to be an important 
element because, to the extent that we want to be effective in 
our enforcement, we have to be able to share information with 
our counterparts around the world. I think they are looking to 
us for guidance on how we do it.
    Mr. Markey. Mr. Chairman, my mother would be very upset if 
I didn't ask the Irishman on the panel for his opinion.
    Mr. Leary, could you give us your view on the subject? What 
high school did you go to, Mr. Leary?
    Mr. Leary. I grew up in New Jersey.
    Mr. Markey. So what high school?
    Mr. Leary. I went to a place called Newark Academy, which 
was a boys day school.
    Mr. Markey. Catholic school.
    Mr. Leary. It was not.
    Mr. Markey. Oh.
    Mr. Leary. Better not tell your mother that.
    Mr. Markey. Actually, my mother would be impressed that 
such a high-class Irish family was giving advice to her son.
    Mr. Leary. I agree with the others. There is no magic 
bullet, and we have to keep plugging away and plugging away and 
plugging away. The only thing I would say is that, you know, 
that is true to some degree of everything we do. We plug away 
and we plug away and plug away at false and deceptive 
advertising in this country, and it is still around us 
everywhere. One of the biggest advantages of plugging away and, 
quite frankly, publicizing what we do highly is that the more 
consumer information is out there, the more wary consumers 
there are out there, the less the problem.
    Mr. Markey. Well, as you know, Mr. Leary, the great Jesuit 
theologian Tiehard de Chardin, in his concept of the neosphere 
and the interconnectivity of all of us on this planet, was that 
essentially each of us working together collectively advances 
bit by bit the perfectibility of mankind, making us more worthy 
ultimately as a species of the next world.
    In many ways, Marshall McLuhan pointed back to Tiehard as 
his model anticipating the birth of the Internet; and many 
people believe that Tiehard, the great Jesuit philosopher, is 
the spiritual father of the Internet and all of those things 
that are made possible. So you are right. You have to just keep 
working at it, make it better, as good as you can make it in 
your generation and then, you know, pass it on to the next 
generation. But, as these problems emerge, you have that great 
responsibility. And you, as an Irishman, presented the 
opportunity for me talk about Tiehard de Chardin here today; 
and I want to thank you for that.
    Mr. Leary. Always pleased to oblige.
    Mr. Markey. Thank you, Mr. Chairman.
    Mr. Muris. And, unfortunately, he is a Yankee fan.
    Mr. Markey. No one is perfect, so we are trying to improve 
the species in each generation.
    Mr. Stearns. I thank the gentleman. We are going to plug 
away and plug away and bit by bit try and get reauthorization 
for the FTC which has not been done since 1966--1996.
    Let me also, Chairman Muris, thank you for coming. It is 
always nice to have you before our subcommittee and fellow 
commissioners, and we will work certainly in the area of cross-
border fraud and spam to get a bill. So we want to thank you 
very much for coming.
    With that, the subcommittee is adjourned.
    [Whereupon, at 12:15 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

                           Federal Trade Commission
                                    Office of the Secretary
                                                       July 2, 2003
The Honorable John D. Dingell
Ranking Member
Committee on Energy and Commerce
U.S. House of Representatives
Washington, DC 20515-6115

The Honorable Jan Schakowsky
Ranking Member
Subcommittee on Commerce, Trade, and Consumer Protection
Committee on Energy and Commerce
U.S. House of Representatives
Washington, DC 20515-6115

    Dear Representative Dingell and Representative Schakowsky: This 
responds to your letter of June 16, 2003, submitting questions from 
several members of the Committee on Energy and Commerce to the 
Commission, following up on the Committee's June 11 hearing entitled 
``The Reauthorization of the Federal Trade Commission: Positioning the 
Commission for the Twenty-First Century.''
    Enclosed, for the hearing record, are the Commission's formal 
responses to your questions.
    Should you or your staff require further information or assistance, 
please contact Anna Davis at (202) 326-3680.
            By direction of the Commission.
                                            Donald S. Clark
                                                          Secretary
Enclosure
          Responses to Questions from the Hon. Jan Schakowsky
                             identity theft
    Question: What resources has the Federal Trade Commission (FTC) 
dedicated to address the problem of identity theft?
    Response: The FTC launched its formal identity theft program 
following the enactment of the Identity Theft and Assumption Deterrence 
Act in 1998. That law directed the FTC to provide victim assistance, 
develop a central repository of identity theft complaints, and share 
complaints with law enforcement and private entities as appropriate. 
Since that time the FTC has directed substantial resources to this 
area, devoting 9.25 staff FTE and an additional approximately $2.3 
million in non-compensation expenditures in fiscal year 2002.
    These resources support an extensive program. From the beginning of 
the ID Theft Program at the Commission we have:

1. Created the Identity Theft Data Clearinghouse, the database of 
        identity theft complaints, and its interface with the Consumer 
        Sentinel system to make the complaint data available to law 
        enforcement. The Clearinghouse currently houses more than 
        373,000 complaints, which are available to law enforcement 
        through the secure (and free) Sentinel network.
2. Established a toll-free number for callers with identity theft 
        issues and complaints, and staffed the call center with well-
        trained phone counselors. On average, our toll-free number 
        receives more than 10,000 consumer contacts each week.
3. Developed the ID Theft Affidavit in coordination with financial 
        institutions and privacy organizations, to simplify victims' 
        efforts to dispute fraudulent accounts with creditors. The FTC 
        has distributed more than 600,000 copies of the form through 
        the web and in hard copy.
4. Developed and distributed consumer education materials including 
        Identity Theft: When Bad Things Happen to Your Good Name, a 
        comprehensive publication for ID theft victims in both English 
        and Spanish, and the newly released ID THEFT: What's It All 
        About?, a primer for the general population. We have 
        distributed more than 1.2 million copies of When Bad Things 
        Happen in hard copy.
5. Built and maintained the nation's central ID theft website, 
        www.consumer.gov/idtheft, which contains an online complaint 
        form, our ID theft publications, testimony, state laws and 
        other resources.
6. Trained law enforcement officers around the country through 
        workshops organized with the US Secret Service, US Department 
        of Justice, US Postal Inspection Service and the International 
        Association of Chiefs of Police. To date more than 700 officers 
        have been trained through these sessions. Three more sessions 
        are planned for the coming months.
7. Developed preliminary investigative reports on high impact leads for 
        further investigation by criminal law enforcement.
8. Assisted entities that have been subject to an information breach. 
        Such breaches could lead to identity theft for those whose data 
        was compromised.
    Question: What further steps are you considering taking to help 
victims regain control of their credit histories and their lives?
    Response: We are continuously looking for new ways to assist 
victims of identity theft and assist criminal enforcement in this area.
    Extending The Accessibility of Our Consumer Education Materials and 
Resources. We encourage multiple governmental agencies and private 
entities to print, post, or otherwise make available our consumer 
education material. We also make this material available through CD 
ROM, enabling other organizations to print copies of the publications 
and affidavit. We encourage the states to take advantage of the 
resources we have developed. One model of cooperation is the Office of 
the Attorney General of North Carolina, which has used FTC materials to 
develop a victim response kit for state residents. The Attorney 
General's website links to the FTC's complaint form and affidavit, and 
he actively encourages law enforcement agencies throughout his state to 
become Sentinel members with access to the ID Theft Clearinghouse data.
    Working With Financial Institutions and Credit Reporting Agencies 
to Streamline Victim Assistance. To simplify the process that victims 
must go through to dispute accounts opened in their names, we are 
working with the financial industry to modify the ID Theft Affidavit 
and increase its usefulness for financial institutions and law 
enforcement. We also encourage the consumer reporting agencies to 
continue their initiatives to ease the burden on ID theft victims and 
help them to restore their financial security. The three national 
consumer reporting agencies recently launched a program to enable 
callers to their fraud lines to call just one of the three consumer 
reporting agencies with their request for a fraud alert and copy of 
their credit report. That agency will then share the fraud alert 
request with the other two agencies, thus eliminating the need for the 
victim to call each of the three agencies. Through another program to 
assist victims, the police report initiative, the consumer reporting 
agencies have agreed to block trade lines if a consumer provides a 
police report documenting the incident of ID theft.
    Facilitating Criminal Enforcement. The FTC has continued to promote 
aggressive prosecution of identity theft by local and federal agencies. 
Our training of law enforcement and improvements to the Identity Theft 
Data Clearinghouse should facilitate more efficient and focused 
investigation and prosecution of this crime.
    Improving Electronic Access. Our website is also scheduled for 
substantial revisions, which will be unveiled in the next few weeks. 
Additional educational material, geared to businesses, will debut with 
the new website. A self audit guide and a business record theft 
response kit will enable companies to safeguard consumer data, and 
better respond when a breach occurs. The FTC is also working on a major 
upgrade of the system that houses the Identity Theft Data 
Clearinghouse. The upgrade will allow us to provide better customer 
service to hotline callers, will facilitate the use of the data by our 
in-house analysts, and will substantially improve performance of the 
system for our law enforcement users around the country. Ultimately, 
each of these improvements will benefit victims of ID theft.
    Question: Have you considered creating a separate office within the 
department that is solely dedicated to combating identity theft and 
helping victims restore their credit record? Do you have adequate 
resources to address this problem?
    Response: Currently, the Bureau of Consumer Protection's ID Theft 
program maintains a core team that is focused solely on ID theft 
issues. Other parts of the Bureau of Consumer Protection help support 
the ID theft programs. The Commission's Consumer Response Center plays 
a key role, with an off-site phone center that handles incoming calls 
and consumer complaints and in-house FTC staff who ensure data quality 
and performance standards by the phone counselors. FTC data analysts 
play another central role, reviewing the ID theft data in the 
Clearinghouse to develop reports and analyses. The Bureau's Office of 
Consumer and Business Education supports the program by developing, 
promoting, and distributing ID theft educational and outreach 
materials.
    The work of the ID theft program is also supported by other Bureau 
units that enforce issues related to privacy, including security. For 
example, enforcement of the safeguard rules, which were promulgated 
under Gramm-Leach-Bliley, and law enforcement actions against companies 
that misrepresent their security measures (see, for example, the recent 
settlement with Guess.com at www.ftc.gov/opa/2003/06/guess) are 
important features of our consumer protection program.
    Additionally, colleagues in other agencies complement the work of 
our staff. We have forged strong partnerships with many agencies and 
work closely with them on most aspects of our work. The US Secret 
Service has detailed a special agent to work with the ID theft team to 
enhance our work with criminal law enforcement. The Office of Inspector 
General for the Social Security Administration systematically transfers 
the ID theft complaints from their Social Security Number fraud system 
into our Data Clearinghouse. Assistance from these agencies is critical 
to the program.
    Finally, deterrence of ID Theft by increased criminal enforcement 
remains a critical need. Recent interagency training efforts focusing 
on local law enforcement as well as efforts to increase participation 
by state and local law enforcement agencies in the ID Theft Data 
Clearinghouse are all essential to this effort.
    Thus, we continue to place a priority on our work in the ID Theft 
program and this work extends across several offices of the Bureau of 
Consumer Protection. Although additional resources would always be 
desirable, the current resources allocated to the program are balanced 
with our many other consumer protection responsibilities. We do not 
believe that creating a separate office through which all ID Theft-
related efforts are conducted would improve our efficiency or 
productivity.
                      consumer reporting agencies
    Question: Can you please tell me about the Commission's efforts to 
monitor smaller consumer reporting agencies?
    Response: The Commission is aware of several categories of smaller 
consumer reporting agencies.1 First, there are a small and 
dwindling number of local credit bureaus that are affiliates of the 
``big three'' nationwide repositories. These bureaus own records of 
local consumers that are maintained on the centralized databases of the 
nationwide repositories. Almost no small credit bureaus still maintain 
their own, local-level databases.
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    \1\ ``Consumer reporting agency'' is the term used in the Fair 
Credit Reporting Act (``FCRA''), and reflects the fact that consumer 
information is collected and reported for a variety of purposes in 
addition to credit transactions. In common terminology, however, the 
agencies are known as ``credit bureaus'' or ``credit reporting 
agencies.'' The term ``repository'' is most often reserved for the 
large, national bureaus that collect and store information on over 190 
million consumers. As your question recognizes, there are large credit 
bureaus, which operate nationally, and smaller credit bureaus, which 
operate regionally or offer more specialized services. The major 
bureaus are sometimes referred to as the ``big three,'' in recognition 
of the three major companies that have predominated for several years--
Equifax, Experian, and Trans Union. (A fourth company, Innovis Data 
Services (an affiliate of CBC Companies), also maintains ``a national 
database of consumers with unfavorable current or past credit 
histories.'' See http://www.innovis-cbc.com/products.htm.)
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    Another type of small credit bureau is represented by 
``resellers,'' consumer reporting agencies that purchase consumer 
information from one or more of the major repositories and then resell 
it, usually after re-formatting, categorizing, or otherwise assembling 
the information.
    Finally, the consumer reporting industry has also witnessed the 
emergence of companies that collect and report specialized, non-credit 
information such as check writing histories, rental records (including 
evictions), drivers'' records (for the trucking industry 2 
and other users), utility exchanges (records of consumer payment 
histories with electric companies and other utilities), and criminal 
history and other public records databases. Each of these entities is 
covered by the FCRA if the data are used, among other things, for 
purposes of determining a consumer's eligibility for credit, insurance, 
employment, or other goods or services for which the consumer has 
initiated a business transaction.
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    \2\ Changes to the FCRA provision governing use of consumer reports 
for employment purposes were enacted by Congress in recognition of the 
unique needs of the interstate trucking industry. Pub. L. No. 105-347, 
112 Stat. 3208 (1998), Sec. Sec. 2 and 3 (codified at FCRA 
Sec. Sec. 604(b)(2)(B) and (C); 15 U.S.C. Sec. Sec. 1681b(b)(2)(B) and 
(C)).
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    The Commission stays abreast of developments with smaller consumer 
reporting agencies in a number of ways. The Commission maintains a 
Consumer Response Center (CRC) to receive and record consumer 
complaints against all kinds of businesses. The CRC logs consumer 
complaints by, among other items, type of business (in this case, 
credit bureaus) and the company named in the complaints. We can review 
individual complaints against smaller bureaus.
    Commission staff meets from time to time with representatives of 
smaller consumer reporting agencies and their trade association, both 
to learn of new developments in the industry and to respond to concerns 
and inquiries. The staff also responds to numerous telephone inquiries 
from small or specialized consumer reporting agencies, and from their 
representatives, about interpretation of FCRA requirements in the 
sometimes-unique contexts of their individual businesses and needs.
    The Commission also undertakes efforts to insure that those 
entities that use smaller consumer reporting agencies with specialized 
databases, such as landlords or insurance companies, comply with FCRA 
requirements to supply adverse action notices when the user takes an 
adverse action, such as denial of apartment rental, based on 
information from a consumer report. Adverse action notices must 
disclose the name of the consumer reporting agency from which the user 
obtained the information, and consumers can thus obtain disclosure of 
the information on file at the agency and dispute any incomplete or 
inaccurate information that they find. Adverse action notices, a key 
provision of the FCRA, are thus of even greater importance in the 
context of small, non-credit reporting agencies, the existence of which 
is likely even less evident to consumers than conventional credit 
bureaus.
    The Commission has given high priority to assuring compliance with 
FCRA adverse action notice requirements by all consumer report 
users,3 and places special emphasis on compliance by users 
of smaller, specialized consumer reporting agencies. For example, staff 
recently conducted an investigation of fifteen landlords in five cities 
across the United States. The staff found a high level of compliance 
with the adverse action requirements of the FCRA.4 The 
Commission has taken actions to assure compliance by resellers of 
consumer reports (small agencies that purchase consumer reports from 
the major bureaus and resell them),5 as well as specialized 
agencies that issue bad check lists,6 or supply medical 
information.7
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    \3\ See, e.g., Quicken Loans Inc., D-9304 (Apr. 8, 2003).
    \4\ The Commission's January 15, 2002 press release on the 
investigation and resulting business education brochure can be found at 
http://www.ftc.gov/opa/2002/01/fcraguide.htm.
    \5\ See I.R.S.C., 116 F.T.C. 266 (1993); CDB Infotek, 116 F.T.C. 
280 (1993); Inter-Fact, Inc., 116 F.T.C. 294 (1993); W.D.I.A., 117 
F.T.C. 757 (1994) (consent orders against resellers settling 
allegations of failure to adequately insure that users had permissible 
purposes to obtain the reports). See also First American Real Estate 
Solutions, LLC, 1999 FTC LEXIS 137 (Jan. 27, 1998) (consent order with 
a reseller concerning the dispute obligations of consumer reporting 
agencies).
    \6\ Howard Enterprises, 93 F.T.C. 909 (1979).
    \7\ MIB, Inc., 101 F.T.C. 415 (1983) (prohibits a non-profit 
medical reporting agency from conditioning the release of information 
to a consumer on his/her execution of a waiver of claims against the 
firm; requires timely reinvestigations of disputed information; 
requires that agency contact, when possible, the source(s) of disputed 
information or other persons identified by the consumer who may possess 
information relevant to the challenged data and modify its files 
accordingly). In 1995, the Commission reached a further agreement with 
MIB, to ensure that insurance company users of MIB reports would supply 
consumer applicants with adverse action notices in those cases where 
information from an MIB report figured in adverse action by the 
insurers. See http://www.ftc.gov/opa/1995/06/mib.htm.
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    Question: How accurate are the data at smaller credit reporting 
agencies?
    Response: The FCRA uses two major avenues to achieve the goal of 
optimal accuracy. First, the FCRA establishes mechanisms for consumers 
to learn about possible errors in their credit reports and have them 
corrected. The statute gives consumers both the right to know what 
information the credit bureau maintains on them, and the right to 
dispute errors. Second, it provides that consumer reporting agencies 
must follow ``reasonable procedures to assure maximum possible accuracy 
of the information'' they report.8
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    \8\ By its terms (``reasonable procedures . . . maximum possible 
accuracy''), the statute itself recognizes that absolute accuracy is 
impossible. Section 607(b); 15 U.S.C. Sec. 1681e(b). Pragmatic 
consideration of the large volume of data that credit bureaus must 
store and process also bears on this issue.
---------------------------------------------------------------------------
    The Commission does not directly examine the content of consumer 
reporting databases. Some specialized consumer reporting agencies, such 
as employment screening services, do not maintain databases of their 
own (using public record databases if reporting criminal or driving 
history as part of their report). Others, such as tenant screening 
services, keep information on local apartment residents and also 
provide landlords with a credit report from one of the national 
repositories in the agency's report to a landlord on an individual 
rental applicant.
    With respect to the accuracy of reports from smaller reporting 
agencies, we have only limited information, but our complaint 
statistics do not suggest that consumers lodge a significant number of 
accuracy complaints against smaller agencies.
    Question: Have you taken enforcement actions against these smaller 
agencies?
    Response: Yes. The Commission has taken action when patterns of 
practices indicated a problem with FCRA compliance. See supra, e.g., 
notes 3 through 7, and accompanying text.
                           predatory lending
    Question: I am pleased that last year the FTC took an enforcement 
action against Citicorp which was formerly known as Associates because 
it was deceiving consumers. Nevertheless, is the FTC working with other 
regulators to bring additional cases under the FTC Act? If yes, can you 
discuss with us today any particulars regarding these cases or what has 
prompted actions by the FTC?
    Response: As you know, the FTC's case against The Associates and 
Citigroup was recently settled, requiring the defendants to fund a $215 
million consumer redress program. It is worth noting that the FTC's 
case followed on the heels of an action brought by the State of North 
Carolina, the settlement of which returned $20 million to consumers in 
that state.
    The FTC's enforcement program in the subprime lending area is 
ongoing, and we continue to work closely with state and federal 
agencies to enforce lending laws. We maintain close relationships with 
several federal agencies with responsibility in this area, including 
the Federal Reserve Board, the Department of Housing and Urban 
Development, the Office of the Comptroller of the Currency, the Office 
of Thrift Supervision, the Federal Deposit Insurance Corporation, and 
the Department of Justice. The ties we have cultivated allow us to 
exchange information about potential law enforcement targets and, in 
some cases, to join efforts to pursue cases. In the past few years, for 
example, we have partnered with HUD to pursue cases against Mercantile 
Mortgage Company and Action Loan Company, and with the Department of 
Justice and HUD against Delta Funding Corp. All of these cases resulted 
in settlements providing substantial relief for consumers.
    State regulators have also been important partners in our law 
enforcement efforts, providing leads for potential cases and bringing 
joint enforcement actions. For example, we are currently pursuing a 
case in federal court jointly with the State of Illinois against a 
mortgage broker for allegedly deceptive and other illegal practices in 
brokering subprime loans. This particular defendant was brought to our 
attention by the Legal Assistance Foundation of Chicago. Last year, we 
partnered with the Attorneys General of Florida, California, Arizona, 
Illinois, and Massachusetts and the New York State Banking Department 
to pursue a case against First Alliance Mortgage Company, a California-
based subprime lender charged with numerous unlawful practices. The 
case was settled jointly by the government parties, as well as a number 
of private plaintiffs, resulting in an approximately $60 million 
redress fund.
    In addition to our joint litigation, the FTC routinely consults 
with state regulators to learn more about problematic practices 
occurring in their states. For example, Kentucky regulators assisted 
our investigation of two companies, Granite Mortgage, LLC and LAP 
Financial Services, allegedly engaged in violations of the 
Homeownership and Equity Protection Act of 1994.
    Last month, the FTC co-sponsored a law enforcement summit meeting 
on subprime lending issues, attended by dozens of federal and state law 
enforcers from around the country. At the day-long meeting, the 
attendees shared ideas and experiences and developed strategies to 
further our combined efforts to combat subprime lending fraud. At the 
present time, we have several active investigations of subprime 
lenders.
    Question: Can you discuss your general investigation and 
enforcement efforts in this area?
    Response: The FTC has focused its efforts to target lenders that 
deceive consumers about the terms of their loans. Since early 1998, the 
Commission has brought 17 actions alleging deceptive or other illegal 
practices by subprime lenders. These cases have included lenders of all 
sizes and from different regions of the country.
    Our cases have involved a variety of allegedly deceptive or other 
illegal practices that occur at or prior to loan origination, including 
deceptive representations about costs or other loan terms. For example, 
some of our cases have alleged that lenders hid origination fees or 
balloon payments from borrowers or made misrepresentations about 
prepayment penalties. We also have brought cases alleging that lenders 
deceived consumers into purchasing costly credit insurance and other 
ancillary products in connection with their loans, a practice known as 
``packing.'' Still other cases alleged that lenders made false claims 
that consumers would achieve savings by refinancing their debt with the 
lender. Several of our cases have alleged violations of specific 
federal credit laws, in addition to the FTC Act, including the Fair 
Credit Reporting Act, Truth in Lending Act, Equal Credit Opportunity 
Act, Homeownership and Equity Protection Act, and Fair Debt Collection 
Practices Act. We have also challenged deceptive and unfair loan 
servicing practices. For example, in our Capital City Mortgage case, 
currently in litigation in federal court, the FTC complaint alleges 
that the lender imposed charges on borrowers' accounts for fees that 
the borrower did not owe.
    Of the Commission's seventeen recent cases, fifteen have resulted 
in settlements, returning in the aggregate hundreds of millions of 
dollars to defrauded consumers. The FTC settlement with The Associates 
and Citigroup includes a $215 million redress judgment, the largest in 
FTC history. Two cases are currently in litigation: the Capital City 
Mortgage case and an action against Mark Diamond, a mortgage broker in 
Illinois who allegedly misrepresented loan terms to borrowers.
    In addition to its seventeen subprime lending cases, the Commission 
recently filed two cases alleging that firms had sent unsolicited email 
to the public with false promises for low-rate mortgages. The cases 
also allege that the spammers were using the lure of attractive 
mortgages to dupe consumers into divulging detailed financial 
information, which they then tried to sell to third parties.
    Question: What is the most effective way for our constituents to 
bring abusive lending cases to your attention? When do my constituents 
go to the FTC versus another regulatory agency?
    Response: Individuals can file a complaint online, at www.FTC.gov 
or can call toll free at 877-FTC-HELP. Although we cannot resolve 
individual disputes, consumer complaints are an extremely valuable 
source in enabling us to identity patterns of violations.
    The FTC has jurisdiction over most lenders other than banks 
regulated by the Federal Reserve Board, the OCC, or the FDIC; thrifts 
regulated by the OTS; and credit unions regulated by the National 
Credit Union Administration. If consumers are not sure of the agency to 
which they should complain, our counselors can direct them to the 
appropriate agency.
    Another way for consumers to know which federal agency regulates 
their lender is to access the website at www.ffiec.gov/nic, click on 
``institution search,'' and input information about their lender. 
Individuals can also file complaints with their own state attorney 
general's office or state banking department.
           Responses to Questions from the Hon. Diana DeGette
    Question: Let me start by asking how the FTC has maintained a high 
level of service in the regions that do not have offices, most 
specifically the Rocky Mountain Region?
    Response: The FTC's level of service is higher now than ever. 
Thanks to an expanded Consumer Response Center, an improved Consumer 
Sentinel, more and better communications with state and local law 
enforcers, and an aggressive outreach, communications and training 
program, more consumers know about the FTC, report their fraud and 
identity theft complaints to the FTC, and ask for information from the 
FTC than at any time in the agency's past.
Law Enforcement
    Law enforcement is a core mission at the FTC. And, Rocky Mountain 
consumers, including Colorado consumers, directly benefit from the 
FTC's law enforcement efforts. Some recent examples include:

 Operation Phoney Philanthropy--In May 2003, our Northwest 
        Region coordinated a nationwide law enforcement sweep targeting 
        fraudulent charities and fundraisers. With assistance from the 
        Colorado Attorney General's Office, the Commission filed a case 
        against a Canadian telemarketer which claimed to be affiliated 
        with local hospitals and represented that donations would be 
        used to send children's activity books to the hospitals. The 
        alleged scam affected a number of hospitals in Colorado, 
        including Denver Children's Hospital. FTC v. DPS Activity 
        Publishing, Civ. No. CO3-1078C (W.D. Wash. May 2003).
 FTC v. Leasecomm, Civ. No. 0311034-REK (D. Mass. May 2003)--In 
        May 2003, the Commission entered a settlement with a 
        Massachusetts finance company that provided for cancellation of 
        millions of dollars in judgments that the finance company 
        allegedly obtained through deception. This provided relief 
        totaling over $1 million to 300 consumers in the eight states 
        previously served by the Denver office. (See attachment 1)
 FTC v. Triad Discount Buying Club, Civ. No. 01-8922-CIV-Zloch 
        (S.D. Fla. 2001)--Also this past year, we sent redress checks 
        to over 11,000 consumers in the Rocky Mountain Region as their 
        share of a redress pool in a case against an allegedly 
        deceptive buying club. (See attachment 2)
 Cooperative Law Enforcement--We continue to work with state 
        and local law enforcement to bring joint enforcement actions. 
        Since 1999, the Commission has announced 40 of these actions, 
        known as sweeps. A total of 35 state and local agencies in the 
        Rocky Mountain Region participated in 15 separate sweeps. (See 
        attachment 3)
 Local Antitrust Cases--In the past year, staff from the 
        headquarters office of the FTC has been involved in the 
        investigation and eventual settlement of Aurora Associated 
        Primary Care Physicians, C-4063 (July 16, 2002); Physician 
        Integrated Services of Denver, C-4054 (July 16, 2002); and 
        Professionals in Women's Care, C-4063 (Oct. 11, 2002), three 
        cases involving groups of competing, independent physicians in 
        Denver, Colorado. These cases are significant, as they are 
        among the first in which the FTC has taken action against non-
        physician agents for coordinating the allegedly illegal 
        activities of physicians, including price-fixing and concerted 
        refusals to deal except on collectively determined terms. 
        Commission staff from both the headquarters office and the 
        Western Regional Office in San Francisco also have been 
        involved in another two non-public investigations in Colorado 
        involving antitrust issues.
Consumer Response Center
    Through the Consumer Response Center, the FTC responds to about 
24,000 consumer calls, emails, voice mails, and letters each week. In 
the past three years, the number of contacts from Colorado consumers 
has almost doubled, from 6554 in calendar year 2000, to 12,761 in 
calendar year 2002. Much of this increase can be attributed to 
marketing the new toll-free number which was established in July 1999, 
and the ability of consumers to file complaints directly over the 
Internet.
Consumer Sentinel
    More fraud complaints mean a more robust pool for investigators to 
determine trends and identify law enforcement targets, and ultimately, 
better protection for consumers. Fraud complaints are shared with law 
enforcers throughout the country through Consumer Sentinel, the FTC's 
award-winning database. There are currently 44 Sentinel members in the 
states formerly served by the Denver Regional Office, including 11 
located in Colorado. (See attachment 4) Non-law enforcement 
organizations also contribute information to Sentinel; 11 Better 
Business Bureaus (``BBBs'') located in the Rocky Mountain Region 
(including those in Denver and Fort Collins) are Sentinel contributors.
Outreach
    Consumer and business education is a significant part of the FTC's 
mission. Through publications, Web sites, media outreach, partnerships, 
exhibits and presentations, the Commission is able to reach millions of 
consumers and businesspeople each year. The more the FTC reaches out to 
consumers, the more they respond: more and more consumers are 
contacting the Commission to report fraud and identity theft, and to 
request information; and the information on www.ftc.gov is attracting 
more hits than ever. Much of the Commission's outreach program is based 
on a ``wholesale/retail''--or intermediary--concept: the Office of 
Consumer and Business Education (``OCBE'') distributes information 
about spotting, stopping and avoiding scams and frauds to organizations 
and media that, in turn, disseminate it directly to consumers.
    Every law enforcement action that the Bureau of Consumer Protection 
announces has an education component. In addition to the mass media, 
the FTC sends publications to local newspapers, special interest 
publications and organizations that would have a special interest in a 
particular topic. The Commission also frequently sends out consumer 
information that is not directly related to a law enforcement action. 
For example, OCBE recently sent articles on buying a used car, negative 
option plans, ID theft, weight loss, and tar & nicotine ratings to 
community college and university newspapers in every state. OCBE also 
sent information to high school newspaper editors on scholarship scams 
and other age-appropriate subjects.
    A review of our records for FY 2003 shows that the FTC has many 
``customers'' in Colorado who are ordering hundreds--and in some cases 
thousands--of the Commission's brochures at a time. They then 
distribute these publications to their own constituents. For example, 
since October 2002, FTC customers have included:

 Boulder County Justice Center: 19 publications, totaling 5,060 
        copies.
 Western National Bank, Colorado Springs: Identity Theft, 500 
        copies
 Douglas County Adult Services: 11 publications, totaling 1,100 
        copies.
 ENT Federal Credit Union, Colorado Springs: Site Seeing on the 
        Internet, 500 copies.
 DC County Sheriffs Office, Castle Rock: 9 publications 
        totaling 900 copies.
 District Attorney, Denver: 2 publications on ID Theft, 110 
        copies.
 Denver Federal Credit Union: Site Seeing on the Internet, 250 
        copies.
 BBB of Colorado Springs: 17 publications totaling 1,710 
        copies.
 Small Business Development Center, Colorado Springs: 35 
        publications totaling 3,100 copies.
 National Association of Retired Federal Executives, Denver: ID 
        Theft, 110 copies.
 Keller Williams Realty, Woodland Park: 6 publications totaling 
        910 copies.
 GMAC Mortgage, Englewood: 1 credit publication, 200 copies.
    Our regional offices are involved in additional outreach efforts. 
For example, an attorney in the Western Region's San Francisco office 
recently delivered a ``Report From the FTC'' to presidents and vice 
presidents of 18 Western BBBs and several representatives of the 
national BBB at the BBB Western conference. She covered a range of 
topics, including the Telemarketing Sales rule, ID Theft, privacy, 
spam, Internet auction fraud, office supply scams and Consumer 
Sentinel, as well as the upcoming national Do Not Call Registry. (See 
attachment 5 for examples of other regional outreach efforts in the 
Rocky Mountain Region states.)
    Question: Have you been in contact with the external stakeholders 
since the restructuring to get an outside assessment of how well 
consumers needs are being met? In areas that you have no regional 
offices nearby, and let's use the example of Denver, how are you 
evaluating how well consumer needs are being met? How do you conduct 
outreach in these areas?
    Response: As described above, the Commission maintains regular 
contact with local law enforcers and consumer groups in all of the 
Rocky Mountain Region states, including the State Attorneys General, 
and representatives of AARP and the local BBBs. Through these contacts, 
the Commission continually evaluates how it can best meet the needs of 
consumers. The FTC's law enforcement and outreach efforts in the Denver 
area are discussed above.
    Question: How can staff located in an office in San Francisco be as 
responsive to consumer fraud problems in Colorado as a more centrally 
located office?
    Response: The FTC finds that its staff is able to communicate 
effectively with many agencies and organizations through frequent 
telephone calls, e-mails, and occasional visits. In addition, the 
Commission is fortunate to have members of the former Denver Regional 
Office in both the San Francisco Office of the Western Region and the 
Northwest Regional Office. These staff members have kept in touch with 
their contacts in the states previously served by the Denver office, 
and have also introduced members of WR-SF and NWR staffs to these 
contacts.
    Sentinel data suggest that Colorado consumers are as likely to be 
targeted by fraudsters operating outside Colorado as they are by 
fraudsters within the state. (See attachment 6) Indeed, in the cases we 
discussed above, where redress was provided to Colorado victims, 
defendant companies were located outside Colorado.
    Question: The Denver FTC office used to work very closely with a 
local senior advocacy group and met with them regularly to exchange 
information on fraudulent activities, hold public outreach conferences 
and distributed educational materials. I think this is a good example 
of some of the most important consumer protection work that needs to be 
done, and my concern is that these seniors' needs are not being met as 
effectively since the restructuring. Can you address this?
    At the time the restructuring proposal was made, FTC officials 
expressed confidence that technological advancements and new 
innovations, including the new consumer complaint handling center and 
the Internet site, would allow the FTC to be able to fill in the gaps 
left by fewer regional offices.
    However, wouldn't you agree that certain targeted populations 
(meaning likely targets by fraudsters), such as immigrants, low-income 
individuals and seniors, might be less likely to proactively seek out 
assistance, go online to get information and report fraud or be as 
willing/able to navigate an automated phone mail system to get the 
information or help they need?
    Response: Reaching out to groups that are targeted by scammers, 
including seniors, immigrants, and low-income groups, remains a high 
priority for the FTC. The Commission recognizes that some consumers may 
not seek information over the Internet, so we continue to reach out to 
consumers through more traditional means. The Office of Consumer and 
Business Education supports all regional offices as they participate in 
local events like Senior Scam Jams, produced by BBBs, and Consumer 
Universities, held by state chapters of AARP. Regional staff also 
participate in community outreach, with local law enforcers, local 
libraries, local community colleges, and local business consortia; 
display publications at local malls; and give presentations to seniors 
and other citizen groups as well as industry associations.
    Over the last few years, the FTC has taken a proactive role in 
encouraging the media to carry stories that will benefit consumers. Our 
Office of Public Affairs maintains a list of local media outlets that 
receive all FTC press releases. (See attachment 7) The agency also 
relies on local media to highlight particularly important consumer 
issues. For example, when the FTC conducted a major outreach project on 
ID Theft, each of our regional offices (including the offices that 
serve Colorado and the other Rocky Mountain States) contacted its major 
media outlets, provided data on the number of ID Theft victims in each 
of their respective states, and participated in a number of radio 
interviews about how consumers can protect themselves against ID Theft. 
(Staff in the San Francisco Office of the Western Region were 
interviewed by radio stations in Colorado.) This approach has expanded 
our ability to provide information to targeted populations--whether 
located in urban or rural areas.
            Responses to Questions from the Hon. Gene Green
    Question: One spam bill, H.R. 2214 (Burr/Tauzin/Sensenbrenner) 
imposes a knowledge standard that the Commission must prove to 
successfully bring a civil action for violations of three provisions of 
the bill.
    How does this compare with common FTC's enforcement authority?
    Is it safe to say that the FTC would be less likely to bring an 
action in situations where it would be required to prove a 
knowledgeable standard?
Knowledge standards under the FTC Act
    Response: The key statutory provision respecting the FTC's consumer 
protection mission is Section 5 of the FTC Act. That section empowers 
the Commission to take action against ``unfair or deceptive acts or 
practices in or affecting commerce.'' A showing of knowledge or intent 
is not required for the agency to obtain injunctive relief or issue an 
administrative cease-and-desist order. If the act or practice is indeed 
unfair or deceptive, ``harm to the public interest is presumed,'' 
9 and remedial action is appropriate.10 The court 
or the Commission can order a halt to the practice and can adopt a 
range of additional remedies suitable to the particular circumstances 
of the case.
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    \9\ FTC v. World Wide Factors, Ltd., 882 F.2d 344, 346 (9th Cir. 
1989).
    \10\ The legal tests for deception and unfairness incorporate 
standards to assume that the Commission acts in the public interest.
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    On the other hand, an FTC action seeking civil penalties for 
violation of a rule issued under Section 18 of the FTC Act requires a 
showing that the defendant acted ``with actual knowledge or knowledge 
fairly implied on the basis of objective circumstances that such act is 
unfair or deceptive and is prohibited by such rule.'' 15 U.S.C. 
Sec. 5(m)(1)(A).
    In general, the seller or marketer of a product or service is 
liable for any misleading or unsubstantiated claims it makes or 
authorizes to be made about its product or service. Similarly, under 
the do-not-call provisions of the Telemarketing Sales Rule, issued to 
prevent abusive telemarketing, both the seller and the telemarketer 
(the party actually conducting telemarketing calls) are liable for 
failure to honor consumers'' do-not-call opt out requests. 16 C.F.R. 
Sec. 310.4(b)(1)(iii).11 This provision includes 
telemarketer liability for calling consumers who have made company-
specific do-not-call requests to a seller.
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    \11\ ``It is an abusive telemarketing act or practice and a 
violation of this Rule for a telemarketer to engage in, or for a seller 
to cause a telemarketer to engage in, the following conduct: Initiating 
any outbound telephone call to a person when [that person has placed 
his or her number on the national do-not-call registry or] previously 
has stated that he or she does not wish to receive an outbound 
telephone call made by or on behalf of the seller.''
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Knowledge standards under H.R. 2214
    H.R. 2214 as introduced contains three knowledge requirements:
Section 101(b)(2)
    Section 101(b)(2) of H.R. 2214 provides that, if an email recipient 
requests to ``opt out'' of receiving email from a sender, it is 
unlawful for any person acting on behalf of the sender 12 to 
initiate 13 the transmission of an unsolicited commercial 
email (``UCE'' or ``spam'') message to that recipient if such person 
``knows, should have known, or consciously avoids knowing'' that the 
transmission falls within the scope of the recipient's ``opt out'' 
request.
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    \12\ The term ``sender,'' when used with respect to a commercial 
electronic mail message, means a person who initiates such a message 
and whose product, service, or Internet web site is advertised or 
promoted by the message, or such person's successor in interest. 
Sec. 304(15) (emphasis supplied).
    \13\ The term ``initiate,'' when used with respect to an electronic 
mail message, means to originate such message or to procure the 
origination of such message, but shall not include actions that 
constitute routine conveyance of such message. Sec. 304(10).
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    This provision deals with the situation when one party actually 
transmits UCE messages on behalf of another party--the ``sender.'' H.R. 
2214 places responsibility for providing the method of opting out on 
the ``sender.'' Sec. 101(a)(1)(C). The bill also contemplates that 
recipients will direct their opt out notices to the ``sender.'' 
Sec. 101(b). There does not appear to be an affirmative duty on 
``senders'' to ensure that persons acting on their behalf are aware of 
opt out requests they have received. This omission, coupled with the 
defense for persons acting on the sender's behalf who lack the 
requisite knowledge that a UCE message is within the scope of a 
recipient's opt out request, weaken the enforceability of this 
provision. Without an affirmative requirement that the initiator 
inquire into opt-out requests received by the ``sender,'' the knowledge 
requirement may be difficult to establish when the person transmitting 
the email is different from the sender.
    The analogous provision in the Telemarketing Sales Rule places 
liability on both the ``seller'' (analogous to the ``sender'' of spam) 
and the ``telemarketer'' (analogous to the initiator of spam) for 
failure to honor consumers' do-not-call opt out requests. 16 C.F.R. 
Sec. 310.4(b)(1)(iii). This approach reflects our law enforcement 
experience showing that telemarketing scammers typically structured 
their scams in a manner designed to make it difficult for law 
enforcement to pin down various parts of the scam, such as who had 
responsibility for writing the script, delivering the pitch, fulfilling 
the order. This approach provides for straightforward enforcement, by 
making both parties responsible.14 This approach also seems 
appropriate in the commercial e-mail context.
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    \14\ The Rule contains a narrow safe-harbor for telemarketers that 
allows for a defense by showing that the telemarketer had established 
procedures to comply with the ``do-not-call'' provisions, maintains, 
among other things, a list of people not to contact, and any subsequent 
call is an error. We believe that this safe harbor avoids any undue 
finding of liability
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Section 101(b)(3)
    Section 101(b)(3) of H.R. 2214 provides that if an email recipient 
requests to ``opt out'' of receiving email from a sender, then it is 
unlawful for any person acting on behalf of the sender to assist in 
initiating the transmission to the recipient, through the provision or 
selection of addresses to which the message will be transmitted, of a 
UCE message that such person knows, should have known, or consciously 
avoids knowing would violate the bill's prohibition on sending a UCE 
message to a recipient who has made an opt out request. This raises the 
same issues discussed above.
Section 101(d)
    Finally, Sec. 101(d) of H.R. 2214 prohibits any person from 
initiating a commercial email message prohibited by certain of the 
bill's requirements,15 or from assisting in the origination 
of such message by providing or selecting email addresses to which the 
transmission of such message is initiated, if such person knows, should 
have known, or consciously avoids knowing, that the email address was 
harvested from an Internet website or proprietary online service in 
contravention of the wishes or posted policy of the website or service. 
As a practical matter, proof of a violation of this provision may be 
difficult. Proving knowledge would add to the burden.
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    \15\ Specifically, the bill's requirements that the email message 
contain:
     an identification that the message is an advertisement or 
solicitation;
     a notice of the opportunity to opt out;
     a functioning method to opt out through a return 
electronic mail address or other Internet-based mechanism; and
     the sender's street address.
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Conclusion
    The knowledge standards contained in H.R. 2214 exceed those 
required to obtain a district court injunction or administrative cease 
and desist order under Section 5 of the FTC Act. Further, the knowledge 
standards contained in H.R. 2214 are unnecessary in connection with a 
civil penalty action, in light of the knowledge standard imposed for 
civil penalty actions under FTC Act Section 18 rule violations. 
Moreover, the knowledge standards set forth in H.R. 2214 are expressed 
differently from those of the FTC Act, potentially giving rise to 
litigation issues about differences in the standards. Given the harmful 
nature of the conduct proscribed by this proposed legislation, the FTC 
should be able to enjoin future violations readily, and to impose civil 
penalties where appropriate without a duplicative burden of meeting two 
arguably different knowledge standards. Therefore, we anticipate that 
retention of the knowledge standards in H.R. 2214 would reduce the 
enforceability of its provisions.
    Question: On April 30, 2003, the FTC released a report entitled 
``False Claims in Spam.'' In that study, the commission reported that 
22 percent of the unsolicited commercial email it studied contained 
false information in the ``Subject'' line. The Burns-Wyden bill (S. 
877) includes a prohibition against deceptive ``Subject'' headings, 
which is not in H.R. 2214. Is such a provision important and something 
you think should be included in a spam bill?
    Response: It is important that companies know that placing false 
information in the ``subject'' line of an email is illegal. Currently 
the FTC can reach false or deceptive claims within the FTC's 
jurisdiction,16 regardless of the medium in which they are 
made. Thus the FTC could reach false or deceptive claims occurring in 
the subject line of an unsolicited commercial email.
    Legislation expressly prohibiting false or deceptive 
representations in subject lines of commercial email messages could 
provide additional useful law enforcement tools to the FTC, if the 
prohibition follows the current standard of liability and proof under 
Section 5 of the FTC Act.17 The particular provision in S. 
877, Section 5(a)(2), however, is narrower than the reach of Section 5 
of the FTC Act because it imposes knowledge as a requisite element of 
proof in every case.18
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    16 The FTC has limited or no authority over banks, 
common carriers, and insurers, for example.
    17 As discussed above, the FTC's proof would include the 
statutory knowledge standard in order to obtain civil penalties.
    18 ``It is unlawful for any person to initiate the 
transmission to a protected computer of a commercial electronic mail 
message with a subject heading that such person knows would be likely 
to mislead a recipient, acting reasonably under the circumstances, 
about a material fact regarding the contents or subject matter of the 
message.''

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