[Senate Hearing 110-1070]
[From the U.S. Government Publishing Office]
S. Hrg. 110-1070
OVERSIGHT OF THE
FFEDERAL TRADE COMMISSION
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HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
APRIL 10, 2007
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
U.S. GOVERNMENT PRINTING OFFICE
39-696 WASHINGTON : 2010
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
DANIEL K. INOUYE, Hawaii, Chairman
JOHN D. ROCKEFELLER IV, West TED STEVENS, Alaska, Vice Chairman
Virginia JOHN McCAIN, Arizona
JOHN F. KERRY, Massachusetts TRENT LOTT, Mississippi
BYRON L. DORGAN, North Dakota KAY BAILEY HUTCHISON, Texas
BARBARA BOXER, California OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida GORDON H. SMITH, Oregon
MARIA CANTWELL, Washington JOHN ENSIGN, Nevada
FRANK R. LAUTENBERG, New Jersey JOHN E. SUNUNU, New Hampshire
MARK PRYOR, Arkansas JIM DeMINT, South Carolina
THOMAS R. CARPER, Delaware DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota
Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Lila Harper Helms, Democratic Deputy Staff Director and Policy Director
Christine D. Kurth, Republican Staff Director and General Counsel
Kenneth R. Nahigian, Republican Deputy Staff Director and Chief Counsel
C O N T E N T S
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Page
Hearing held on April 10, 2007................................... 1
Statement of Senator Dorgan...................................... 35
Statement of Senator Klobuchar................................... 30
Statement of Senator Pryor....................................... 1
Statement of Senator Stevens..................................... 2
Witnesses
Harbour, Hon. Pamela Jones, Commissioner, FTC.................... 21
Kovacic, Hon. William E., Commissioner, FTC...................... 25
Leibowitz, Hon. Jonathan D., Commissioner, FTC................... 23
Majoras, Hon. Deborah Platt, Chairman, Federal Trade Commission.. 3
Prepared statement........................................... 5
Rosch, Hon. J. Thomas, Commissioner, FTC......................... 26
Appendix
Editorial, dated June 8, 2006, from The New York Times, entitled
``When Drug Firms Pay Off Competitors''........................ 47
Response to written questions submitted by Hon. Maria Cantwell to
Hon. Deborah Platt Majoras..................................... 58
Response to written questions submitted by Hon. Daniel K. Inouye
and Hon. Mark Pryor to all FTC Commissioners................... 47
Response to written questions submitted by Hon. Frank R.
Lautenberg to all FTC Commissioners............................ 55
Response to written questions submitted by Hon. Claire McCaskill
to all FTC Commissioners....................................... 56
OVERSIGHT OF THE
FEDERAL TRADE COMMISSION
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TUESDAY, APRIL 10, 2007
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 11:03 a.m. in
room SR-253, Russell Senate Office Building, Hon. Mark Pryor,
presiding.
OPENING STATEMENT OF HON. MARK PRYOR,
U.S. SENATOR FROM ARKANSAS
Senator Pryor. Let's go ahead and get started here. Senator
Inouye has asked me to pinch hit for him today, and I'm honored
to do so. We're going to have a number of Senators coming and
going throughout the hearing.
And I want to thank the Federal Trade Commissioners for
being before the Committee today. It's a rare opportunity to
have all five here. I believe the last time all five
commissioners were here was in June of 2005, for a hearing on
identity theft, and I'd like to welcome the Chairman and all
the commissioners, and thank them both for their time in
delivering their statements and for the performance of the
mission there at the FTC. We appreciate it here in the Senate
because we know how important the mission of the FTC is.
I'd also like to take a moment to express the Committee's
sorrow to the families of Martha Stringer Schoenborn and Sally
Dean McGhee. Their service and loyalty to the Commission were
unparalleled, and their presence is sorely missed.
Established in 1914 under the Federal Trade Commission Act,
the Commission's mandate has two distinct components: first, to
protect consumers from unfair or deceptive acts or practices in
or affecting commerce; and, second, to protect consumers from
unfair methods of competition. As part of this authority, the
agency enforces some 46 statutes. While the overall mission has
not changed over the past 93 years, the technology and services
that Americans now experience challenge the Commission to keep
pace. While the competition mission looks similar to what
Americans faced during the Wilson Administration, the consumer
protection mission does not. The concept of telemarketing in
1914 was probably fuzzy, at best; but now we have a Do Not Call
list that gives consumers the choice not to be bothered in
their homes or on their cell phones. No one in 1914 could
conceive of the notion that a fraudster could step into their
identity with the press of a few keystrokes and potentially
ruin their life.
But, with all these differences, some problems are very
similar and continue to persist. In 1914, the price of gasoline
was about 15 cents per gallon, with concerns that the oil and
retail gasoline industry had so much power, it could escalate
prices over what they should be in a competitive environment.
Today, the nationwide price of regular gasoline is about $2.70
per gallon, with concerns that the oil and retail gasoline
industry has so much power that it could escalate prices over
what it should in a competitive environment. As you all know,
I'm particularly interested in these topics.
I think most Americans would call the Do Not Call Registry
a rousing success, but there are issues in regards to the fee
structure and the continued viability of the Registry that need
to be addressed. Americans continue to be victimized by large-
scale breaches, such as the T.J. Maxx breach, and Americans are
anxious for robust protections from identity theft, including
the ability to freeze their credit if they so choose.
After Hurricane Katrina, Americans got a refresher course
in the power of oil and retail gasoline producers, after seeing
$6 gas prices in some areas immediately following the storm.
The Commission has had success in protecting the American
consumer in several areas, but there is more work to do. I hope
that the Committee and the Senate can enact legislation to
protect consumers' identity, ensure the continued viability of
the Do Not Call Registry, and ensure competition and
transparency in the oil and gas industry.
I look forward to today's testimony, and I look forward to
working with the Commission as this Committee works toward
legislation to improve the Commission's ability to protect
consumers from deceptive practices and abusive methods of
competition.
Senator Stevens?
STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA
Senator Stevens. Thank you, Mr. Chairman.
I join you in thanking the witnesses for being here today,
and join you also in expressing our condolences to the FTC and
its family for their loss. And I know it has been a difficult
time for all the members of the Commission and its staff.
Your Commission has two important missions: protecting
consumers from unfair and deceptive practices and protecting
consumers from unfair methods of competition. We should assist
the Commission to fulfill these missions by reporting out a
clean bill to authorize the Commission for the first time since
1998. I think it should be one of our goals.
In addition, the Committee must ensure that the FTC has the
regulatory authority it needs to go after and prosecute bad
actors on the current scene, particularly when crimes involve
new and emerging technologies. The illicit use of spam and
spyware to perpetuate identity theft is one of the instances
where increased regulatory authority could assist the
Commission in doing its job.
But I do thank you all, and we look forward to hearing your
statements today.
And I thank you very much for having this oversight
hearing.
Senator Pryor. Thank you, Senator Stevens.
What we'll do today is, we will allow each of the
Commissioners to do a 5-minute opening statement. We'll take
Chairwoman Majoras first, and then we'll go down through a
list. So, I'll just recognize you as we go.
Madam Chair, would you like to start?
STATEMENT OF HON. DEBORAH PLATT MAJORAS, CHAIRMAN, FEDERAL
TRADE COMMISSION
Ms. Majoras. Thank you very much, Chairman Pryor, Vice
Chairman Stevens, members of the Committee. My fellow
commissioners and I are pleased to appear before you today. I
will provide an overview of the FTC's work to protect consumers
and competition, while my colleagues each will provide some
detail on a particular area of focus.
The FTC is pursuing a vigorous and effective law
enforcement program in a dynamic marketplace that is
increasingly global and characterized by changing technologies.
We challenge business practices that are anticompetitive,
deceptive, and unfair, and we promote informed consumer choice
and understanding of the competitive process. To meet the
challenges of a growing workload in Fiscal Year 2008, the FTC
requests $240,239,000 and 1,084 FTEs.
During the past 3 fiscal years, our consumer protection
work has produced more than 235 court orders, requiring
defendants to pay more than $1.3 billion in consumer redress;
more than 52 court judgments for civil penalties, totaling over
$40 million; and 187 new Federal court complaints aimed at
stopping unfair and deceptive conduct. At the same time, we
have developed roughly 200 new consumer and business education
campaigns, completed 58 statutorily-mandated rulemakings and
reports, hosted 48 public conferences and workshops, and issued
33 reports on issues of significance to our consumers. We must
continue with our active and aggressive agenda if we are to
fulfill our responsibility to consumers.
Protecting the privacy of American consumers has become,
and remains, a top priority in the information age. Deterring
identity theft begins with data security, and the FTC has
brought 14 enforcement actions against companies for their
failure to provide reasonable security. Recently, we launched a
nationwide identity theft consumer education campaign, ``Deter,
Detect, Defend,'' and we released a new business education
guide on data security. We also protect privacy through
implementation of the highly successful Do Not Call Registry,
which now contains 142 million telephone numbers. And
enforcement actions against telephone pretexters and those who
violate the Children's Online Privacy Protection Act. And we
are aggressively pursuing purveyors of spyware and spam.
To protect consumers in the financial services marketplace,
this year we're focusing enforcement efforts on the marketing
of alternative mortgage products, illegal methods used in debt
collection, and deception in the credit area. Other areas of
attack in our fraud program include business opportunity and
work-at-home scams, telemarketing fraud, and bogus health and
weight-loss claims. And, among these, phony healthcare products
rank high on our agenda, as they can seriously harm consumers
who forego otherwise legitimate and effective treatment
options. And we've brought forward more than a dozen of these
cases in just the past year.
We've also been a driving force in the recent renewal of
self-regulation in the area of childhood obesity, and we
continue our work in monitoring self-regulation among marketers
of alcohol and also of videogame, music, and movies with
violent content. Thanks to Congress, which worked with us to
pass the U.S. SAFE WEB Act of 2006, we now have better tools to
battle cross-border fraud.
We focused our competition efforts on areas that have the
most significant impact on consumers, healthcare, energy, high-
tech, and real estate. In Fiscal Year 2006, we identified 16
mergers that raised concerns for competition, requiring relief
in nine, whilst the other seven were abandoned or withdrawn or
restructured. And so far in this fiscal year we've issued 18
second requests in mergers, 11 merger cases already have
resulted in enforcement action or withdrawal, and we've brought
seven nonmerger cases.
In healthcare, during the past year we achieved substantial
relief before allowing mergers in areas such as generic drugs,
over-the-counter meds, injectable analgesics and other medical
devices and diagnostic services. The Commission has been
aggressive in challenging price-fixing agreements among
competing physicians and agreements between drug companies that
delay generic entry. And we continue to stand up against
exclusion payment settlements by working with Congress on
bipartisan efforts to advance a workable legislative remedy.
So far in 2007, the Commission has challenged two mergers
in the energy industry. Equitable Resources, Inc. proposed
acquisition of The People's Natural Gas Company, and the
proposed $22-billion deal whereby energy firm Kinder Morgan
would be taken private by its management and by a group of
investment firms.
During the past year, the agency has brought eight
enforcement actions against associations of
Realtors' for brokers who adopted rules, but
allegedly withheld the benefits of the multiple listing
services they control from consumers simply because those
consumers chose to enter into nontraditional listing contracts
with brokers.
And in the technology arena, the Commission issued a final
opinion and order in the nonmerger proceeding against
technology developer Rambus, determining that Rambus unlawfully
monopolized the markets for four computer memory technologies.
Mr. Chairman, members of the Committee, you have my
commitment that we will continue to work tirelessly on the
behalf of the consumers of the United States. We appreciate
your support. We appreciate your condolences this morning. And
we look forward to continuing our work together to further the
interests of American consumers.
Thank you.
[The prepared statement of Ms. Majoras follows:]
Prepared Statement of Hon. Deborah Platt Majoras, Chairman,
Federal Trade Commission
I. Introduction
Chairman Inouye, Vice Chairman Stevens, and members of the
Committee, I am Deborah Platt Majoras, Chairman of the Federal Trade
Commission (``Commission'' or ``FTC''). My fellow Commissioners and I
are pleased to come before you today to testify about the FTC's Fiscal
Year 2008 budget and to discuss our work to protect consumers and
promote competition.\1\ We look forward to continuing to work together
to further the interests of American consumers.
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\1\ The 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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The FTC is the only Federal agency with both consumer protection
and competition jurisdiction in broad sectors of the economy.\2\ The
agency enforces laws that prohibit business practices that are harmful
to consumers because they are anticompetitive, deceptive, or unfair,
and it promotes informed consumer choice and understanding of the
competitive process.
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\2\ The FTC has broad law enforcement responsibilities under the
Federal Trade Commission Act, 15 U.S.C. 41 et seq. With certain
exceptions, the statute provides the agency with jurisdiction over
nearly every economic sector. Certain entities, such as depository
institutions and common carriers, as well as the business of insurance,
are wholly or partly exempt from FTC jurisdiction. In addition to the
FTC Act, the agency has enforcement responsibilities under more than 50
other statutes and more than 30 rules governing specific industries and
practices.
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The FTC has pursued a vigorous and effective law enforcement
program in a dynamic marketplace that is increasingly global and
characterized by changing technologies. Through the efforts of a
dedicated, professional staff, the FTC continues to handle a growing
workload. Our testimony today summarizes some of the major activities
of the past year and describes some of the planned initiatives for FY
2008.
To meet the challenges in our Consumer Protection and Maintaining
Competition efforts in FY 2008, the FTC requests $240,239,000 and 1,084
FTEs.
During FY 2008, the FTC will address significant law enforcement
and policy issues throughout the U.S. economy and abroad, devoting
major portions of its resources to those areas in which the agency can
provide the greatest benefits to consumers. This testimony highlights
program priorities in the FTC's two missions. The focus of the Consumer
Protection mission will be on broad efforts to fight unfair and
deceptive conduct involving data security, identity theft, Do Not Call
enforcement, financial services, advertising, media violence ratings,
childhood obesity, and new technology-driven threats such as spam and
spyware. The focus of the Competition mission will be on merger and
nonmerger enforcement, particularly in the health care, energy, and
high technology industries. The testimony concludes with a summary of
the agency's FY 2008 appropriation request.
II. Consumer Protection
During FY2006, the FTC's Bureau of Consumer Protection achieved
many successes. It obtained 93 court orders requiring defendants to pay
more than $309 million in consumer redress; obtained 24 court judgments
for civil penalties in an amount over $27 million; filed 60 new
complaints in Federal district court to stop unfair and deceptive
practices; completed 13 statutorily-mandated rulemakings and other
statutorily-mandated requirements such as reports; led three law
enforcement sweeps; hosted 11 conferences and workshops; filed 24
consumer advocacy comments; issued 11 reports on topics significant to
consumers; and developed 79 consumer and business education campaigns.
The FTC continues to build on this successful record. This
testimony highlights key issues and initiatives for the agency's
consumer protection mission in FY 2008, as well as the methods the FTC
will use to address them.
A. Consumer Privacy
Protecting the privacy of American consumers has long been a top
priority at the Federal Trade Commission, and it remains a crucial
consumer protection issue. The following highlights some examples of
the Commission's recent work on privacy issues.
1. Data Security and Identity Theft
In 1998, Congress passed the Identity Theft Assumption and
Deterrence Act (``the Identity Theft Act''), which assigned the FTC a
unique role in combating identity theft and coordinating government
efforts.\3\ This role includes taking consumer complaints; implementing
the Identity Theft Data Clearinghouse, a centralized database of victim
complaints used by 1,300 law enforcement agencies; assisting victims
and consumers by providing information and education; and educating
businesses on sound security practices. The FTC continues to focus on
combating identity theft primarily through law enforcement,
participation in the Presidential Identity Theft Task Force, workshops,
and education to assist the millions of Americans harmed by identity
theft.
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\3\ Pub. L. 105-318, 112 Stat. 3007 (1998) (codified at 18 U.S.C.
1028).
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a. Law Enforcement
While the FTC, a civil enforcement agency, cannot enforce criminal
identity theft laws, it can take law enforcement action against
businesses that fail to implement reasonable safeguards to protect
sensitive consumer information from identity thieves. Over the past few
years, the FTC has brought 14 enforcement actions against businesses,
including BJ's Wholesale Club, ChoicePoint, CardSystems Solutions, and
DSW, for their failure to provide reasonable data security. These
actions include cases against companies that allegedly threw files
containing consumer home loan applications into an unsecured dumpster;
stored sensitive information in multiple files when there was no longer
a business need to keep the information; failed to implement simple,
low-cost, and readily available defenses to well-known web-based hacker
attacks; stored sensitive consumer information in unencrypted files
that could be easily accessed using commonly known user IDs and
passwords; and failed to use readily available security measures to
prevent unauthorized wireless connections to their networks. The
Commission continues to monitor the marketplace to encourage companies
to implement and maintain reasonable safeguards to protect sensitive
consumer information. In appropriate cases, the Commission will bring
enforcement action.
b. Identity Theft Task Force
Last year, President Bush established the Identity Theft Task
Force, which Attorney General Gonzales chairs and I co-chair.\4\ In his
Executive Order, the President directed the Task Force to submit to him
a strategic plan for fighting identity theft. The 18 Federal agencies
that comprise the Task Force have been hard at work developing the
plan.
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\4\ See FTC News Release, FTC Launches Nationwide ID Theft
Education Campaign (May 10, 2006), available at http://www.ftc.gov/opa/
2006/05/ddd.htm.
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On September 19, 2006, the Task Force issued a series of interim
recommendations These recommendations include: development of
government-wide guidance addressing whether and how to provide notice
to individuals in the event of a government agency data breach; the
development of a universal police report that identity theft victims
can use to present their case to creditors and credit reporting
agencies; and an accelerated review of government's use of Social
Security numbers.\5\ Following issuance of the interim recommendations,
the Task Force solicited public comments to supplement its research and
analysis, and to identify areas where additional recommendations may be
warranted.\6\ The Task Force is in the process of reviewing the
comments and will release a final strategic plan and recommendations
this week.
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\5\ President's Identity Theft Task Force, Summary of Interim
Recommendations (Sept. 2006), available at http://www.ftc.gov/os/2006/
09/060916interimrecommend.pdf.
\6\ President's Identity Theft Task Force Seeks Public Comment
(Dec. 26, 2006), available at http://www.ftc.gov/speeches/majoras/
061221PublicNoticeFinal.pdf.
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c. Education
Education of consumers and businesses is integral to the
Commission's consumer protection mission. The FTC continues to educate
consumers on how to avoid becoming victims of identity theft, and last
year launched a nationwide identity theft education program.\7\ The
program has been very popular--the FTC has distributed more than 1.5
million brochures and 40,000 education kits to address identity theft,
which can be used by employers, community groups, Members of Congress,
and others to inform their constituencies.
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\7\ See FTC News Release, FTC Launches Nationwide ID Theft
Education Campaign (May 10, 2006), available at http://www.ftc.gov/opa/
2006/05/ddd.htm.
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The FTC also sponsors an innovative multimedia website,
OnGuardOnline, designed to educate consumers about basic computer
security.\8\ The website provides information on specific topics such
as phishing, spyware, and spam. Since its launch in late 2005,
OnGuardOnline has attracted more than 3.5 million visits.
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\8\ Available at http://onguardonline.gov/index.html.
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The Commission directs its outreach to businesses as well. Just
this month, the FTC released a new business education guide on data
security.\9\ The Commission anticipates that the brochure will prove to
be a useful tool in alerting businesses to the importance of data
security issues and give them a solid foundation on how to address
them.
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\9\ Available at http://www.ftc.gov/bcp/edu/microsites/idtheft/
business/data-breach.html.
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d. Workshops
The Commission continually tries to stay abreast of developments in
privacy, data security, and identity theft. Over the past several
years, the Commission has hosted numerous workshops and public forums
to this end.\10\
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\10\ See materials for the conferences Protecting Consumers in the
Next Tech-Ade (Nov. 6-8, 2006), available at http://www.ftc.gov/
techade; Information Flows, The Costs and Benefits to Consumers and
Businesses of the Collection and Use of Consumer Information (June 18,
2003), available at http://www.ftc.gov/bcp/workshops/infoflows/
030618agenda.html; The eInformation Marketplace: Merging and Exchanging
Consumer Data (Mar. 13, 2001), available at http://www.ftc.gov/bcp/
workshops/infomktplace/index.html; Technologies for Protecting Personal
Information Workshop 1: The Consumer Experience (May 13, 2003),
available at http://www.ftc.gov/bcp/workshops/technology/agenda.htm;
FTC Spyware Workshop (Apr. 19, 2004), available at http://www.ftc.gov/
bcp/workshops/spyware; Radio Frequency Identification: Applications and
Implications for Consumers (June 21, 2004), available at http://
ftc.gov/bcp/workshops/rfid/index.htm.
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This month, the Commission will host a workshop to explore consumer
authentication as another avenue for combating identity theft.
Implementing better procedures for verifying that consumers are who
they say they are when they open new accounts or access existing ones
can make it more difficult for criminals to use stolen information. We
hope that the Commission's workshop will help spur the development of
more effective techniques, like multifactor authentication and
biometrics.
2. Pretexting
Another important issue on the Commission's privacy agenda is the
practice of telephone records pretexting. Phone pretexting is the
short-hand term used to describe the use of false pretenses to obtain
sensitive phone records, including lists of calls made and the dates
and duration of such calls, and then to sell them to third parties
without the knowledge or consent of the actual account holder.
In May 2006, before the Hewlett-Packard pretexting story became
national news, the Commission filed five cases against web-based
operations that obtained and sold consumers' confidential telephone
records to third parties.\11\ The FTC's complaints allege that the
unauthorized sale of phone records is an unfair practice in violation
of the FTC Act and seek a permanent halt to the sale of the phone
records. To date, the Commission has resolved two of these and is
litigating the rest. The settlement orders impose strong remedies
against the defendants, including a ban on obtaining or selling phone
records and a prohibition against pretexting to obtain other personal
information of consumers. Additionally, the defendants must give up the
profits made from their sales.
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\11\ FTC v. Info. Search, Inc., No. 1:06-CV-01099-AMD (D. Md. filed
May 1, 2006), available at http://www.ftc.gov/os/caselist/
pretextingsweep/060501informationsearch-cmplt.pdf; FTC v. AccuSearch,
Inc. d/b/a Abika.com, No. 06-CV-0105 (D. Wyo. filed May 1, 2006),
available at http://www.ftc.gov/os/caselist/pretextingsweep/
060501accusearchcomplaint.pdf; FTC v. CEO Group, Inc. d/b/a Check Em
Out, No. 06-60602 (S.D. Fla. filed May 1, 2006), available at http://
www.ftc.gov/os/caselist/pretextingsweep/060501ceogroup-cmplt.pdf; FTC
v. 77 Investigations, Inc., No. EDCV06-0439 VAP (C.D. Cal. filed May 1,
2006), available at http://www.ftc.gov/os/caselist/pretextingsweep/
060501-77investigcmplt.pdf; FTC v. Integrity Sec. & Investigation
Servs., Inc., No. 2:06-CV-241-RGD-JEB (E.D. Va. filed May 1, 2006),
available at http://www.ftc.gov/os/caselist/pretextingsweep/
060503integritysecurcmplt.pdf. The Commission's efforts against phone
pretexting are ongoing. In addition to our civil cases, in light of
recent Congressional passage of the Telephone Records and Privacy
Protection Act, which criminalizes certain telephone pretexting, the
Commission is likely to develop investigations that can be referred to
criminal law enforcement authorities.
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Most recently, in February 2007, the FTC announced a case against
Action Research Group, an alleged pretexter who deceptively obtained
and sold consumers' confidential phone records without their knowledge
or consent.\12\ The agency has asked the court to stop the conduct and
to order the defendants to give up their ill-gotten gains.
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\12\ FTC v. Action Research Group, No. 6:07-CV-0227-ORL-22JGG (M.D.
Fla. filed Feb. 15, 2007), available at http://www.ftc.gov/os/caselist/
0723021/070214actionresearchgrpcmplt.pdf.
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B. Technology
Although technology can play a key role in combating identity theft
and improving consumers' lives, it also can create new consumer
protection challenges. The Commission has worked aggressively to
protect consumers from technological threats such as spyware and spam.
In addition, the agency has focused on identifying new issues related
to technology in order to better protect consumers in the next decade.
1. Spyware
The Commission has brought eleven spyware enforcement actions in
the past 2 years. These actions have reaffirmed three key principles:
First, a consumer's computer belongs to him or her, not the software
distributor. Second, buried disclosures do not work, just as they have
never worked in more traditional areas of commerce. And third, if a
distributor puts a program on a consumer's computer that the consumer
does not want, the consumer must be able to uninstall or disable it.
The Commission's most recent settlement with DirectRevenue, a
distributor of adware, illustrates these principles.\13\ According to
the FTC's complaint, DirectRevenue, directly and through its
affiliates, offered consumers free content and software, such as screen
savers, games, and utilities, without disclosing adequately that
downloading these items would result in the installation of adware. The
installed adware monitored the online behavior of consumers and then
used the results of this monitoring to display a substantial number of
pop-up ads on their computers. Moreover, it was almost impossible for
consumers to identify, locate, and remove this unwanted adware. Among
other things, the FTC's complaint alleged that DirectRevenue used
deception to induce the installation of the adware and that it was
unfair for the company to make it unreasonably difficult to uninstall
the adware. To resolve these complaint allegations, DirectRevenue has
agreed to provide clear and prominent disclosures of what it is
installing, obtain express consent prior to installation, clearly label
its ads, provide a reasonable means of uninstalling software, and
monitor its affiliates to assure that they (and their own affiliates)
comply with the FTC's order. In addition, DirectRevenue has agreed to
disgorge $1.5 million to the U.S. Treasury. The Commission will
continue to bring law enforcement actions in this area.
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\13\ In the Matter of DirectRevenue, LLC, FTC File No. 052 3131
(Feb. 16, 2007), available at http://www.ftc.gov/os/caselist/0523131/
0523131directrevenueagreement.pdf.
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2. Spam
Since 1997, when the FTC brought its first case involving spam, the
Commission has aggressively pursued deceptive and unfair practices
involving spam through 89 law enforcement actions, 26 of which were
filed after Congress enacted the CAN-SPAM Act. In FY 2006, the FTC
brought eight new law enforcement actions targeting deceptive and
fraudulent spam e-mail.\14\
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\14\ In FY 2006, the FTC brought eight new law enforcement actions
targeting deceptive and fraudulent spam e-mail. FTC v. Pacific Herbal
Sciences, Inc., et al., No. CV-05-7242 (C.D. Cal. filed Oct. 6, 2005)
(alleging false header information, deceptive subject lines,
inconspicuous opt-out mechanism, non-functioning opt-out mechanism,
inconspicuous solicitation, and omitted postal address); FTC v. Zachary
Kinion, No. 05C-6737 (N.D. Ill. filed Nov. 29, 2005) (alleging false
header information, deceptive subject lines, inconspicuous opt-out
mechanism, nonfunctioning opt-out mechanism, and omitted postal
address); FTC v. Matthew Olson, No. C05-1979 (W.D. Wash. filed Nov. 29,
2005) (alleging false header information, deceptive subject lines,
inconspicuous opt-out mechanism, non-functioning opt-out mechanism, and
omitted postal address); FTC v. Brian McMullen, No. 05C-6911 (N.D. Ill.
filed Dec. 8, 2005) (alleging false header information, deceptive
subject lines, inconspicuous opt-out mechanism, non-functioning opt-out
mechanism, and omitted postal address); FTC v. William Dugger, et al.,
No. CV-06-0078 (D. Ariz. filed Jan. 9, 2006) (alleging false header
information, relay of messages through computers without authorization,
and failure to include adult-content label); United States v. Jumpstart
Technologies, LLC, et al., No. C-06-2079 (N.D. Cal. filed Mar. 21,
2006) (alleging false header information, deceptive subject lines,
inconspicuous opt-out mechanism, failure to honor opt-out requests, and
inconspicuous solicitation); United States v. Kodak Imaging Network,
Inc., No. 06-3117 (N.D. Cal. filed May 10, 2006) (alleging
inconspicuous opt-out mechanism, non-functioning opt-out mechanism, and
omitted postal address); and United States v. Ice.com, No. 8:06-CV-580
(N.D.N.Y. filed May 11, 2006) (alleging failure to honor opt-out
requests).
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The FTC continues to devote resources to fighting spam. The
Commission is aware of e-mail filtering companies' recent reports that
the amount of spam they process is rising and is studying whether this
increase has resulted in a change in the amount of spam actually
reaching consumers. The Commission's recent experience suggests that
spam is being used increasingly as a vehicle for more pernicious
conduct, such as phishing, viruses and spyware. This spam goes beyond
mere annoyance to consumers--it can result in significant harm by
shutting down consumers' computers, enabling keystroke loggers to steal
identities, and undermining the stability of the Internet. This summer,
as a follow-up to its initial Spam Forum of 2003, the Commission will
host a workshop to examine how spam has evolved and what stakeholders
can do to address it.
3. The Tech-Ade Workshop
The FTC is committed to understanding the implications of the
development of technology on privacy and consumer protection--as, or
even before, these developments happen. Last November, the FTC convened
public hearings on the subject of Protecting Consumers in the Next
Tech-Ade.\15\ The FTC heard from more than 100 of the best and
brightest people in the tech world about new technologies on the
horizon and their potential effect on consumers.
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\15\ See FTC News Release, Hearings Will Explore Emerging
Technologies and Consumer Issues in the Next Decade (July 26, 2006),
available at http://www.ftc.gov/opa/2006/07/techade.htm.
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One interesting trend that was highlighted at Tech-Ade is the
widening gap between older and younger consumers in their use of
technology. Younger consumers are much more likely to be interconnected
with other users of technology in a wide variety of ways--they are
online, on cell phones, text messaging, uploading videos, playing
multiplayer online games, and creating websites and blogs.
Accordingly, advertisers and marketers are making creative use of
these technologies to convey their messages to consumers at an early
age. At the Tech-Ade workshop, participants discussed several new
interactive methods to make advertising more relevant to younger
consumers. These included: (1) advergames and in-game advertising, such
as interactive games on an advertiser's website that incorporate the
advertiser's products or video games that feature a product
advertisement; (2) behavioral targeting, which relies on sophisticated
technology to analyze consumers' online activities and provide
advertising identified as relevant to their interests; and (3) viral,
``buzz,'' and word-of-mouth marketing, which rely on pre-existing
social networks to increase awareness about a particular product or
brand. The Commission also heard about the convergence of marketing and
user-generated content and the challenges that can be presented when
the line between consumer and producer is blurred.
Given these trends, the FTC is proposing the development of a
``media literacy'' initiative to educate and empower children and their
parents to be more discerning consumers of information. The goals of
this initiative are to raise awareness of advertising and marketing
messages; increase knowledge of how to skillfully read, analyze, and
appreciate an advertisement; show the benefits of being an informed
consumer; and help build partnerships to leverage agency resources and
education messages.
This initiative is just one example of how the Commission is using
what it learned at the Tech-Ade conference to develop its future
consumer protection agenda. The Commission will issue a draft report on
the Tech-Ade conference highlighting additional new developments this
spring.
4. Civil Penalties
We believe the Commission's ability to protect consumers from
unfair or deceptive acts or practices would be substantially improved
by legislation, all of which is currently under consideration by
Congress, to provide the Commission with civil penalty authority in the
areas of data security, telephone pretexting and spyware. Civil
penalties are important in these areas where our traditional equitable
remedies, including consumer restitution and disgorgement, may be
impracticable or not optimally effective in deterring unlawful acts.
Restitution is often impracticable in these cases because consumers
suffer injury that is either non-economic in nature or difficult to
quantify. Likewise, disgorgement may be unavailable because the
defendant has not profited from its unlawful acts, for example, in
cases we bring against companies for failing to maintain reasonable
safeguards to protect sensitive consumer data. As such, we renew our
support for civil penalty authority in these areas and look forward to
continuing to work with this Committee in particular to buttress the
Commission's ability to protect consumers.
C. Health
Of course not all fraud is technology-related. Health fraud, for
example, can still be found in the offline world as in the online
world. Too often, consumers fall prey to fraudulent health marketing
because they are desperate for help. Fifty million Americans suffer
from a chronic pain condition \16\ and have found no effective cure or
treatment. Seventy million Americans are trying to lose weight.\17\ The
FTC continues to take action against companies that take advantage of
these consumers.
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\16\ Partners for Understanding Pain, Pain Advocacy Tool Kit (Sept.
2006) (including members from American Cancer Society, American
Pharmacists Association, and Arthritis Foundation, among others),
available at http://www.nmmra.org/resources/Home_Health/Nurses
_Tool_Kit_2006.pdf.
\17\ M.K. Serdula, et al., Prevalence of Attempting Weight Loss and
Strategies for Controlling Weight, 282 JAMA 1353-1358 (1999).
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From April 2006 through February 2007, the FTC initiated or
resolved 13 law enforcement actions involving 25 products making
allegedly deceptive health claims.\18\ For example, in September 2006,
a Federal district court found that defendants' claims for their
purported pain relief ionized bracelets were false and unsubstantiated,
and required the individual and corporate defendants to pay up to $87
million in refunds to consumers.
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\18\ E.g., FTC v. Window Rock Enters., Inc., No. CV04-8190 (JTLx)
(C.D. Calif. filed Jan. 4, 2007) (stipulated final orders) (CortiSlim),
available at http://www.ftc.gov/os/caselist/windowrock/windowrock.htm;
In the Matter of Goen Techs. Corp., FTC File No. 042 3127 (Jan. 4,
2007) (consent order) (TrimSpa), available at http://www.ftc.gov/os/
caselist/goen/0423
127agreement.pdf; United States v. Bayer Corp., No. 07-01 (HAA) (D.N.J.
filed Jan. 3, 2007) (consent decree) (One-A-Day), available at http://
www.ftc.gov/os/caselist/bayercorp/070104
consentdecree.pdf; FTC v. Chinery, No. 05-3460 (GEB) (D.N.J. filed Dec.
26, 2006) (stipulated final order) (Xenadrine), available at http://
www.ftc.gov/os/caselist/chinery/070104stipulated
finalorder.pdf; FTC v. QT, Inc., No. 03 C 3578 (N.D. Ill. Sept. 8,
2006) (final judgment order), available at http://www.ftc.gov/os/
caselist/0323011/061113qrayfinaljdgmntorder.pdf.
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In January 2007, the Commission announced separate cases against
the marketers of four extensively advertised products--Xenadrine EFX,
CortiSlim, TrimSpa, and One-A-Day WeightSmart. Marketers for these
products settled charges that they had made false or unsubstantiated
weight-loss or weight-control claims. In settling, the marketers
surrendered cash and other assets collectively worth at least $25
million and agreed to limit their future advertising claims.\19\
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\19\ See FTC News Release, Federal Trade Commission Reaches ``New
Year's'' Resolutions with Four Major Weight-Control Pill Marketers
(Jan. 4, 2007), available at http://www.ftc.gov/opa/2007/01/
weightloss.htm.
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Another important issue on the Commission's health agenda is
childhood obesity. In the Summer of 2005, the Commission and the
Department of Health & Human Services held a joint workshop on the
issue of childhood obesity.\20\ The goal was to encourage industry to
respond to the public concerns surrounding food advertising and
marketing by taking strong action to modify their products, their
marketing techniques, and their messages. The Commission's April 2006
report on the workshop pointed out that all segments of society--
parents, schools, government, health care professionals, food
companies, and the media--need to work to improve our children's
health. The report urged industry to consider a wide range of options
as to how self-regulation could assist in combating childhood
obesity.\21\
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\20\ See FTC News Release, Workshop Explores Marketing, Self-
Regulation, and Childhood Obesity (July 15, 2005), available at http://
www.ftc.gov/opa/2005/07/obesityworkshopma.htm.
\21\ Perspectives on Marketing, Self-Regulation, & Childhood
Obesity: A Report on a Joint Workshop of the Federal Trade Commission
and the Department of Health and Human Services (Apr. 2006), available
at http://www.ftc.gov/os/2006/05/PerspectivesOnMarketingSelf-Regulation
&ChildhoodObesityFTCandHHSReportonJointWorkshop.pdf.
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A number of companies took the FTC's recommendations seriously. On
October 16, 2006, for example, the Walt Disney Company announced new
food guidelines aimed at giving parents and children healthier eating
options.\22\ And just a few months ago, the Children's Advertising
Review Unit, CARU, which is administered by the Council of Better
Business Bureaus, announced a new self-regulatory advertising
initiative designed to use advertising to help promote healthy dietary
choices and healthy lifestyles among American children.\23\ Eleven
leading food manufacturers--including McDonalds, The Hershey Company,
Kraft Foods, and Cadbury Schweppes--committed to devoting at least 50
percent of their advertising directed to children under twelve to
products that represent healthy dietary choices or that prominently
include healthy lifestyle messages that encourage physical activity or
good nutrition. They also committed to reducing their use of third-
party licensed characters and to incorporating healthy lifestyle
messages into their interactive games.
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\22\ See Bruce Horovitz and Laura Petrecca, Disney to Make Food
Healthier for Kids, USA TODAY (Oct. 17, 2006), available at http://
www.usatoday.com/money/media/2006-10-16-
disney_x.htm.
\23\ See Annys Shin, Ads Aimed at Children Get Tighter Scrutiny;
Firms to Promote More Healthful Diet Choices, WASH. POST, Nov. 15,
2006, at D1.
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D. Financial Practices
As with health issues, financial issues impact all consumers--
whether they are purchasing a home, trying to establish credit or
improve their credit rating, or managing rising debt. Thus, protecting
consumers in the financial services marketplace is a critical part of
the FTC's consumer protection mission. This year, the Commission will
focus on the ``ABCs'' of financial practices: Alternative mortgages,
Bad debt collection, and Credit-related deception.
1. Alternative Mortgages
Commission law enforcement actions have targeted deceptive and
other illegal practices in the mortgage market, with a focus on the
subprime market. FTC actions have targeted deceptive or unfair
practices by mortgage brokers, lenders, and loan servicers in all
stages of mortgage lending--from advertising and marketing through loan
servicing. In recent years, the Commission has brought 21 actions
against companies in the mortgage lending industry, yielding more than
$320 million in redress for consumers.
The FTC will continue this enforcement work, with an eye toward
recent developments in mortgage products. In recent years, more and
more consumers entered into ``nontraditional'' or ``alternative''
mortgage products. Last year the Commission held a workshop to examine
the consumer protection issues arising from them.\24\ These products
generally offer consumers the option of making lower required payments
in the early years of a loan--which make it easier, initially, to
purchase a home, or to purchase a more expensive home. But they also
pose substantial risks for consumers who do not understand, or are not
prepared for, the possible ``payment shock'' down the road, when
monthly minimum payments jump higher--sometimes even double--at the end
of the introductory period. Following up on what the Commission learned
at its workshop, it is looking closely at instances of deceptive
mortgage advertising, particularly advertising of ``nontraditional''
mortgages.
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\24\ Available at http://www.ftc.gov/bcp/workshops/mortgage/
index.html.
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2. Bad Debt Collection
As consumer debt levels have risen, so have complaints to the
Commission about debt collectors. The Commission receives more
complaints about debt collectors than any other single industry, with
66,000 complaints about third-party debt collectors in 2005 and more
than 69,000 in 2006.
The FTC is tackling the problem of unlawful debt collection
practices in two ways. First, the Commission engages in aggressive law
enforcement. In January, for example, the Commission filed an action to
stop a debt collector's allegedly repeated, egregious violations of the
Fair Debt Collection Practices Act.\25\ Second, this Fall, the FTC will
hold a workshop to take stock of the debt collection industry. The Fair
Debt Collection Practices Act was enacted 30 years ago. Given the rise
in consumer debt levels, as well as consumer complaints, it is time to
take another look at the industry. The Commission will examine changes
in the industry and the related consumer protection issues, including
whether the law has kept pace with developments.
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\25\ FTC v. Rawlins & Rivera, Inc., No. 6:07-CIV-146-ORL (M.D. Fla.
filed Jan. 31, 2007) (complaint), available at http://www.ftc.gov/os/
caselist/0623139/070202cmp0623139.pdf.
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3. Credit Deception
Some consumers with financial problems fall prey to deceptive debt
negotiation or similar credit repair schemes. Legitimate credit
counseling organizations offer valuable services to help consumers
solve their financial problems. However, the Commission has taken
enforcement actions against those offering debt reduction services that
charge hidden fees, make false promises to lower consumers' debts, or
misrepresent that they will eliminate accurate negative information
from consumers' credit reports.
Earlier this year, the Commission filed a complaint against Select
Management Solutions.\26\ In its complaint, the Commission alleged that
telemarketers for Select Management Solutions falsely promised that
they could lower consumer credit card interest rates to the single
digits, resulting in savings of at least $2,500. Consumers were charged
$695 for this service. The Commission alleged that consumers
experienced no savings and that the money-back guarantee was false. The
FTC succeeded in obtaining a preliminary injunction in this case. The
Commission continues to monitor this industry and will continue to
bring appropriate enforcement actions as warranted.
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\26\ Available at http://www.ftc.gov/os/caselist/0623215/
0623215.htm.
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E. Do Not Call
The National Do Not Call (DNC) Registry has been an unqualified
success. It has registered more than 142 million telephone numbers
since its inception in 2003. Because consumers' registrations expire
after 5 years, the Commission plans a significant effort to educate
consumers on the need to reregister their phone numbers.
Most entities covered by the DNC Rule comply, but for those who do
not, tough enforcement is a high priority for the FTC. Since the FTC
began enforcing compliance with the Registry in October 2003, the
agency has pursued 25 enforcement actions against 52 individual and 73
corporate defendants, alleging that they had called consumers protected
by the Registry. In these cases, the FTC has obtained settlements with
orders requiring payment in the aggregate of approximately $9 million
in civil penalties and more than $8.2 million in consumer redress and
disgorgement.
F. Retail Practices
The FTC has been examining retail practices in several areas. In
January 2007, the FTC hosted a workshop analyzing the marketing of
goods and services through offers with negative option features--i.e.,
offers where sellers interpret a consumer's failure to take an
affirmative action to reject goods or services, or to cancel a sales
agreement, as acceptance of the offers.\27\ On April 27, 2007, the FTC
will host a public workshop in San Francisco, California, to discuss
the issues surrounding the use of mail-in rebates by manufacturers and
retailers.\28\ One goal of the workshop will be to explore ``best
practices'' in the offering and fulfillment of rebates.
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\27\ See FTC News Release, FTC to Hold Public Workshop on Negative
Option Marketing (Dec. 21, 2006), available at http://www.ftc.gov/opa/
2006/12/negativeoption.htm.
\28\ See FTC News Release, FTC to Hold ``Rebate Debate'' Public
Workshop in San Francisco (Jan. 31, 2007), available at http://
www.ftc.gov/opa/2007/01/rebate.htm.
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Another retail practice that the Commission has been examining is
hidden expiration dates and dormancy fees on gift cards. In recent
weeks, the Commission has announced two settlements in this area, one
with Kmart Corporation and another with the national restaurant
company, Darden Restaurants.\29\ According to the FTC's complaints,
both Kmart and Darden promoted their gift card as equivalent to cash
but failed to disclose that fees are assessed after 2 years (initially
15 months, in Darden's case) of non-use. In addition, the FTC alleged
that Kmart affirmatively misrepresented that its card would never
expire. Kmart and Darden have agreed to disclose any fees or expiration
date prominently in future advertising and on the front of the gift
card. Both companies have also agreed to provide refunds of dormancy
fees assessed on their cards. Kmart will reimburse the dormancy fees
for consumers who provide an affected gift card's number, a mailing
address, and a telephone number. Darden will automatically restore to
each card any dormancy fees that were assessed. In 2006, both companies
voluntarily stopped charging dormancy fees on their gift cards.
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\29\ See FTC News Release, National Restaurant Company Settles FTC
Charges for Deceptive Gift Card Sales (Apr. 3, 2007), available at
http://www.ftc.gov/opa/2007/04/darden.htm.
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G. Media Violence
The Commission has continued its efforts to monitor the marketing
of violent entertainment to children and to encourage industry self-
regulation. Since 1999, the Commission has issued five reports on the
marketing of violent entertainment products. In April 2007, the
Commission will issue its sixth report on the entertainment industries'
self-regulatory programs. In addition to updating the current state of
industry practices, the report will include the results of a nationwide
telephone survey of parents and children regarding their familiarity,
use, and perceptions of the video game rating system. The report will
also include the results of another nationwide undercover mystery shop
of movie, game, and music retailers.
H. Aiding Criminal Enforcement
The frauds that the FTC pursues civilly are also often crimes. Over
the past 2 years, the FTC's Criminal Liaison Unit, or CLU, has stepped
up cooperation with criminal authorities--a dramatic illustration of
the FTC's efforts to bring the collective powers of different
government agencies to bear upon serious misconduct in many consumer
protection areas.
During 2006, CLU reported some outstanding developments. Grand
juries charged 71 FTC defendants and their close associates with crimes
including mail and wire fraud, bank fraud, conspiracy, money
laundering, and tax fraud. During the same period, Federal prosecutors
obtained convictions of 57 FTC defendants and their close associates.
And consumer protection-related crimes continue to draw stiff
sentences. Thirty-three FTC defendants and their close associates
received prison sentences totaling more than 259 years, ranging from 1
year to more than 17 years in prison. The FTC's criminal referral
program continues to be a high priority.
I. Consumer Advocacy
Advocacy is another method used by the Commission to advance
consumers' interests. The FTC frequently provides comments to
legislatures and government agencies on the effect of proposed laws and
regulations. The Commission also testified before the 109th Congress 31
times. Although consumers need to be protected from fraud and
deception, unduly broad restrictions on the dissemination of truthful
and non-misleading information are likely to limit competition and
consumer choice.\30\
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\30\ Through enforcement and advocacy with the Food and Drug
Administration (FDA), the FTC has developed substantial expertise in
policy issues related to food and drug advertising and labeling.
Recently, the FTC staff provided comments to the FDA in response to a
request for public comment regarding its draft guidelines for labeling
statements about the whole grain content of food products. The staff
suggested that the FDA expand on its guidance by reconsidering whether
to allow certain claims (such as ``good source'' of whole grains) to be
made by companies, providing additional guidance on the appropriate use
of certain claims (such as ``100 percent whole grain''), and conducting
further research to determine how best to define whole grain-related
terms and reduce consumer confusion. See FTC Staff Comment Before the
Food and Drug Administration: In the Matter of Draft Guidance for
Industry and FDA Staff: Whole Grain Label Statements, FTC file No.
V060114 (Apr. 18, 2006) available at http://www.ftc.gov/os/2006/04/
v060114ftcstaffcommentofthefdaredocketno2006-0066.pdf. The FTC also
recently has used advocacy to protect children from online child
predators. FTC staff filed a comment regarding proposed legislation in
Hawaii designed to protect minors from unwanted commercial e-mails
(spam) that advertise products or services they are prohibited from
buying or that contain adult advertising or links to adult content. The
bill would establish a Child Protection Registry and make it illegal to
send such messages to registrants. The FTC staff explained that, much
as it did in commenting on similar legislation in Illinois in 2005, the
registry easily could be abused by online child predators, publishing a
list of verified e-mail addresses could unintentionally increase the
amount of spam received by registrants, and the bill's substantial
compliance costs could hamper Internet competition and prevent
consumers from receiving legitimate and wanted information. The Hawaii
legislature ultimately did not adopt this bill. See FTC Staff Comment
to The Honorable Carol Fukunaga Concerning Hawaii Senate Bill 2200, A
Bill To Create A Child Protection Registry and Prohibit Certain
Unwanted Commercial Email Messages, FTC File No. V060012 (Mar. 2006)
available at http://www.ftc.gov/os/2006/04/V060012
FTCStaffCommentReHawaiiSenateBill2200Image.pdf.
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III. Maintaining Competition
In addition to addressing unfair and deceptive conduct, the
Commission is charged with protecting consumers by maintaining
competition. The goal of the FTC's competition mission is to strengthen
free and open markets by removing the obstacles that impede competition
and prevent its benefits from flowing to consumers. To accomplish this,
the FTC has focused its enforcement efforts on sectors of the economy
that have a significant impact on consumers, such as health care,
energy, technology, and real estate. In this testimony, the Commission
will highlight several important merger and nonmerger enforcement
actions of the past year.
A. Health Care
The health care industry plays a crucial role in the U.S. economy
in terms of consumer spending and welfare, and thus, the FTC has
dedicated substantial resources to protecting consumers by vigorously
reviewing proposed merger transactions, investigating potentially
anticompetitive conduct that threatens consumer interests, and taking
action to prevent anticompetitive effects.
1. Agreements That Delay Generic Entry
The FTC continues to be vigilant in the detection and investigation
of agreements between drug companies that delay generic entry,
including investigating some patent settlement agreements between
pharmaceutical companies that are required to be filed with the
Commission under the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003. In these ``exclusion payment settlements''
(or, to some, ``reverse payment settlements''), the brand-name drug
firm pays its potential generic competitor to abandon the patent
challenge and delay entering the market. Such settlements restrict
competition at the expense of consumers, whose access to lower-priced
generic drugs is delayed, sometimes for many years.
In addition, in November 2005, in the case of FTC v. Warner
Chilcott Holdings Company III, Ltd., the Commission filed a complaint
in Federal district court seeking to terminate an agreement between
drug manufacturers Warner Chilcott and Barr Laboratories that denied
consumers the choice of a lower-priced generic version of Warner
Chilcott's Ovcon 35, a branded oral contraceptive.\31\ Under threat of
a preliminary injunction sought by the FTC, in September 2006, Warner
Chilcott waived the exclusionary provision in its agreement with Barr
that prevented Barr from entering with its generic version of Ovcon.
The next day, Barr announced its intention to start selling a generic
version of the product, and it now has done so.\32\
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\31\ FTC v. Warner Chilcott Holdings Co. III, No. 1:05-cv-02179-CKK
(D.D.C. filed Nov. 7, 2005) (complaint filed), available at http://
www.ftc.gov/os/caselist/0410034/051107comp
0410034%20.pdf.
\32\ FTC News Release, Consumers Win as FTC Action Results in
Generic Ovcon Launch (Oct. 23, 2006), available at http://www.ftc.gov/
opa/2006/10/chilcott.htm. In October 2006, the district court entered a
final order that settled the FTC's charges against Warner Chilcott. As
a result of the settlement, Warner Chilcott: (1) must refrain from
entering into agreements with generic pharmaceutical companies in which
the generic agrees not to compete with Warner Chilcott and there is
either a supply agreement between the parties or Warner Chilcott
provides the generic with anything of value and the agreement adversely
affects competition; (2) must notify the FTC whenever it enters into
supply or other agreements with generic pharmaceutical companies; and
(3) for 3 months, had to take interim steps to preserve the market for
the tablet form of Ovcon in order to provide Barr the opportunity to
compete with its generic version. FTC v. Warner Chilcott Holdings Co.
III, No. 1:05-cv-02179-CKK (D.D.C. filed Oct. 23, 2006) (stipulated
permanent injunction and final order), available at http://www.ftc.gov/
os/caselist/0410034/finalorder.pdf. The FTC's case against Barr is
ongoing.
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2. Pharmaceuticals, Medical Devices, and Diagnostic Systems
The Commission is active in enforcing the antitrust laws in the
pharmaceutical, medical devices, and diagnostic systems industries. For
example, the FTC approved a consent order regarding Barr
Pharmaceuticals' proposed acquisition of Pliva.\33\ In settling the
Commission's charges that the transaction would have increased
concentration and led to higher prices, Barr is required to sell its
generic antidepressant, trazodone; its generic blood pressure
medication, triamterene/HCTZ; either Pliva's or Barr's generic drug for
use in treating ruptured blood vessels in the brain; and Pliva's
branded organ preservation solution. Last year, the FTC imposed
conditions on several other pharmaceutical mergers, including: Watson
Pharmaceuticals/Andrx Corporation; \34\ Teva Pharmaceutical Industries/
IVAX Corporation; \35\ Johnson & Johnson's acquisition of Pfizer's
consumer health division; \36\ and Hospira, Inc./Mayne Pharma
Limited.\37\ Recent medical devices and diagnostic systems cases
include: the FTC's consent order regarding the proposed $27 billion
acquisition of Guidant Corporation by Boston Scientific Corporation,
which required the divestiture of Guidant's vascular business to an
FTC-approved buyer; \38\ and consent orders in mergers affecting
markets for biopsy systems and for centrifugal vacuum evaporators used
in the health care industry.\39\
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\33\ In the Matter of Barr Pharms., Inc., FTC Docket No. C-4171
(Dec. 8, 2006) (decision and order), available at http://www.ftc.gov/
os/caselist/0610217/0610217barrdo_final.pdf.
\34\ In the Matter of Watson Pharms., Inc., and Andrx Corp., FTC
Docket No. C-4172 (Dec. 12, 2006) (decision and order), available at
http://www.ftc.gov/os/caselist/0610139/061212do
_public_ver0610139.pdf.
\35\ In the Matter of Teva Pharm. Indus. Ltd. and IVAX Corp., FTC
Docket No. C-4155 (Mar. 2, 2006) (decision and order), available at
http://www.ftc.gov/os/caselist/0510214/0510
214.htm.
\36\ In the Matter of Johnson & Johnson and Pfizer Inc., FTC Docket
No. C-4180 (Jan. 19, 2007) (decision and order), available at http://
www.ftc.gov/os/caselist/0610220/0610220c4180
decisionorder_publicversion.pdf; see also In the Matter of Allergan,
Inc. and Inamed Corp., FTC Docket No. C-4156 (Apr. 17, 2006) (decision
and order), available at http://www.ftc.gov/os/caselist/0610031/
0610031.htm.
\37\ FTC News Release, FTC Challenges Hospira/Mayne Pharma Deal
(Jan. 18, 2007), available at http://www.ftc.gov/opa/2007/01/
hospiramayne.htm; In the Matter of Hospira, Inc. and Mayne Pharma Ltd.,
FTC Docket No. C-4182 (Jan. 18, 2007) (decision and order), available
at http://www.ftc.gov/os/caselist/0710002/070118do0710002.pdf.
\38\ In the Matter of Boston Scientific Corp. and Guidant Corp.,
FTC Docket No. C-4164 (July 25, 2006) (decision and order), available
at http://www.ftc.gov/os/caselist/0610046/060725do0610046.pdf.
\39\ In the Matter of Hologic, Inc., FTC Docket No. C-4165 (Aug. 9,
2006) (decision and order), available at http://www.ftc.gov/os/
caselist/0510263/0510263decisionandorderpubrecver.pdf; In the Matter of
Thermo Electron Corp., FTC Docket No. C-4170 (Dec. 5, 2006) (decision
and order), available at http://www.ftc.gov/os/caselist/0610187/
061205do0610187.pdf.
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FTC staff also has initiated a study on authorized generic
drugs.\40\ The study is intended to help the agency understand the
circumstances under which innovator companies launch authorized
generics; to provide data and analysis of how competition between
generics and authorized generics during the Hatch-Waxman Act's 180-day
exclusivity period has affected short-run price competition and long-
run prospects for generic entry; and to build on the economic
literature about the effect of generic drug entry on prescription drug
prices.
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\40\ FTC News Release, FTC Proposes Study of Competitive Impacts of
Authorized Generic Drugs (Mar. 29, 2006), available at http://
www.ftc.gov/opa/2006/03/authgenerics.htm.
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3. Hospitals and Physicians
The Commission has worked vigorously to preserve competition in
local hospital markets. In October 2005, an FTC Administrative Law
Judge found that Evanston Northwestern Healthcare Corporation's
consummated acquisition of an important competitor, Highland Park
Hospital, resulted in higher prices and a substantial lessening of
competition for acute care inpatient hospital services in parts of
Chicago's northern suburbs.\41\ In May 2006, the Commission heard oral
arguments on the appeal of this matter and a Commission opinion is
forthcoming.\42\ Several other hospital mergers have been announced
within the past several months, and we have active investigations
pending.\43\
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\41\ In the Matter of Evanston Northwestern Healthcare Corp., FTC
Docket No. 9315 (Oct. 20, 2005) (initial decision), available at http:/
/www.ftc.gov/os/adjpro/d9315/051021idtext
version.pdf.
\42\ In the Matter of Evanston Northwestern Healthcare Corp., FTC
Docket No. 9315 (Apr. 20, 2006) (notice scheduling oral argument),
available at http://www.ftc.gov/os/adjpro/d9315/
060420notschedoralargu.pdf.
\43\ The Commission also challenged the merger of two of the top
three operators of outpatient kidney dialysis clinics and required
divestitures in 66 markets throughout the United States. In the Matter
of Fresenius AG, FTC Docket No. C-4159 (June 30, 2006) (decision and
order), available at http://www.ftc.gov/os/caselist/0510154/
0510154.htm.
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The FTC continues to investigate and challenge unlawful price
fixing by physicians and other health care providers that may lead to
higher costs for consumers. In the past year, the FTC approved four
consent orders settling charges that competing providers jointly set
their prices and collectively agreed to refuse to deal with health care
payers that did not meet their fee demands.\44\
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\44\ In the Matter of Puerto Rico Ass'n of Endodontists, Corp., FTC
Docket No. C-4166 (Aug. 24, 2006) (decision and order), available at
http://www.ftc.gov/os/caselist/0510170
/0510170c4166praedecisionorder.pdf; In the Matter of New Century Health
Quality Alliance, Inc., FTC Docket No. C-4169 (Sept. 29, 2006)
(decision and order), available at http://www.ftc.gov/os/caselist/
0510137/0510137nchqaprimedecisionorder.pdf; In the Matter of Advocate
Health Partners, et al., FTC Docket No. C-4184 (Feb. 7, 2007) (decision
and order), available at http://www.ftc.gov/os/caselist/0310021/
0310021.htm; and In the matter of Health Care Alliance of Laredo, L.C.,
FTC Docket No. C-4158 (Mar. 23, 2006) (decision and order), available
at http://www.ftc.gov/os/caselist/0410097/0410097.htm.
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B. Energy
Few issues are more important to American consumers and businesses
than current and future energy production and use. The FTC plays a key
role in maintaining competition and protecting consumers in energy
markets by challenging antitrust violations, conducting studies and
analyses, and providing comments to other government agencies.
So far in 2007, the Commission has challenged two mergers in the
energy industry. Last month, the Commission filed an administrative
complaint challenging Equitable Resource's proposed acquisition of The
People's Natural Gas Company, a subsidiary of Dominion Resources.
Equitable and Dominion People's are each other's sole competitors in
the distribution of natural gas to nonresidential customers in certain
areas of Allegheny County, Pennsylvania, which includes Pittsburgh. The
complaint alleges that the proposed transaction would result in a
monopoly for many customers who now benefit from competition between
the two firms. In January 2007, the Commission challenged the terms of
a proposed $22 billion deal whereby energy firm Kinder Morgan would be
taken private by its management and a group of investment firms,
including The Carlyle Group and Riverstone Holdings. The Commission's
complaint alleged that Carlyle and Riverstone held significant
positions in Magellan Midstream, a major competitor of Kinder Morgan in
the terminaling of gasoline and other light petroleum products in the
southeastern United States, and that the proposed transaction would
threaten competition in those markets. In settling the Commission's
complaint, Carlyle and Riverstone agreed to turn their investment in
Magellan passive and to restrict the flow of sensitive information
between Kinder Morgan and Magellan.\45\
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\45\ Other recent energy matters include: Chevron/USA Petroleum, an
abandoned transaction in which Chevron would have acquired most of the
retail gasoline stations owned by USA Petroleum, the largest remaining
chain of service stations in California not controlled by a refiner
(USA Petroleum's president stated that the parties abandoned the
transaction because of resistance from the FTC), see Elizabeth
Douglass, Chevron Ends Bid to Buy Stations, LA TIMES, Nov. 18, 2006,
Part C at 2; EPCO/TEPPCO, in which EPCO's $1.1 billion acquisition of
TEPPCO's natural gas liquid storage business was only allowed to
proceed if TEPPCO first agreed to divest its interests in the world's
largest natural gas storage facility in Bellvieu, Texas, to an FTC-
approved buyer, see In the Matter of EPCO, Inc., and TEPPCO Partners,
L.P., FTC Docket No. C-4173 (Oct. 31, 2006) (decision and order),
available at http://www.ftc.gov/os/caselist/0510108/
0510108c4173do061103.pdf; Chevron/Unocal, which resolved the
Commission's administrative monopolization complaint against Unocal and
antitrust concerns arising from Chevron's proposed $18 billion
acquisition of Unocal, see In the Matter of Chevron Corp., FTC Docket
No. C-4144 (July 27, 2005) (consent order), available at http://
www.ftc.gov/os/caselist/0510125/050802do0510125.pdf and Union Oil Co.
of Calif., FTC Docket No. 9305 (July 27, 2005) (consent order),
available at http://www.ftc.gov/os/adjpro/d9305/050802do.pdf; and Aloha
Petroleum/Trustreet Properties, in which the Commission alleged that
Aloha's proposed acquisition of Trustreet Properties' half interest in
import-capable terminal and retail gasoline assets in Hawaii would have
reduced from five to four the overall number of island gasoline
marketers that had guaranteed access to supply, and from three to two
the number of suppliers selling to unintegrated retailers, see FTC v.
Aloha Petroleum Ltd., No. CV05 00471 HG/KSC (Dist. Hi. complaint filed
July 27, 2005), available at http://www.ftc.gov/os/caselist/1510131/
050728comp1510131.pdf. Ultimately, Aloha Petroleum was dismissed at the
agency's request after Aloha announced a long-term agreement with a
third party, Mid Pac Petroleum, that would give Mid Pac substantial
rights to use the terminal to import gasoline into Hawaii.
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In May 2006, the FTC released a report titled Investigation of
Gasoline Price Manipulation and Post-Katrina Gasoline Price
Increases.\46\ This report contained the findings of a Congressionally-
mandated Commission investigation into whether gasoline prices
nationwide were ``artificially manipulated by reducing refinery
capacity or by any other form of market manipulation or price gouging
practices.'' The report also discusses gasoline pricing by refiners,
large wholesalers, and retailers in the aftermath of Hurricane Katrina.
In its investigation, the FTC examined evidence relating to a broad
range of possible forms of manipulation. It found no instances of
illegal market manipulation that led to higher prices during the
relevant time periods, but found fifteen examples of pricing at the
refining, wholesale, or retail level that fit the legislation's
definition of evidence of ``price gouging.'' \47\ Other factors such as
regional or local market trends, however, appeared to explain these
firms' prices in nearly all cases.\48\
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\46\ FTC News Release, FTC Releases Report on its ``Investigation
of Gasoline Price Manipulation and Post-Katrina Gasoline Price
Increases'' (May 22, 2006), available at http://www.ftc.gov/opa/2006/
05/katrinagasprices.htm.
\47\ Science, State, Justice, Commerce, and Related Agencies
Appropriations Act, 2007, Pub. L. No. 109-108 632, 119 Stat. 2290
(2005) (Section 632).
\48\ Federal Trade Commission, Investigation of Gasoline Price
Manipulation and Post-Katrina Gasoline Price Increases (Spring 2006),
available at http://www.ftc.gov/reports/060518
PublicGasolinePricesInvestigationReportFinal.pdf; but see concurring
statement of Commissioner Jon Leibowitz (concluding that the behavior
of many market participants leaves much to be desired and that price
gouging statutes, which almost invariably require a declared state of
emergency or other triggering event, may serve a salutary purpose of
discouraging profiteering in the aftermath of a disaster), available at
http://www.ftc.gov/speeches/leibowitz/060518Lei
bowitzStatementReGasolineInvestigation.pdf.
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C. Real Estate
Purchasing or selling a home is one of the most significant
financial transactions most consumers will ever make, and
anticompetitive industry practices can raise the prices of real estate
services. In the past year, the agency has brought eight enforcement
actions against associations of competing realtors or brokers. The
associations, which control multiple listing services, adopted rules
that allegedly withheld valuable benefits from consumers who chose to
enter into non-traditional, and often less expensive, listing contracts
with real estate brokers. In seven of these matters, the Commission
agreed to settlements prohibiting multiple listing services from
discriminating against non-traditional listing arrangements. The eighth
matter is currently in administrative litigation.\49\ The result of
these actions will allow consumers more choice and ensure that if
consumers choose to use discount real estate brokers they will not be
handicapped by rules preventing other consumers from seeing their
listings on the Internet.
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\49\ See, e.g., FTC News Release, FTC Charges Austin Board of
Realtors With Illegally Restraining Competition (July 13, 2006),
available at http://www.ftc.gov/opa/2006/07/austin
board.htm; see also FTC News Release, FTC Charges Real Estate Groups
with Anticompetitive Conduct in Limiting Consumers' Choice in Real
Estate Services (Oct. 12, 2006), available at http://www.ftc.gov/opa/
2006/10/realestatesweep.htm; FTC News Release, Commission Receives
Application for Proposed Divestiture from Linde AG and The BOC Group
plc; FTC Approves Final Consent Orders in Real Estate Competition
Matters (Dec. 1, 2006), available at http://www.ftc.gov/opa/2006/12/
fyi0677.htm.
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D. Technology
Technology is another area in which the Commission has acted to
protect consumers by safeguarding competition. In February 2007, the
Commission issued an opinion and final order in the legal proceeding
against computer technology developer Rambus, Inc.,\50\ and the matter
continues in litigation. Previously, in July 2006, the Commission had
determined that Rambus unlawfully monopolized the markets for four
computer memory technologies that have been incorporated into industry
standards for dynamic random access memory (DRAM) chips. DRAM chips are
widely used in personal computers, servers, printers, and cameras.\51\
In addition to barring Rambus from making misrepresentations or
omissions to standard-setting organizations again in the future, the
February 2007 order, among other things, requires Rambus to license its
SDRAM and DDR SDRAM technology; with respect to uses of patented
technologies after the effective date of the order, bars Rambus from
collecting more than the specified maximum allowable royalty rates; and
requires Rambus to employ a Commission-approved compliance officer to
ensure that Rambus's patents and patent applications are disclosed to
industry standard-setting bodies in which it participates.\52\ Our hope
is that this case will result in more accurate and useful disclosure of
intellectual property in standard-setting bodies, which will improve
product quality and lower costs to consumers.
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\50\ FTC News Release, FTC Issues Final Opinion and Order in Rambus
Matter (Feb. 5, 2007), available at http://www.ftc.gov/opa/2007/02/
070502rambus.htm.
\51\ In the Matter of Rambus, Inc., Docket No. 9302 (July 31, 2006)
(opinion of the Commission), available at http://www.ftc.gov/os/adjpro/
d9302/060802commissionopinion.pdf.
\52\ In the Matter of Rambus, Inc., Docket No. 9302 (Feb. 5, 2007)
(opinion of the Commission on remedy), available at http://www.ftc.gov/
os/adjpro/d9302/070205opinion.pdf; In the Matter of Rambus Inc., Docket
No. 9302 (Feb. 2, 2007) (final order), available at http://www.ftc.gov/
os/adjpro/d9302/070205finalorder.pdf.
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E. Retail and Other Industries
The FTC also guards against anticompetitive conduct in the retail
sector and brings enforcement cases where necessary. In March 2007, the
Commission announced a proposed order settling charges that the
Missouri State Board of Embalmers and Funeral Directors illegally
restrained competition by defining the practice of funeral directing to
include selling funeral merchandise to consumers on an at-need
basis.\53\ The Board's regulation permitted only licensed funeral
directors to sell caskets to consumers on an at-need basis, thereby
discouraging other retailers from selling caskets. The Board ended the
restriction last year and agreed that it will not prohibit or
discourage the sale of caskets, services, or other funeral merchandise
by unlicensed persons.
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\53\ In the Matter of Missouri Board of Embalmers and Funeral
Directors, FTC File No. 061 0026 (Mar. 9, 2007) (proposed decision and
order), available at http://www.ftc.gov/os/caselist/0610026/
0610026decisonorder.pdf.
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The Commission also has sought to protect customers by imposing
conditions on mergers involving launch services; \54\ the manufacture
of ammunition for mortars and artillery; \55\ the Nation's two largest
funeral home and cemetery chains; \56\ and liquid oxygen and
helium.\57\
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\54\ In the Matter of Lockheed Martin Corp. and The Boeing Co., FTC
File No. 051 0165 (Oct. 3, 2006) (decision and order), available at
http://www.ftc.gov/os/caselist/0510165/0510
165decisionorderpublicv.pdf; In the Matter of Lockheed Martin Corp. and
The Boeing Co., FTC File No. 051 0165 (Oct. 3, 2006) (agreement
containing consent order), available at http://www.ftc.gov/os/caselist/
0510165/0510165agreement.pdf.
\55\ In the Matter of Gen. Dynamics Corp., FTC Docket No. C-4181
(Dec. 28, 2006) (decision and order), available at http://www.ftc.gov/
os/caselist/0610150/0610150decisionorder.pdf; In the Matter of Gen.
Dynamics Corp., FTC Docket No. C-4181 (Dec. 28, 2006) (agreement
containing consent orders), available at http://www.ftc.gov/os/
caselist/0610150/0610150agree
ment.pdf.
\56\ In the Matter of Serv. Corp. Int'l and Alderwoods Group Inc.,
FTC Docket No. C-4174 (Dec. 29, 2006) (decision and order), available
at http://www.ftc.gov/os/caselist/0610156/070105do0610156.pdf.
\57\ In the Matter of Linde AG and The BOC Group PLC, FTC Docket
No. C-4163 (Sept. 5, 2006) (decision and order), available at http://
www.ftc.gov/os/caselist/0610114/06101
14c4163LindeBOCDOPubRecV.pdf.
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F. Guidance, Transparency, and Merger Review Process Improvements
The FTC also works to facilitate cooperation and voluntary
compliance with the law by promoting transparency in enforcement
standards, policies, and decision-making processes. During the last
year, the FTC implemented two important process reforms that
streamlined the merger review process. In February 2006, the Commission
announced the implementation of significant merger process reforms
aimed at reducing the costs borne by both the FTC and merging
parties.\58\ In June 2006, the FTC and the Department of Justice
Antitrust Division implemented an electronic filing system that allows
merging parties to submit, via the Internet, premerger notification
filings required by the Hart-Scott-Rodino (HSR) Act.\59\
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\58\ FTC News Release, FTC Chairman Announces Merger Process
Reforms (Feb. 16, 2006), available at http://www.ftc.gov/opa/2006/02/
merger_process.htm.
\59\ FTC News Release, Federal Trade Commission and Department of
Justice Allow Electronic Submission of Premerger Notification Filings
(June 20, 2006), available at http://www.ftc.gov/opa/2006/06/
premerger.htm.
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G. Competition Advocacy
The Commission frequently provides comments to Federal and state
legislatures and government agencies, sharing its expertise on the
competitive impact of proposed laws and regulations when they
explicitly or implicitly impact the antitrust laws, and when they alter
the competitive environment through restrictions on price, innovation,
or entry conditions. Recent FTC advocacy efforts have contributed to
several positive consumer outcomes. In the past year, the FTC has
sought to persuade regulators to adopt policies that do not
unnecessarily restrict competition in the areas of wine
distribution,\60\ patent rules of practice,\61\ online auction trading
assistants,\62\ attorney matching services,\63\ real estate legal
services,\64\ and pharmacy benefit managers.\65\
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\60\ FTC Staff Comments to The Honorable Paula Dockery (Apr. 10,
2006), available at
http://www.ftc.gov/os/2006/04/
V060013FTCStaffCommentReFloridaSenateBill282.pdf.
\61\ Comments of the United States Federal Trade Commission Before
the United States Patent and Trademark Office, In the Matter of Changes
to Practice for Continuing Applications, Requests for Continued
Examination Practice, and Applications Containing Patentably Indistinct
Claims, Docket No. 2-5-P-066 (May 3, 2006), available at http://
www.ftc.gov/os/2006/05/P052103CommissionCommentsRePTODocketNo2-95-P-
066BeforethePatentandTrademarkOffice
Text.pdf.
\62\ FTC Staff Comments to The Honorable Noble E. Ellington,
Louisiana State Senate (May 26, 2006), available at http://www.ftc.gov/
os/2006/06/VO60015CommentstoLouisianaStateSen
ateImage.pdf.
\63\ FTC Staff Comments to Mr. W. John Glancy, Chairman,
Professional Ethics Committee for the State Bar of Texas (May 26,
2006), available at http://www.ftc.gov/os/2006/05/V060017
CommentsonaRequestforAnEthicsOpinionImage.pdf.
\64\ Federal Trade Commission and United States Department of
Justice Comments to Assemblywoman Helene E. Weinstein, Chair, Committee
on Judiciary, New York State Assembly (June 21, 2006), available at
http://www.ftc.gov/os/2006/06/V060016NYUplFinal.pdf.
\65\ FTC Staff Comments to Terry G. Kilgore, Member, Commonwealth
of Virginia House of Delegates (Oct. 2, 2006), available at http://
www.ftc.gov/be/V060018.pdf.
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H. Hearings, Reports, Conferences, and Workshops
Hearings, conferences, and workshops organized by the FTC represent
a unique opportunity for the agency to develop policy and research
tools and help foster a deeper understanding of the complex issues
involved in the economic and legal analysis of antitrust law.
Beginning in June 2006, the FTC and the Department of Justice
Antitrust Division have held hearings to discuss the boundaries of
permissible and impermissible conduct under Section 2 of the Sherman
Act.\66\ The primary goal of the hearings is to examine whether and
when specific types of single-firm conduct are procompetitive or benign
and when they may harm competition. The Commission expects to complete
the hearings in the second quarter of 2007.
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\66\ FTC News Release, FTC and DOJ to Host Joint Public Hearings on
Single-Firm Conduct as Related to Competition (Nov. 28, 2005),
available at http://www.ftc.gov/opa/2005/11/unilateral.htm.
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The Commission and the Department of Justice are nearing completion
of a second report addressing issues that arise at the intersection of
antitrust and intellectual property law and policy. This second report
follows an initial report issued in 2003 following extensive hearings
on this important topic.
In August 2006, the FTC convened the Internet Access Task Force to
examine issues raised by converging technologies and regulatory
developments, and to inform the enforcement, advocacy, and education
initiatives of the Commission. Under the leadership of the Internet
Access Task Force, the FTC recently addressed two issues of interest to
policymakers.
First, in October 2006, the FTC released a staff report, Municipal
Provision of Wireless Internet. The report identifies the potential
benefits and risks to competition and consumers associated with
municipal provision of wireless Internet service.\67\ Second, in
February 2007, the FTC hosted a two-day workshop to explore the many
competition and consumer protection issues relating to broadband
Internet access, including so-called ``network neutrality.'' \68\ Among
the topics discussed at the workshop were the current and future state
of competition in the market for broadband Internet access; the
capabilities and incentives of broadband Internet service providers to
discriminate against, degrade, block, or charge fees for prioritized
delivery of unaffiliated content and applications; and the potential
effects of network neutrality regulation on innovation and competition
in the market for broadband Internet access. The FTC intends to release
a report of this workshop later this year.
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\67\ FTC Staff Report, Municipal Provision of Wireless Internet
(Sept. 2005) available at
http://www.ftc.gov/os/2006/10/V060021municipalprovwirelessinternet.pdf.
\68\ FTC Workshop, Broadband Competition Connectivity Policy (Feb
13-14, 2007), available at http://www.ftc.gov/opp/workshops/broadband/
index.html.
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In April 2007, the Commission will hold a three-day conference on
Energy Markets in the 21st Century: Competition Policy in
Perspective.\69\ The conference will bring together leading experts
from government, the energy industry, consumer groups, and the academic
community to participate on panels to examine such topics as: (1) the
relationship between market forces and government policy in energy
markets; (2) the dependence of the U.S. transportation sector on
petroleum; (3) the effects of the electric power industry restructuring
on competition and consumers; (4) what energy producers and consumers
may expect in the way of technological developments in the industry;
(5) the security of U.S. energy supplies; and (6) the government's role
in maintaining competition and protecting energy consumers.
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\69\ FTC Conference, Energy Markets in the 21st Century:
Competition Policy in Perspective (Apr. 10-12, 2007), available at
http://www.ftc.gov/bcp/workshops/energymarkets/index.html.
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I. Competition Education Initiatives
The FTC is committed to enhancing consumer confidence in the
marketplace through enforcement and education. This year, Commission
staff launched a multi-dimensional outreach campaign, targeting new and
bigger audiences, with the message that antitrust enforcement helps
consumers reap the benefits of competitive markets by keeping prices
low and services and innovation high, as well as by encouraging more
choices in the marketplace.\70\ As a part of this effort, the
Commission's website, www.ftc.gov, continues to grow in size and scope
with resources on competition policy in a variety of vital industries.
This year, the FTC launched new industry-specific websites for Oil and
Gas,\71\ Health Care,\72\ Real Estate,\73\ and Technology.\74\ These
minisites serve as a one-stop shop for consumers and businesses who
want to know what the FTC is doing to promote competition in these
important business sectors. In the past year, the FTC also issued
practical tips for consumers on buying and selling real estate, funeral
services, and generic drugs, as well as ``plain language'' columns on
oil and gas availability and pricing.
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\70\ Available at http://www.ftc.gov/ftc/antitrust.htm.
\71\ Available at http://www.ftc.gov/ftc/oilgas/index.html.
\72\ Available at http://www.ftc.gov/bc/healthcare/index.htm.
\73\ Available at http://www.ftc.gov/bc/realestate/index.htm.
\74\ Available at http://www.ftc.gov/bc/tech/index.htm.
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IV. International
The FTC's Office of International Affairs (OIA), created in January
2007, brings together the international functions formerly handled in
the Bureaus of Competition and Consumer Protection and the Office of
General Counsel. OIA will bring increased prominence to the FTC's
international work, and will enhance the FTC's ability to coordinate
its enforcement efforts effectively to promote convergence toward best
practices with our counterpart agencies around the world.
The FTC has built a strong network of cooperative relationships
with its counterparts abroad, and plays a leading role in key
multilateral fora. The growth of communication media and electronic
commerce presents new challenges to law enforcement--fraud and
deception now are without borders. We work with other nations to
protect American consumers who can be harmed by anticompetitive conduct
and frauds perpetrated outside the United States. The FTC also actively
assists new democracies moving toward market-based economies with
developing competition and consumer protection laws and policies.
A. Consumer Protection
Globalization and rapid changes in technology have accelerated the
pace of new consumer protection challenges, such as spam, spyware,
telemarketing fraud, data security, and privacy, that cross national
borders and raise both enforcement and policy issues. The Internet and
modern communications devices, such as Voice-over-Internet Protocol,
have provided tremendous benefits to consumers but also have aided
telemarketing fraud and raised fresh privacy concerns. The FTC has a
comprehensive international consumer protection program of enforcement,
networking, and policy initiatives to address these new challenges.
In the coming year, the FTC will implement the U.S. SAFE WEB Act of
2006, which was signed into law last December. Thanks to the action of
the Commerce Committee and of Congress, the U.S. SAFE WEB Act provides
the FTC with updated tools for the 21st century. It allows the FTC to
cooperate more fully with foreign law enforcement authorities in the
area of cross-border fraud and other practices, such as fraudulent
spam, spyware, misleading health and safety advertising, privacy and
security breaches, and telemarketing fraud, that are global and that
harm consumers. As the FTC begins to take advantage of these new tools,
cooperation with foreign law enforcement agencies regarding
information-sharing and investigative assistance will be greatly
improved, diminishing fundamental roadblocks to effective cooperation.
The FTC works directly with consumer protection and other law
enforcement officials in foreign countries to achieve its goals. In
particular, in response to the amount of fraud across the U.S.-Canadian
border, the FTC continues to build its relationship with its Canadian
counterparts. We have worked hard to expand partnerships with Canadian
regional entities to fight telemarketing fraud by Canadians targeting
U.S. and Canadian consumers.
Increased globalization also requires the FTC to participate
actively in international policy efforts to develop flexible, market-
oriented standards, backed by aggressive enforcement, to address
emerging consumer protection issues. In 2006, for example, the FTC,
working with its foreign partners through the Organization for Economic
Cooperation and Development (OECD) and through the London Action Plan,
the international spam enforcement network, called for increased cross-
border law enforcement cooperation and increased public/private sector
cooperation to combat spam. The FTC will also continue to focus the
international community on the importance of enforcement as a key
component of privacy protection in the OECD, the Asia Pacific Economic
Cooperation (APEC), and other multilateral organizations. The FTC also
continues to participate actively in APEC's Electronic Commerce
Steering Group and several OECD committees, including the Committee on
Consumer Policy, and in the International Consumer Protection
Enforcement Network (ICPEN). The FTC supported the ICPEN's operations
this year by hosting its Secretariat.
B. Competition
The FTC's cooperation with competition agencies around the world is
a vital component of our enforcement and policy programs, facilitating
our ability to collaborate on cross-border cases, and promoting
convergence toward sound, consumer welfare-based competition policies.
FTC staff routinely coordinate with colleagues in foreign agencies
on mergers and anticompetitive conduct cases of mutual concern. The FTC
promotes policy convergence through formal and informal working
arrangements with other agencies, many of which seek the FTC's views in
connection with developing new policy initiatives. For example, during
the past year, the FTC consulted with the European Commission regarding
its review of policies on abuse of dominance and remedies; with the
Canadian Competition Bureau on merger remedies and health care issues;
with the Japan Fair Trade Commission on abuse of dominance and
revisions to its merger guidelines; and with the Chinese authorities on
the drafting of a new antitrust law. We will also be consulting with
the European Commission on its new draft guidelines for the review of
non-horizontal mergers. The FTC participated in consultations in
Washington and in foreign capitals with top officials of, among others,
the European Commission, the Japan and Korea Fair Trade Commissions,
and the Mexican Federal Competition Commission. Chairman Majoras became
the first FTC Chairman to visit China, establishing important
relationships with officials involved in developing the first
comprehensive competition law in China, and underscoring the importance
of the FTC's and Antitrust Division's work to provide input into the
drafting process. Several other Commissioners have also been to China
to work on consumer protection and competition issues.
The FTC is an active participant in key multilateral fora that
provide important opportunities for competition agencies to enhance
mutual understanding in order to promote cooperation and convergence,
including the International Competition Network (ICN), the OECD, the
United Nations Conference on Trade and Development (UNCTAD), and APEC.
For example, over the past year, the FTC has served on the ICN's
Steering Group, co-chaired its Unilateral Conduct working group and
related objectives subgroup, chaired its Merger Notification and
Procedures subgroup, and played a lead role in its working group on
Competition Policy Implementation. In addition, the FTC also
participates in U.S. delegations that negotiate competition chapters of
proposed free trade agreements, including in connection with
negotiations with Korea, Thailand, and Malaysia during the last year.
All of this work ultimately benefits American consumers.
C. International Technical Assistance
The FTC assists developing nations as they move toward market-based
economies with developing and implementing competition and consumer
protection laws and policies. These activities, funded mainly by the
United States Agency for International Development and conducted in
cooperation with the Department of Justice's Antitrust Division, are an
important part of the FTC's efforts to promote sound competition and
consumer protection policies around the world. In 2006, the FTC sent 34
different staff experts on 30 technical assistance missions to 17
countries, including the ten-nation ASEAN community, India, Russia,
Azerbaijan, South Africa, Central America, and Egypt. We also conducted
missions in Jordan and Ethiopia, and concluded a highly successful
program in Mexico.
V. Needed Resources for Fiscal Year 2008
To accomplish the agency's mission in FY 2008, the FTC requests
$240,239,000 and 1,084 FTE. This level of resources is needed to allow
the FTC to continue to build on its past record of accomplishments in
enhancing consumer protection and protecting competition in the United
States and, increasingly, abroad. The FY 2008 request represents an
increase of $17,239,000 over the FTC's FY2007 budget request before
Congress. The increase includes:
$8,839,000 in mandatory salary and contract expenses;
$1,400,000 for 10 new FTE for the Consumer Protection
Mission's Privacy and Identity Protection Program;
$4,500,000 for the Consumer Protection Mission's outreach
and enforcement efforts including:
--$2,000,000 for the ``Media literacy'' initiative;
--$1,300,000 for Do Not Call registration renewals and outreach;
--$100,000 to increase enforcement efforts to combat spyware; and
--$100,000 to support our Congressionally-endorsed efforts to
promote industry self-regulation in the marketing of
entertainment and food to children;
$1,600,000 for electronic litigation support and E-Gov and
information technology initiatives; and
$900,000 for facility reconditioning, equipment replacement,
records management, and human capital and support needs.
The FTC's FY 2008 budget request is comprised of three funding
sources. The majority of the funding will be derived from offsetting
collections: HSR filing fees and Do Not Call fees will provide the
agency with an estimated $163,600,000 in FY 2008. The FTC anticipates
that the remaining funding needed for the agency's operations will be
funded through a direct appropriation of $76,639,000 from the General
Fund in the U.S. Treasury.
VI. Conclusion
Mr. Chairman, Mr. Vice Chairman, and members of the Committee, we
want to ensure that the quality of our work is maintained despite the
breadth of our mission and the challenges that we have described
involving technological change and an evolving global economy. In the
last several years, however, Congress has passed a variety of
significant new laws that the FTC is charged, at least in part, with
implementing and enforcing, such as the CAN-SPAM Act, the Fair and
Accurate Credit Transactions Act (FACTA), the Children's Online Privacy
Protection Act (COPPA), the Gramm-Leach-Bliley Act, and the U.S. SAFE
WEB Act. In light of these new laws and challenges, we will continue to
assess our personnel and resource needs to ensure that the agency
vigorously protects American consumers and promotes a vibrant
marketplace.
The FTC appreciates the strong support it has received from
Congress to serve its critical mission of protecting consumers and
maintaining competition. I would be happy to answer any questions that
you and other Members may have about the FTC's programs and budget
request.
Senator Pryor. Thank you.
The Honorable Pamela Jones Harbour?
STATEMENT OF HON. PAMELA JONES HARBOUR, COMMISSIONER, FTC
Ms. Harbour. Thank you, Chairman Pryor, Vice Chairman
Stevens.
I am pleased to appear before you today to discuss the
Commission's work in two rapidly developing areas: cross-border
data protection and international law enforcement cooperation.
In particular, I will focus on our work with the Asia Pacific
Economic Cooperation, or APEC, to develop rules to govern the
transfer of personal data across borders. I will also focus on
the Commission's newly expanded authority granted by Congress
in the U.S. SAFE WEB Act.
As you know, APEC consists of 31 economies, or countries,
on the Pacific Rim, including the United States, all with
different domestic legal frameworks. U.S. consumers are doing
more business with foreign companies. And U.S. companies also
are doing more business on an international scale. As a result,
employees, data, products, and customers are scattered across
multiple countries and, therefore, are subject to multiple
privacy regulations.
APEC's data privacy subgroup has undertaken a project to
create a flexible framework that enables cross-border data
flows while accommodating the different approaches of all of
its member economies around the globe. Because of the
Commission's expertise in protecting consumer privacy
domestically, we have been involved from the beginning in
formulating the APEC privacy framework, which was endorsed by
the member economies and by the United States in 2004. Since
that time, the Commission has worked with the Department of
Commerce to develop an implementation plan for cross-border
privacy rules that is flexible enough to incorporate U.S. and
other approaches to privacy, and to provide assurances that
consumer data will be protected across borders.
There are many reasons why the Commission supports the
development of cross-border privacy rules:
First, protecting consumer privacy is vital. Cross-border
privacy rules will provide more consistent and reliable
protections for consumers, and will assure other APEC economies
that data transferred into the United States will benefit from
appropriate privacy protections.
Second, cross-border data flows, through outsourcing, for
example, convey benefits to consumers such as cost-savings and
around-the-clock customer service.
And, third, cross-border or global privacy rules offer a
way to harmonize different privacy regimes in an international
setting. If implemented effectively, cross-border privacy rules
can provide more consistent and reliable protections for
consumers, as well as clear standards for businesses across the
APEC region.
In short, cross-border privacy rules have tremendous
potential. The challenge ahead is to develop workable rules
that accommodate different domestic approaches around the
globe. We are confident that the more support the U.S. gives
this process, the more U.S. businesses and consumers will
benefit in the long term.
It is against this backdrop that I will turn briefly to the
U.S. SAFE WEB Act. We are tremendously gratified that Congress
expanded the Commission's ability to cooperate with our foreign
counterparts. SAFE WEB, which as you know, was signed into law
December of 2006, deposits updated information-sharing tools
into the Commission's law enforcement arsenal, and these tools
will help us fight a wider range of practices that can harm
consumers.
Now, although Section 5 of the FTC Act grants the
Commission broad authority over unfair or deceptive acts or
practices, the Act's cooperation provisions, drafted back in
1938, have become somewhat outdated in the face of 21st century
global trade and technological developments. When we began
tackling cross-border electronic fraud, such as spam, spyware,
and phishing, these limits on our ability to cooperate
internationally became an impediment to our law enforcement.
And, unfortunately, because we could not share information with
our foreign counterparts, high-tech con artists could strike
quickly, victimize thousands of consumers, and then seemingly
disappear without a trace. SAFE WEB updates our cross-border
authority in many ways. We now can share compelled or
confidential information with our foreign counterparts, and
gather new information for them, as well.
We feel a great sense of accomplishment and appreciation
that Congress has passed this law, but we realize that our work
is just beginning. We now must take advantage of our new
enforcement powers. And, to that end, we have convened a
steering group to implement SAFE WEB, and we have begun to use
these new tools in our investigations.
In conclusion, I appreciate the opportunity to present
remarks on these increasingly important global issues, and I
look forward to answering your questions.
Thank you.
Senator Pryor. Thank you.
The Honorable Jonathan Leibowitz?
STATEMENT OF HON. JONATHAN D. LEIBOWITZ, COMMISSIONER, FTC
Mr. Leibowitz. Thank you, Chairman Pryor, Vice Chairman
Stevens. I am also pleased to appear before you today to talk
about some of the technology issues that the Commission is
currently examining.
Let me briefly highlight just three: spyware, spam, and
telephone pretexting. All are Internet-related in one way or
another.
First, spyware. The Commission has brought 11 spyware and
adware cases in the past 2 years. Our initial cases involved
hardcore spyware that hijacked Internet browsers, made CD-rom
trays open and close and open and close, captured consumers'
personal information, and caused computers to slow down or even
crash. Recently we've begun to attack nuisance adware,
disruptive software placed on people's computers without their
notice or consent. These actions reaffirm several core
principles: that consumers' computers belong to them, not to
the software distributors; that buried disclosures do not
suffice; and that the consumer must be able to uninstall
unwanted adware.
Our recent settlements with Zango and DirectRevenue
illustrate these principles vividly. The two companies offered
consumers free content in software without, we allege,
adequately disclosing that downloading these items would result
in the installation of adware. That adware generated an eye-
popping number of pop-up ads--6.9 billion pop-up ads by Zango
alone. In both these cases, we obtained strong injunctive
relief. The companies agreed to give clear notice and obtain
express consent from consumers prior to installation. They
agreed to provide a reasonable means to uninstall the software
and to monitor their affiliates. The two companies will also
forfeit a total of $4.5 million in ill-gotten gains. The
Commission will continue to make spyware a priority. And we're
happy to work with you--and, Senator Stevens, we appreciate you
mentioning this spyware legislation--and this Committee on any
measure you move forward with.
Second, spam. The Commission has brought almost 90 cases
targeting spam in the last 10 years, many of those filed after
the CAN-SPAM Act gave us the ability to sue those who assist or
facilitate spam distribution and the authority to seek civil
penalties--both tremendously helpful as we fight the spam
epidemic.
As you know, spam goes beyond mere annoyance; it's being
used as a vehicle for pernicious conduct, such as phishing
scams, viruses, and spyware. This summer, the Commission will
host a workshop to examine how spam has evolved and what
stakeholders can do to address it. Filtering technology is a
big part of the solution--so is the work of ISPs. But rest
assured we will continue to bring forward spam cases.
More than half of all spam and spyware, by the way, is
transmitted into the United States from other countries. And
so, as the Chairman and Commissioner Harbour mentioned, your
Committee's leadership and your staff's hard work in passing
the U.S. SAFE WEB Act--I believe it passed at 4:22 in the
morning, the final measure moved before the last Senate
adjourned sine die--gives us important new authority to share
confidential information with our law enforcement counterparts
so that we can work more effectively to help Americans who are
harmed from abroad.
The third issue, telephone pretexting. In May 2006, well
before the Hewlett-Packard story became a national scandal, the
Commission filed five complaints against web-based operations
that obtained and sold consumers' confidential telephone
records to third parties in violation of the FTC Act. To date,
the Commission has resolved two cases with consent orders that
impose strong remedies, including bans on obtaining phone
records, prohibitions against pretexting to obtain other
personal information, and disgorgement of profits. Last year, a
law making pretexting a criminal offense was enacted but, as
you know Senator Pryor, there is still a need for legislation
that would close the gap and give the Commission authority to
seek civil penalties against pretexters.
Finally, the sad truth is that Internet malefactors
understand and exploit technology. To keep pace with them, we
need to continually educate ourselves. Last November, the FTC
convened hearings on ``Protecting Consumers in the Next Tech-
Ade.'' We heard from more than 100 technology leaders about
trends that may not be here today, but will affect all of our
lives tomorrow. Among other topics, panelists addressed viral
marketing, social networking, and user-generated content--which
holds tremendous promise for consumers but raises serious
perils for parents of young children. These hearings will help
us anticipate ways in which new technologies can be misused and
develop new ways to use technology to benefit consumers.
To do any of this, of course, we need to work with our
oversight Committee. And so I thank you again for the
opportunity to testify. I'm happy to answer questions after my
colleagues have finished.
Senator Pryor. Thank you.
Next, the Honorable William Kovacic.
STATEMENT OF HON. WILLIAM E. KOVACIC,
COMMISSIONER, FTC
Mr. Kovacic. Chairman Pryor, Vice Chairman Stevens, thank
you for the opportunity to review the Commission's recent
competition policy initiatives concerning the energy sector.
I will focus on activities of the past 12 months, and will
discuss four elements of our competition program for energy:
law enforcement, research, cooperation with other government
agencies, and public consultation.
Merger control is the core of recent FTC law enforcement
concerning the energy sector. Four matters stand out:
In March, the Commission issued an administrative complaint
challenging the proposed purchase by Equitable Resources, Inc.
of a subsidiary of Dominion Resources. The FTC alleged that the
proposed transaction would create a monopoly of natural gas
distribution services in Pittsburgh and in surrounding parts of
Allegheny County, Pennsylvania.
Two months ago, the Commission opposed the terms of a $22
billion deal by which Kinder Morgan would have been taken
private by its management and a group of investment firms. The
Commission obtained adjustments to protect competition in the
transportation and temporary storage of gasoline and other
petroleum products in the southeastern United States.
Last November, Chevron and USA Petroleum abandoned a
transaction by which Chevron would have bought most of USA
Petroleum's retail gasoline stations in California. The FTC had
been conducting an investigation of the proposed deal, and USA
Petroleum's president said that resistance from the FTC
ultimately induced the parties to abandon the transaction.
Last October, the FTC issued a consent order that compelled
the divestiture of salt-dome storage capacity on the Texas Gulf
Coast to resolve competitive issues arising from EPCO's
acquisition of the natural-gas liquid storage business of
TEPPCO partners.
These and other FTC law enforcement initiatives draw
heavily upon the Commission's investment of resources to
conduct research and perform studies involving the energy
sector. These investments are the equivalent of research and
development in public administration. They guide the FTC's
pursuit of cases, and they inform our use of non-litigation
tools that Congress has entrusted to the Commission.
In May 2006, the Commission presented to Congress its
report on the investigation of gasoline price manipulation and
post-Katrina gasoline price increases. The report examined
whether energy firms had manipulated gasoline prices, and it
described how energy markets responded to the destruction
caused by Hurricanes Katrina and Rita.
In December 2006, the Commission also issued a report on
the current state of ethanol production in the United States.
As you know, the FTC is not the only public body with
competition policy responsibilities that affect the performance
of the energy sector. Improved cooperation with other public
authorities can help each institution spend its competition
resources more effectively. I believe the creation of more
effective public agency networks is a key ingredient of future
policy success in energy and other parts of the economy.
To this end, last September the FTC and representatives of
various state attorneys general held a 1-day workshop to
discuss competition and consumer protection issues that
involved gasoline pricing. At the end of that day, the workshop
participants, I think, unanimously regarded the event as a
valuable step toward improving Federal and state cooperation to
address developments of common concerns, such as mergers.
The fourth and final ingredient of the FTC's energy program
is public consultation in the form of public hearings,
seminars, or workshops. These consultations enable the FTC not
only to give those outside our walls the benefit of our current
thinking, but also permit the FTC to gain deeper insight into
developments affecting the industry and consumers, to identify
major emerging issues, and to help build a consensus about
appropriate policy responses.
Earlier this morning, a short distance from this building,
the FTC convened the first of 3 days of hearings on ``Energy
Markets in the 21st Century: Competition, Policy, and
Perspective.'' These hearings are examining the role of old and
new fuel cycles, demand-side issues, such as the operation of
the transportation sector, lessons from past regulatory
strategies, and the vulnerability of the United States to
supply and demand shocks. The proceedings feature an
extraordinary group of participants, drawn from consumer
groups, government agencies, energy companies, think tanks, and
universities. I believe the hearings have great promise to
improve our understanding of how the FTC can best apply its
competition policy instruments and, more ambitiously, to
suggest the paths that our Nation's energy policy should take
in the future.
I am pleased to address your comments and questions.
Senator Pryor. Thank you.
And the Honorable J. Thomas Rosch.
STATEMENT OF HON. J. THOMAS ROSCH, COMMISSIONER, FTC
Mr. Rosch. Thank you, Chairman Pryor, Vice Chairman
Stevens----
Senator Pryor. Microphone, please.
Mr. Rosch. Now going? OK, great, thank you--and Senator
Klobuchar, thank you very much for the opportunity to appear
before you this morning. I really appreciate it. And I
particularly appreciate, Chairman Pryor, your getting my name
right. I can't believe it. It's the first time it has ever
happened.
Today, I'd like to talk briefly about the Commission's
activity in the healthcare area. One of the most important
priorities of the Commission is, of course, the pursuit of
those who make deceptive healthcare claims.
Over the past few years, the agency has brought several
successful enforcement actions against marketers that
deceptively advertise health-related products that they claimed
could, among other things, cause weight loss, decrease pain,
cure cancer, and increase height in adults and children. For
example, marketers for weight-loss products recently settled
charges that they'd made false or unsubstantiated claims; and
in settling, they surrendered cash and other assets
collectively worth at least $25 million, and agreed to limit
their future advertising claims.
In addition to law enforcement action, the Commission works
hard to educate the media and consumers about fraudulent
claims. For example, since 2003 we've promoted a Red Flags
initiative, which asks for the media's help in preventing the
dissemination of facially deceptive advertising claims for
weight-loss products. As a complement to this initiative, the
agency has also created extensive consumer education campaigns
to alert consumers about deceptive claims, including teaser
websites and online games.
Competition also plays an important role in our healthcare
agenda. Our written statement describes some of our efforts to
ensure that healthy competition exists in the markets in which
healthcare providers do business, including our challenges to
price fixing by physician providers and to hospital and drug
company mergers. But I'd like to take a minute to describe our
efforts to combat what we consider to be illegal reverse
payments made by branded drugmakers to generic drugmakers in
patent litigation settlements between branded and generic firms
instituted under the Hatch-Waxman Act. As you know, the
Eleventh Circuit reversed our decision in the Schering case
that a substantial reverse payment made seemingly as a quid pro
quo for the generic to abandon its effort to enter the market
before expiration of the branded's patent was illegal. We held,
in that case, that the settlement agreement was tantamount to a
market division agreement between a competitor--namely, the
branded--and a potential competitor--namely, the generic--which
the Supreme Court has held is per se illegal.
The Eleventh Circuit held we were wrong in Schering, and
that a settlement within the scope of the patent--in other
words, a settlement that wouldn't affect the generic's
unpatented products or keep the generic from competing beyond
the life of the patent--is legal under the patent laws. The
Supreme Court declined to review that decision, at the
suggestion of the Justice Department, which advised that the
issue was not ripe for Supreme Court review.
In the Tamoxifen case, which involved facts similar to
Schering, a divided Second Circuit essentially followed the
Eleventh Circuit. We think Tamoxifen and Schering are bad law.
More specifically, we continue to believe that most, if not
all, reverse payments are illegal if they're made at the same
time a generic agrees not to compete as soon as it could if it
won its challenge to the branded's patent.
Schering could be reversed in one of two ways:
First, the Supreme Court has just asked for the Justice
Department's recommendation whether the Court should review the
decision in Tamoxifen. We're hopeful that the Court will review
and reverse Tamoxifen, and will do so in a fashion that will
discredit Schering.
Second, the Judiciary Committee has reported a bipartisan
bill that would generally prohibit reverse payments in the
instances I described. Commissioner Leibowitz testified on
behalf of the Commission in connection with that bill.
Whether the Supreme Court or the Congress overturns
Schering, we firmly believe that one or the other should do so,
because agreements like those at issue in Schering can severely
hobble competition between providers of drugs, and thereby
impose a very significant tax on the Federal and state
governments, as well as on consumers, all of which spend
billions of dollars each year buying drugs and stand to benefit
from competition.
I look forward to answering any questions you may have.
Thank you.
Senator Pryor. Thank you.
Now--thank all the Commissioners for your testimony and
your comments today--now, we made you go in a certain order
when you testified here a moment ago, but we're not going to go
in any order up here.
[Laughter.]
Senator Pryor. And all I can say to that is, welcome to the
U.S. Senate.
[Laughter.]
Senator Pryor. No, actually, Vice Chairman Stevens has to
slip out, as well as Senator Klobuchar, so we'll acknowledge
Vice Chairman Stevens first, and then Senator Klobuchar.
Senator Stevens. Thank you very much, Mr. Chairman. I'm
concerned about, Mr. Rosch----
Mr. Rosch. That's fine. Yes, Senator.
Senator Stevens.--and his comments concerning the
litigation that followed that reversed payment concept. On a
generic basis, how often are your decisions at FTC taken to
court?
Mr. Rosch. That is the only time that a Hatch-Waxman Act
case has been brought by the Commission.
Senator Stevens. I'm sorry to interrupt you, but as a
Commission, how much time do you spend in litigation concerning
the appeals to the court from your decisions? That's what I'm
trying to get to.
Mr. Rosch. Oh, in any decisions or just in the drug area?
Senator Stevens. Yes, in any decisions. I address to the
Chairman first, if I may.
Ms. Majoras. What I would say is, probably once or twice a
year from our own decisions, and then we have a very active
amicus program in which private antitrust lawsuits that are in
the courts of appeals are cases in which we often are asked to
weigh in. And, of course, we weigh in, in a lot of Supreme
Court cases.
Senator Stevens. So, litigation, then, is not a substantial
delay in the enforcement of your decisions?
Ms. Majoras. Not typically in the enforcement of our
administrative case decisions. We are, of course, in court as
prosecutors, particularly on the consumer protection side,
quite frequently. For example, we filed----
Senator Stevens. But you initiate that action, right?
Ms. Majoras. We initiate that action in Federal court,
correct.
Senator Stevens. Well, that's surprising, really, because
there's more and more litigation that's delaying administrative
decisions on it, and that's a very interesting statistic.
Going back to you, Mr. Rosch, you seem to suggest that if
the Supreme Court doesn't take this case, then you would
suggest that Congress review, and the House does have a bill.
Is that right?
Mr. Rosch. They--actually, the Senate Judiciary Committee
has voted out a bipartisan bill.
It's not before, I think, the Senate.
Mr. Leibowitz. Senator Stevens, if I could add, there's a
bill introduced by Senator Kohl, Senator Grassley, Senator
Leahy, and Senator Schumer, that would take a bright-line
test--it would take a bright-line approach to prohibiting these
deals. It came out of the Judiciary Committee by unanimous
consent. Congressman Waxman introduced the bill that's in the
House Energy and Commerce Committee. And we just feel like
these pay-for-delay settlements in which a brand pays a generic
to stay out of the market are very, very problematic. We
believe they violate the antitrust laws. And whether we resolve
this by virtue of the Supreme Court or by creating a split in
the Circuits if the Supreme Court doesn't take cert on
Tamoxifen, or whether Congress passes a law to overturn these
deals, we just want to solve the problem, because it means
consumers will get lower-priced drugs sooner; they won't have
to pay for the higher-priced brand, they'll be able to pay for
the lower-priced generic; and it means that the Federal
Government--which buys, I think, after Medicare Part D,
probably 25 percent of all pharmaceutical purchases--will be
able to save money and reduce its budget deficit.
Senator Stevens. My last question would be to any of you
who wish to comment on it. What's the relationship now between
the FTC and the FCC? In past years, it looked like there was a
collision course in some of these areas. Have you worked out
some comity with the FCC as particular commission?
Ms. Majoras. We do have a very good relationship with the
FCC, I'm happy to report. There are several areas of overlap
where we work closely. So, for example, implementation of the
Do Not Call Registry. Telephone pretexting is an area where I
think recently we've divided the work quite effectively; the
FCC focused on the actual communications carriers themselves
and their release of information that should not be released,
and our focusing on the actual pretexters and those who are
selling the information on the Internet. So, that's another
area. And we have a group of individuals at each agency who
communicate with one another in particular as a conduit.
I think the source of, perhaps, tension that you are
recognizing, Senator Stevens, is, there are some questions that
have been raised about the common carrier exemption that has,
in our history, prevented the FTC from enforcing in the area of
common carriers. Now, with the way industries are changing, we
find our--and converging--we find ourselves bumping up against
that exemption more and more in areas in which our public--and
Congress, I think--expects us to enforce our laws; and yet, we
have some companies saying, ``But I'm partially a common
carrier.'' So, as the economy's changing, that's an issue, I
think, to be addressed.
Senator Stevens. Thank you very much, Mr. Chairman. One of
my interests, as I think many people know, is the question of,
How do we protect minors, in terms of access to objectionable
content? I've asked you for some comments, but I do hope that
you will all monitor that problem. I think, increasingly, the
predator concept on the Internet is a particularly sensitive
issue, as far as minors are concerned.
Thank you very much, Mr. Chairman.
Senator Pryor. Thank you.
And Senator Stevens alluded to--we're going to leave the
record open for 2 weeks for Senators to submit questions, and
we'd appreciate a timely response.
Senator Pryor. Senator Klobuchar?
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Thank you, Mr. Chairman. And thank you
for allowing me to go now.
I thank all of you for coming, and I hope, at some point,
we'll talk in more detail about the work you're doing with
identity theft. As a former prosecutor, I actually referred
people to your website many times and gave out your materials.
In Minnesota, I had the notoriety of getting the legislature to
pass a law banning phishing in Minnesota. That would be
computer phishing.
[Laughter.]
Senator Klobuchar. And I really do think that we need to
talk more about how we work with local prosecutor's offices on
what are essentially international/national problems, and I
think it would be very fruitful if we could work on this
together.
But I wanted to focus more today, in my questions, on the
gasoline price-gouging issues. And I know that, you know, gas
went up this summer. There was a lot of concern in our state
about gas price-gouging. I know the FTC looked at this, and
issued a report. But my question is really a broader one
because I heard from some experts in the field that the FTC's
current authority is insufficient to protect consumers, and in
the rest of the country--in my State and the rest of the
country--from gasoline price-gouging, because many of these
practices, I have heard, are beyond the scope of the FTC's
authority. And I wondered if you could comment on that.
Ms. Majoras. Certainly, thank you, Senator.
It is true that we enforce the antitrust laws and we
enforce laws against deceptive or unfair practices. Those
terms, ``deceptive'' and ``unfair,'' have been defined over the
years by the Commission and the courts so that they're not, you
know, completely overly broad. And we do not have direct
authority to challenge price gouging unless it's done in the
context, for example, of an anticompetitive, you know,
conspiratorial scheme, for example.
Senator Klobuchar. Yes----
Ms. Harbour. Yes----
Senator Klobuchar.--Commissioner.
Ms. Harbour.--I'd like to add something on that issue. At
the Federal level, the price-gouging debate and the newly
introduced legislation, in my opinion, only scratches the
surface of our energy policy in this country. I think the
United States clearly has some energy problems. We're faced
with major challenges in sustaining, in my view, viable, long-
term balances between supply and demand. I think there are some
engineering problems, there are some environmental problems,
and there are some lifestyle issues. But I think most of these
problems are not only antitrust problems, and, even assuming a
vigorous enforcement of the antitrust laws, I don't think that
antitrust can fix all of these problems. But I will say that if
price-gouging statutes or legislation were passed, I would
enforce those laws.
Mr. Leibowitz. Yes, I think Senator Stevens introduced a
bill this Congress that we've been looking at. Senator Cantwell
introduced a bill last Congress. I believe she's going to
reintroduce it. And, of course, although there's a division
among us as to how supportive or--or how supportive we are as
to price-gouging statutes, we will, of course, enforce any law
that you enact.
Senator Klobuchar. That's good to know.
[Laughter.]
Senator Klobuchar. The second thing I wanted to ask was
about the GAO report that found that mergers increased market
concentration in the oil and gas industries approved by the FTC
led to increased prices for American consumers. Do you all see
the effects of these mergers and these consolidations? And, you
know, where is the GAO wrong if you don't agree with their
opinion in this report?
Ms. Majoras. Thank you, Senator. We've looked very
extensively at the GAO report, and we worked very closely with
DOJ--with GAO to dissect it, both their methodology and their
results. We do think there are some problems with the study.
It's--I mean, I give GAO credit. I mean, it's very difficult to
determine the effects of mergers, especially--there were
several large mergers, of course, in the energy industry during
the 1990s. The FTC permitted many of the mergers to go through.
But only after seeking significant, and getting significant,
divestitures of the areas of competitive overlap.
In terms of--and so, what the GAO found was roughly,
perhaps, a 1-cent to 5-cent increase, which I don't downplay.
One cent to five cents of an increase can be a significant one
for consumers. But there were problems that our economists
found with the methodologies that GAO used, and with, then,
taking those results and saying, ``Therefore, all of these
mergers were anticompetitive and are causing prices to go up.''
For example, if you look at the upstream market for oil, those
markets are really unconcentrated. I mean, still every--any
individual participant only has a very small market share.
Moving forward through the chain to refining, those markets,
contrary to popular belief, if you actually look at the facts,
are still unconcentrated or only moderately concentrated. So,
it's--and for a variety of other reasons--I don't want to take
up all your time--they're--we had some issues with that report,
that we've discussed with GAO. But, rather than just say,
``That's it,'' we've been working with economists to try to
develop new methodologies so that we can better measure the
impacts of mergers, going forward.
Senator Klobuchar. I know two of your fellow commissioners
wanted to answer as well. OK.
Mr. Kovacic. Senator, if I could add one thing that I like
a great deal about what the GAO attempted to do, and one thing
about which I disagree. Developing a custom or a habit, both
within our agency or by knowledgeable outsiders, of doing
assessments of the effects of what we do, is a highly desirable
element of what public agencies should do. My own belief,
intensely, is that government agencies should devote more
resources than they do now to going back and measuring the
effects of interventions or decisions not to act. The GAO's
contribution to that process is a highly desirable one. It's
the GAO's execution of the effort about which I have questions,
because the results in the admittedly difficult arena of this
type of analysis are extraordinarily sensitive to the technique
that one uses. I see it as being the equivalent, in many ways,
of the GAO having jumped about 95 percent of the way across the
Grand Canyon, which is an enormously impressive accomplishment,
but ultimately quite disappointing.
[Laughter.]
Senator Klobuchar. But at least, Commissioner, they did try
to make the jump. I mean, they----
Mr. Kovacic. I----
Senator Klobuchar.--they start--I mean, my concern is
whether the FTC is continuing to study this, because----
Mr. Kovacic.--Indeed, we are, Senator. As a way of
addressing these differences, Chairman Majoras and my current
colleagues convened a conference, in January 2005, in which we
presented the results of our studies side by side with the GAO
and engaged in a discussion, the results of which are now in
the public domain, about analytical techniques. So, I think it
is incumbent on us not simply to say, ``You didn't jump far
enough,'' but to improve the jumping technique to get across.
Mr. Leibowitz. And if I could try to climb us out of the
abyss of the----
Senator Klobuchar. Oh, that was a nice segue.
Mr. Leibowitz.--Grand Canyon a little bit----
[Laughter.]
Mr. Leibowitz.--the GAO looked at deals that took place, I
think, mostly prior to 2003. We're sort of a commission of----
Mr. Kovacic. All of the deals studied were before 2001.
Mr. Leibowitz. All of them were before 2001. We are sort of
a commission of newbies here. I think the--I think we arrived
in 2003, 2004, and--into 2005. And so, since we've been at the
Commission, we've sued to block a deal in Hawaii involving
Aloha Petroleum--where the number of marketers was going from
five to four. We were successful there. We've been credited, as
Commissioner Kovacic mentioned, with having Chevron pull out
from a purchase of USA Petroleum in California. So, I like to
think--and I think my fellow commissioners believe--that we're
working aggressively on behalf of consumers in this area.
Mr. Rosch. Yes, if I could just add, on that point,
Senator, I know this is kind of a hot-button issue, so I do
feel obliged to speak to it. I think that Chairman Majoras is
absolutely right that even at the refinery level it may be the
case that, in most areas of the United States, the markets are
relatively unconcentrated. However, there is no question at all
that further mergers will further concentrate these markets.
And so, I think I can safely say that any further mergers of
companies that have refinery properties will undergo very
careful scrutiny by this Commission.
Senator Klobuchar. Thank you very much. I appreciate it.
Senator Pryor. Thank you.
Let me dive in here on a different matter, sort of a more
general matter, and that is, I know it's difficult sometimes
for a Federal commission or Federal agency to come to Congress
and say, ``We don't have enough resources to do our job.'' And
what I would encourage you to do is to talk to us, whether it's
publicly or privately, and, if we could get you some more
resources, tell us what you would do with those resources. And
if you need more statutory authority--I think, Mr. Leibowitz, a
few moments ago, you mentioned more statutory authority in a
couple of areas, and others did, too. Tell us what you need to
do your job better. And, again, it doesn't have to be in a big
public forum like this, but I would love to have that dialogue
with the Commission so that if we find any additional money in
the budget, which is going to be hard to do, but if we do, and
we find more resources, and if we can pass some law to help, we
want to try to do that.
Let me start with Mr. Leibowitz, if I can. You talk about
spyware and adware; especially--well, both of those, but
especially with spyware, why should spyware be legal at all?
Why should it ever be legal? What's the good public-policy
reason to allow spyware to even exist?
Mr. Leibowitz. Well, we don't--I think we don't believe
spyware should be legal. If you are putting things on
consumers' computers without their notice and consent, that
very well could be a deceptive or unfair act in violation of
Section 5. And so we're going to aggressively go after spyware
and nuisance adware, and I think we have, in the last--in the
last couple of years.
Senator Pryor. I'm----
Mr. Leibowitz. And the SAFE WEB Act that you enacted at the
end of last year will be very helpful to us in going after
cross-border fraud and spyware.
Senator Pryor.--I'm glad to hear that, and I'm glad you're
doing that because it's a real source of frustration for, I
know, my constituents, my family, my office and everybody else.
But basically for anybody that has a computer, it's a real
source of frustration. So, I'm glad to hear you say that.
Here's the other question on spyware and adware, are your
remedies sufficient--you talked about a huge case--I don't
recall the name of the case, but you talked about a huge case,
and it seemed like a fairly hefty fine, but the fine in
relation to how much they were doing seemed relatively small.
Is the remedy that you have available, is it sufficient?
Mr. Leibowitz. Well, I would say this disgorgement of
profits can be a very good and strong remedy sometimes. I
think, from my perspective--and I'll let other commissioners
speak to this, as well--if we had civil penalty authority to go
after--to go after spyware malefactors, that would be very,
very useful. I know it's in some of the bills that percolated
around this Committee last Congress. Because with something
like spyware, it's hard to determine what the injury is to each
consumer, and it's hard to determine, sometimes, how much of
the profits that the company makes are from illegal conduct and
how much are from permissible conduct. And so, I think it would
be a very, very good strong deterrent to have civil penalty
authority. That would be helpful. Yes, sir.
Mr. Kovacic. Mr. Chairman, if I could just add, a critical
area of our effort in the last few years has been to work more
closely with government agencies that have criminal enforcement
authority, because many of the most serious wrongdoers we
observe in this area are, I believe, only going to be deterred
if their freedom is withdrawn. Ultimately, it's going to be
successful criminal prosecution, which engages the resources of
the Department of Justice, the U.S. Attorneys, state
governments, and foreign authorities, whom we've been
emphasizing today, to take their freedom away. Many of the bad
actors whose work your constituents have identified, are
technologically proficient, they're geographically adaptable.
Many of them operate outside the United States. They can only
be described as vicious organized criminals. Until we have
success, as a law enforcement community, in placing them in
prison, I don't think we'll ultimately have the deterrent
influence we need. So, that cooperative effort on the criminal
enforcement side, I think, is a key dimension of the sanctions
picture.
Senator Pryor. Good. Let me switch gears here for just a
moment, and then I'm going to recognize Senator Dorgan.
Not to pick on one company, but recently there were some
stories about T.J. Maxx having, I think, over 45 million
accounts of credit card and debit card information stolen. And
apparently this happened in December of last year, but they did
not reveal the details of this until March--late March of this
year, until just a couple of weeks ago, I guess. First question
I would have, maybe, for the Chairwoman, is, What should the
notice requirement be when something like this happens? What
notice requirement should exist to protect consumers? And,
second, there's an idea floating around here in the Senate, and
probably the House, on a credit freeze, which would allow
consumers to freeze their credit so people couldn't have access
to their credit information without their permission--without
the consumers' permission. And I'm curious about your thoughts
about whether that would actually protect consumers. So, Madam
Chair, you can start, and other people can chime in.
Ms. Majoras. Thank you, Senator Pryor.
As you know, the area of data security is one in which
we've been highly active, and, as T.J. Maxx, in fact, has
acknowledged, we're taking a look at that situation. As far as
the--as having a legislated notice-of-breach provision, we
think it should be tied to when there is a significant risk of
harm to consumers. And the reason for this is that there are
plenty of situations in which security may be breached, but
it's unlikely that it would have an impact on consumers. And we
get concerned that if consumers get over-noticed, they will
just simply stop paying attention, or, at the other end of the
scale, panic in a situation in which they need not, and take
expensive measures that they need not take. So, that's where
we've been on that.
As far as credit freezes, when the issue was first raised,
a couple of years ago, my view was that we should wait a bit.
And the reason is because states were enacting them; whereas,
the Federal Government had enacted certain measures in the FACT
Act. And we really wanted to see those take hold and see how
they were working for consumers before we jumped into a new
area. And the nice benefit sometimes is, we can use the states
as the laboratories of democracy to see what the impact is. So,
we're now currently looking at this issue of credit freezes,
versus the protections in the FACT Act, to see what's working,
what's not, and what would be best if a Federal statute were
passed. So, we're happy to work with you further in thinking
that through as we go forward.
Senator Pryor. Great. Any other----
Ms. Harbour. Yes, Chairman Pryor. We are a very collegial
commission, but there are times that we disagree slightly at
the margins. And, as far as the legislative notice of breach,
my opinion has always been that a significant risk of harm was
too high of a bar. And I say that, because there are times when
companies are very reluctant to quantify the breach as being
significant, because they are fearful that it will have an
impact on their stock prices, and they will, therefore, not
feel it's significant, although it is a risk of harm. So,
though we do agree about the breach notification, I would have
some reservations about the ``significant'' moniker on that.
Mr. Leibowitz. And if I could just add, the other two
components that we all agree on in terms of data security
legislation would be a safeguards rule, so that companies
safeguard important personal information, and then civil
penalty authority, so that we'll have a strong deterrent that
we can use.
Mr. Kovacic. I think that this is an issue that is worthy
of a continuing conversation between ourselves and the
Committee, because, in many ways, through the individual law
enforcement proceedings that we've undertaken in specific
investigations, we learn a bit more each time about what an
appropriate standard might be. So, I would simply add that, in
light of our experience in individual matters, I think every
month we become better informed about what an ultimate
legislative adjustment might be and how it might be designed.
Senator Pryor. Great.
Senator Dorgan?
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. Mr. Chairman, thank you very much.
Let me thank the Commissioners for being here today.
I'd like to ask a series of questions. I do want to ask
some questions about gas prices, at some point. But first, let
me ask all of the Commissioners briefly--as you know, the
common carrier exemption exists with respect to the 1934 Act on
communications that really provided authority to the Federal
Communications Commission over those areas. That has now
largely been deregulated. And I would ask--I happen to believe,
and I would ask if you concur--that the common carrier
exemption should be repealed so that the Federal Trade
Commission would have some jurisdiction in this area to
investigate and protect consumers.
Ms. Majoras. Thank you, Senator Dorgan.
We do, in fact, believe that the exemption is outdated. We
are already seeing places in which companies raise it and
stymie our enforcement efforts. An example--to take a
hypothetical example--would be, we endeavor to look at some
advertising, perhaps, of a broadband provider that we think may
be misleading, and the broadband provider is bundling broadband
services, which we could enforce against, with traditional
telephone services, and tells us, ``Uh-uh, no, you can't go
anywhere near that, because it's--because of the common carrier
exemption.''
Senator Dorgan. Do the rest of the Commissioners believe we
should repeal the exemption?
Mr. Leibowitz. Yes, we--I think it's an anachronism, and we
appreciate your leadership. I know you tried to remove it last
year, and we think we can do good consumer protection and
antitrust work if that prohibition is repealed.
Ms. Harbour. And, that's right, because if it is not
repealed, I think consumers do not benefit from FTC oversight
against deceptive and unfair market, advertising, and billing
practices. And I think the bundling of telecommunications
services is a growing phenomenon that--this exemption basically
complicates our ability to protect consumers. Therefore, we
would advocate for removal of the exemption.
Mr. Kovacic. Senator, I think the intuition of your
proposal is exactly right. We essentially have a legal
infrastructure that was built over 70 years ago, when the
industry was much different. We have highly dynamic industries
that are blurring together, yet we have a legal infrastructure
whose essential elements are now outdated. So, I'd endorse your
approach entirely.
Senator Dorgan. All right.
Mr. Rosch. And I would just add my voice along with the
others, except that I think I'd probably emphasize that our
track record with respect to other instances in which we review
mergers which are also before the FCC, and we make a
contribution to the FCC's understanding of the competition
issues, I think speaks for itself, and I think that's another
reason for repealing the exemption.
Senator Dorgan. Does the common carrier exemption apply on
the issue of XM and Sirius, the proposed merger of XM and
Sirius, or are you involved in that?
Mr. Rosch. No, that's Justice. But it--the answer is--as to
us, I don't know what the answer would be.
Senator Dorgan. Why would you have a role to play in making
a judgment about the XM and Sirius proposed merger?
Ms. Majoras. We do not. As you know, we share antitrust
authority with the Department of Justice. We have an MOU
between the two agencies in which we divide the work, and
they've had the experience in radio, really since the 1996
Telecom Act, so the radio mergers go to Justice.
Senator Dorgan. Yes. One wouldn't want to value that
experience with any significant value, would we? Given what has
happened with the concentration and growth, it doesn't suggest
that whatever the role of Justice was in these areas was a role
that was helpful to our country. But that's another story,
perhaps for another time.
I think the XM/Sirius proposed merger raises very
significant questions. I didn't know whether you were involved
in that or not. This Committee might want to have some
discussions with Justice and others. And I know there's a
hearing scheduled on that issue, but that's a very significant
and a serious issue. And, you know, I have, from time to time,
threatened to put the pictures of attorneys, both at Justice
and the Federal Trade Commission, on the side of milk cartons,
feeling that we're paying a lot of them, but they've vanished
on the issue of antitrust enforcement because we've not had
very significant antitrust enforcement in this country. You
want to merge? Merge. Nobody seems to care very much. That has
been true under Democratic Administrations and Republican
Administrations. And, boy, I--if you'd look at growth and
concentration in a range of areas, I think it's very troubling,
and it's all happened with pom-poms and cheerleaders, and we
have people say, ``Well, we'll put conditions here and there,''
but the fact is, there has been dramatic growth in
concentration in virtually every area of commerce. But that's
just my lament.
Chairman Majoras, there was a posting today in the--an
Associated Press story that had you saying, ``A Federal law
against oil company price gouging would be difficult to enforce
and could hurt consumers by causing fuel shortages.'' How would
a Federal law against oil company price gouging cause fuel
shortages? Did you say that or is it a misquote?
Ms. Majoras. I don't remember that exact quote, but I have
said things like that, yes.
Senator Dorgan. Tell me how a law that would prohibit price
gouging would cause fuel shortages, in----
Ms. Majoras. Well----
Senator Dorgan.--your judgment.
Ms. Majoras. Well, the difficulty with a statute that
prohibits price gouging, fundamentally, is, How do you define
it? In other words, if you raise prices for one reason, then
maybe that's OK, but if you raise prices because you're just a
bad person and you want to gouge people, maybe that--that's
another. And the difficulty that we've seen in our past history
in the United States is that anytime we've tried to place
constraints on the ability of companies to raise prices,
particularly in times of crisis, which is when this generally
has been raised, two things happen. First of all, price
increases signal, particularly in times of emergency, to other
suppliers, ``Hey, we need more supply here. Come to this
area.'' That's exactly what happened after Katrina, when we saw
European supplies and the like being diverted to the Gulf, and
that means, then, we have more supply and the price goes down a
bit faster. The second signal that prices send is, they send
the signal to consumers that, in fact, supplies are tight, and
we need to reduce our demand. That also happened after the
hurricanes--tragic hurricanes in 2005. So, if we put in--as
virtually every economist I've read on the issue has said, if
you put a constraint on prices, as well intentioned as it is,
because, admittedly, price gouging sounds like a horrible
thing, is a moral issue, and I understand that--the difficulty
in enforcement would be in identifying it. And when we looked
at these issues after Katrina, we found very few instances that
we could say were true price gouging. And even in instances
where you heard, you know, of a person here and there raising
the price up to 6 bucks a gallon or something, what happened,
actually, was pretty admirable. The market said, ``No,'' and
consumers said, ``No.'' And that--those guys were--had to bring
their price down pretty darn fast or they were going to lose
all of their business. So----
Senator Dorgan. But do you understand--were you involved--I
guess the answer is, you were not involved in the issues of
wholesale electric pricing in California, where we now get the
transcripts of people that were manipulating supplies,
manipulating the market system. Years afterwards----
Ms. Majoras. Sure.
Senator Dorgan.--we discovered that this was wholesale
cheating. Consumers got bilked out of billions of dollars. FERC
sat there, dead from the neck up, didn't give a damn, didn't do
a thing, came and testified before my Committee, saying, ``You
must not interfere. You must not interfere. The market system
will work.'' The market system was rigged. It was rigged.
Now, the question I have is--I don't know whether there's
price gouging, at the moment, or where it might be, but you
said that it--I guess you seemed to say that if price gouging
is bad--I assume that you believe price gouging is inherently
bad, do you not?
Ms. Majoras. Well, it depends on how you define it.
Senator Dorgan. Well, the term ``gouging,'' itself, would
suggest how I define it, but would you----
Ms. Majoras. But----
Senator Dorgan.--if the market system, whatever that is,
has its arteries clogged by concentration, and, therefore, it
allows the participants, rather than be engaged in price
competition, to set their own price, and, therefore, gouge
consumers at an inappropriate time, do you think that's
inappropriate? Is that destructive of the consumer's interest?
Ms. Majoras. Not--I mean, not exactly as you've said it.
Look, if the individual--if individual companies are making
their own decisions about prices, not agreeing with the
industry about prices, and the market's working, and they raise
the price, then, no, I would not--I would not call that--I
would not call that ``gouging.'' If you tried, today, to do
that, and raised the price up to--I don't know what you would
think is gouging--5 or 6 bucks a gallon, it wouldn't be
sustained. There's no way. Because there's enough competition
there that the price would come back down.
Senator Dorgan. But you know something? I heard exactly the
same testimony from FERC during the California ripoff, to the
tune of billions of dollars.
Ms. Majoras. I understand, Senator. But it isn't as though
we have no authority today to go after market manipulation. We
scrutinize these petroleum markets constantly----
Senator Dorgan. Give me an example of----
Ms. Majoras.--looking for----
Senator Dorgan .--actions you've taken----
Ms. Majoras.Well----
Senator Dorgan.--to scrutinize. Have you taken actions?
Ms. Majoras. We have taken actions. We've brought----
Senator Dorgan. And----
Ms. Majoras. We've brought cases--we haven't--we haven't
found manipulation, in the sense that you're talking about in
the electricity markets. And, of course, there are some
significant differences between electricity markets and
petroleum markets that actually, I think, have an impact on the
ability to manipulate. Electricity, for example, can't be
stored or saved, and petroleum can be, and that has a huge
impact on the market.
Senator Dorgan. But the similarities are much more
interesting: highly concentrated and an ability to manipulate
the market.
Mr. Leibowitz, you wanted to respond?
Mr. Leibowitz. Yes, if I could just respond momentarily to
both this issue and to the prior issue you raised. You know,
the Chairman and I talk all the time about price-gouging
legislation and other legislative and non-legislative issues.
In this case, we're in disagreement. I do believe that price-
gouging legislation could prevent some of the profiteering, for
example, that we saw in the wake of Hurricane Katrina, some of
the other bad acting, so long as it's limited in duration,
there's an emergency trigger. I know Senator Stevens has a
bill, and Senator Cantwell had a bill last year.
I want to come back, though, to the notion of putting our
names on milk cartons. There has certainly been----
Senator Dorgan. It was actually pictures I was talking
about.
Mr. Leibowitz. There are pictures for--right. Well,
pictures, names.
Senator Dorgan. Your picture and your name.
Mr. Leibowitz. My picture and my name.
[Laughter.]
Mr. Leibowitz. I would like, actually, Bill Kovacic's name
under my picture.
[Laughter.]
Mr. Leibowitz. I share your concern that--about antitrust
enforcement--the need for vigorous antitrust enforcement. Most
of the time I've heard those criticisms, though, it has not
been about the FTC. We have brought cases to block oil company
mergers, at least in the last couple of years, one in Hawaii,
one--we've been given credit with having--causing the acquirer
to pull out of a California deal because they knew we were
going to go to court to block it.
And then, on the issue of reverse payments between the
brands and the generics, where the brand--and we've talked
about this issue--where the brand pays the generics to stay out
of the market. I think we have been absolutely vigorous on
that. And I'll put into the record an editorial from the New
York Times entitled ``Return of the Drug Company Payoffs,''
where it said the FTC has been waging a ``valiant fight.''
[The information referred to follows:]
The New York Times Editorial/Letters--Wednesday, January 24, 2007
Return of the Drug Company Payoffs
Two excessively lenient court decisions have allowed the
manufacturers of brand-name drugs to resume the underhanded practice of
paying generic competitors to keep their drugs off the market. It is a
costly legal loophole that needs to be plugged by Congressional
legislation.
The problem arises when a generic manufacturer tries to take its
drug to market before the patent on a brand-name drug has expired by
arguing that its product does not infringe upon the patent or that the
patent is invalid. Huge sums of money are at stake, especially with
blockbuster drugs whose annual sales can exceed a billion dollars.
Rather than risk it all, a brand-name manufacturer may choose to
pay its generic competitor substantial compensation to drop its
challenge and delay marketing its drug. Both companies make out
handsomely. The big losers are consumers and the public and private
insurers that must continue to pay monopoly prices for the brand-name
drugs.
The Federal Trade Commission, which has been waging a valiant
fight, succeeded for several years in eliminating such settlements. But
two appeals court decisions in 2005 held that they are a legitimate way
to resolve patent disputes. And sure enough, the FTC reported last week
that--after a five-year hiatus--brand-name companies made 3 such do-
not-compete settlements in Fiscal Year 2005 and 14 more last year.
The pharmaceutical industry contends that the settlements are a
reasonable way to resolve disputes and that they often result in
bringing generic drugs to market before a patent has expired, albeit
not as soon as the generic company wanted. The industry argues that
regulators and the courts should judge such settlements on a case-by-
case basis.
Our own hunch is that the better approach for Congress to take as
it moves toward corrective legislation would be a ``bright line''
prohibition against making any payments to delay introduction of a
generic drug. That would set a clear standard and enhance the
likelihood that consumers would get a chance to benefit from real
competition in the pharmaceutical market.
Senator Dorgan. I agree with that. And we've been--you've
had a setback as a result of a court decision there----
Mr. Leibowitz. Thank you.
Senator Dorgan.--and we need to--Congress needs to respond
to that.
Maybe I draw with too broad a brush here. We have roughly
1,000-plus attorneys whose job it is to work on antitrust, and
a good many in Justice, some at the FTC and other places, and
it's--if you just look back a decade, it's hard to see that
we've made much progress because there's dramatically increased
concentration in most areas. And that was the point I was
trying to make.
Mr. Rosch. Senator?
Senator Dorgan. Yes, sir.
Mr. Rosch. I guess I'm the low man on the totem pole,
literally, here, but let me make three quick points, if I may,
because I came from California, and I was there during the
price gouging with respect to electricity. And, you're right,
that was rigging the market. There's no question about that.
The first point I would make is that we do have a statute
that is different from FERC's. We have a statute that prohibits
unfair methods of competition. And I do believe that we can go
after single-firm conduct in that context.
The second point I would make is that the closest analogy
to that--I will say that electricity is, again, an area which,
by and large, goes to Justice rather than the FTC--in an area
where we do have jurisdiction, is probably what I've read about
BP's hoarding of heating oil on the East Coast about 18 months
ago. And we thought about bringing a case in that area, but the
fact of the matter is that the Commodities Futures Commission
is already exercising jurisdiction in that area, and Justice is
bringing a criminal case. It would be nothing but piling on and
a waste of taxpayers' dollars if we brought another case in
that area.
The third point I would want to make is that the Chairman,
I think, is absolutely right that if you get it wrong with
respect to price gouging, the consequences can be very severe.
I happen to be 67 years old, so I remember when President Nixon
imposed price caps on petroleum back in the early 1970s, and
what happened as a result of that is that I ended up in gas
lines running several blocks.
Senator Dorgan. Mr. Rosch--finish up with----
Mr. Rosch. No, I--I'm sorry.
Senator Dorgan. I love the----
Mr. Rosch. I go on too long. Please.
Senator Dorgan. I understand about the market. The market
system is the best system we know for the goods and services to
be moved in the directions that consumers want goods and
services. The allocation of goods and services by the
marketplace is the best I know. But the marketplace needs
effective regulation to work. When the arteries of the
marketplace are clogged, and you have too much concentration,
too much pricing power in the hands of too few, the consumers
get injured, and injured badly. So, we create a Federal Trade
Commission, an FTC, and we ask the FTC to be aggressive.
Aggressive. We don't want you to get it wrong, but neither do
we want you to sit back and say, ``You know what? Let's let the
market sort this out.'' There are plenty of perversions in the
marketplace that need effective regulations.
You all really are the referees, of sorts, with respect to
manipulation of markets, the damage to consumers from that
manipulation. And I just--I react a little bit when I hear
people say, ``Let's let the marketplace sort that.'' That's
exactly what FERC said to us, and FERC--it was in exactly the
same situation--they sat at the table and they said to us,
``It'll be fine. You all that want to slap some price controls
on these folks, shame on you. The market will sort this out.''
In the meantime, the consumers are being cheated and bilked.
And the point I want to make is this: it is a matter of
philosophy and will, as one assumes these jobs, about whether
or not you're going to go after these things because you can
say that you have the authority to do it, but using the
authority, and having the will to use the authority, on behalf
of consumers at the right time is critical for something like
the FTC.
Now, one final point--Mr. Kovacic, I'll get to you--out of
my subcommittee, we're going to try to move a piece of
legislation that will reauthorize the Federal Trade Commission.
It has been since 1996. I mean, we've got to do better than
that. I'm going to try very hard to reauthorize the FTC, get it
through this Committee and get it to the Congress. You deserve
that, and so do the American people.
My only point today is that I want a Federal Trade
Commission to be worthy of its appointment and its work on
behalf of American consumers, to be a regulatory body--yes,
regulatory--regulation, nothing wrong with regulation; that's
what helps keep this free-market system free and working
effectively. So, I want the Federal Trade Commission to
succeed, not fail. Don't misinterpret my remarks.
Mr. Kovacic?
Mr. Kovacic. Senator, thank you for indulging me for
another minute.
I'd like to go to the Enron example. As I understand it, a
critical element of the misconduct there was the deliberate
manipulation and deception of an existing public regulatory
process; that is, Enron and other traders lied to government
regulators who were responsible for allocating capacity, where
bottlenecks determine the flow of electricity to different
users. That's a case I would have brought under the Federal
Trade Commission Act. And I want to give you an energy example
where we've brought a case by policing instances carefully
where firms seek to achieve or exploit their market position by
manipulating the processes of government regulation. Our Unocal
case, which was resolved in 2005, and resulted in the
nonenforcement of patents for CARB gasoline in California,
resulted from our allegations that what Unocal had done had
been to lie to the state regulators in California in the
process of setting the standard in question. That has been
worth, by our calculation, essentially $500 million a year
through the life of those patents. That is, where the
behavior--and I think this was key to the strategy in Enron--
where the behavior in question involves the deceit, the
manipulation of a regulatory process whose very existence is
essential to the functioning of the sector, that's behavior
that we would police aggressively.
Senator Dorgan. Let me say, Senator Pryor, you've indulged
me with a lengthier period of questioning, but I want to make
one response to that. I sat in that Chairman's chair and
chaired the hearings on Enron in this Committee. Ken Lay sat
where you sat, took the Fifth Amendment. Jeffery Skilling sat
and talked all day. Turns out he didn't tell us the truth. But
the plain fact is this. The FERC, Federal Energy Regulatory
Commission, used language that rings a bell with me when I hear
it again, that the market system--the market system--you say
you would have brought action. The only way you would know what
was happening there was to investigate aggressively, and that
was not the case, because, philosophically, the other agency
felt, ``The market system will sort this out. Prices go up.
They'll come down.'' And that's my only concern.
I guess we shouldn't debate history at greater length than
that, except to say when I--Ms. Majoras, when I saw your
statement this morning that price gouging--will cause fuel
shortages, I don't buy it, not a bit. You and I are going to
have some other discussion at some point, I hope, and perhaps
even before this Committee.
Ms. Harbour. Senator Dorgan, I would like to just make a
couple of comments. I've sat here, and I've listened, and I
know you talked about the market system being rigged, and
compared, perhaps, us to FERC. But I do know that we are very
vigilant in this area. I view myself as being somewhat hawkish.
I know that the Commission tracks daily retail gas prices in
360 cities and wholesale prices in 20 major urban areas. And,
under the antitrust laws, if there were collusion, we would
bring an action, or we would be talking about it and
dissenting, if we didn't. We are looking at this very
vigilantly. I think this is a very complicated industry. I have
said before, I do not think that the Nation's gas and oil
policies can be solved by antitrust alone. We know that, you
know, there are supply-and-demand issues, we know that, on
the--as domestic consumption goes up each year, China and India
are consuming more and more oil. We have the Federal, we have
the local, we have the regional influences of gasoline prices.
I, for one, do not feel that I am sitting here and watching our
gasoline prices going up, and doing nothing. I think that we
are looking very carefully. And, under the antitrust laws, if
there is any sort of collusion, we would certainly bring an
action in that regard.
Senator Dorgan. Senator Pryor, are you completely out of
patience?
Senator Pryor. No, not----
Senator Dorgan. Probably close.
Senator Pryor. I'm enjoying this. I----
Senator Dorgan. There's----
[Laughter.]
Senator Dorgan. Let me just--Ms. Harbour, there's no
marketplace here with respect to oil. I mean, no--certainly no
free market. You have OPEC countries, a cartel sitting around a
table deciding how much they'll produce and what they want to
get for it. You have the spot market, which is an orgy of
speculation, the futures market, an orgy of speculation. You
have a much more highly concentrated oil industry with the
majors now all having two names because they married up with
some other company, so instead of one name, it's always two
names. And then, in addition, a substantial portion of the oil
in the international marketplace is controlled by countries,
not companies. So, there's no free market here at all. And I'm
not suggesting you're not doing anything. I'm not suggesting
your work isn't worthy. I want to work with you to reauthorize
the functions of the FTC. I'm just saying that I want the FTC
to be an aggressive advocate on behalf of consumers. They're
going to the gas pumps right now, paying, in some cases, close
to $3; in some parts of the country, well over $3. Exxon will
announce its latest profits, and I assume they will exceed the
$36 billion of last year. And I think a whole lot of consumers
have a lot of questions to ask about whether this so-called,
``free market,'' works for them. They know better--they know it
doesn't. They know it works for some, but it certainly doesn't
work for them.
Ms. Harbour. And I agree, Senator. But the United States,
as I said earlier, clearly has some energy problems, and we
have to work within that framework.
Senator Dorgan. Yes, I agree with that, but I would prefer
a Federal Trade Commission that says, ``We welcome a price-
gouging Federal law.'' I mean, 26 states now have price-gouging
laws they've enacted. I would prefer a Federal Trade Commission
that says, ``You know something? A Federal price-gouging law is
right down in our wheelhouse of what ought to be done.'' I----
Ms. Majoras. Well, I would, Senator, if I thought that it
was really what was going to help consumers. I mean, I care
deeply about helping consumers, but just about every economist
in our Nation, just about every editorial page of every major
newspaper has come out again and again and said, ``This won't
help, and it potentially will hurt.'' So, I'd love to come up
and talk to you further about these issues. And I--and I also
think that--you're absolutely right about OPEC. I mean, we
start with OPEC at the upstream market. But after that, I'd
like to show you, Senator, the work that we've done that shows
that we actually do have a market economy beyond OPEC for these
markets, and the way--and the way that--or the way those
markets have worked. We've--we pay more attention to this
industry than any other, except perhaps healthcare. We are
watching, all the time, and we're aggressively pursuing
investigations. And if we find manipulation that violates the
law, I can assure you I will be the first one lining up to----
Senator Dorgan. Would you----
Ms. Majoras.--bring the case.
Senator Dorgan. Would you send me a list of those
economists that believe that price-gouging legislation is a bad
thing?
Ms. Majoras.Oh--I mean, yes, the--I mean, the----
Senator Dorgan. That would be helpful.
Ms. Majoras.--it has been written about extensively.
Senator Dorgan. I used to teach economics in college
briefly, but I overcame that and----
[Laughter.]
Senator Dorgan.--I'd like to get the names of economists
that think that laws that prevent price gouging somehow are
inherently unworthy.
Ms. Majoras. Yes. There are a lot of them, so I will.
Ms. Harbour. And antitrust lawyers, too.
Mr. Leibowitz. And at the risk, Senator of continuing this
round and restating the obvious, if Congress passes a price-
gouging statute, we will obviously enforce it. I mean, I've
been supportive of a price-gouging statute, but the whole
Commission will enforce any law that you enact.
Mr. Kovacic. Absolutely. Absolutely, Senator, the will of
this body will be fulfilled in our own work, and I would
welcome the chance to continue the conversation that you
invited before.
Senator Dorgan. I just came to say hello.
[Laughter.]
Senator Dorgan. Apparently, I got carried away.
Mr. Kovacic. We won't let you say goodbye.
[Laughter.]
Senator Dorgan. My colleague--I owe my colleague about 15
minutes of his life.
[Laughter.]
Senator Dorgan. Senator Pryor, thank you very much.
Senator Pryor. Thank you, Senator Dorgan. That was good.
And I will say this, just in closing, on gas prices and oil
markets, it is complicated. It's very complicated. It's the
only industry I know of where when the feedstock--when the cost
of the oil itself was going up, the profits of the industry
were mushrooming. That doesn't happen normally. Normally, when
you see the underlying feedstock go up, you see the profits
being squeezed and squeezed and squeezed, under normal market
conditions.
And also, I think that a lot of times when people talk
about price gouging, they instinctively look at the retail
level. But there's a lot of competition at the retail level,
and they're really just passing on the costs that they inherit.
It's almost like the local drugstore; you can't get mad at them
for the high cost of drugs, because, you know, they make a very
small margin on their drugs.
So, there are some similarities in the oil industry and the
gasoline industry with other industries, and then some real
differences. So, we want to work with you all through this. I
know that we get a lot of comments about it in our office. I
think I filled up today, and I paid $2.77 a gallon. And so,
prices are definitely increasing again.
But, with that, what we're going to do is, we're going to
leave the record open for a couple of weeks, for 2 weeks. I
know one person had something they wanted to submit for the
record. That's fine. If you all have some documents you want to
submit, if you want to get that list of economists and make it
part of the record, that would be great, Madam
Chair.*
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\*\ The information previously referred to is maintained in the
Committee files.
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And I don't have any other questions, at this point. There
are no other Senators that do.
So, with that, we'll adjourn and leave the record open for
2 weeks. Thank you for being here.
[Whereupon, at 12:28 p.m., the hearing was adjourned.]
A P P E N D I X
The New York Times--Editorial/Letters, June 8, 2006
When Drug Firms Pay Off Competitors
We hope that the Supreme Court agrees to take up a pivotal drug
patent case brought by the Federal Trade Commission against Schering-
Plough. Otherwise, the Commission may find itself powerless to block
one of the more underhanded tactics used by brand-name drug
manufacturers to keep generic competitors off the market.
The tactic is brutally simple. A company that holds a patent on a
brand-name drug, often a blockbuster that rakes in huge profits, pays a
generic manufacturer to delay the sale of a competing product that
might grab a big slice of the business. The patent holder makes so much
money by delaying competition that it can easily afford to buy off the
generic company, with the result that both companies share the wealth.
The only losers are the consumers who must continue to pay high drug
prices.
The Schering-Plough case involved K-Dur 20, a potassium supplement
used to mitigate the side effects of drugs that treat high blood
pressure and congestive heart failure. The active ingredient is in
common use and not patentable, but Schering holds a patent for a
coating material that releases the active ingredient slowly. That
patent does not expire until this year. But two generic manufacturers
filed applications in 1995 to market competing drugs whose coatings,
they said, would not infringe Schering's patent.
Schering disagreed, sued, and then ultimately settled the cases. It
paid $60 million to one generic manufacturer in a settlement that
delayed market entry until 2001 and $15 million to another generic
manufacturer in a deal that delayed entry until 2004.
After looking at details of the deal, the FTC concluded, quite
reasonably, that these settlements were essentially payoffs to delay
competition. The $60 million had actually been demanded by one generic
company as compensation for revenues it would lose by delaying sales of
its product. And at least $10 million of the other settlement would be
paid only if the generic company got government approval to market a
competitive product and thus posed a threat to Schering-Plough.
Even so, a Federal appeals court ruled that the payments did not
violate antitrust law and that the facts did not bear out the FTC's
contention that the payments were intended to delay competition.
That was a disastrous blow to Congressional laws that seek to speed
the entry of generic competitors by brushing away spurious patent
infringement claims by brand-name manufacturers. Since the appeals
court decision, there has been a sharp rise in the number of
settlements in which brand-name companies pay off generic competitors
to keep their cheaper drugs off the market.
The FTC has rightly petitioned the Supreme Court to consider the
case. But it has been undercut by the Justice Department, which has
urged the Court to keep its hands off, arguing that the case does not
provide a good vehicle for resolving the complex issues involved.
Whether the court acts or not, Congress should try to find a
legislative route to block unscrupulous drug companies from buying off
the competition.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye and
Hon. Mark Pryor to all FTC Commissioners
Question 1. What are your top priorities for the FTC to address
this year?
Answer. Listed below are our top consumer protection and
competition priorities, which cover a broad range of areas. Given the
breadth of our mission and the need to be proactive in addressing new
and evolving challenges facing consumers and competition, we ask that
Congress fully fund the agency's FY 2008 budget request of $240
million.
Consumer Protection Priorities
We have several priorities for the upcoming year in the consumer
protection area. First, data security and identity theft continue to be
high priorities. The Commission has brought 14 enforcement actions
against businesses for their failure to provide reasonable data
security, and we will continue this enforcement work. We will also
continue to educate consumers on how to avoid becoming victims of
identity theft, and to educate businesses on steps they can take to
safeguard their customers' sensitive information. On the policy front,
the Commission continually tries to stay abreast of developments in
privacy, data security, and identity theft. Over the past several
years, the Commission has hosted numerous workshops and public forums
to this end. Last month, the Commission hosted a workshop to explore
consumer authentication, with the goal of encouraging better procedures
to verify that consumers are who they say they are, so that it is more
difficult for criminals to use stolen information. Through these
activities, we will also be implementing the recommendations of the
President's Identity Theft Task Force, which Chairman Majoras and
Attorney General Gonzales co-chaired.
A second priority is financial issues affecting consumers. For
example, the FTC has an important role to play in policing the subprime
mortgage market. In recent years, we have brought over 20 law
enforcement actions against businesses in the mortgage lending
industry, obtaining over $320 million in redress for consumers. This
work has focused particularly on companies operating in the subprime
market. We will continue our work in this area, focusing in particular
on deceptive mortgage advertising. Another financial practice we are
targeting through aggressive enforcement is the problem of abusive debt
collection practices. We will also hold a workshop this fall to examine
and take stock of the debt collection industry.
Third, in the technology area, combating spyware and spam are two
high priorities for the Commission. The Commission has brought 11
spyware enforcement actions in the past 2 years, and will continue its
work in this area. The Commission has also aggressively pursued
deceptive and unfair practices in spam through 89 law enforcement
actions, 26 of which were filed after Congress enacted the CAN-SPAM
Act. This July, the Commission will host a workshop on the current
state of spam, as a follow-up to a workshop the Commission held in
2003. The two-day public summit will analyze malicious spam, shifts in
spamming incentives and tactics, strategies for protecting consumers
and businesses, and countermeasures for stopping malicious spammers and
cybercriminals.
A fourth priority is consumer health issues. In the past year, the
FTC has initiated or resolved 13 law enforcement actions involving 25
products making allegedly deceptive health claims. In addition to
health fraud, the FTC is active in the area of childhood obesity. In
the Summer of 2005, the Commission and the Department of Health and
Human Services held a joint workshop on the issue of childhood obesity.
The Commission's April 2006 report on the workshop urged industry to
consider a wide range of options as to how self-regulation could assist
in combating childhood obesity. A number of companies took the FTC's
recommendations seriously and announced that they would use advertising
to help promote healthy dietary choices and healthy lifestyles among
American children. The FTC will host a workshop this summer to report
on industry progress in implementing these self-regulatory initiatives.
The Commission is also conducting a comprehensive study of industry
activities and expenditures associated with marketing food to children
and adolescents. We plan to issue a report to Congress next year.
Finally, the Commission will soon release a report, which presents a
comprehensive analysis of the exposure of children (ages 2-11) to
television advertising in 2004. The report will compare the recent
level of exposure to that measured by studies done by the FTC's 1978
Children's Advertising Rulemaking, prior to the rise in childhood
obesity rates.
A fifth priority is Do Not Call enforcement. The National Do Not
Call (DNC) Registry has registered more than 130 million telephone
numbers since its inception in 2003. Most entities covered by the DNC
Rule comply, but for those that do not, tough enforcement is a high
priority for the FTC. Since the FTC began enforcing compliance with the
Registry in October 2003, the agency has filed 25 enforcement actions
against 125 defendants, alleging that they had called consumers
protected by the Registry. In these cases, the FTC has obtained
settlements with orders requiring payment in the aggregate of
approximately $9 million in civil penalties and more than $8.2 million
in consumer redress and disgorgement. In addition, because consumers'
registrations expire after 5 years, the Commission plans a significant
effort to educate consumers on the need to reregister their phone
numbers next year.
Competition Priorities
Healthcare, particularly the pharmaceutical industry, is a top
priority for the FTC. Our main legislative priority is to support
legislation to fix the exclusion payment problem, and we continue to
investigate and consider legal challenges to these agreements. We also
actively review agreements between pharmaceutical manufacturers,
including exclusion payment agreements between branded and generic
companies.\1\ We have continued to review pharmaceutical mergers and
will litigate or order divestitures to cure competitive problems. We
also work to secure competition among healthcare providers, including
physicians and hospitals, by reviewing proposed mergers and stopping
agreements on price among competing healthcare providers who have not
engaged in sufficient financial or clinical integration.
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\1\ The Medicare Prescription Drug Improvement, and Modernization
Act of 2003 requires that pharmaceutical companies file agreements with
the Commission and the Department of Justice within 10 days of
execution.
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We are also very active in pursuing any anticompetitive conduct in
areas involving hi-tech industries, because competition and innovation
are so important in that area. In the non-merger area, we just
concluded a series of hearings on single firm conduct. We hope to issue
a report in the near future that will provide guidance to businesses in
this area of the law.
Preserving and promoting competition in energy markets is another
priority for the FTC. We scrutinize mergers in the energy industry very
closely and pursue litigation where needed to protect competition. We
are currently litigating against two proposed mergers in the energy
industry: one involving natural gas distribution and the other
involving the bulk supply of light petroleum products. We continue to
examine the state of competition in the oil and gasoline industries,
including specifically the causes of gasoline price increases.
Additionally, last month, we hosted ``Energy Markets in the 21st
Century: Competition Policy in Perspective,'' a public conference,
exploring a range of energy issues of importance to American consumers,
as well as to the United States and other global economies, and we will
study the submissions from this conference to inform our enforcement
and study agenda in the energy sector.
Merger matters, in general, are also of great importance. HSR filed
transactions, the number of second requests issued, and enforcement
actions are up in the first 6 months of FY 2007 as compared to FY 2006.
Approximately \2/3\ of the Bureau of Competition's resources are
devoted to merger investigations and we expect we will continue to
bring more important enforcement actions to protect competition during
the remainder of the year. We will also continue to focus on the second
request process itself--working cooperatively and constructively with
merging parties to streamline our investigations and make them more
efficient, consistent with the Commission's need for information to
evaluate the likely competitive effects of the merger.
Finally, real estate is a priority area for the FTC. Over the past
year, the FTC brought several enforcement actions stopping real estate
associations from limiting competition from discount brokers. We also
just this month with the Department of Justice issued a report on
competition in the real estate brokerage industry. The report was based
on a workshop we held in October of 2005 on competition in real estate.
We will continue to protect competition in this area and to educate
consumers on how competition in the industry benefits them.
Question 2. Last year, the Commerce Committee reported a
comprehensive bill that would require companies to provide increased
security to sensitive consumer data and require companies to notify
consumers if they had been subject to possible identity theft. In the
last couple of years, are there any new and emerging trends or methods
by those performing identity theft that warrant consideration?
Answer. Identity thieves acquire and exploit sensitive consumer
data in a variety of ways, and are constantly developing new techniques
and uses. For example, phishing recently has taken on a new form,
dubbed ``vishing'' in which thieves use Voice-over-Internet Protocol
(VoIP) technology to spoof the telephone call systems of financial
institutions and request callers to provide their account information.
Because the identity theft issue is ever-evolving, our approach to data
security--and the model it advocates for any new law that may be
passed--focuses on reasonable procedures to safeguard information,
rather than mandating specific security practices and technologies. For
example, the Safeguards Rule, implemented under the Gramm-Leach-Bliley
Act, requires covered entities to develop a data security program that
is reasonable in light of the sensitivity of the information at issue,
the nature of the company's business operations, and the risks the
company faces. In creating its program, each company must designate an
official or officials to be responsible for the program, conduct a risk
assessment to determine the data security risks the company faces,
develop safeguards to address those risks, oversee service providers
who have access to company data, and adjust the plan to reflect
business changes and new risks to data. We believe that this approach
to data security is an appropriate one because it allows--indeed,
requires--companies to adapt their safeguards to new threats, new
technologies, and other changes over time.
Question 3. Has the Commission noticed any state efforts that have
provided greater security from identity theft for consumers?
Answer. A number of states have passed laws that require companies
and other entities to provide notice to consumers whose sensitive
identifying information has been breached. At least some of these laws
have contributed significantly to consumer awareness of the risks of
identity theft--both as to the specific breach and in general. The
increased awareness, in turn, can prompt consumers to take steps to
protect themselves. The notification laws vary as to when and how the
notice should be provided, what the notice should contain, and the
circumstances under which notification can be delayed. The Commission
supports the establishment of a Federal breach notification standard
that would require notice when the data breach creates a significant
risk of identity theft. A risk-based standard would mandate
notification in situations where the notice would be useful to
consumers by alerting them to the need to take protective measures. On
the other hand, requiring notification for remote risks may not be
beneficial to consumers, because the notices may cause consumers to
take costly, but unnecessary actions and may result in them ignoring
more significant incidents.\2\
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\2\ Commissioner Harbour believes that requiring breach
notification only when the risk of identity theft is ``significant''
may establish an unduly high threshold to trigger consumers' rights for
notification.
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Many states also have enacted credit freeze laws. Although there is
great variation among the states in how these provisions operate, in
general, they allow consumers to block all access to their credit
report, thereby, as a practical matter, preventing fraudsters from
opening new accounts in the consumer's name. In addition, the laws
typically allow consumers to release the freeze, either temporarily or
permanently. In some states, credit freezes are available only to
identity theft victims, while in others, any consumer can place a
freeze. State laws also vary on how promptly consumer reporting
agencies must set and release freezes and what charges, if any, they
allow the consumer reporting agencies to impose for placing or lifting
the freeze. Because the state credit freeze laws are quite recent, it
is difficult to assess their impact at this time. The President's
Identity Theft Task recommended in its April 2007 Strategic Plan that
the Federal Government assess the impact and effectiveness of credit
freeze laws and issue a report in the first quarter of 2008. FTC staff
plans to implement this recommendation by studying state credit freeze
laws and making any appropriate recommendations.
Question 4. Does the Commission believe there are areas where
Congress should further focus to protect consumers from identity theft?
Answer. As the Commission has stated in testimony before Congress,
the agency supports legislation that would require: (1) all companies
that maintain sensitive consumer information to implement reasonable
procedures to safeguard it, and (2) notice to consumers in the event of
a data breach that creates a significant risk of identity theft. The
significant risk standard balances the need to alert consumers to take
protective steps in situations where it makes sense to do so, with
concerns about ``over-notification.'' \3\ If consumers are flooded with
notices, they may start to ignore them, including in those situations
where the risk is high. Alternatively, some consumers may take
unnecessary actions, such as closing accounts or placing fraud alerts,
when there is little or no risk of identity theft.
---------------------------------------------------------------------------
\3\ Commissioner Harbour believes that requiring breach
notification only when the risk of identity theft is ``significant''
may establish an unduly high threshold to trigger consumers' rights for
notification.
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In addition, any data security legislation should grant civil
penalty authority to the Commission--authority that the Commission
currently lacks in the data security area except in very narrow
circumstances. Although many businesses have made progress in securing
their data, some have not taken their responsibilities seriously
enough. The prospect of civil penalties could significantly enhance
deterrence in this area and prompt businesses to pay the appropriate
level of attention to their data security practices.
Question 5. What safeguards should a company like T.J. Maxx have in
place to protect customers' data?
Answer. The Commission's cases and educational materials provide
detailed guidance about the practices the Commission regards as
reasonable and appropriate for companies that handle sensitive consumer
data. For example, the Commission's recent business guidance brochure,
Protecting Personal Information, provides businesses of all types and
sizes with practical advice on how to design and implement an effective
data security plan. See http://www.ftc.gov/infosecurity. It is not tied
to any particular law or regulation, and breaks down the data security
challenge to five basic steps: First, ``take stock'' of the sensitive
personal information you maintain--know what you are collecting.
Second, ``scale down''--only maintain the personal information
necessary to your business. Third, ``lock up'' the information that you
do maintain--secure it through appropriate physical and electronic
safeguards, employee training, and oversight of your service providers.
Fourth, ``pitch,'' or properly dispose of, the information that you no
longer need--for example, by shredding, burning, or otherwise
destroying it. Finally, ``plan ahead'' for security incidents. Make
sure your response is quick and effective by establishing procedures
beforehand to secure any compromised data and notify the appropriate
people of the incident.
In addition, the Commission's 14 enforcement actions provide
guidance regarding practices that the FTC has found to be inadequate to
protect sensitive consumer information. For example, in the FTC's case
against BJ's Wholesale Club (``BJ's''), the Commission alleged that
BJ's engaged in a number of practices that, taken together, failed to
provide reasonable security for sensitive credit card information,
including: (1) failing to encrypt information while in transit or while
stored on BJ's computer networks; (2) storing the information in files
that could be accessed using a commonly known default user ID and
password; (3) failing to use readily available security measures to
limit access through wireless access points on the networks; (4)
failing to employ measures sufficient to detect unauthorized access or
to conduct security investigations; and (5) storing information for up
to 30 days when BJ's no longer had a business need to keep the
information.
Question 6. What can consumers do to protect themselves from
identity theft?
Answer. While nothing can entirely eliminate the risk of ID theft,
consumers can minimize their risk if they manage their personal
information carefully by:
not providing information by phone/Internet/mail unless they
have initiated the contact
shredding sensitive documents before discarding them
guarding mail from theft
only carrying essential documents in their wallet
installing firewalls, anti-virus software and other
protections on their computers
placing passwords on critical electronic files, as well as
financial accounts.
Because identity theft may occur even when individuals have taken
all reasonable precautions, we encourage consumers to check their
credit reports regularly and review their billing statements and other
financial accounts for evidence of misuse. By taking these measures,
consumers can quickly discover possible misuse of their identity, and
in doing so limit the impact of the crime. The FTC has developed
extensive education materials on how consumers can protect themselves
from identity theft, which can be found at www.ftc.gov/idtheft.
Question 7. What viable options does Congress have to ensure that
consumers remain protected under the National Do Not Call Registry?
What further resources does the Commission need to maintain this
program? Please explain how the current telemarketing fee structures
work. Is this adequate to maintain the program? Are there any
improvements that can be made?
Answer. We appreciate the continued Congressional interest and
support of the National Do Not Call Registry, including the ongoing
appropriations and the introduction of renewed authorization
legislation. We currently are considering potential improvements to the
proposed authorization legislation, which we hope to discuss with the
Committee in the near future.
Pursuant to the Do-Not-Call Implementation Act, the Commission is
authorized to collect fees from telemarketers who access the national
registry. Under the current fee structure, telemarketers receive the
first five area codes of data at no cost. Starting with the sixth area
code, telemarketers are charged $62 per area code of data up to a
maximum of $17,050 for the entire registry. The registry also provides
access to exempt organizations at no cost. These are entities that are
not required by law to access the registry or refrain from calling
listed numbers but do so voluntarily in order to avoid calling
consumers who have expressed their preference not to receive
telemarketing calls. As a result of the current fee structure and
appropriations, the Commission has sufficient funds to implement and
enforce the ``do-not-call'' provisions of the Amended Telemarketing
Sales Rule.
Question 8. What is the FTC doing to educate consumers about the
need to reregister with the Do Not Call Registry Program? Why doesn't
the FTC allow these consumers to just stay on the list? Is
Congressional action needed to ensure that consumers do not have to
repeatedly reregister for the Program?
Answer. As you know, the National Do Not Call Registry started
accepting consumer registrations on June 27, 2003. Pursuant to the
Final Rule for the Amended Telemarketing Sales Rule (Statement of Basis
and Purpose), 68 Fed. Reg. 4580, 4640 (January 29, 2003), telephone
numbers remain on the registry for 5 years from the date of the most
recent registration. We are happy to discuss further with the Committee
the issue of requiring consumers to re-register their telephone
numbers.
Because registrations were initially accepted in June 2003,
consumers will need to reregister their telephone numbers beginning in
the Summer of 2008. In order to educate consumers about this
requirement, the Commission is planning a consumer education campaign
that will commence in the Spring of 2008. We will utilize various media
outlets to remind consumers of the need to re-register their telephone
numbers; how to register those numbers; how to verify that a number is
registered; and when the registration will expire. The Commission has
requested funds as part of its Fiscal Year 2008 appropriation to cover
the expenses associated with this consumer education campaign, and
staff has informed the Federal Communications Commission about our
plans.
Question 9. Do you think there are instances where Federal
legislation is needed to address price gouging? What are the
conditions, areas, or instances in which you think regulation would be
justified?
Answer. As the Commission has testified before a number of Senate
and House committees \4\ and discussed in its Spring 2006 report on
post-Katrina gasoline price gouging,\5\ a Federal price gouging law is
undesirable for several reasons. The most important reason involves
such a statute's predictable effects on markets and consumers in an
area affected by a disaster such as the hurricanes of 2005. Because a
price gouging law would impose a ceiling on prices, it could blunt the
incentives for consumers to curb their demand for the product and also
could discourage suppliers from sending more product into the affected
market. Indeed, the experience following Hurricanes Katrina and Rita
tends to illustrate the benefits of market forces. Because gasoline
prices were allowed to fluctuate in accordance with changing supply and
demand conditions in the Gulf states, consumers found ways to consume
less gasoline, while suppliers--both domestic and foreign--brought
large quantities of additional gasoline into the affected region.\6\
The result was that prices fell sharply a short time after the
hurricanes. Our investigation of post-Katrina gasoline pricing stated
that many of these beneficial supply and demand responses may not have
occurred if Federal price gouging or other forms of price control
legislation had been enforced across the board during the recovery
period. Therefore, a genuine concern for the welfare of consumers
militates against enactment of price-gouging legislation.\7\
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\4\ See, e.g., Prepared Statement of the Federal Trade Commission,
FTC Investigation of Gasoline Price Manipulation and Post-Katrina
Gasoline Price Increases, presented by Chairman Deborah Platt Majoras
before the Committee on Commerce, Science, and Transportation, U.S.
Senate (May 23, 2006).
\5\ Federal Trade Commission, Investigation of Gasoline Price
Manipulation and Post-Katrina Gasoline Price Increases, Part III
(Spring 2006).
\6\ Id. At 196 n. 64.
\7\ But see concurring statement of Commissioner Jon Leibowitz
(concluding that price gouging statutes, which almost invariably
require a declared state of emergency or other triggering event, may
serve a salutary purpose of discouraging profiteering in the aftermath
of a disaster), available at http://www.ftc.gov/speeches/leibowitz/
060518LeibowitzStatement
ReGasolineInvestigation.pdf.
Question 10. Are there other areas of price gouging that you think
the states are addressing in an appropriate manner?
Answer. The Commission has observed in Congressional testimony
that, if there is going to be enforcement of any price gouging laws, it
makes the most sense for officials of state and local government to
carry out that enforcement, since the overwhelming majority of
instances of alleged price gouging occurs at the retail level.\8\
Several state legislatures have made a choice to pass legislation on
this subject, and we respect their authority to do so. We would note,
however, that local enforcement can create the same distortions of the
market and the same injury to consumers as enforcement of a Federal
price gouging law.\9\
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\8\ See, e.g., Prepared Statement of the Federal Trade Commission,
Market Forces, Competitive Dynamics, and Gasoline Prices: FTC
Initiatives to Protect Competitive Markets, presented by John H.
Seesel, Associate General Counsel for Energy, before the Committee on
Commerce, Science, and Transportation, U.S. Senate (Sept. 21, 2005).
\9\ But see concurring statement of Commissioner Jon Leibowitz
(stating that ``[a]s noted in the Report, twenty-nine states and the
District of Columbia have price gouging laws that provide for either
civil or criminal penalties and, in some situations, both . . . Though
many complaints about retailer pricing were received and investigated
at the state level in the wake of Hurricanes Katrina and Rita, charges
were brought only against a select few. In other words, current state
price gouging laws appear to have been used judiciously post disaster
in a manner entirely unthreatening to the operation of the free
market''), supra note 5, at concurring statement p. 2, n. 4.
Question 11. Are the credit monitoring services providing a service
to consumers that is valuable to them? I know several companies are
purchasing credit monitoring services for people that have been exposed
in identity breaches.
Answer. Credit monitoring services--if promoted and sold in a
truthful manner--can help consumers maintain an accurate credit file
and provide them with valuable information for combating identity
theft. For example, credit monitoring services may provide notice to
consumers of any material change to one or more of their credit
reports, such as creation of a new account or a change of address.
Consumers who are risk-averse may choose to subscribe to monitoring
services to enable them to detect signs of incipient identity theft or
other changes to their credit status. These services are not the only
way for consumers to monitor their credit files, however. The FACT Act
gives every consumer the right to a free credit report from each of the
three major credit reporting agencies once every 12 months. Consumers
can stagger their requests from the three major agencies during the 12
month period. This important right is another tool for consumers to
protect themselves from identity theft.
Question 12. Does the FTC think that the application of the Credit
Repair Organizations Act or ``CROA'' to credit monitoring services is
proper? If not, does the Commission invite a legislative clarification
to the original CROA language?
Answer. As a matter of policy, we do not see a basis for having
credit monitoring services subject to all of CROA's specific
prohibitions and requirements, which were intended to rein in
fraudulent credit repair. In contrast, as mentioned in response to
Question 11, credit monitoring services do offer benefits to consumers
if promoted and sold in a truthful manner.
Drafting a legislative clarification poses challenges for effective
law enforcement. The breadth of the clarification must be considered
carefully. In the past, private sector groups have proposed legislative
language that would have exempted only credit reporting agencies from
CROA requirements. Such a proposal would raise two significant issues.
First, it could have a discriminatory effect on sellers of credit
monitoring services not covered by the exemption, including legitimate
companies that sell credit monitoring services but are not within the
exempted class. These companies would remain governed by CROA and thus
would be at a significant competitive disadvantage. For example, non-
exempted companies would be prohibited from accepting advance payment
for their services and would have to offer customers a three-day
cooling-off period, while exempted entities would not be so restricted.
Second, depending on the breadth of the exemption, it could allow
fraudulent credit repair firms to evade CROA. In enforcing CROA, we
have encountered many apparently fraudulent credit repair operations
that aggressively find and exploit existing exemptions in an attempt to
escape the strictures of the statute.\10\
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\10\ See, e.g., FTC v. ICR Services, Inc., No. 03C 5532 (N.D. Ill.
Aug. 8, 2003) (consent decree) (complaint alleged that defendant
falsely organized as a 501(c)(3) tax-exempt organization to take
advantage of CROA exemption for nonprofits); and United States v. Jack
Schrold, No. 98-6212-CIV-ZLOCH (S.D. Fla. 1998) (stipulated judgment
and order for permanent injunction) (complaint alleged that defendant
attempted to circumvent CROA's prohibition against ``credit repair
organizations'' charging money for services before the services are
performed fully).
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Commission staff would be pleased to work with Congressional staff
to provide technical comments on a legislative clarification that
balances the competitive and enforcement concerns with the original
goal of CROA which was to prohibit deceptive credit repair practices.
Question 13. How was the definition of business opportunity
crafted, and what exactly was it intended to capture?
Question 14. Can you give some examples of direct sales companies
that the FTC believes should not be covered by the rule?
Question 15. How many comments did the FTC receive in response to
the proposed rule, and what portion of those comments were negative?
Question 16. What is the current status of the rulemaking? Is there
an attempt to revise the definition so it is more narrowly and
appropriately targeted? What is the likely timetable toward any
progress on this effort?
Answers to Questions 13-16. The Commission is currently engaged in
an ongoing rulemaking proceeding concerning the Business Opportunity
Rule. As stated in its Notice of Proposed Rulemaking, the Commission's
aim is to craft a new Business Opportunity Rule that is narrowly
tailored to address unfair or deceptive practices in the sale of
business opportunities that result in substantial consumer injury. The
proposed definition of ``business opportunity'' is intended to capture
business opportunities that the Commission has identified over the
course of its law enforcement experience as having a high proclivity
for causing substantial consumer loss. These include vending machine
and rack display business opportunities, which have been covered under
the Franchise Rule and will continue to be covered by that Rule until a
final Business Opportunity Rule is implemented.
The proposed definition would also expand the scope of coverage to
reach work-at-home schemes, pyramid schemes, and other types of
business opportunities not within the scope of the current regulation.
(The Franchise Rule covers only business opportunities costing the
purchaser at least $500.)
The rulemaking records contains approximately 17,000 comments, and
staff is currently analyzing them. The staff will carefully consider
these comments as it determines next steps in the ongoing Business
Opportunity rulemaking proceeding. Unfortunately, the Commission is not
in a position to respond in more detail to these questions because of
the pending rulemaking proceeding.
Question 17. Has the telecommunications common carriers exemption
in the Federal Trade Commission Act created difficulties for the FTC in
its mission to protect consumers? Does it make sense to maintain the
exemption in light of the changing communications industry?
Answer. Yes, the exemption has created difficulties, and the
Commission does not believe it should be retained. The exemption is a
relic of an era when telecommunications services providers were
monopolies subject to close economic regulation by the Federal
Communications Commission (FCC). In the last forty years, Congress and
the FCC have eliminated most of the regime of economic regulation that
once applied to the telecommunications carriers. Today, numerous
providers of telecommunications services compete for consumers'
business. Telecommunications firms have also expanded their offerings
beyond traditional common carriage. The rationale behind the exemption,
therefore, is now obsolete.
The common carrier exemption is a serious impediment to our
consumer protection enforcement efforts. Because of the exemption,
consumers of many telecommunications services do not receive the
benefit of FTC enforcement of the FTC Act's prohibitions against
deceptive and unfair practices. We have found that the common carrier
exemption frustrates effective consumer protection with respect to a
wide array of activities in the telecommunications industry, including
advertising and billing practices. Moreover, as illustrated by the
broadband Internet access marketplace, technological advances have
blurred the traditional boundaries between telecommunications,
entertainment, and high technology. As the telecommunications and
Internet industries continue to converge, the common carrier exemption
is likely increasingly to frustrate the FTC's ability to stop deceptive
and unfair acts and practices with respect to interconnected
communications, information, entertainment, and payment services.
Question 18. Recently, some broadband providers have stopped
advertising an ``unlimited'' wireless data service because it was in
fact limited to 5 GB (gigabytes) per month. While the cap was described
in the service's terms and conditions, the marketing of the service was
misleading. Has the FTC examined these advertising campaigns or other
similar promotions that promise consumers more than the broadband
service delivers?
Answer. Over the last decade, the FTC has entered into consent
agreements with a half dozen Internet Service Providers (``ISPs'') to
resolve FTC allegations that their advertising, marketing, and billing
practices were deceptive. FTC staff continues to monitor the practices
of ISPs, including those offering broadband services, to ensure that
consumers receive truthful and accurate information about the products
and services offered. Staff uses a wide variety of tools to monitor
ISPs' practices including reviewing consumer complaints, reviewing
advertising and other marketing materials, and staying abreast of
discussions within the industry, consumer groups, and academic circles
about new and evolving business models for offering broadband services.
The FTC's Internet Access Task Force held a two-day workshop in
February to explore competition and consumer protection issues
involving broadband services. One of the panels at the workshop focused
solely on consumer protection issues, and addressed the importance of
broadband providers clearly and conspicuously disclosing material
information about their terms of service to consumers, including
information about speed and bandwidth limits. To date, the agency has
not brought any actions challenging conduct involving broadband
services. However, in general, the same standards that prohibit
deceptive and unfair trade practices by narrowband providers apply to
practices by broadband providers. Of course, we cannot disclose whether
or not any particular advertising campaign is currently under
investigation.
Question 19. What is being done to ensure that consumers are
getting the service speeds they are expecting when they sign up for
broadband access?
Answer. The Commission's Internet Access Task Force workshop
included discussions on the importance of truthful and accurate
representations to consumers about all material terms of their Internet
access agreements, including claims about connection speeds. Again, we
cannot disclose whether or not we have focused law enforcement
attention on any specific campaign, but we will monitor practices in
this area and take enforcement action as appropriate.
______
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
All FTC Commissioners
Question 1. Many smokers are under the impression that ``light'' or
``low tar'' tobacco products are not as harmful to their health. Is the
Cambridge Filter Method (now known as the FTC Method) effective for
measuring tar and nicotine levels in cigarettes? If not, is it in the
public's best interest for the Federal Trade Commission to let tobacco
companies advertise their products as ``light'' or ``low tar'' using
this method?
Answer. The Cambridge Filter Method, or FTC Method, determines
yields of tar and nicotine using a smoking machine that smokes every
brand of cigarettes the same way. However, the tar and nicotine ratings
obtained using this method do not represent the amounts of tar and
nicotine any particular smoker will receive from smoking a cigarette.
It is impossible to tell from the tar and nicotine ratings how much tar
and nicotine any individual smoker will get from smoking any particular
cigarette. First, people do not smoke cigarettes the same way the
smoking machine does. And second, no two people smoke cigarettes the
same way. Moreover, any cigarettes that receive ``lower tar'' ratings
when measured by this test method have filters with small vent holes in
the sides to allow air to dilute the smoke in each puff. It is easy for
smokers to cover the holes unknowingly, which results in their
receiving higher amounts of tar and nicotine than the amount obtained
using the machine. In addition, many smokers of cigarettes having lower
nicotine ratings tend to compensate by taking deeper and more frequent
puffs.
The Commission has been concerned for some time that the current
test method may be misleading to individual consumers who rely on the
ratings it produces as indicators of how much tar and nicotine they
actually will get from their cigarettes. In light of these concerns, in
1998, the Commission asked the U.S. Department of Health and Human
Services (``HHS'') to review the test methodology and to offer
recommendations as to whether and how the test method should be
changed.\1\
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\1\ Commissioner Harbour's view is that Congress should prohibit
the use of any claims based on the FTC test method and that Congress
should require improved testing and disclosures.
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Although the Commission brings a strong market-based expertise to
its scrutiny of consumer protection matters, it does not have the
specialized scientific expertise needed to design scientific test
procedures. In light of this, in its 1999 Cigarette Report, the
Commission recommended that Congress consider giving authority over
cigarette testing to one of the Federal Government's science-based,
public health agencies.
Question 2. R.J. Reynolds Tobacco has recently introduced a new
line of cigarettes called Camel No. 9. The advertising campaigns refer
to the product as ``light and luscious'' and come in flashy hot-pink
and minty-green teal packages. What is the Federal Trade Commission
doing to make sure this product is not being marketed to children?
Answer. The Commission is aware of the Camel No. 9 marketing
campaign, and of the concerns that some public health groups have
raised about the campaign. The Commission shares the concern that
cigarettes should not be marketed to children and adolescents. The
Commission could have authority to take action if there were evidence
indicating that the campaign had a significant appeal to and effect on
adolescents and/or children under the legal smoking age. Under such
circumstances, there could be reason to believe the campaign was
legally unfair under the FTC Act. It is unlikely that the Commission
would have authority to take action if the facts showed that Camel No.
9 cigarettes were targeted to adult females, absent evidence that the
cigarettes were marketed in a manner that was deceptive or that there
was a significant appeal to and effect on the illegal underage market.
Question 3. Given the fact that the industry continued to advertise
Camel cigarettes using the Joe Camel image despite the FTC's efforts in
the 1980's to stop the campaign, do you believe that the FTC now has
the kind of regulatory authority necessary to stop current or future
harmful tobacco advertising, especially advertising aimed at children?
Answer. Section 5 of the FTC Act gives the Commission authority to
take action against advertising, including tobacco advertising, that is
deceptive or unfair. The FTC's deception authority gives the Commission
jurisdiction to take action against advertising claims that are false,
misleading, unsubstantiated, or that fail to disclose material
information needed to prevent the advertisement from misleading
consumers. The Commission has used this authority, for example, to stop
cigarette companies from making false and misleading claims about the
serious adverse health effects of smoking.
The Commission's unfairness jurisdiction gives it authority to take
action against practices that cause or are likely to cause substantial
injury that is not offset by countervailing benefits. In the Joe Camel
litigation, the Commission used this authority to bring action against
advertising that caused or was likely to cause substantial injury to
children and adolescents under the age of 18.
At the same time, the Commission does not have general authority to
stop or limit advertising that is offensive or irresponsible, but not
legally deceptive or unfair. Of course, the Commission does not condone
sellers who market their products in an irresponsible fashion.
______
Response to Written Questions Submitted by Hon. Claire McCaskill to
All FTC Commissioners
Question 1. I understand that letters from more than 500
individuals, many of whom are Missouri constituents, including dairy
producers, industry professional and consumers across the country, have
been delivered to the FTC requesting action to stop reported deceptive
milk labeling and advertising. How do you plan to respond to these
claims?
Answer. The FTC has heard from individuals, including dairy
farmers, about their concerns regarding advertising that they allege
makes misleading claims about the health and safety benefits of milk
from cows that have not been treated with rBST (recombinant bovine
somatotropin), a synthetic growth hormone manufactured by Monsanto.
Many of these letters accompanied a complaint about this advertising
filed by Monsanto Company on February 27, 2007. In the past week, the
Commission has also received numerous post cards from dairy farmers
requesting a status report on the agency's handling of the complaint. A
copy of staff's letter responding to these post cards is attached. The
Commission has also received a letter from a dairy farmer expressing
concern about the Monsanto complaint and asserting that the public has
the right to know whether rBST has been used in the milk production
process. Although the Commission generally treats all such complaints
as non-public, the Monsanto complaint has been placed on the public
record at the company's request.
Commission staff carefully review such complaints. Also, as with
any matter that involves food labeling and advertising, the Commission
shares jurisdiction with the Food and Drug Administration and
coordinates closely with FDA staff in reviewing claims. FDA's expertise
with respect to such claims is particularly important to the FTC's
review, given that FDA approved the use of rBST and has subsequently
issued interim guidance on voluntary labeling claims for milk and milk
products from cows not treated with rBST.
Federal Trade Commission--Division of Advertising Practices
Washington, DC, August 21, 2007
Jodie Z. Bernstein, Esq.,
Dana B. Rosenfeld, Esq.,
Bryan Cave LLP,
Washington, DC.
Re: Monsanto Company Complaint on rBST-Related Claims
FTC Matter No. 072-3080
Dear Ms. Bernstein and Ms. Rosenfeld:
As you know, the submission that you filed with the Commission on
February 27, 2007 on behalf of Monsanto Company, various dairy
producers, and other interested parties was referred to the Division of
Advertising Practices for review. I am writing to inform you of the
staff's resolution of this matter.
Monsanto requested that the FTC investigate allegedly misleading
advertising and labeling claims relating to recombinant bovine
somatotropin (``rBST''), a synthetic growth hormone manufactured by
Monsanto and approved by FDA for use in dairy cows to increase milk
production. While Monsanto acknowledges that milk processors and
retailers ``have the right to inform customers about the use or non-use
of rBST,'' it expresses concern about advertising and labeling claims
that it believes may mislead consumers about the health and safety
implications of rBST-use. Monsanto submits that consumers are being
charged a premium for milk and other dairy products from cows not
treated with rBST based on misleading claims that such milk and dairy
products are healthier or safer for consumers than dairy products from
cows treated with rBST.
The staff has completed its review of your original submission and
subsequent filings in this matter and has conducted an independent
review of websites and other marketing materials by the milk processors
and other parties that were referenced in those filings. The staff has
also reviewed FDA's 1994 ``on the Voluntary Labeling of Milk and Milk
Products From Cows That Have Not Been Treated With Recombinant Bovine
Somatotropin'' \1\ and has consulted with FDA staff regarding the
agency's policy on rBST-related labeling claims.\2\
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\1\ The 1994 Interim Guidance is available on FDA's website at
http://www.cfsan.fdagov/ lrd/fr940210.html.
\2\ As you are aware, the FTC shares jurisdiction with FDA over
food marketing. Under a liaison agreement between the two agencies, FDA
has primary authority over the regulation of claims made in labeling
and the FTC has primary authority over claims made in advertising.
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In approving rBST use to increase milk production, FDA determined
that milk from rBST-treated cows is safe for human consumption and that
there is ``no significant difference between milk from treated and
untreated cows.'' Under its current policy, FDA does not object to food
companies making labeling claims that they do not use rBST, provided
the claims are truthful and that, in the context of the entire label,
they do not mislead consumers to believe that milk from cows not
treated with rBST is safer or of higher quality. To avoid misleading
implications, FDA suggested in its 1994 interim guidance that claims
about rBST be accompanied by information that puts the claim in its
proper context. For example, a statement that milk is ``from cows not
treated with rBST'' might be accompanied by the statement ``No
significant difference has been shown between milk derived from rBST-
treated and non-rBST-treated cows.'' The guidance, however, does not
require this accompanying statement and recognizes that proper context
could also be achieved by conveying a firm's reasons (other than safety
or quality) for choosing not to use milk from cows treated with rBST,
so long as the label is truthful and not misleading.
The FTC staff agrees with FDA that food companies may inform
consumers in advertising, as in labeling, that they do not use rBST,
but should be careful not to suggest a human health or safety benefit.
At this time, there does not appear to be an adequate scientific basis
for claims that milk from cows treated with rBST presents health or
safety risks to consumers. In the absence of such scientific evidence,
claims that suggest either directly or by implication any link between
rBST use and human health and safety would be unsubstantiated and thus
deceptive.\3\ The ``no significant difference'' disclaimer is one
possible approach to ensure that statements that rBST has not been used
do not convey misleading claims about health or safety.
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\3\ Because all milk naturally contains hormones, including natural
BST, it could also be deceptive to suggest that the milk or dairy
product itself, rather than the production process, is rBST-free or
hormone-free.
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The FTC staff has reviewed rBST-related claims for all of the
companies referenced in the Monsanto submission and subsequent filings.
Although many companies reference rBST in product labeling and on
company websites, the staff did not find any examples of national or
significant regional advertising campaigns that made express or implied
claims linking rBST to human health and safety. In addition, the
majority of websites for companies cited by Monsanto as making rBST-
related claims appear to include some variation of the ``no significant
difference'' disclaimer.\4\ The staff did identify, however, a few
instances of companies making unfounded health and safety claims about
rBST, primarily on their websites. Some of these companies appear to be
small, locally operated businesses. The staff has conveyed its concerns
to the companies at issue, and those companies are in the process of
revising their marketing materials.
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\4\ Some of these websites have already been modified since
Monsanto's original submission to remove safety discussions and to
include the ``no significant difference'' disclaimer.
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Given the limited nature and scope of advertising making rBST-
related health and safety claims and the willingness of the companies
contacted by staff to make modifications to their advertising, we have
determined that formal investigation and enforcement action is not
warranted at this time. Please feel free to contact me if you have any
questions regarding this matter.
Very truly yours,
Mary K. Engle,
Associate Director.
Question 2. Do you have a plan to bring an end to these deceptive
advertising and marketing practices?
Answer. As you are aware, the Commission is directed to act in the
interest of all consumers to prevent unfair or deceptive advertising
pursuant to the Federal Trade Commission Act, 15 U.S.C. 41-58.
Should staff determine as a result of its review that there is a reason
to believe that a violation of the FTC Act has occurred, we will make a
decision at that point about the most appropriate course of action. In
determining whether to take action, the Commission considers a number
of factors, including the types of violations alleged and the nature
and amount of consumer injury. We focus our efforts on those areas that
may affect the greatest number of consumers, may pose a risk to
consumers' health or safety, or may cause significant economic harm to
consumers.
Question 3. If so, what is your timeline for implementing your
plan?
Answer. The staff is currently evaluating this complaint to
determine what agency action, if any, is warranted in this matter. The
timing of that evaluation and any subsequent action depends on many
factors including the complexity of the issues and the availability of
staff resources. The FTC Act and implementing regulations prohibit the
public disclosure of more specific information regarding the existence
or status of any particular staff investigation. In the event that the
Commission determines that formal law enforcement action is warranted
and votes to issue a complaint against one or more parties, or in the
event that the staff takes other formal action to resolve the matter,
we will notify the Committee promptly.
Question 4. Are you taking any steps to communicate broadly to the
industry about the standards for truthful non-deceptive advertising
practices with respect to milk and dairy products?
Answer. A central part of the Commission's mission is to
communicate to industry about standards for truthful non-misleading
advertising practices. The Commission has numerous business education
pieces that provide guidance to advertisers, including guidance pieces
relating to food advertising and to health-related claims. These pieces
are available on the Commission's website and disseminated in a variety
of other ways. In addition, as already noted, the FDA has provided
specific interim guidance regarding the use of voluntary labeling
claims about rBST. The FTC has not issued any specific additional
guidance to industry on this issue.
______
Response to Written Questions Submitted by Hon. Maria Cantwell to
Hon. Deborah Platt Majoras
Question 1. Chairwoman Majoras, given your stated opposition to any
legislation relating to oil and gas price gouging, how do you propose
protecting consumers from instances, such as those discovered following
Katrina, in which refineries purposely short supply in order to
increase prices?
Answer. Our extensive investigation of post-Katrina price increases
did not find instances in which refineries withheld supply in order to
increase prices. We simultaneously conducted an investigation, as
required by Section 1809 of the Energy Policy Act of 2005, to
``determine if the price of gasoline [was] being artificially
manipulated by reducing refinery capacity or by any other form of
market manipulation or price gouging practices.'' \1\ We did not find
any evidence of market manipulation by withholding supplies or by any
other anticompetitive behavior. Our investigation concluded that ``no
single refiner has a large enough market share to manipulate prices
unilaterally through either underinvestment in capacity or reduction of
refinery output,'' and the investigation revealed no evidence that any
unilateral manipulation was occurring. The investigation also revealed
no evidence that coordination to manipulate prices had occurred.\2\ In
fact, the investigation found quite the opposite: ``After both Katrina
and Rita, refineries unaffected by the hurricanes increased gasoline
production and capacity utilization, consistent with behavior in a
competitive market. The increase in gasoline output was most noticeable
in the Midwest and on the East Coast, two regions of the country that
experienced sizable price increases after the hurricanes.\3\
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\1\ Energy Policy Act of 2005, Pub. L. 109-58 1809, 119 Stat. 594
(2005).
\2\ Federal Trade Commission, Investigation of Gasoline Price
Manipulation and Post-Katrina Gasoline Price Increases 20 (Spring
2006).
\3\ Id. at 76.
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I strongly believe that the antitrust laws, as presently
constituted and enforced, provide the best possible protection for
consumers not only from collusive activity but also from unilateral
actions by firms with market power designed to raise prices above
competitive levels. Recent proposals to enact price gouging legislation
are likely to have unanticipated consequences that will harm consumers:
although a price gouging law might place an artificial cap on prices in
the very short run, it is likely to exacerbate supply shortages in the
longer run. In a competitive economy, prices are determined by the
market forces of supply and demand, and that means that prices will
rise--even absent any anticompetitive conduct--when supply is curtailed
or demand spikes suddenly. We know, however, that rising and falling
prices are the market mechanism that tempers consumer demand, induces
more supply into the market, and thus brings the benefits of
competition to consumers.
Indeed, just as economic theory would predict, in the months after
Hurricane Katrina made landfall, normal forces of supply and demand in
petroleum product markets mitigated the dramatic post-hurricane price
spike. Not only did the sudden rise in gasoline prices curb consumer
demand--and thus immediately relieve the upward price pressure
experienced in the aftermath of last year's Gulf Coast hurricanes--but
higher gasoline prices also signaled suppliers to bring more product to
the most severely affected areas of the country, further blunting the
price increases. For example, imports of large quantities of gasoline
to United States ports from European and other locations damped the
price increases. In addition, because of increased refinery utilization
and a shift in output from other products to gasoline, the production
of gasoline increased at U.S. refineries outside the hurricane zone.
This increase in gasoline production--which became profitable for these
refineries precisely because of the post-hurricane gasoline price
increase--ultimately led gasoline prices back down following the
initial shock of the hurricanes.
Question 2. Chairwoman Majoras, I appreciate that the Commission is
continuing to study market irregularities that occurred in Eastern
Washington during the Summer and early Fall months of 2006. On October
19, 2006, you responded to my initial inquiry and on October 27, 2006,
I responded asking you to delve further into a number of the
irregularities highlighted in your initial report. With gas prices in
Washington State and across the country on the rise again, those prices
and this inquiry into them have once again become top issues for my
constituents. You have indicated that a full study of this incident
will take some time. Given the heightened impact of increasingly high
gas prices not only to those in Washington State but also to entire
country, what is the shortest possible time period within which this
study could be completed?
Question 3. According to the figures included in the Commission's
October 19, 2006 letter, the reported retail prices for diesel in
Spokane and Salt Lake City (SLC) track very closely, but retail
gasoline prices in Spokane are often 10 to 15 cents per gallon (CPG)
higher than in SLC--at one point, reaching 20 cents higher per gallon.
Has the Commission assessed the cause for these retail price
differentials between fuels?
Question 4. The Commission's preliminary analysis offered the
possibility that shifts in refinery output mix at PADD IV refineries
account for the recent prices, above the Commission's predicted range
for both Spokane and SLC. For the two-month period beginning August 15,
2006, were there any refinery product allocation shifts or attendant
downtimes that could account for the observed price effects?
Question 5. The Commission speculated, based on third party sources
including press accounts, that PADD IV experienced ``greater difficulty
in handling this year's nationwide conversion to ultra-low sulfur
diesel (ULSD) fuel.'' That raises the question of why PADD IV
refineries experienced this problem, while other refineries nationwide
(such as in PADD V) presumably did not. Were those conversion
difficulties encountered by all PADD IV refineries, or a subset of
those supplying Eastern Washington? I understand that refiners had
years to prepare for the transition to ULSD, and would presume any
individual refinery would know of its own impending transition issues.
As such, why didn't parent companies with refineries across the country
work to shift ULSD product from successful production areas to those
with shortages?
Question 6. The Commission's preliminary analysis concluded that
exogenous supply factors account for all of the Spokane area's high gas
prices. Did the Commission test this theory by comparing prices in
small rural markets surrounding Spokane, which often have lower prices
than the metropolitan area? I understand from the Commission's letter
that the FTC's Gasoline and Diesel Price Monitoring Project monitors
fuel price data from a number of these locales.
Question 7. Did refineries in the PADD IV region derive profits
higher than historic averages following supply shortages caused by
difficulties transitioning to ULSD? In general, how have PADD IV
refineries expanded output to meet growing demand in the Rocky Mountain
region?
Answer to Questions 2-7. I am aware of and share your concerns
about the impact of high gasoline prices on consumers in Washington
State and around the country. Because the questions you raise are
similar to questions originally included in your letter to me dated
October 27, 2006, I appreciate your staff clarifying that you are
expecting only one response to Questions 2-7. As discussed earlier this
year with your staff, the general thrust of the questions, and the
Commission's own observations, pointed to issues of broad interest with
respect to bulk supply and demand conditions and practices in the
Northwest. The FTC staff is examining these issues--a process that
itself takes significant time and effort--but my plan is to have a
response by the end of this year.
Question 8. Chairwoman Majoras, Section 215 of the Fair and
Accurate Credit Transactions Act of 2003 required the FTC to complete a
study, within 2 years of enactment, on the potential disparate impact
the use of credit scoring for insurance purposes has on protected
classes of consumers. The study is still pending. What has caused the
delay in the FTC completing the study? My understanding is that the
data set the Commission has chosen to use for its analysis comes from
an insurance industry-sponsored study. How is the Commission going to
ensure that the data set provided is accurate and not biased? Will it
be possible for third parties to verify that the data set provided by
the insurers is accurate and not biased?
Answer. Shortly after the enactment of the Fair and Accurate
Transaction Act of 2003, the Commission commenced studying the impact
of credit scoring for insurance purposes on consumers and competition.
Because the study will prove valuable to policymakers considering a
wide variety of issues related to credit scoring and insurance, the FTC
has focused on developing a sound empirical basis, for the study. The
Commission is committed to completing a valid study as soon as
practicable. The main reason that the study has not been completed yet
is that the agency staff has faced substantial logistical challenges in
combining massive amounts of sensitive consumer information received
from many different sources into its database. Late last Summer, FTC
staff received the last critical information for this database. At this
time, the agency staff is completing its analysis of the data and
preparing the required report.
The study will be methodologically sound and based on reliable and
accurate data. It is correct that the core of the FTC's staff database
is information a consulting firm compiled for an insurance industry
study of the relationship between credit-based insurance scores and
claims risk. Nevertheless, the FTC staff has confidence in the
reliability of its database and results that will be drawn from it.
First, insurers submitted the information knowing that the Commission
could compel its production if the agency had any concerns the data had
been manipulated and that it is unlawful to make false statements to
the government. Second, because the FTC staff used Social Security
Administration data on race, ethnicity, and national origin, and
insurers do not have access to this critical information, it would be
hard for them to manipulate the information in the database. Third, FTC
staff has compared its information and results with other publicly
available studies and independent data on the claims histories of the
consumers in its database, which increases its confidence in the
information's reliability and accuracy. Consequently, although third
parties will not have an opportunity to verify independently the
accuracy of the database information, which is confidential, the FTC
staff is confident that third parties who review the study carefully
will conclude that its methodology is sound and that the underlying
data used are reliable and accurate.
Question 9. Chairwoman Majoras, I applaud the Commission's ongoing
efforts to reduce identity theft. The FTC is Co-Chair of the
President's Identity Theft Task Force, which sent out its interim
recommendations for public comment that were due on January 19, 2007.
When will the interim recommendation be finalized?
Answer. Attorney General Gonazales and I released the Task Force
report, Combating Identity Theft: A Strategic Plan on April 23, 2007, a
copy of which is attached.* The plan, as well as a
supplemental volume that describes current and ongoing measures to
address identity theft, can be accessed at www.idtheft.gov. The Plan
contains 31 recommendations aimed at making it more difficult for
thieves to steal sensitive consumer data, preventing the misuse of such
data if it is stolen, improving tools for investigation and prosecution
of identity theft crimes, and facilitating recovery for victims. The
task force agencies and other governmental offices are now working on
implementing the recommendations as expeditiously as possible.
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\*\ The information previously referred to is maintained in the
Committee files.
Question 10. Chairwoman Majoras, as we discussed, I am interested
in understanding the links between meth crimes and identity theft
crimes. Anecdotally, local law enforcement officials in Washington
State have described to me the apparent linkages between these two
crimes. I want to determine if there is data that can be used to
identify relationships and patterns between these crimes that can
assist law enforcement. That is the reason why I introduced a bill in
the 109th Congress as well as an amendment to the Identity Theft
Protection Act of 2005 that required a detailed analysis of the
correlation between methamphetamine use and identity theft crimes. My
amendment to the Identity Theft Protection Act of 2005 that will likely
be included in the introduced version of the Identity Theft Protection
Act of 2007 calls for the FTC, in conjunction with the Department of
Justice and other Federal agencies, to undertake a study of the
correlation between methamphetamine use and identity theft crimes. Do
you envision any inter-agency coordination issues in having the FTC
take the lead on this study?
Answer. The FTC has worked effectively and collaboratively with the
Department of Justice and the Federal criminal investigative agencies
on various issues regarding identity theft, and would not foresee any
coordination issues with respect to a study of the relationship between
methamphetamine use and identity theft. As you know, the FTC is a civil
agency with no direct criminal enforcement authority. Because our
criminal enforcement partners have hands-on experience with the issues
regarding methamphetamine labs and identity theft through their
investigative and prosecutorial functions, they would be well-
positioned to lead such a study. The FTC, of course, would be prepared
to provide whatever assistance and guidance it can for such a study.