[Senate Hearing 111-]
[From the U.S. Government Publishing Office]



 
  FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL 
                               YEAR 2011

                              ----------                              


                         THURSDAY, MAY 20, 2010

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 3:03 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Richard J. Durbin (chairman) 
presiding.
    Present: Senators Durbin and Collins.

                        FEDERAL TRADE COMMISSION

STATEMENT OF HON. JON LEIBOWITZ, CHAIRMAN

             OPENING STATEMENT OF SENATOR RICHARD J. DURBIN

    Senator Durbin. Good afternoon.
    I am pleased to welcome you to this hearing before the 
Financial Services and General Government Appropriations 
Subcommittee.
    And my apologies for running a few minutes late. We had a 
vote at 2:30 and had to wait until the end to make sure that 
everything turned out just right.
    Today's hearing focuses on the Federal Trade Commission 
(FTC), both in the agency's budget request for fiscal year 2011 
and on oversight.
    Testifying before us this afternoon is the Chairman of the 
FTC, Jon Leibowitz.
    Thank you for being here.
    Mr. Leibowitz. Thank you.
    Senator Durbin. I welcome my distinguished ranking member, 
Senator Susan Collins of Maine.
    Consumers are affected every day by the Federal Trade 
Commission's work. Thanks to the Federal Trade Commission, 
consumers receive fewer telemarketing calls and e-mail spam, 
obtain free credit reports, receive identity theft victim 
assistance, can rely on truthful information on products and 
services, and benefit from competition in the marketplace 
through lower prices, more choice, and higher-quality products 
and services.
    Funding provided to the FTC supports these successful 
outcomes. Over the past 3 years, the Federal Trade Commission 
saved consumers more than $1.4 billion in economic injury by 
stopping illegal practices in the marketplace. Last year alone, 
the FTC took action against mergers likely to harm competition 
in markets, with a total of $22.3 billion in sales. Since 2006, 
the FTC's budget has grown to support a staff of 1,170, a 
cumulative 4-year staffing increase of 16 percent. New staff 
have enhanced the agency's ability to protect consumers and 
preserve competition. The growth of the staff and budget 
reflect a rapidly evolving and sophisticated marketplace. As 
technology continues to transform, consumers are enjoying 
revolutionary services and information unimaginable just a 
short time ago.
    But, unfortunately, the risk from new technology has also 
increased, such as identity theft, privacy violation, and data 
security concerns. Newly hired FTC staff have been assigned to 
respond to these increased risks, not just through enforcement, 
but also through education of consumers and industry.
    Funds provided to the FTC have also allowed the Commission 
to focus on risks from the current economic downturn. 
Unemployment and the foreclosure crisis have created prime 
opportunities for fraudsters to prey on financially vulnerable 
Americans. Since 2009, the FTC, working with States and other 
agencies, has been involved in bringing more than 200 cases 
against firms deceiving homeowners into paying for bogus 
mortgage modifications and foreclosure-avoidance schemes.

                           PREPARED STATEMENT

    I am not going to go through the rest of my statement here, 
but make it part of the record, because I'm anxious to give my 
colleague a chance and then to open it up to questions.
    [The statement follows:]
            Prepared Statement of Senator Richard J. Durbin
    Good afternoon. I am pleased to welcome you to this hearing today 
before the Financial Services and General Government Appropriations 
Subcommittee.
    Today's hearing focuses on the Federal Trade Commission, both on 
the agency's budget request for fiscal year 2011 and on oversight of 
previously appropriated funds.
    Testifying before us this afternoon is the Chairman of the FTC, Jon 
Leibowitz.
    I welcome my distinguished Ranking Member Susan Collins, others who 
join me on the dais today and others who may arrive.
    Consumers are affected every day by the FTC's work. Thanks to the 
FTC, consumers: receive fewer telemarketing calls and e-mail spam; 
obtain free credit reports; receive identity theft victim assistance; 
can rely on truthful information about products and services; and 
benefit from competition in the market through lower prices: more 
choice, and higher quality products and services.
    Funding provided to the FTC supports these successful outcomes for 
consumers.
    Over the past 3 years, the FTC saved consumers more than $1.4 
billion in economic injury by stopping illegal practices in the 
marketplace.
    And last year alone, the FTC took action against mergers likely to 
harm competition in markets with a total of $22.3 billion in sales.
    Since 2006, the FTC's budget has grown to support a staff of 1,170, 
a cumulative 4-year staffing increase of 16 percent.
    New staff have enhanced the agency's ability to protect consumers 
and preserve competition in the marketplace.
           new technologies, financial fraud spur ftc growth
    The growth of FTC's staff and budget reflects a rapidly evolving 
and sophisticated marketplace. As technology continues to transform, 
consumers are enjoying revolutionary services and information 
unimaginable just a decade ago.
    But unfortunately, the risks from new technology and capabilities 
have also increased, such as identity theft, privacy violations, and 
data security concerns. Newly-hired FTC staff have been assigned to 
respond to these increasing risks, not just through enforcement but 
also through education of consumers and industry.
    Funds provided to the FTC have also allowed the FTC to focus on 
risks resulting from the current economic downturn.
    Unemployment and the foreclosure crisis have created prime 
opportunities for fraudsters to prey on financially vulnerable 
Americans.
    Since 2009, the FTC, working with states and other agencies, has 
been involved in bringing more than 200 cases against firms deceiving 
homeowners into paying for bogus mortgage modifications and foreclosure 
avoidance schemes.
    To reduce mortgage-related scams in the long term, the FTC has 
initiated a rulemaking proposing to prohibit companies from charging 
fees in advance of any loan modification services and to require 
specific disclosures so that consumers can make informed decisions.
           market monitoring and analysis prompts ftc growth
    Staffing increases over the last several years have also enhanced 
the FTC's ability to monitor and review the competitiveness of 
increasingly complex industries. One of these is the petroleum market. 
Americans rely on this market for transportation and to heat and light 
our homes and businesses.
    The FTC continuously monitors gas and diesel prices to track trends 
and potential market distortions. Just last year, the FTC created a new 
rule to prohibit fraud and deceit in wholesale petroleum markets. The 
FTC also educated businesses on compliance with the specific directives 
included in the new rules. Together these steps will enhance the 
competitiveness of the petroleum market.
                             future funding
    For fiscal year 2011, the FTC requests $314 million. This is an 
increase of 7.6 percent over the fiscal year 2010 enacted level and 
would allow the FTC to hire 40 new staffers in similar growth areas 
from previous years. In particular, the FTC requests to add staff to 
handle the increasing workload related to financial practices, privacy 
and data security, and complex merger transactions.
    I look forward to discussing these and other issues with you.

    Senator Durbin. But, Mr. Chairman, thank you for being 
here.
    My apologies, again, for running late.
    Mr. Leibowitz. No problem.
    Senator Durbin. Senator Collins.

                   STATEMENT OF SENATOR SUSAN COLLINS

    Senator Collins. Thank you, Mr. Chairman.
    I appreciate your holding this hearing on the budget 
request of the Federal Trade Commission.
    As you pointed out, the FTC deals with issues that affect 
the economic life of all Americans. Through its administration 
of a wide variety of consumer protection laws, the FTC protects 
consumers from deceptive practices, such as fraudulent and 
predatory scams, identity theft, and credit fraud. The FTC also 
works to help American consumers by preventing unfair methods 
of competition in the marketplace.
    I've long had an interest in combating consumer fraud. As 
the chairman may recall, when he was a member of what was then 
the Governmental Affairs Committee, we worked together on a lot 
of consumer fraud hearings.
    Unfortunately, today we see that the incidence of fraud and 
predatory scams appears to be on the rise as con artists prey 
on citizens, particularly the elderly, who are facing financial 
hardship. And, unfortunately, in tough economic times, people 
seem to be more vulnerable to scams and schemes because, in 
many cases, they are in desperate financial straits. These con 
artists exploit these tough economic times to lure Americans 
into scams that look and sound legitimate.
    At the Homeland Security Committee, we held hearings at 
which the FTC Chairman testified, looking at the scams 
associated with the stimulus bill last year. These con artists 
not only rob their victims of money, but also of their dignity. 
And that, in many cases, can make senior citizens reluctant to 
come forward and seek the help that they deserve.
    I look forward to hearing from Chairman Leibowitz on the 
FTC's most recent efforts to identify and publicize these types 
of scams and other financial frauds.
    I'm also very interested to learn more about the FTC's 
efforts to address anticompetitive pay-for-delay patent 
settlements, which keep lower-cost generic drugs off the market 
and cost consumers and taxpayers billions of dollars. And, 
judging from the charts before us, I think that the Chairman is 
going to address that issue, and I'm very glad that he is.
    Finally, as I represent a State that borders Canada, I'm 
also interested to hear more about the Commission's effort to 
combat cross-border fraud, which periodically rears its ugly 
head in my State.
    I also look forward to getting into a discussion about 
certain privacy issues, such as whether the FTC is 
investigating allegations against Google violating the privacy 
rights of our citizens as through its street view mapping 
activities. That's the allegation, and I look forward to 
discussing that, as well.
    Thank you, Mr. Chairman.
    Senator Durbin. Thank you, Senator Collins.
    Chairman Leibowitz.

                SUMMARY STATEMENT OF HON. JON LEIBOWITZ

    Mr. Leibowitz. Thank you so much, Chairman Durbin, Ranking 
Member Collins, for inviting me to testify today, and for those 
very kind words about our agency.
    As you know, the mission of the Federal Trade Commission is 
extraordinarily broad. And we pursue it vigorously, but with a 
very limited number of people.
    For fiscal year 2011, we're requesting $314 million and 
1,207 FTEs. But, to put that into perspective, in 1979, when 
the population of the United States was only 225 million, 
before the Do Not Call list, before Internet scams, actually 
before the Internet, and a host of new statutory 
responsibilities, the FTC had nearly 1,800 FTEs.
    With the active support of this subcommittee, we have been 
aggressive in our efforts to protect consumers from unfair and 
deceptive acts and unfair methods of competition. We look 
forward to doing even more in 2011. And we're going to have to 
do more, because, unfortunately, the recession has meant that 
American consumers are at an even greater risk than usual for 
financial frauds.
    As scams have proliferated, we have tried to step up our 
efforts to stop them. Since the beginning of last year, the FTC 
has brought more than 40 cases against fraud targeting 
financially distressed consumers--and we're partnering more 
with the State attorneys general these days, although we always 
have--we've brought more than 300 cases to shut down 
foreclosure rescue scams, fake job offers, and, as you 
mentioned, Senator Collins, phony access to Federal stimulus 
money.
    These sorts of scams are not new. In the last decade, 
sadly, we've recovered nearly $500 million for consumers who 
lost their money in the financial frauds area alone, which is a 
strikingly large amount of money.
    The Commission has also used the rulemaking authority that 
you provided for us. In February, we proposed the rule that 
would ban advance fees by mortgage modification companies. And 
we expect to complete that rulemaking this summer. As we've 
seen in our law enforcement actions, far too often, consumers 
pay thousands of dollars in advance for these services, but 
they receive nothing in return. And that's often because these 
scams have 95 percent of their employees in sales and 3 percent 
of their employees doing modifications. The Commission has also 
proposed rules in the debt settlement and mortgage servicing 
and advertising areas.
    We continue to prioritize consumer privacy and data 
security. We bring actions against companies that don't 
adequately protect consumers' personal information; we've 
brought 29 cases, to date. And we provide information to 15,000 
consumers a week who call about identity theft.
    Emerging technologies and business models, including social 
networking behavioral advertising, hold significant promise for 
consumer benefits, but also, as you mentioned, risks to 
privacy. So we are examining them closely. We've held a series 
of roundtables. We plan to share what we've learned and make 
recommendations later this year.
    Do Not Call continues to be a success. I was almost going 
to say ``ringing success,'' but I thought that would be a bad 
pun. But, I guess I did, and I guess it was. We anticipate 
that, by the end of June, 200 million numbers will be 
registered. The FTC took action in the past year against eight 
companies making robocalls. We've recovered $40 million in 
fines over the past 5 years for Do Not Call violations. Just 
recently, we shut down one company--and the investigation was 
done out of our Chicago regional office--that alone placed more 
than 1 billion calls offering auto warranties.
    Today, we're announcing a major case against AMS Financial 
for falsely representing that they could lower consumers' 
credit card interest rates and making illegal robocalls. We 
obtained a temporary injunction--or a restraining order in this 
case, freezing the defendant's assets. And we worked with 
several State attorneys general, including the wonderful Lisa 
Madigan, to do it.
    We've also challenged hidden fees in prepaid telephone 
cards. And today we're announcing a $500,000 settlement with 
Diamond Phone Card, which targeted the immigrant community. And 
you can see, this is their ``Hasta la vista'' card. It purports 
to give you a certain number of minutes for $2, but, in fact, 
it gave consumers far less than that.
    Protecting non-English speakers is a task we take very, 
very seriously. We produce most of our consumer educational 
material in both English and Spanish.
    And we make extensive efforts to protect other vulnerable 
populations, including outreach activities to alert senior 
citizens to fraud and reverse mortgages. We've brought multiple 
cases involving senior citizens in the last 1\1/2\ years.
    And we have various initiatives underway to protect 
children. In the last year, we've distributed an online 
Internet safety guide called ``Netcetera'' to school 
districts--you may have copies on your desk; launched a kid-
friendly campaign to teach kids how to evaluate advertising; 
and released our seventh entertainment-industry marketing 
report. And just as critically, pursuant to this subcommittee's 
direction, we are leading a multiagency task force on marketing 
food to children.
    And, as you know, we also enforce the Federal antitrust 
laws in a wide range of areas, including healthcare, 
technology, energy, consumer goods and services, and the top 
priority, as you mentioned, Senator Collins, of the 
Commission's competition agenda--and we take a greatest-good-
for-the-greatest-number-of-people approach--is stopping pay-
for-delay settlements between brand name and generic drug 
makers. To be blunt, these are really sweetheart deals, and we 
estimate that it costs consumers about $3.5 billion a year.
    And here's what really is going on: A brand name drug 
company will sue a generic company. And they claim that the 
generic has violated their patent. And then they turn right 
around and they settle the case, literally by paying off the 
generic not to compete. So, the brand continues to charge 
monopoly prices. The generic companies collect a big fat 
paycheck. And consumers keep paying higher prices for much-
needed medicines.
    And so, it's win-win for the companies, but it is 
absolutely lose-lose for consumers. And because of a few 
misguided court decisions in 2005, as you can see, the problem 
has only gotten worse. There wasn't a single pay-for-delay deal 
in 2004. The two adverse decisions, which, of course, we 
disagreed with, came down at the end of 2005. And you can see, 
as our chart shows, there were a record 19 deals like this last 
year.
    Every single Commissioner at the Federal Trade Commission 
supports ending these deals. And we're currently litigating two 
cases, with the hope of getting one to the Supreme Court. 
Today, we filed an amicus brief in the second circuit on a pay-
for-delay case, along with 34 State attorneys general, 
including the State attorneys general of Maine and Illinois; 
they filed a companion brief.
    A much quicker solution, however, would be legislation that 
ends this unconscionable practice. And so, we greatly 
appreciate the cosponsorship of both you, Mr. Chairman, and 
you, Ranking Member Collins, of precisely that legislation. And 
we're hopeful, because the bill passed the Senate Judiciary 
Committee, the full House, and we have the endorsement of the 
President to abolish this practice, that it's possible we can 
get it done this year.
    And I'd like--in my last 4 seconds, I ask unanimous consent 
for 15 additional seconds, just to mention one more----
    Thank you so much, Mr. Chairman.
    I'd like to talk about just one other area of particular 
focus for the Commission, and that's gasoline prices. When the 
price of gasoline hit $4 a gallon in mid-2008, every household 
in the country felt the impact. Everyone in this room did. And 
we realize how important it is that petroleum markets remain 
competitive. So, in the past year, we've added to our arsenal 
by adopting a rule prohibiting manipulation of wholesale 
petroleum markets and allowing us to fine violators.

                           PREPARED STATEMENT

    We're doing a lot of other important work. I would be glad 
to talk about it, but I know I've exceeded my time, so I'm 
happy to answer questions.
    [The statement follows:]
                  Prepared Statement of Jon Leibowitz
                              introduction
    Chairman Durbin, Ranking Member Collins, and Members of the 
Subcommittee, I am Jon Leibowitz, Chairman of the Federal Trade 
Commission (``FTC'' or ``Commission'').\1\ I appreciate the opportunity 
to appear before you today, to testify in support of the Federal Trade 
Commission's fiscal year 2011 appropriation request and to share with 
you some of the work the agency has done and plans to do over the next 
year. The Commission thanks you for this opportunity and looks forward 
to working with you to protect American consumers and promote 
competition.
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    \1\ While the views expressed in this written statement represent 
the views of the 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 across broad sectors of the economy. It 
enforces the Federal Trade Commission Act, which prohibits 
anticompetitive, deceptive, or unfair business practices, as well as a 
broad range of other laws.\2\ The FTC's Annual Report, released last 
month, is attached to this testimony. The report highlights the 
agency's efforts to protect consumers and promote competition, 
including initiatives to stop fraud targeting financially distressed 
consumers, protect privacy, and prevent anticompetitive practices such 
as ``pay-for-delay'' in the pharmaceutical industry, which costs 
consumers $3.5 billion a year in higher drug costs.
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    \2\ The Commission currently enforces or otherwise implements more 
than 60 laws.
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    This past year, the staff of the FTC has handled a growing 
workload, which includes its strong and effective law enforcement 
program. The additional funding that Congress provided over the past 
fiscal year, for which we are grateful, has enabled us to increase the 
staff who are working to protect consumers from deceptive practices, 
particularly fraudulent schemes that have proliferated during these 
challenging economic times.
    This testimony first describes some of our work under both our 
consumer protection mission and our competition mission and then 
summarizes the FTC's budget request for fiscal year 2011. To meet the 
challenges of the next fiscal year, the FTC requests $314 million which 
will support 1,207 FTE. This request represents an increase of $22.3 
million and 40 FTE over the fiscal year 2010 enacted levels.
                      consumer protection mission
The FTC Is Protecting Consumers During the Economic Downturn
    With the economic downturn, the Commission has increased its 
emphasis on protecting consumers in financial distress. In the past 
year, the FTC has brought almost 40 law enforcement actions to stop 
scams that prey on consumers suffering from the financial downturn, and 
the agency is also engaged in rulemaking and consumer education efforts 
related to financial services. In the financial services area alone, 
the FTC has filed more than 100 actions against providers of financial 
services over the past 5 years, and obtained nearly $500 million in 
redress for consumers of financial services in the past 10 years. By 
working closely with state attorneys general, we have expanded the 
reach of law enforcement efforts to help consumers in economic distress 
through hundreds of additional cases.
            Helping Distressed Homeowners: Challenging Mortgage 
                    Modification and Foreclosure Relief Scams and 
                    Writing New Mortgage Rules
    Since 2008, the Commission has filed 28 law enforcement actions 
focused on stopping mortgage loan modification and foreclosure relief 
scams. Companies operating these scams make deceptive claims about 
their abilities to modify the terms of consumers' loans and prevent 
foreclosure. During 2009, as these scams proliferated, we partnered in 
sweeps with Federal and state law enforcement agencies to collectively 
file more than 200 lawsuits to combat these scams.\3\ For example, in 
one case, the FTC obtained a preliminary injunction that prevented 
defendants from falsely representing in Spanish-language radio and 
magazine ads that they would obtain mortgage loan modifications or stop 
foreclosure in all or virtually all instances.\4\ Consumers paid more 
than $3.3 million to these defendants, and the FTC is seeking consumer 
redress.
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    \3\ See FTC Press Release, Federal and State Agencies Target 
Mortgage Relief Scams (Nov. 24, 2009), www.ftc.gov/opa/2009/11/
stolenhope.shtm; FTC Press Release, Federal and State Agencies Target 
Mortgage Foreclosure Rescue and Loan Modification Scams (July 15, 
2009), www.ftc.gov/opa/2009/07/loanlies.shtm.
    \4\ See FTC v. Dinamica Financiera LLC, No. 09-CV-03554 (C.D. Cal. 
preliminary injunction issued June 3, 2009).
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    To curb deceptive and unfair practices in the mortgage industry, 
the FTC is also considering rules on three mortgage-related topics:
  --Mortgage Assistance Relief Services.--In March 2010, the Commission 
        published a notice of proposed rulemaking covering loan 
        modification, foreclosure relief, and other mortgage assistance 
        relief services.\5\ If adopted, the proposed rule would ban 
        providers from collecting fees prior to delivering promised 
        results, prohibit misrepresentations in marketing, and require 
        affirmative disclosures. The FTC expects to complete this 
        rulemaking proceeding within the next 90 days.
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    \5\ Mortgage Assistance Relief Services Notice of Proposed 
Rulemaking, 75 Fed. Reg. 10,707 (Mar. 9, 2010).
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  --Mortgage Servicing Practices.--The Commission published an advance 
        notice of proposed rulemaking addressing mortgage servicing 
        practices and plans to determine in the near future whether to 
        propose such a rule.\6\ Commission cases in this area have 
        targeted core servicing issues such as failing to post payments 
        upon receipt, charging unauthorized fees, and engaging in 
        deceptive or unfair collection tactics. For example, in 
        September 2008, the FTC settled charges that EMC Mortgage 
        Corporation and its parent, The Bear Stearns Companies, LLC, 
        violated Section 5 of the FTC Act and the Fair Debt Collection 
        Practices Act in servicing mortgage loans, including debts that 
        were in default when EMC obtained them.\7\ The EMC settlement 
        required the defendants to pay $28 million in consumer redress, 
        and the Commission has sent checks to more than 86,000 consumer 
        victims.
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    \6\ Mortgage Acts and Practices Advance Notice of Proposed 
Rulemaking, 74 Fed. Reg. 26,118 (June 1, 2009).
    \7\ FTC v. EMC Mortgage Corp., No. 4:08-CV-338 (E.D. Tex. final 
order Sept. 9, 2008).
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  --Mortgage Advertising Practices.--The Commission published an 
        advance notice of proposed rulemaking addressing mortgage 
        advertising practices and plans to determine in the near future 
        whether to propose such a rule.\8\ FTC cases in this area have 
        targeted mortgage lenders and brokers for deceptive marketing 
        of loan costs or other key loan terms, such as the existence of 
        a prepayment penalty or a large balloon payment due at the end 
        of the loan. For example, the Commission announced settlements 
        with three mortgage lenders charged with advertising low 
        interest rates and low monthly payments, but failing to 
        disclose adequately that those rates and payments would 
        increase substantially after a short period of time.\9\
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    \8\ Mortgage Acts and Practices Advance Notice of Proposed 
Rulemaking, 74 Fed. Reg. 26,118 (June 1, 2009).
    \9\ See FTC Press Release, Three Home Loan Advertisers Settle FTC 
Charges; Failed to Disclose Key Loan Terms in Ads (Jan. 8, 2009), 
www.ftc.gov/opa/2009/01/anm.shtm.
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            Helping American Workers: Stopping Employment Opportunity 
                    Scams, Bogus Government Grants, and Get-Rich-Quick 
                    Schemes
    In February 2010, along with state and Federal partners, the 
Commission announced Operation Bottom Dollar, a sweep that involved 69 
civil and criminal actions against organizations making false promises 
of employment or employment placement opportunities.\10\ Last July, the 
FTC announced Operation Short Change, another Federal-state crackdown 
that challenged 120 schemes selling bogus government grant 
opportunities, illusory get-rich-quick plans, job opportunity scams, 
and phony debt-reduction services.\11\
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    \10\ See FTC Press Release, FTC Cracks Down on Con Artists Who 
Target Jobless Americans (Feb. 17, 2010), www.ftc.gov/opa/2010/02/
bottomdollar.shtm.
    \11\ See FTC Press Release, FTC Cracks Down on Scammers Trying to 
Take Advantage of the Economic Downturn (July 1, 2009), www.ftc.gov/
opa/2009/07/shortchange.shtm.
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    In addition, in October 2009, MoneyGram paid $18 million to settle 
FTC charges that its money transfer system helped con artists trick 
U.S. consumers into wiring them money in connection with fake lottery 
schemes, secret shopper scams, and bogus guaranteed loans. In April the 
FTC sent more than 34,000 checks to consumers identified as victims in 
these schemes.\12\
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    \12\ See FTC Press Release, MoneyGram to Pay $18 Million to Settle 
FTC Charges That it Allowed its Money Transfer System To Be Used for 
Fraud (Oct. 20, 2009), www.ftc.gov/opa/2009/10/moneygram.shtm; FTC 
Press Release, FTC Mails Redress Checks to Fraud Victims Who Lost Money 
Through MoneyGram's Money Transfer System (Apr. 28, 2010), www.ftc.gov/
opa/2010/04/moneygram.shtm.
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            Halting Scams Promising to Relieve Consumers of Debt or 
                    Repair Their Credit Histories
    Many consumers faced with mounting debt have turned unwittingly to 
scam artists for help. Since 2008, the Commission has brought ten 
lawsuits challenging sham nonprofit credit counseling firms, debt 
settlement services, and debt negotiators. During the same period, the 
FTC filed a dozen lawsuits against credit repair organizations that 
falsely misrepresented their ability to remove negative but accurate 
information from credit reports.\13\
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    \13\ See prepared statement of the Federal Trade Commission on The 
Debt Settlement Industry: The Consumer's Experience, before the Senate 
Committee on Commerce, Science, and Transportation (Apr. 22, 2010), 
www.ftc.gov/os/testimony/100422debtsettlement.pdf; prepared statement 
of the Federal Trade Commission on Financial Services and Products: The 
Role of the Federal Trade Commission in Protecting Consumers, before 
the Senate Committee on Commerce, Science, and Transportation (Feb. 4, 
2010), www.ftc.gov/os/testimony/P064814financial-services.pdf.
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    To curb ongoing abuses in the debt relief industry, in August 2009 
the Commission proposed a rule to, among other things, prohibit debt 
relief service providers from charging consumers a fee until they have 
delivered the promised results.\14\ The FTC expects to complete this 
rulemaking proceeding within the next 60 days.
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    \14\ Telemarketing Sales Rule Proposed Rule, 74 Fed. Reg. 41,988 
(Aug. 19, 2009).
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Protecting Consumers in the Online World
    The Commission devotes significant resources to protecting 
consumers in a high-tech world by promoting data security, preventing 
identity theft, and protecting online privacy.
    To date, the FTC has brought 29 enforcement actions against 
businesses for failing to protect consumers' personal information. For 
example, in the past 7 months, the Commission has (1) announced a 
settlement with restaurant chain Dave & Buster's arising from a data 
breach that allegedly compromised the credit card numbers and 
expiration dates of approximately 130,000 customers; \15\ (2) in a case 
where a mortgage broker threw out consumer credit reports in a 
dumpster, obtained the first civil penalty for violation of a new 
Commission rule that requires companies to adequately dispose of 
sensitive credit report information;\16\ and (3) obtained a stipulated 
modified order against ChoicePoint after charging that the company 
failed to implement a comprehensive information security program, as 
required by a 2006 Federal court order.\17\
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    \15\ Dave & Busters, Inc., FTC File No. 082-3153 (proposed consent 
order Mar. 25, 2010).
    \16\ FTC v. Navone, No. 2:08-CV-01842 (D. Nev. final order Dec. 29, 
2009).
    \17\ U.S. v. ChoicePoint, Inc., No. 1:06-CV-0198-JTC (N.D. Ga. 
final order Oct. 14, 2009).
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    The FTC also helps consumers avoid identity theft and responds to 
15,000 consumers each week who call the FTC identity theft hotline. 
Under Federal law, consumers have a right to a free credit report to 
help them detect identity theft and errors in their credit reports, 
which are used not only to obtain credit but also for employment, 
housing, and insurance. In recent years, however, companies have 
offered so-called ``free'' credit reports that are conditioned on 
enrollment in a costly plan, often an identity theft protection plan. 
To protect consumers from this confusing and deceptive marketing, the 
FTC amended the Free Credit Report Rule to require prominent 
disclosures for advertising of these supposedly ``free'' credit 
reports.\18\ Now, consumers will be better able to avoid supposedly 
``free'' offers that actually cost money. In addition, in one of the 
largest FTC-state coordinated actions, the FTC and Illinois Attorney 
General Lisa Madigan jointly announced a settlement with LifeLock, 
Inc., which advertised its identity theft prevention service, claiming 
that it was ``the first company to prevent identity theft from 
occurring.'' \19\ The order requires LifeLock to pay $11 million to the 
FTC for consumer redress and $1 million to 35 state attorneys general 
co-plaintiffs. The order also bars the company from making deceptive 
claims that its services offer absolute prevention against identity 
theft and requires it to take more stringent measures to safeguard the 
personal information it collects from customers.
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    \18\ The Credit Card Accountability Responsibility and Disclosure 
Act of 2009 required the Commission to issue a rule to prevent 
deceptive marketing of ``free credit reports.'' The amended rule went 
into effect on April 2, 2010. See Free Annual File Disclosures Final 
Rule, 75 Fed. Reg. 9,726 (Mar. 3, 2010).
    \19\ FTC v. LifeLock, Inc., No. 2:10-cv-00530-NVW (D. Ariz. final 
order Mar. 15, 2010). See also State of Illinois Press Release, FTC, 35 
States Reach Agreement with LifeLock for Misleading Advertising (Mar. 
9, 2010), www.illinoisattorneygeneral.gov/pressroom/2010_03/
20100309.html.
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    The FTC also has brought numerous cases to meet the challenges of 
protecting consumers and their privacy while they are using the 
Internet. For example, in June 2009, the FTC moved quickly to shut down 
a rogue Internet Service Provider that knowingly hosted and actively 
participated in the distribution of illegal spam, child pornography, 
and other harmful electronic content.\20\ The FTC complaint alleged 
that the defendant actively recruited and colluded with criminals 
seeking to distribute illegal, malicious, and harmful electronic 
content. After the Commission shut down this ISP, there was a temporary 
30 percent drop in spam worldwide.\21\ Just last month, the court 
ordered the operation to turn over $1.08 million in ill-gotten gains to 
the Commission.
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    \20\ FTC v. Pricewert, LLC, No. 09-CV-2407 (N.D. Cal. final order 
issued Apr. 4, 2010).
    \21\ See Official Google Enterprise Blog, Q2 2009 Spam Trends, 
http://googleenterprise.blogspot.com/2009/07/q2-2009-spam-trends.html.
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    Also last summer, the Commission settled allegations that Sears 
failed to disclose adequately the scope of consumers' personal 
information collected via software that Sears represented would merely 
track their ``online browsing.'' \22\ The FTC charged that the 
software, in fact, monitored consumers' online secure sessions as 
well--including those on third-party websites--and collected 
information such as the contents of shopping carts, online bank 
statements, e-mail headers and subject lines, and other sensitive data. 
Only deep in a lengthy end user license agreement did Sears disclose 
the extent of the tracking.
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    \22\ Sears Holdings Mgmt. Corp., FTC File No. 082-3099 (final order 
Aug. 31, 2009).
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    In an effort to examine privacy issues more broadly, FTC staff 
convened three public roundtables to explore concerns about consumer 
privacy and ensure that the Commission's approach to privacy keeps pace 
with the latest technologies and emerging business models.\23\ 
Participants discussed developments in areas such as social networking, 
cloud computing, online behavioral advertising, mobile marketing, 
health privacy, and the collection and use of information by data 
brokers and other businesses. The Commission plans to release 
recommendations for public comment later this year.
---------------------------------------------------------------------------
    \23\ See generally FTC Exploring Privacy web page, www.ftc.gov/bcp/
workshops/privacyroundtables/index.shtml.
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Enforcement of the National Do Not Call Registry
    The National Do Not Call Registry is an unqualified success. So 
far, there are more than 198 million unique numbers on the Registry. By 
the end of June 2010, the Commission anticipates we will reach 200 
million telephone numbers. To protect these consumers' privacy, the 
Commission strictly enforces the Do Not Call list and fights other 
abusive telemarketing practices.
    During the past year, the Commission filed eight new actions that 
attack the use of harassing ``robocalls''--the automated delivery of 
prerecorded messages--to deliver deceptive telemarketing pitches that 
promised consumers extended auto warranties and credit card interest 
rate reduction services.\24\ In addition, DIRECTV paid a $2.3 million 
civil penalty to settle charges that it placed prerecorded calls to 
consumers who previously had told the company not to call them, and 
Comcast paid $900,000 to settle charges that it called consumers who 
had specifically asked not to be called.\25\
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    \24\ See, e.g., FTC Press Release FTC Sues to Stop Robocalls With 
Deceptive Credit Card Interest-Rate Reduction Claims (Dec. 8, 2009), 
www.ftc.gov/opa/2009/12/robocall.shtm.
    \25\ U.S. v. DIRECTV, Inc., No. 09 2605 MRP FMOx (C.D. Cal. final 
order May 14, 2009); U.S. v. Comcast Corp., No. 2:09-cv-01589-HB (E.D. 
Pa. final order Apr. 16, 2009). Last year, the FTC also charged 
satellite television provider Dish Network with causing telemarketing 
calls--including robocalls--to be made to numerous consumers whose 
numbers are on the National Do Not Call Registry. See U.S. v. Dish 
Network, LLC, No. 3:09-cv-03-73-JES-CHE (C.D. Ill. filed Mar. 25, 2009) 
(action brought jointly with the Attorneys General of California, 
Illinois, Ohio, and North Carolina).
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Stopping Deceptive Advertising of Prepaid Phone Cards
    The Commission continues to protect consumers from hidden fees and 
false claims about how many minutes prepaid phone cards deliver. This 
type of deception often targets recent immigrants from Latin America, 
Africa, Asia, and elsewhere around the world. This week, the Commission 
announced a settlement with Diamond Phone Card, Inc., which agreed to 
pay $500,000 to settle FTC allegations that it charged hidden fees and 
misrepresented the number of calling minutes delivered by its prepaid 
cards.\26\ In total, the FTC has obtained more than $4 million from 
companies charged with deceptive marketing of prepaid calling cards.
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    \26\ FTC v. Diamond Phone Card, Inc., No. 09-CV-03257-NGG-VVP 
(E.D.N.Y. final order May 14, 2010). In 2009, the FTC resolved similar 
charges in two cases against prepaid phone card companies. See FTC v. 
Clifton Telecard Alliance One LLC, No. 2:08-CV-01480-PGS-ES (D.N.J. 
final order June 12, 2009) (imposing $1.3 million judgment); FTC v. 
Alternatel, Inc., No. 1:08-cv-21433-AJ (S.D. Fla. final order Apr. 1, 
2009) (imposing $2.25 million judgment).
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Protecting and Educating Children Through New and Innovative 
        Initiatives
            Promoting the Marketing of Healthier Foods to Children
    The Commission continues its efforts to combat childhood obesity. 
Since 2005, the FTC has hosted three public forums on food marketing to 
children and childhood obesity. At an event in December 2009, the 
Interagency Working Group on Food Marketed to Children \27\ suggested 
possible voluntary nutrition standards. Experts also presented new 
research on the impact of food advertising on children's food choices, 
discussed the legal ramifications of possible restrictions on food 
advertising to children, and assessed food industry self-regulatory 
efforts to impose nutritional standards on their advertising to 
children.\28\
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    \27\ The Working Group is comprised of the FTC, the U.S. Department 
of Agriculture, the U.S. Food and Drug Administration and the Centers 
for Disease Control, and was established pursuant to Congress' (and 
this Subcommittee's) direction in the 2009 Omnibus Appropriations 
report.
    \28\ See generally Sizing Up Food Marketing and Childhood Obesity 
web page, www.ftc.gov/bcp/workshops/sizingup/index.shtml.
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    FTC staff is working on a follow-up report to the FTC 2008 Report 
on Marketing Food to Children and Adolescents. The 2008 report reviewed 
industry expenditures and activities in marketing foods and beverages, 
including integrated advertising campaigns that combine traditional 
media, such as television, with previously unmeasured forms of 
marketing, including packaging, in-store advertising, sweepstakes, 
Internet, and cross-promotion with movies.\29\ The follow-up report, 
expected in 2011, will analyze marketing activities and expenditures in 
2009 by dozens of food and beverage companies in promoting their 
products to children and teenagers. It will be an important tool to 
track the marketplace's response to childhood obesity and identify 
areas where more action is needed. The report also will examine the 
nutritional quality of those products and compare them to the 
nutritional quality of products marketed to children and teenagers in 
2006.
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    \29\ Marketing Food to Children and Adolescents: A Review of 
Industry Expenditures, Activities, and Self-Regulation (2008), 
www.ftc.gov/os/2008/07/P064504foodmktingreport.pdf.
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            Promoting Children's Internet Safety and Advertising 
                    Literacy
    During the past year, the FTC developed additional resources for 
use by children, parents and teachers to stay safe online and learn 
about how advertising works. In response to the Broadband Data 
Improvement Act of 2008, the FTC produced the brochure Net Cetera: 
Chatting With Kids About Being Online to give adults practical tips to 
help children navigate the online world.\30\ Since its release in late 
2009, more than two million copies of Net Cetera in English and Spanish 
have been distributed nationwide.
---------------------------------------------------------------------------
    \30\ See FTC Press Release, OnGuardOnline.gov Off to a Fast Start 
with Online Child Safety Campaign (Mar. 31, 2010), www.ftc.gov/opa/
2010/03/netcetera.shtm.
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    At the end of April 2010, the FTC launched Admongo.gov, a campaign 
designed to help children think critically about online and offline 
advertising, and better understand the ads they see.\31\ Through this 
campaign, children learn to ask: Who is responsible for the ad? What is 
it actually saying? What does it want me to do? The FTC is working with 
schools, libraries, and other organizations to get this important 
education to kids, as well as their parents and teachers.
---------------------------------------------------------------------------
    \31\ See FTC Press Release, FTC Helps Prepare Kids for a World 
Where Advertising Is Everywhere (Apr. 28, 2010), www.ftc.gov/opa/2010/
04/admongo1.shtm.
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            Protecting Children's Online Privacy
    The Commission protects the safety and privacy of children online 
through enforcement and administration of the Children's Online Privacy 
Protection Act of 1998 (``COPPA'') and its implementing rule.\32\ COPPA 
requires operators of websites and online services that target children 
under age 13 to obtain verifiable parental consent before they collect, 
use, or disclose personal information from children. The FTC engages in 
broad business and consumer education to ensure widespread knowledge of 
and adherence to COPPA. In the past 10 years, the Commission has 
brought 14 law enforcement actions alleging COPPA violations and has 
collected more than $3.2 million in civil penalties. In light of 
significant changes to the online environment, including the explosion 
of social networking and the proliferation of mobile web technologies 
and interactive gaming, the Commission recently initiated an 
accelerated review of COPPA's effectiveness.\33\
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    \32\ See Children's Online Privacy Protection Act of 1998, 15 
U.S.C. Sec. Sec. 6501-6508 (2009). The FTC's implementing regulations 
(the ``COPPA Rule'') are found at 16 C.F.R. Part 312 (2009).
    \33\ Although the Commission generally reviews its rules 
approximately every 10 years, the continued rapid-fire pace of 
technological change led the agency to accelerate its COPPA review by 5 
years, to this year. See FTC Press Release, FTC to Host Public 
Roundtable to Review Whether Technology Changes Warrant Changes to the 
Children's Online Privacy Protection Rule (Apr. 19, 2010), www.ftc.gov/
opa/2010/04/coppa.shtm.
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Using Aggressive Law Enforcement to Combat Health Fraud
    The FTC continues to protect consumers from false and misleading 
health claims involving products as diverse as cereals and cold 
remedies and claims as significant as cancer cures.
    Last year, the Commission settled a case with Kellogg Company over 
charges that its advertising falsely claimed that Frosted Mini Wheats 
was clinically shown to improve children's attentiveness by nearly 20 
percent.\34\ The Commission also responded to the burgeoning area of 
immunity-boosting and cold and flu prevention and treatment claims when 
it investigated and reached a settlement with Airborne, Inc., the 
leading seller of effervescent tablets that purported to protect 
against exposure to germs in crowded environments. The Commission then 
settled similar charges against three major pharmacy retail chains that 
marketed their own store-brand ``copycat'' cold and flu products, and 
the manufacturer of these copycat products, requiring the companies to 
pay a total of $9.8 million.\35\
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    \34\ Kellogg Co., FTC File No. 082-3245 (final order July 27, 
2009).
    \35\ Walgreens agreed to pay $5,970,000 in consumer redress, CVS 
Pharmacy, Inc. agreed to pay $2,783,047, Rite Aid Corp. agreed to pay 
$500,000, and Improvita Health Products, Inc.'s principals agreed to 
pay $565,000 to settle these matters. See FTC Press Releases, Walgreens 
Will Pay Nearly $6 Million to Settle FTC Deceptive Advertising Charges, 
Suppliers of Airborne-like Cold-and-Flu Supplements Reach Separate 
$565,000 Settlement (Mar. 23, 2010), www.ftc.gov/opa/2010/03/
walgreens.shtm; CVS to Pay Nearly $2.8 Million in Consumer Refunds to 
Settle FTC Charges of Unsubstantiated Advertising of AirShield ``Immune 
Boosting'' Supplement (Sept. 8, 2009), www.ftc.gov/opa/2009/09/
cvs.shtm; Rite Aid to Pay $500,000 in Consumer Refunds to Settle FTC 
Charges of False and Deceptive Advertising (July 13, 2009), 
www.ftc.gov/opa/2009/07/riteaide.shtm.
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    Importantly, the FTC also challenges claims that dietary 
supplements and devices treat, cure, or prevent cancer and other 
serious diseases. Last summer, a Federal district court ordered Direct 
Marketing Concepts to pay nearly $70 million for consumer refunds for 
dietary supplements it claimed would treat, cure, or prevent cancer and 
other serious diseases.\36\ In FTC v. Roex, Inc., the FTC alleged that 
the defendants' nationally broadcast, live, call-in radio show made 
claims that an infrared sauna device could treat cancer and that 
various dietary supplements would treat, reduce the risk of, or prevent 
diseases such as cancer, HIV/AIDS, diabetes, strokes and heart attacks, 
Alzheimer's disease, and Parkinson's disease.\37\ The defendants agreed 
to pay more than $3 million for consumer redress and are prohibited 
from making such claims in the future.
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    \36\ FTC v. Direct Marketing Concepts, No. 04-CV-11136-GAO (D. 
Mass. final order Aug. 13, 2009).
    \37\ FTC v. Roex, Inc., No. SACV 09-0266 (C.D. Cal. final order 
Mar. 4, 2009).
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Protecting Consumers from Cross-Border Fraud and Promoting 
        International Consumer Protection
    The FTC plays a leadership role in international consumer 
protection and privacy matters to better protect American consumers in 
a globalized world. The Commission's use of the U.S. SAFE WEB Act--
which allows the sharing of information with our foreign sister 
agencies when working together to stop global scams--has directly 
benefitted American consumers because many of the foreign agency 
requests involved schemes directed at American victims. In December, 
the FTC submitted a 3-year report to Congress detailing its use of the 
powers Congress gave it to fight cross-border fraud. As explained in 
the report, the FTC has shared information in response to 38 requests 
from 14 foreign law enforcement agencies, resulting in more than 17 
enforcement actions by U.S. and foreign authorities, and issued 26 
civil investigative demands on behalf of 6 foreign agencies in 12 
investigations.\38\ The vast majority of these SAFE WEB information 
sharing requests resulted in actions against companies harming American 
consumers.
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    \38\ See FTC Press Release, FTC Issues Report to Congress on Use of 
Its Enhanced Authority Under the U.S. SAFE WEB Act (Dec. 15, 2009), 
www.ftc.gov/opa/2009/12/safeweb.shtm.
---------------------------------------------------------------------------
    On the policy front, the FTC continues to shape international 
policies on issues such as electronic commerce, green marketing claims, 
and consumer economics to provide sound protection for American 
consumers in the global marketplace. This month, the Commission hosted 
a 2-day forum and ``best practices'' training session of the 
International Consumer Protection and Enforcement Network for consumer 
protection officials from over 40 countries. Participants discussed 
global scams, electronic transactions, emerging trends and risks 
associated with social networking sites, and advance-fee fraud.
                          competition mission
    Anticompetitive mergers, collusive behavior, and exclusionary 
conduct by monopolists can harm American consumers in dramatic, if 
sometimes less visible, ways. As our recent enforcement activity 
emphasizes, anticompetitive activity can raise the cost of prescription 
drugs, real estate services, and other consumer products and services, 
and can impede innovation that would bring better and more cost-
effective products and services to American consumers. During fiscal 
year 2009, the Commission brought 25 competition enforcement actions, 
including filing a record seven merger challenges in Federal district 
court or in an administrative proceeding, and through the first half of 
fiscal year 2010, the Commission has already brought 16 competition 
enforcement actions.\39\
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    \39\ See FTC Competition Enforcement Database, www.ftc.gov/bc/
caselist/index.shtml.
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Ending Pay-for Delay Patent Settlements.
    One of the Commission's highest antitrust priorities is stopping 
pay-for-delay patent settlements in the pharmaceutical industry, a 
practice that costs consumers $3.5 billion each year.\40\ In these 
deals (also known as exclusion- or reverse-payment settlements), the 
brand-name drug firm pays its potential generic competitor to abandon a 
patent challenge and delay entering the market with a lower-cost 
generic product. Such settlements limit competition at the expense of 
consumers, whose access to lower-priced, generic drugs is delayed--
sometimes for many years--and raise the costs of prescription drugs for 
businesses and the government.\41\ We thank you, Mr. Chairman and 
Ranking Member Collins, for co-sponsoring a bill in the Senate to end 
these deals.
---------------------------------------------------------------------------
    \40\ See Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers 
Billions, FTC Staff Study (Jan. 2010), www.ftc.gov/os/2010/01/
100112payfordelayrpt.pdf.
    \41\ In a mature market, generic drugs are 15 percent of their 
brand name equivalent. See id.
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    Since 2005, some court decisions have taken a lenient approach to 
such agreements in drug patent settlements. As a result, it has become 
increasingly difficult to halt pay-for-delay settlements through 
litigation, and such settlements have become a common industry 
strategy.
    Because these settlements cause enormous consumer harm, the 
Commission devotes substantial resources to this problem. For example, 
we are appealing the U.S. District Court for the Northern District of 
Georgia's dismissal of our complaint in a pay-for-delay case against 
Solvay Pharmaceuticals regarding the drug Androgel, a testosterone 
replacement medication.\42\ We continue to conduct new investigations 
into pay-for-delay agreements.
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    \42\ In re Androgel Antitrust Litig. (No. II), 1:09-MD-2084-TWT 
(N.D. Ga. Feb. 22, 2010) (granting defendants' motion to dismiss).
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    Importantly, we have reason to believe that the tide may be 
turning. Just last month, an appellate panel in the Second Circuit, 
which had previously adopted a permissive legal standard on pay-for-
delay settlements, took the extraordinary step of questioning its own 
standard and explicitly encouraging consumer plaintiffs to request the 
full court's consideration of the pay-for-delay issue.\43\ And just 2 
months ago, in March 2010, a Federal district court judge in 
Philadelphia denied a defense motion to dismiss the FTC's currently 
pending pay-for-delay case against Cephalon, the manufacturer of the 
drug Provigil, a sleep disorder medication with nearly $1 billion in 
annual U.S. sales.\44\
---------------------------------------------------------------------------
    \43\ See Ark. Carpenters Health & Welfare Fund v. Bayer AG, Nos. 
05-2851-cv(L), 05-2852-cv(CON) (2d Cir. Apr. 29, 2010) (affirming 
summary judgment for defendants but inviting plaintiffs to petition for 
rehearing en banc).
    \44\ FTC v. Cephalon, Inc., No. 2:08-cv-2141 (E.D. Pa. Mar. 29, 
2010) (denying motion to dismiss), www.ftc.gov/os/caselist/0610182/
index.shtm.
---------------------------------------------------------------------------
    Beyond individual cases, we have employed our full expertise to 
attack pay-for-delay settlements. In the past year, we have issued 
studies measuring the scope of this problem, which found:
  --The number of these agreements is increasing, from zero in fiscal 
        year 2004 to 19 in fiscal year 2009;
  --On average, the deals delay the availability of cost-saving 
        generics by 17 months; and
  --If not stopped, pay-for-delay deals will, conservatively, cost 
        consumers $3.5 billion a year.\45\
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    \45\ Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers 
Billions, supra note 40.
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    Finally, we are continuing our efforts to encourage legislation 
that would more rapidly fix this enormous problem, working closely with 
Congress and the Administration.
Health Care
    The healthcare system plays an important role in the lives and 
economic security of all Americans and has a significant impact on 
Federal, state, and local government budgets. Accordingly, it is one of 
the Commission's top priorities. Our efforts to protect and promote 
competition in the healthcare system are critical to reduce costs, 
improve quality, and encourage innovation.
    The Commission has acted aggressively to stop anticompetitive 
healthcare mergers. In December 2009, the FTC trial team challenged, in 
Federal court, Ovation's acquisition of a drug for premature infants 
with congenital heart defects, introducing evidence showing that 
Ovation acquired its only competitor and took advantage of its monopoly 
to raise prices by 1,300 percent. The Commission is seeking a 
divestiture to restore competition and consumer recovery of Ovation's 
illegally obtained profits.\46\ The FTC also reviewed several 
pharmaceutical mergers and required divestitures in Watson/Arrow, 
Merck/Schering Plough, and Pfizer/Wyeth to preserve competition that 
otherwise would have been lost.\47\ In the past year, the Commission 
also has sued to block Talecris' acquisition of CSL, which the 
Commission alleged would have raised prices for plasma derivative 
protein therapies used to treat a variety of illnesses, including 
immunodeficiency diseases.\48\ The parties abandoned the deal in the 
face of the FTC's challenge.
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    \46\ FTC v. Ovation Pharm., Inc., No. 08-cv-06379 (D. Minn. 
complaint filed Dec. 16, 2008).
    \47\ Watson Pharm., Inc., FTC File No. 091 0116 (final order Jan. 
7, 2010); Schering Plough Corp., FTC File No. 091-0075 (proposed order 
accepted for public comment Oct. 29, 2009); Pfizer Inc., FTC File No. 
091-0053 (final order Jan. 25, 2010).
    \48\ FTC v. CSL Ltd., No. 09-cv-1000 (D.D.C. complaint filed May 
28, 2009).
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    Merger enforcement also promotes innovation. In medical device 
markets, the Commission blocked Thoratec's proposed acquisition of 
Heartware, its only potential competitor for left ventricular assist 
devices. These devices are surgically implantable blood pumps that 
provide a life-sustaining treatment for patients with advanced heart 
failure.\49\ Blocking the transaction ensures that the two companies 
will continue to compete to develop better devices, which will benefit 
consumers.
---------------------------------------------------------------------------
    \49\ Thoratec Corp., FTC File No. 091-0064 (administrative 
complaint dismissed Aug. 11, 2009).
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    Pharmacy Benefit Management (PBM) services are a critical part of 
the healthcare industry, and the Commission has allocated substantial 
resources to enforcement, advocacy, and policy development in this 
area. PBMs can help healthcare plans manage the cost and quality of the 
prescription drug benefits they provide to their enrollees, but many 
have criticized PBMs for a lack of transparency in their operations, 
for improper use and inadequate protection of consumer information, and 
for utilizing their position in the market to undermine competition.
    Last year, the Commission took action against CVS/Caremark, a 
leading PBM, in order to protect the personal information of 
consumers.\50\ As CVS/Caremark has acknowledged, the Commission is 
currently investigating whether certain CVS/Caremark business practices 
may violate the FTC Act. This investigation is ongoing and has been 
structured as a joint effort of the Bureau of Consumer Protection and 
the Bureau of Competition so that the investigation can efficiently and 
effectively address both antitrust and consumer protection issues.
---------------------------------------------------------------------------
    \50\ CVS Caremark Corp., FTC File No. 072-3119 (final order Jun. 
18, 2009). Respondent independently agreed to pay $2.25 million to 
resolve Department of Health and Human Services allegations that it 
violated HIPAA, the Health Insurance Portability and Accountability Act 
of 1996.
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Energy
    The petroleum industry plays a crucial role in our economy, and few 
issues are more important to consumers and businesses than the prices 
they pay for gasoline and energy to heat and light their homes and 
businesses. Accordingly, the Commission carefully monitors energy 
markets and devotes significant resources to maintain and protect 
competition across a wide range of industry activities. This work is 
undertaken by a large number of expert economists and attorneys who 
specialize in the energy sector.
    Merger reviews are an essential part of this effort. In 2009, the 
Commission reviewed proposed acquisitions involving energy products 
under the Hart-Scott-Rodino (``HSR'') Act and also monitored the 
industry for transactions that were not filed under HSR. In particular, 
the Commission investigated acquisitions involving refined petroleum 
products pipelines and terminals, liquefied petroleum gas (propane), 
lubricant oils, natural gas, and natural gas liquids storage and 
transportation.
    In addition, the Commission continues the ``Gas Price Monitoring 
Project'' that began in 2002. The monitoring project is a daily, in-
depth review of retail and wholesale prices of gasoline and diesel fuel 
in 20 wholesale regions and approximately 360 retail areas across the 
United States. The project provides information that allows the 
Commission to investigate potentially anticompetitive conduct in fuel 
markets and serves as an early-warning system to alert our experts to 
unusual pricing activity.\51\
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    \51\ See Gasoline and Diesel Price Monitoring, www.ftc.gov/ftc/
oilgas/gas_price.htm.
---------------------------------------------------------------------------
    Last November, the Commission added another tool to its arsenal. 
Pursuant to authority granted by Congress under the Energy Independence 
and Security Act of 2007, the Commission issued the Petroleum Market 
Manipulation Rule, which prohibits fraud or deceit in wholesale 
petroleum markets.\52\ The agency conducted an extensive rulemaking 
proceeding to decide whether and how to craft such a rule, holding a 
public workshop with participants representing industry, government 
agencies, academics, and consumers; conducting numerous meetings with 
consumer groups, trade associations, and businesses; and considering 
over 150 written comments from consumers and businesses. The Commission 
worked diligently on this issue for 16 months and now has instituted a 
rule that meets the goal of Congress. Importantly, the rule specifies 
that statements that intentionally omit material information and are 
likely to distort petroleum markets are violations of the rule. 
Commission staff has prepared and made available a compliance guide for 
businesses, which explains the Rule in depth and provides examples of 
the type of actions that would violate it.\53\ These examples include 
descriptions of potential violations, such as false public 
announcements of planned pricing or output decisions, false statistical 
or data reporting, and wash sales intended to disguise the actual 
liquidity of a market or the price of a particular product. The Market 
Manipulation Rule has only been in effect for a short time, and the 
agency plans to aggressively enforce the rule as needed.
---------------------------------------------------------------------------
    \52\ See FTC Press Release, New FTC Rule Prohibits Petroleum Market 
Manipulation (Aug. 6, 2009), www.ftc.gov/opa/2009/08/mmr.shtm; 74 Fed. 
Reg. 40686 (Aug. 12, 2009).
    \53\ Guide to Complying with Petroleum Market Manipulation 
Regulations, www.ftc.gov/os/2009/11/091113mmrguide.pdf.
---------------------------------------------------------------------------
    In addition to these actions, Commission economists and attorneys 
utilize their expertise to provide reports on energy matters, including 
market statistics and trends for use by Congress and other 
policymakers. For example, the Commission issues semi-annual reports on 
oil and gas activities and an annual report on ethanol. The Commission 
also has submitted multiple comments to the Federal Energy Regulatory 
Commission (FERC) on a broad range of competition-related issues, 
including, among others, ways to assess the competitive effects of 
partial acquisition of electric power providers, efforts to encourage 
consumer price responsiveness, and appropriate metrics to measure the 
performance of electric regional transmission organizations.\54\
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    \54\ See Comment of the Federal Trade Commission on Control and 
Affiliation for Purposes of the Commission's Market-Based Rate 
Requirements Under Section 205 of the Federal Power Act and the 
Requirements of Section 203 of the Federal Power Act, FERC Docket No. 
RM09-16-000 (Mar. 29, 2010); Comment of the Federal Trade Commission on 
Control and Affiliation for Purposes of the Commission's Market-Based 
Rate Requirements Under Section 205 of the Federal Power Act and the 
Requirements of Section 203 of the Federal Power Act, FERC Docket No. 
PL09-3-000 (Apr. 28, 2009); Reply Comment of the Federal Trade 
Commission on Transmission Planning Processes Under Order No. 890, FERC 
Docket No. AD09-8-000 (Dec. 3, 2009).
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Technology Markets
    Technological advances are critically important to growing our 
economy, creating jobs, and introducing more efficient products and 
processes into the marketplace, and the Commission focuses significant 
resources on promoting competition in technology sectors. In December 
2009, the Commission charged chip manufacturer Intel Corporation with 
illegally using its position to stifle competition, strengthen its 
monopoly, and raise prices to consumers in violation of the FTC 
Act.\55\ Trial is expected to start in September.
---------------------------------------------------------------------------
    \55\ Intel, FTC File No. 061-0247 (administrative complaint Dec. 
16, 2009).
---------------------------------------------------------------------------
    The Commission also monitors business relationships between firms 
with competing technology products. Section 8 of the Clayton Act 
prohibits, with certain exceptions, the same person from serving as a 
director or officer of two competing corporations. After an FTC 
investigation raised concerns about two individuals serving on the 
boards of both Apple and Google, these individuals each stepped down 
from the boards of one of the companies.
    In addition to its enforcement role, the Commission also has been 
empowered by Congress to provide substantive policy analysis and 
guidance. During 2009, the FTC completed a series of eight hearings to 
explore the competitive dynamics of evolving markets for intellectual 
property, and FTC staff is drafting a report analyzing the competitive 
implications of information gathered at the hearings.
Consumer Goods and Services
    The Commission works to protect competition in markets for consumer 
goods and services and has taken actions involving a variety of 
products, including recent cases involving real estate services, 
funeral and cemetery services, and soft drinks.
    A home is one of the most important purchases, and usually the most 
expensive purchase, that Americans make. The Commission therefore has 
devoted substantial resources to ensure that home buyers benefit from 
competition. In November 2009, the Commission ruled that Realcomp II, 
Ltd., a real estate Multiple Listing Service (MLS) in Michigan, could 
not impede competition from non-traditional and discount brokers by 
prohibiting them from listing on popular real estate websites.\56\ Such 
hurdles can raise the costs that home buyers pay for real estate 
services. The Commission has been particularly active in this market 
and has obtained consent orders with several other Multiple Listing 
Services throughout the United States (Texas, Pennsylvania, New Jersey, 
Colorado, Wisconsin, and New Hampshire) to protect the competition that 
discount brokers provide.\57\
---------------------------------------------------------------------------
    \56\ Realcomp II, Ltd., FTC Dkt. No. 9320 (Opinion of the 
Commission Oct. 30, 2009).
    \57\ See West Penn MLS, FTC File No. 081-0167 (final order Feb. 13, 
2009); Multiple Listing Serv., Inc., FTC File No. 061-0090 (final order 
Mar. 13, 2008); MiRealSource, Inc., FTC File No. 061-0266 (final order 
Mar. 20, 2007); Info. and Real Estate Servs, LLC., FTC File No. 061-
0087 (final order Nov. 22, 2006); N. New England Real Estate Network, 
Inc., FTC File No. 051-0065 (final order Nov. 22, 2006); Williamsburg 
Area Ass'n of Realtors, Inc., FTC File No. 061-0268 (final order Nov. 
22, 2006); Realtors Ass'n of N. Wisconsin, Inc., FTC File No. 061-0267 
(final order Nov. 22, 2006); Monmouth County Ass'n of Realtors, FTC 
File No. 051-0217 (final order Nov. 22, 2006); Austin Bd. of Realtors, 
FTC File No. 051-0219 (final order Aug. 29, 2006). Indeed, due to 
pressure from the Commission and DOJ, the National Association of 
Realtors dropped its optional rule that prohibited affiliated Multiple 
Listing Services from transmitting prohibiting discount broker listings 
to public web sites.on its web site.
---------------------------------------------------------------------------
    The funeral industry is also important to consumers and a focus of 
the Commission. In the past year, the Commission has taken action in 
two matters to preserve competition in cemetery and funeral services. 
When Service Corporation International (SCI) proposed to acquire Palm 
Mortuary, the third-largest provider of cemetery services in Las Vegas, 
Nevada, the Commission required SCI to first divest its existing 
cemetery and funeral home in Las Vegas.\58\ When SCI proposed to 
acquired Keystone North America, the Commission ordered SCI to divest 
22 funeral homes and four cemeteries in 19 areas throughout the country 
to preserve competition that otherwise would have been lost.\59\
---------------------------------------------------------------------------
    \58\ Serv. Corp. Int'l, FTC File No. 091-0138 (final order Jan. 6, 
2010).
    \59\ Serv. Corp. Int'l and Keystone N. Am., Inc., FTC File No. 101-
0013 (final order Apr. 30, 2010).
---------------------------------------------------------------------------
    In another consumer sector, the Commission required PepsiCo, Inc. 
to restrict its access to the confidential business information of 
rival Dr Pepper Snapple Group, as a condition for proceeding with a 
proposed $7.8 billion acquisition of Pepsi's two largest bottlers and 
distributors. Those bottlers also distribute Dr Pepper and Snapple 
Group soft drinks, and, without the restrictions, Pepsi would have had 
opportunities to obtain and use that information to reduce competition 
and harm consumers.\60\
---------------------------------------------------------------------------
    \60\ PepsiCo, Inc. FTC File No. 091-0133 (proposed order accepted 
for public comment Feb. 26, 2010).
---------------------------------------------------------------------------
Industrial and Chemical Sectors
    The Commission took action this year in several mergers between 
chemical companies that threatened to increase costs to manufacturers, 
state and local governments, and farmers, which might ultimately 
increase costs to end users. Commission staff successfully litigated a 
challenge against Polypore International Inc.'s acquisition of 
Microporous Products, securing an administrative order requiring 
complete divestiture of the acquired assets in order to restore 
competition in the manufacture of battery separators, a key component 
in car batteries, batteries for uninterruptible power supplies, and 
other flooded lead-acid batteries.\61\ The Commission also investigated 
mergers in other chemical markets and required divestitures for high-
performance chemical pigments, bulk de-icing salt sold to state and 
local governments, and anhydrous ammonia fertilizer used by 
farmers.\62\
---------------------------------------------------------------------------
    \61\ Polypore Int'l, Inc., FTC Dkt. No. 9237 (initial decision Mar. 
1, 2010).
    \62\ K+S Aktiengesellschaft, FTC File No. 091-0086 (final order 
Nov. 9, 2009).
---------------------------------------------------------------------------
Promoting Transparency and Process Improvements
    The Commission uses its resources to provide better guidance to 
companies and courts about when mergers are likely to run afoul of the 
antitrust laws and harm consumers. This provides businesses and their 
counsel a clearer understanding of the ``rules of the road'' and helps 
them to avoid anticompetitive conduct without the need for government 
intervention. It also helps judges to develop an appropriate framework 
to interpret and apply the antitrust laws. To this end, senior staff 
have been working with the Antitrust Division of the Department of 
Justice to jointly review, revise, and update the agencies' Horizontal 
Merger Guidelines, which were released for public comment last 
month.\63\ The Guidelines explain, in clear, plain language, how the 
Federal antitrust agencies evaluate the likely competitive impact of 
mergers and when the agencies are likely to challenge proposed mergers. 
The Guidelines were last updated in 1992, and since then advances in 
economic understanding and additional enforcement experience have 
gradually modified the way that the agencies evaluate and investigate 
mergers. The new version is intended to more accurately reflect current 
agency practice.
---------------------------------------------------------------------------
    \63\ Horizontal Merger Guidelines For Public Comment (Apr. 20, 
2010), www.ftc.gov/opa/2010/04/hmg.shtm. The proposed revisions are the 
result of a very open and public process, including public comments and 
input received during a series of five joint FTC/DOJ public workshops 
held over the past 6 months. The five workshops were open to the public 
and attended by attorneys, academics, economists, consumer groups, and 
businesses.
---------------------------------------------------------------------------
Policy and Research
    The Commission promotes competition through research, reports, and 
workshops. A recent example is a series of workshops entitled ``How 
Will Journalism Survive the Internet Age?'' \64\ The expansion of 
electronic commerce and media is challenging traditional news 
organizations, and many might not survive. This sea change may have 
implications for competition among media outlets and our democratic 
society. Our workshops have focused attention on this emerging concern, 
assessed the range of economic and policy issues raised by the changes 
in the market, and explored how competition can be used to enhance 
consumer welfare.
---------------------------------------------------------------------------
    \64\ Workshop information is available at www.ftc.gov/opp/
workshops/news/index.shtml.
---------------------------------------------------------------------------
    The workshops began in December 2009, and the opening session 
featured contributions from a diverse group of well-informed 
participants. Owners of news organizations, journalists, bloggers, 
technologists, members of Congress, economists, and other academics 
discussed the changing dynamics of the news business and considered 
what new journalism business models might evolve in the future. The 
workshops continued in March 2010, when experts in a variety of fields 
discussed certain proposals to reduce the costs of and increase the 
profitability of journalism. Next month, the Commission will hold a 
final public workshop to compare, contrast, and seek consensus about 
the policy options that have been proposed over the last 6 months. 
After evaluating the various issued raised, the Commission plans to 
issue a report in the fall.
    The Commission also has issued reports studying the pharmaceutical 
industry. Last summer, the Commission released a report entitled 
``Follow-on Biologic Drug Competition,'' which concluded that providing 
the U.S. Food and Drug Administration (FDA) with the authority to 
approve follow-on biologics would be an efficient way to bring lower-
priced drugs to market.\65\ Biologics--products manufactured using 
living tissues and microorganisms--are increasingly used to treat 
arthritis, cancer, diabetes, and other diseases.\66\ The Commission 
also released a report analyzing the competitive impact of authorized 
generics, which are drugs approved by the FDA as brand-name drugs but 
that the brand subsequently chooses to market (or have marketed) as 
generic.\67\
---------------------------------------------------------------------------
    \65\ Emerging Health Care Issues: Follow-on Biologic Drug 
Competition (June 2009), www.ftc.gov/os/2009/06/
P083901biologicsreport.pdf.
    \66\ A follow-on biologic (FOB) is a drug that can be prescribed to 
treat the same condition as the branded product. To obtain FDA 
marketing approval the FOB applicant does not have to duplicate the 
safety and efficacy findings of the branded product; rather, it must 
show that it is biosimilar to the branded product.
    \67\ Authorized Generics: An Interim Report (June 2009), 
www.ftc.gov/os/2009/06/P062105authorizedgenericsreport.pdf.
---------------------------------------------------------------------------
International Competition Activities
    The Commission actively develops strong working relationships with 
foreign antitrust agencies, helping to ensure that markets around the 
world, in which U.S. companies compete, are fair and transparent. Now 
that over 100 jurisdictions have competition laws, it is more critical 
than ever that the Commission continue to promote sound antitrust 
policies and practices abroad. The agency uses a wide range of tools to 
accomplish these goals. The FTC promotes coordination and cooperation 
with foreign antitrust agencies to obtain necessary information and 
assistance for our investigations and to avoid divergent outcomes on 
cases that are reviewed in multiple jurisdictions. Over the past year, 
the FTC worked on almost 40 international antitrust investigations, 
including significant mergers such as Pfizer/Wyeth--a case in which 
agency staff worked with staff in the Australian, Canadian and EU 
competition agencies.
    The FTC continues to build a strong network of cooperative 
relationships with our counterparts abroad, ranging from the EU and 
Canada to China and India. For example, the FTC recently signed a 
Memorandum of Understanding with the Russian Federal Antimonopoly 
Service. In addition, with congressional support, the Commission 
expanded its longstanding technical assistance program to help 
competition agencies in new market-based economies. More broadly, the 
Commission is a recognized leader in key multilateral competition fora, 
such as the International Competition Network (ICN), the competition 
committee of the Organisation for Economic Co-operation and 
Development, the experts committee of the United Nations conference on 
Trade, and the Development and Asia-Pacific Economic Cooperation.
                 needed resources for fiscal year 2011
    The FTC has a small staff to accomplish its consumer protection and 
competition goals. Today, the Commission's fiscal year 2010 budget 
supports 1,167 full-time equivalents (FTEs). This is considerably fewer 
than it had at its peak in 1979, when the Commission had approximately 
1,800 FTEs.\68\ While the U.S. population has increased by 35 percent 
since then, and the gross domestic product (adjusted for inflation) has 
more than doubled, the size of the agency staff has not kept pace. The 
FTC has done and will continue to do more with less, but it needs 
further resources to tackle the critical problems described above. The 
FTC appreciates the strong support it has received from Congress and 
the Appropriations Committees over the last decade. With additional 
funding, we look forward to doing even more to address the needs of 
American consumers and promote vigorous, competitive markets in the 
future.
---------------------------------------------------------------------------
    \68\ Commissioner Kovacic believes the Commission will need 
additional resources but he disagrees with certain aspects of the 
analysis in Section IV of this testimony.
---------------------------------------------------------------------------
    The fiscal year 2010 enacted appropriation provides the FTC with 
$291,700,000, which supports 1,167 FTE. The fiscal year 2010 
appropriation enables the FTC to protect more consumers in areas 
including financial services, healthcare, and high-tech marketing, and 
to challenge anticompetitive mergers and business practices in the 
technology, healthcare, pharmaceutical, and energy industries. To meet 
these challenges going forward, the FTC requests $314,000,000 which 
will support 1,207 FTE in fiscal year 2011. This request represents an 
increase of $22,300,000 over the fiscal year 2010 enacted level and 
includes:
  --$11,962,000 in mandatory cost increases associated with contract 
        expenses (CPI adjustment) and personnel (salaries and within-
        grade increases);
  --$6,164,000 for 40 additional FTE:
    --23 FTE to staff high-priority consumer protection matters in such 
            areas as financial practices, fraud targeting vulnerable 
            Americans, privacy and data security, health fraud 
            advertising, mobile marketing and new media, data analysis, 
            forensic accounting services, and domestic and 
            international outreach; and otherwise provide support for 
            the effective operation of the consumer protection goal.
    --17 FTE to meet the needs of increasingly resource-intensive 
            merger investigations and litigation and to challenge 
            anticompetitive business practices in the healthcare, 
            pharmaceutical, energy, and technology sectors among 
            others; promote convergence in competition policy of 
            foreign enforcement practices; and otherwise provide 
            support for the effective operation of the competition 
            goal.
  --$4,174,000 to cover the costs of acquiring and outfitting a new 
        building to replace the 601 New Jersey Avenue building upon the 
        expiration of the lease in 2012, as well as interim space to 
        house anticipated increased staff, which will occur over the 
        next several years.
    Offsetting collections will fund a substantial portion of the FTC's 
fiscal year 2011 budget request. HSR filing fees and Do Not Call fees 
will provide the agency with an estimated $129,000,000 in fiscal year 
2011. The General Fund in the U.S. Treasury would make a direct 
appropriation of $185,000,000 to fund the agency's operations.
                               conclusion
    The FTC very much appreciates the strong support it has received 
from Congress. We hope to continue to earn that support by vigorously 
and aggressively fulfilling our mission to protect American consumers 
and promote a competitive marketplace.

                          BEHAVIORAL MARKETING

    Senator Durbin. Well, Chairman Leibowitz--we can tell 
you're a former Senate staffer; you actually pay attention to 
the red light.
    So, let me start with this ``behavioral marketing,'' 
because it appears that what is happening is that many people 
are doing things, joining things, logging on to things, and, in 
the process, they are giving away their identities and their 
activities for people to use in a commercial way--or for other 
purposes, really.
    But, tell me how far along this is, what you're doing about 
it, and how we keep ahead of the game.
    Mr. Leibowitz. Well, it's a great question.
    With behavioral marketing, there are benefits and there are 
concerns. So, on the benefit side, consumers prefer to have 
targeted advertising rather than advertisements that they're 
not interested in. And the advertising supports the free 
content that we've all come to like and to expect.
    On the other hand--imagine you were walking around a 
shopping mall and there was someone behind you. He's following 
you around, and he's taking notes on where you're going, and 
sending it off to where you're going later, saying ``He has a 
platinum card. He's interested in a particular color shorts.'' 
It would be a little disturbing to you. And if the person being 
followed was a child, if it was my daughter, I'd want to punch 
that person out.
    And, at some level--I don't mean to make light of this--
but, at some level, that's exactly what's going on; information 
is being obtained by companies, and consumers don't know 
exactly where it's going. Sometimes those companies will change 
their policies in midstream, and they won't tell consumers 
about it.
    So, we have sort of a two-track approach here--three 
tracks, actually. One is, we bring enforcement actions. And so, 
we brought a major enforcement action last year against Sears 
for illegal data mining. We believe they didn't give consumers 
adequate notice that they were getting a lot of sensitive 
information--bank account records, drug information, 
prescription information, things like that.
    Another is, we try to think these issues through, and try 
to figure out where the marketplace is going, and try to 
understand it better. So, we did a series of workshops in the 
last few months under David Vladeck, our head of the Bureau of 
Consumer Protection, who's sitting right behind me, to look at 
privacy and to look at behavioral marketing. And we had 
stakeholders in from industry, from consumer groups, from 
academia. We held the workshops across the country--two in 
Washington and one on the west coast. And that's helping us 
think through these----
    Senator Durbin. Can I ask----
    Mr. Leibowitz. Yes, sir.
    Senator Durbin. Like just--let me give you a couple 
hypotheticals, and you----
    Mr. Leibowitz. Sure.
    Senator Durbin [continuing]. Tell me if there is a 
legitimate concern there.
    Assuming that I use my credit card, and it's one of the two 
giant credit cards, for my purchases, is that information 
available to others, in terms of where I shop, what I buy, how 
often I pay?
    Mr. Leibowitz. Well, it depends on the terms and conditions 
of your credit card company. Now, my guess----
    Senator Durbin. Which we all pore over the details of----
    Mr. Leibowitz. Well, I mean----
    Senator Durbin [continuing]. Every single----
    Mr. Leibowitz. Look----
    Senator Durbin [continuing]. Month.
    Mr. Leibowitz [continuing]. We held a workshop a couple 
years ago on this issue, and it turned out, according to a 
submission, that people with Ph.D.s, when asked if they 
understood the privacy policies, only about 35 percent of the 
Ph.D.s and Ph.D. candidates knew that. And, of course----
    Senator Durbin. They have a tendency----
    Mr. Leibowitz [continuing]. Not everybody has a Ph.D.
    Senator Durbin. They have a tendency to exaggerate, anyway.
    Mr. Leibowitz. That's exactly right.
    And if you think about how many times you read through the 
privacy policy, or we do. I mean, you're clicking and clicking 
and clicking.
    So, most companies, to protect their brands, and because 
they think it's the right thing to do, won't trade this 
information or sell it--but, it is conceivable that some 
companies do, and that is very, very troubling. And if a 
company says, ``We're not going to do anything with your 
information,'' and then it does, we think that's an unfair and 
deceptive act or practice.
    Senator Durbin. So, is this an opt-in or an opt-out, or 
none of the above, or both?
    Mr. Leibowitz. Well, there is a roiling debate about opt-in 
versus opt-out. It depends. We believe--or, speaking for 
myself--sometimes it's better to use opt-in, particularly when 
you're dealing with more sensitive information, so that the 
default is, you're not giving anyone your personal information.
    But, you can have a good opt-out policy, as well, in which 
consumers understand what information they're giving. And a lot 
of consumers, particularly if the information is kept on the 
Web site you're looking at, and is limited, I think most 
consumers would be fine with that. But, it's very complicated.
    Senator Durbin. So, there's no uniformity----
    Mr. Leibowitz. There's no----
    Senator Durbin [continuing]. No standard.
    Mr. Leibowitz [continuing]. Uniformity. There is no 
uniformity.
    Senator Durbin. And I don't know--aside from my credit 
card, I don't know, if I buy something online, whether that 
information is going to be sold.
    Mr. Leibowitz. Right. I mean--I think the better companies 
will not sell that information. They don't want to do that. 
They want to have a trust relationship with their customers--
the people who buy from them. But you don't know. And so, we 
brought some cases in this area.
    And of course the other issue, which we haven't talked 
about, is data security. And most companies will have 
reasonably good data security. But, we've seen so many breaches 
over the last few years. And we've brought major cases against 
TJ Maxx and Dave & Buster's for inadvertently allowing 
information to be released to the public or to malefactors, who 
just because they had inadequate security, bad guys go around 
and they try to mine the data. So, it's a very difficult area. 
We're going to try to write something up, particularly on 
social networking, in the fall, to give guidance to businesses. 
And, hopefully, most businesses will try to keep their 
information at a high standard. We go after the ones that 
don't.

                   FEDERAL TRADE COMMISSION BUILDING

    Senator Durbin. For the last minute of my first round, I 
will let you answer another question. A certain Congressman 
came to see me and said that it would be a great idea if you 
moved out of your building. He'd like to use it for the 
National Gallery. It's been a passion of his for a long time. 
So, are you ready to move?
    Mr. Leibowitz. We are not ready to move. And I think we 
left on your desk a copy of the photograph of Franklin Delano 
Roosevelt dedicating our building, the Federal Trade Commission 
building in 1937, in which he proclaimed it the permanent home 
of the FTC--for the FTC for all time.




    No. You know, this has been our home for more than 70 
years. The General Services Administration (GSA) has called it 
``appropriate.'' We can get you that information. And I've seen 
that Congressman's proposal, and it is baffling where he is 
going to find the money for it. Because, you know, if you move 
us out of the FTC building, we have to go somewhere else. You 
can't just put us on the street. And it costs a lot to buy a 
new building. It's not clear whether the National Gallery would 
pay into the District fund or the Federal fund.
    And so, we are as one, as a Commission, in opposing that.
    Senator Durbin. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    
    
                       PAY-FOR-DELAY SETTLEMENTS

    First, I want to commend the FTC for pursuing the pay-for-
delay settlements. I think that's a huge issue. At a time when 
healthcare costs are spiraling out of sight, and the cost of 
prescription drugs is a major part of that, the idea that 
consumers are paying $35 billion more, over the last--or over 
the next 10 years because of these settlements, is truly 
outrageous.
    Your chart doesn't surprise me, however, because, I believe 
it was in 2002, we passed legislation that I was a cosponsor 
of----
    Mr. Leibowitz. You were.
    Senator Collins [continuing]. With Senator McCain, Senator 
Schumer, and Senator--then-Senator Edwards--and, probably, my 
friend Senator Durbin was a cosponsor, as well--that was an 
attempt to end this practice.
    Mr. Leibowitz. Well, you did. And what we had asked for 
then--I wasn't at the Commission, it was in the Medicare 
Modernization Act--was just to get notice of these agreements. 
Because everyone believed at that time that the deals were per 
se illegal; absolutely illegal. And if we had notice of these 
deals in the same way we have notice of mergers, we would be 
able to go after the anticompetitive arrangements.
    Because, of course, if a brand and a generic want to settle 
their dispute, we have no problem with settlements. We just 
have a problem with settlements where the brand pays the 
generic to sit it out.
    Senator Collins. Exactly.
    Mr. Leibowitz. And so you gave us that authority. We review 
all of these deals. But, what happened after that, in 2005, was 
that two courts ruled that these deals were generally 
permitted; they articulated very permissive rules. And after 
that, it became the new way of doing business, not for every 
pharmaceutical company, but for all too many.
    Senator Collins. Well----
    Mr. Leibowitz. So, we see this as really just an extension 
to make it clear what the antitrust laws mean and what Hatch-
Waxman was designed to mean, which is early entry of generic 
drugs. As you know, generic drugs cost about 15 percent, on 
average, of brands.
    Senator Collins. Well, that's something that I'm sure we're 
going to continue to work on. Both of us are cosponsors of your 
former boss's bill.
    I wonder where he got the idea for that bill. I just can't 
imagine.

                  GOOGLE COLLECTION OF DATA VIA WI-FI

    Mr. Chairman, I want to turn next to an issue I mentioned 
in my opening statement, and that is: last Friday, Google 
issued a statement that it had engaged in the unauthorized 
collection of user data from Wi-Fi networks in connection with 
Google's street view mapping activities. And this was an 
admission by Google that it had accumulated an enormous amount 
of data; I believe it's some 600 gigabytes of data that was 
accumulated as its street view cars canvassed residential 
neighborhoods.
    Is the FTC investigating this matter?
    Mr. Leibowitz. Well, we don't acknowledge investigations, 
unless the companies do, until those investigations are 
completed. But, I can certainly tell you, we're going to take a 
very, very close look at this.
    And, in fact, Google has already come in to talk to our 
staff about precisely what happened.
    Because, obviously, this is just one example of why 
consumers have very serious privacy concerns about data that's 
being collected. So, we are going to take a look at it, 
absolutely.
    Because, who would have guessed, as those cars were going 
by, taking photographs for Google Maps, that, in fact, they 
were collecting all this personal data. That's just really 
troubling.
    Senator Collins. It has this Big Brother connotation to it 
that is very disturbing.
    Mr. Leibowitz. It does. We've already received some letters 
from Members of Congress. And we will absolutely take a very 
close look at exactly what's going on.
    Thank you.

                            HOSPITAL MERGERS

    Senator Collins. I want to bring up a more local issue that 
has occurred in Maine and--in my State--and it involves 
hospitals attempting to do mergers. I--without naming the 
hospitals, I'm just going to read you the first sentence of 
this newspaper story. And it says that, ``A small hospital and 
a larger hospital said that they expected their proposed merger 
to sail through the Federal Trade Commission. With one hospital 
having only 53 licensed acute-care beds, it is much smaller 
than other hospitals that had merged with the larger hospital, 
and well below the FTC guidelines that abbreviate reviews for 
small facilities. Other Maine hospital mergers have quickly 
gained Federal clearance, but not this time.'' And it goes on.
    I am not taking a position on whether or not this merger 
should be approved, but I am troubled about what happened in 
this case. Because, what happened is, the FTC sent what was 
perceived, at least, as being such a burdensome request for 
data that the two hospitals interpreted that as a signal that 
they should not go forward. The hospitals reported providing an 
additional 2,000 pages of documents required by the FTC. And 
furthermore, the cost of complying with the request from the 
FTC, they felt, would be so prohibitively expensive that they 
abandoned the plans.
    Mr. Leibowitz. Well, it's a fair concern, generally. And 
with respect to this matter, I've talked to the head of the 
Maine Hospital Association. And I think there was maybe a 
little bit of miscommunication, because what we do when we go 
to second request is we try to find out more about a deal.
    So, there is a safe harbor for acquisitions of small 
hospitals, but it's a presumption. And you want to make sure 
that it's within the safe harbor. We had a case in Texas where 
a hospital thought it was in the safe harbor. It turned out not 
to be. We actually let that deal go through anyway.
    And you want to make sure that it won't raise prices for 
payers and ultimately for consumers. And so, if they decide to 
restart this transaction, we will make sure, as we almost 
invariably do, that what we call a ``second request'' is not 
unduly burdensome. And our staff is going to reach out to that 
hospital group directly, to let them know about that.
    Senator Collins. Thank you. That's----
    Mr. Leibowitz. And we're going to send back a letter to the 
Hospital Association. We'll make sure that the subcommittee has 
it.
    Senator Collins. That would be very helpful. Thank you.
    Mr. Leibowitz. Sure.
     [The information follows:]
                                  Federal Trade Commission,
                                   Washington, D.C., June 22, 2010.
Steven Michaud,
President, Maine Hospital Association,
33 Fuller Road, Augusta, Maine 04330.
    Dear Mr. Michaud: Thank you for your letter to the Federal Trade 
Commission regarding the joint FTC/Department of Justice Statements of 
Antitrust Enforcement Policy in Health Care (``Statements'') \1\ as 
they may relate to the Commission investigation of the proposed 
acquisition of Goodall Hospital by MaineHealth.\2\
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    \1\ The Statements are available on the public Commission Website 
at http://www.ftc.gov/bc/healthcare/industryguide/policy/index.htm.
    \2\ I am able to confirm publicly the Commission's investigation of 
the acquisition because at least one of the parties to the transaction 
``has publicly disclosed the existence of [the] transaction or proposed 
transaction in a press release or in a public filing with a government 
body.'' Federal Trade Commission Notice of Policy of Disclosing 
Investigations of Announced Mergers: Notice of Revised Policy, 62 Fed. 
Reg. 18630 (Apr. 16, 1997); see also Federal Trade Commission Policy 
Concerning Disclosures of Nonmerger Competition and Consumer Protection 
Investigations: Notice of Revised Policy, 63 Fed. Reg. 63477 (Nov. 13, 
1998).
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    In your letter, you raise three questions:
    (1) ``Why did the FTC staff decline to give clearance to the 
MaineHealth-Goodall Hospital transaction, given that Goodall Hospital 
qualified as a small hospital under the 'safety zone' guidelines?''
    (2) ``What was so extraordinary about the circumstances of the 
MaineHealth-Goodall Hospital transaction to warrant a departure from 
the `safety zone' guidelines?''
    (3) ``Will the FTC follow its guidelines for small hospital mergers 
going forward, or is the FTC abandoning its guidelines in practice 
without having yet formally announced that it has done so?''
    With respect to your first two questions, I should note that a 
number of statutory prohibitions and the Rules of the Commission 
prevent me from disclosing the details of any nonpublic Commission 
investigation. As a general matter, of course, Congress has empowered 
the Commission to prevent mergers and acquisitions that may 
substantially lessen competition or tend to create a monopoly, in 
violation of Section 7 of the Clayton Act \3\ or Section 5 of the 
Federal Trade Commission Act.\4\ In carrying out these law enforcement 
responsibilities, the Commission and its staff seek to identify and 
challenge only those mergers or acquisitions which the Commission has a 
reason to believe violate the foregoing statutes.
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    \3\ 15 U.S.C. Sec. 18.
    \4\ 15 U.S.C. Sec. 45.
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    In response to your third question, the Statements remain an 
accurate and current reflection of Commission policy. Of course, any 
determination as to whether a particular transaction falls within the 
``safety zone'' set forth in the Statements is necessarily a fact-
intensive inquiry that requires investigation by Commission staff. In 
addition to the Statements, both the Commission and the Department of 
Justice Antitrust Division in certain instances provide more specific 
guidance on particular proposals through the Commission's advisory 
opinion procedure and the Department of Justice's business review 
procedure. Information about the Commission's advisory opinion 
procedure regarding healthcare proposals is posted on the Bureau of 
Competition part of the Commission Website at the following location: 
http://www.ftc.gov/bc/healthcare/industryguide/adv-opinionguidance.pdf.
    I understand that you discussed this subject in a June 2, 2010 
telephone conversation with Matthew Reilly, the Assistant Director 
within our Bureau of Competition whose office is involved with 
antitrust hospital merger reviews. Mr Reilly would be happy to provide 
any additional information on this subject within the above-mentioned 
statutory and regulatory parameters. Mr. Reilly's direct dial telephone 
number is (202) 326-2350. We appreciate your interest in this subject, 
and thank you again for your letter.
                                           Donald S. Clark,
                                       Secretary of the Commission.

                     UNSUBSTANTIATED HEALTH CLAIMS

    Senator Durbin. I'm trying to figure out what you don't 
look at. And I assume that there are some areas where you 
clearly are----
    Mr. Leibowitz. Yes.
    Senator Durbin [continuing]. Precluded, under the law. But, 
one area that you have been involved in are false and 
misleading health claims.
    Mr. Leibowitz. Yes.
    Senator Durbin. And I know Kellogg's was charged with going 
too far in claiming their Frosted Mini-Wheats made kids 
smarter, more attentive. I like Frosted Mini-Wheats, don't get 
me wrong, but it hasn't helped my I.Q.
    Under another case, the FTC charged the company Roex and 
two individuals with making false or unsubstantiated claims for 
advertising products ranging from an infrared sauna for 
treating cancer to nutritional supplements to reduce the risk 
of a variety of medical conditions, like HIV and Alzheimer's.
    What resources do you have, when it comes in areas of 
health claims? How much do you work with other Federal 
agencies, like the Food and Drug Administration (FDA)?
    Mr. Leibowitz. So, our biggest resource is our staff, 
because they're terrific in this area, whether it's phony 
dietary supplements or other sorts of phony healthcare 
products. And the other thing we do--and we're very--I think 
we're very good at it--is, we reach out to other agencies. So, 
we work with the FDA quite a bit. We work with the Department 
of Health and Human Services (HHS). And because--you know, you 
need to aggregate your resources, here. And we work with State 
attorneys general, too, because I don't want to say we're doing 
triage, because that's not the case. But there are many more 
malefactors out there than we have resources to go after. And 
so, we try to prioritize the most important cases. And in the 
House financial reform bill, they gave us easier rulemaking 
authority. And if we get some relief from our very burdensome 
Magnuson-Moss Act--it's a sort of medieval form of rulemaking, 
where rules take 8 to 10 years--unless Congress directs us to 
do standard notice and comment rulemaking, which you've done in 
some instances--then I think we can try to set standards and 
make things more efficient, and try to be even more useful in 
this area.

                          FREE CREDIT REPORTS

    Senator Durbin. So, since the FTC has worked to make 
certain we have access to free credit reports----
    Mr. Leibowitz. Yes?
    Senator Durbin [continuing]. When we see ads on television 
that a company is paying for to advertise free credit reports, 
does that put us on guard?
    Mr. Leibowitz. Well, you know, this has been a very 
complicated area from the beginning. We litigated a case 
against free credit reports. But, we were very supportive, and 
obviously drafted a rule that we recently released to require 
that free credit reports be given to consumers. Because, after 
all, if it says ``free credit report,'' you ought to be able to 
get it. Not every consumer knows that you should go to 
AnnualCreditReport.com.
    Senator Durbin. AnnualCreditReport.com?
    Mr. Leibowitz. Yes. AnnualCreditReport.com--or if you 
happen to go to FreeCreditReport.gov, we have that Web site, or 
that domain name, and we'll send you right to 
AnnualCreditReport.com--free----
    But, we're going to stay on top of this area. We're looking 
to see whether companies are following the new rule that we did 
pursuant to the Credit CARD Act. And if they're not, we'll go 
after them.

                             IDENTITY THEFT

    Senator Durbin. I've had personal experience with identity 
theft.
    Mr. Leibowitz. I know you have.
    Senator Durbin. And it's an eye-opener, when you get that 
call. And it seems to me that there's quite a strong likelihood 
that most identity thefts go unreported, that people don't 
follow through. Do you have any statistics to indicate how many 
people realize it and do something about it, as opposed to 
those who----
    Mr. Leibowitz. Let me get back to you.
    [The information follows:]

    The Commission's most recent identity theft survey reported 
that 43 percent of victims said that they contacted or were 
contacted by a company where an account was opened in their 
name or where an existing account was misused; 26 percent of 
victims said that they had contacted the police; 21 percent of 
victims reported contacting one or more credit reporting 
agencies; and 4 percent of victims reported contacting the FTC. 
The survey also reported that 38 percent of victims said they 
did not contact anyone. This data, which is based on the 
responses of the 559 individuals surveyed who indicated that 
their personal information had been misused between 2001 and 
the date they were interviewed, includes both new account 
identity theft as well as existing account identity theft. See 
Federal Trade Commission, 2006 Identity Theft Survey Report: 
Prepared for the Commission by Synovate, at 44-45 (November 
2007), available at http://www.ftc.gov/os/2007/11/
SynovateFinalReportIDTheft2006.pdf.

    Mr. Leibowitz. My instincts are the same as yours. We 
periodically do reports about how many people, annually, are 
victims of identity theft. The number is around 9.5 million 
victims a year--or instances of identity theft a year in 
America.
    And, you know, if it's identity theft with a credit card, a 
lot of times consumers won't go to the police or they won't go 
to law enforcement authorities. They'll call the credit card 
company, of course. We're fortunate to have this identity theft 
hotline, and people use it. And that is a good thing.
    And then, we also try to do things like bring data security 
cases, so companies have better data protection, making it 
harder----
    Senator Durbin. What are the most common sources of a 
person's identity if they're going to have it pilfered and 
exploited?
    Mr. Leibowitz. Yeah.
    Senator Durbin. What are the most common?
    Mr. Leibowitz. What are the most common sources? Probably 
credit cards more than anything else, or data breaches by 
companies, which often involve credit card information. 
Sometimes companies use Social Security numbers. You can buy 
them online. It's often done by people outside of the country 
that have a marketplace going, and they sell data for $1 or 
$5--credit card information, Social Security numbers. It's just 
extraordinary.
    We try to do a lot to leverage our resources with our 
sister law enforcement agencies around the world. But, as you 
know, it is very hard to have extraterritorial reach, and it is 
very hard to tamp down on all instances of identity theft. But, 
we're working very, very hard. And when we see criminal cases, 
we of course give those to the criminal authorities, because 
identity theft is really a kind of fraud or----

                  GASOLINE PRICES AND THE OIL INDUSTRY

    Senator Durbin. I have a----
    Mr. Leibowitz [continuing]. Crime.
    Senator Durbin [continuing]. Standard press release that I 
put out at least once a year complaining that gasoline prices 
have just gone up way too high, not reflected in the price of a 
barrel of oil, and clearly these oil companies, once again, are 
taking advantage of consumers, and I'm calling on the FTC to 
investigate it right now. I issue that at least once or twice a 
year.
    Mr. Leibowitz. We try to be responsive.
    Senator Durbin. I know you do. But, we basically don't come 
up with much. At the end of a long investigation, people throw 
up their hands and say, ``I guess we can't prove it, one way or 
the other.'' Is that about where it stands?
    Mr. Leibowitz. Well, you know, if you want to find an 
antitrust conspiracy you have to have people talking to each 
other. And we have done investigations. We continue to do 
investigations of the oil industry. A lot of the cost of a 
barrel of oil, as you know, is due to OPEC. Now, OPEC engages 
in output restrictions. If American companies did that, they 
would go to jail for an illegal, criminal antitrust cartel. And 
so, that's a part of it.
    But, as for whether the American petroleum companies are 
engaged in anticompetitive behavior, violating antitrust laws, 
it is really hard to prove a criminal conspiracy or any kind of 
conspiracy. But, we will try to stay on top of this.
    And we did pass our market manipulation rulemaking, which 
will give us a little more flexibility going forward.
    Senator Durbin. Senator Collins.
    Senator Collins. Mr. Chairman, I'm glad that you brought up 
that last issue. I can't tell you how often my constituents say 
to me, ``But, wait. Supply is ample. Why are prices going up?'' 
And it's not the seasonal change that you see when different 
kinds of gasoline are refined. It seems to them, and I will say 
it seems to me, to be disconnected with supply or demand.
    Mr. Leibowitz. Well this is an issue that resonates with 
consumers. No one would be happier than me to be able to bring 
a case against the oil industry for a violation of the 
antitrust laws. And our staff would be very happy to. And we 
do, again, have some investigations in the pipeline. But, it is 
very hard to prove.
    When my older daughter was 8 years old, or 9 years old, we 
were stopped at--on River Road, in Bethesda, and there were, 
like, four gas stations right around us, and she said, ``Why do 
they all have the same price?''
    And so, I think it is very baffling to many people. The 
truth is, if there's no meeting of the minds, there's no 
antitrust violation, even though the effect is the same on 
consumers.
    Senator Collins. Yeah. It is a source of frustration, 
though, I think also--and this is an issue I've raised with the 
Commodity Futures Trading Commission (CFTC), which also comes 
before us--I also think that the way the futures markets are 
working, where we now have investment funds and pension funds 
chasing the product, when those markets were originally 
designed for producers and end users and not as an investment 
hedge, also has something to do with the fluctuations.
    Mr. Leibowitz. It may very well. And, you know, we 
periodically track prices. And so, we have done, in the last 2 
or 3 years, investigations into anomalous prices in the Pacific 
Northwest, into western New England, and into the price of jet 
fuel, as you know. And it is sometimes hard to find the reasons 
why prices go up.

                           CONSUMER EDUCATION

    Senator Collins. Speaking of the cost of heating oil--home 
heating oil or gasoline, there was a company in my State that 
was recently the victim of cybercrime because, unfortunately, 
the--one of the financial clerks responded to a phony Web site 
that was mimicking the bank that this company used, and, within 
moments, the accounts--the banking account of this company was 
drained, because she, unfortunately and naively, over the Web 
site, gave the password and other information.
    I mention this because this is a fair-sized company in 
Maine, and it's not an unsophisticated business; it's a very 
well-run operation. And yet, it, too, was duped into--to a move 
that led to a loss of tens of thousands of dollars.
    My question to you is, What does the FTC do to try to 
better publicize scams, whether they're via the Internet or 
coming through the mail, and educate small businesses and 
consumers in this area?
    Mr. Leibowitz. Well, we have a number of educational 
materials. I think we put a few of them on your desk. We're 
very proud of the educational work we do here. And to 
distribute educational materials, we often either co-brand with 
companies or community organizations, or we don't brand at all, 
we simply design them and let others distribute. I think you 
might have a copy of ``Deter. Detect. Defend.,'' which is an 
identity theft brochure. So, that's a part of what we do.
    And then when we bring cases--because part of this is 
alerting consumers to be more careful--we try to pair with 
State attorneys general, because if we do a joint announcement, 
very often it gets picked up, people read it in the papers, 
they see it on the television news, and they think a little bit 
more about it. And then we don't have--going back to Senator 
Durbin's earlier question, we don't have jurisdiction over 
banks, but we do try to bring cases involving inadequate data 
security. And that keeps companies on their toes.
    And then, we do workshops and other things where we bring 
stakeholders together and we try to think through how to 
respond.

  ADMINISTRATIVE PROCEDURES ACT RULEMAKING AND ADDITIONAL AUTHORITIES

    Senator Collins. And finally, I'd like to pursue the issue 
that you raised about your rulemaking, because I was surprised 
that you don't use the Administrative Procedures Act (APA). 
Most agencies do. The Securities and Exchange Commission (SEC) 
does. A lot of the agencies that you deal with use the APA. 
Could you provide me with some information on, What is the 
history of why you don't use the APA?
    Mr. Leibowitz. Well, under the Magnuson-Moss Act, which was 
passed in 1974, Congress circumscribed our rulemaking in a way 
to slow it down. I don't think Congress meant to slow it down 
quite as much as they have. We haven't begun to make a new 
rulemaking under Magnuson-Moss since the late 1970s. And the 
reason why is because it can take 8 or 10 years to do a rule. 
And if a company or an entity--if it's within the ambit of the 
proposed rule--feels aggrieved, they can call, essentially, 
regulatory timeouts and ask for independent referees.
    Now, in fairness, Congress has given us APA rulemaking for 
some specific instances. And we've used it in a very thoughtful 
way. In our mortgage modification rulemaking, it will take, 
from the time we put out an advance notice of proposed 
rulemaking (ANPR) to the time we finish it, about 15 months; a 
little slower than we wanted, but you want to do it 
deliberately so you can get it right.
    But, it has been a real impediment for the Commission, and 
one that we're trying to get out from under the restrictions 
of. Because we think we can be more effective, on behalf of the 
consumers that we serve, if we had some degree of relief.
    And the other proposal that's in the House bill that has 
garnered a little bit of attention is civil fining authority 
for violations of section V, or unfair or deceptive act and 
practices rule, and there, I think, more than 40 State 
attorneys general, who have baby FTC acts, have fining 
authority under that. We don't. And we're trying to go after 
real, hardcore malefactors. Because, essentially, sometimes 
we're going after people who are engaged in fraud because the 
criminal authorities don't have the capacity to bring those 
cases. We would like to have fining authority.
    Casper Weinberger, when he was Chairman of the Federal 
Trade Commission in the early 1970s, called for that. And on 
this issue--I wouldn't say on this issue alone--but, on this 
issue, I think the vast majority of the Commission supports the 
Weinberger approach.
    Senator Collins. Is this a problem where the cases that you 
develop may be under the prosecutorial guidelines, as far as 
dollar amount, that they're too----
    Mr. Leibowitz. Yes. Yeah, I mean----
    Senator Collins [continuing]. Small for them to be 
brought----
    Mr. Leibowitz. Look----
    Senator Collins [continuing]. At the U.S.----
    Mr. Leibowitz [continuing]. Criminal authorities--U.S. 
attorney's offices--and we do try to pair with U.S. attorney's 
offices whenever we can. And we have taken some of the worse 
frauds we've gone after and given to the criminal division, for 
example, in the Department of Justice. But, they have other 
priorities. And so, we pick up a lot of the sort of small-
time--pick up a lot of the fraud against consumers. And, in the 
aggregate, it can be a fairly substantial amount. And it would 
be better if we had fining authority. We believe that we would 
have a more effective deterrent.
    Senator Collins. Thank you.

                   PAYDAY LENDING AND DEBT COLLECTION

    Senator Durbin. Mr. Chairman, one of the things that I was 
disappointed in during the debate on the floor on financial 
reform was that I had hoped that we would be able to offer an 
amendment related to the so-called ``title loans,'' or ``payday 
loans,'' a type of predatory lending. And for reasons which are 
hard to explain to the normal population in America, we have 
not been able to get to that issue. That strikes me as one 
aspect of credit in America that is highly abusive to people in 
low-income categories and desperate situations. And I noticed 
that the number two complaint, second only to identity theft, 
at your agency relates to debt collection.
    So, can you tell me what efforts have been made by the FTC 
to deal with this industry?
    Mr. Leibowitz. Yes. Well, it's a couple of things. With 
respect to payday lenders, we have brought cases. I think we've 
brought at least two in the last year. Usually, they don't 
involve too high a rate. The rates may be very, very high, but 
States have basically set per-State caps on what they can 
charge. And what we found, though, is that sometimes they'll 
charge additional fees but they won't tell the consumers. And 
so, we brought a case in that area.
    We brought another case involving the use of the data. The 
case was called, I think, ``EDebitPay,'' and it was an online 
payday lender. And what they had done was fail to disclose 
certain things to consumers, and garnish wages, without telling 
the consumers that they were going to do that.
    And then, we brought another case against several payday 
lenders who weren't giving the required statutory APR data. 
It's required by statute, under TILA, I think.
    And so, we try to stay active in this area. And it is one 
where I think the complaints that we have gotten tell us that 
there are problems out there.
    And, of course, they prey on the people at the lowest rung 
of the economic totem pole. Congress has--and I think you might 
have been involved in this--has capped the rates on payday 
lending outside of military bases.
    Senator Durbin. Yes, we're protecting military families; 
but not nonmilitary families, we don't protect all families 
when it comes to these bottom-feeders.

                        EMERGING INTERNET SCAMS

    You've made reference to the Internet and services being 
offered. It seems like this adds a new level of challenge and 
complexity, that now certain things can be offered in the 
ether, on the Internet. And really the source of them might be 
hard to find, whether they're actually in the United States, 
North America, Europe, wherever they may come from. So, how do 
you cope with that Internet challenge?
    Mr. Leibowitz. Well, several years ago, you passed 
something called the SAFE WEB Act, which allowed us to do 
confidential investigations with our sister law enforcement 
agencies from around the world. We have to sign agreements with 
them, and we've done this with a number of jurisdictions. So, 
that's been helpful.
    But, as you know, con artists all around the world are 
very, very smart, and they're very nimble. We had a foreclosure 
rescue scam case where the domain name was registered in 
Berlin, but the company was actually operating out of Orange 
County, California. And so sometimes it takes a long time to 
pierce through the corporate veil and find out who these real 
malefactors are. Now, we were fortunate enough to work with 
foreign law enforcement authorities to shut this company down. 
But it's very hard, although it's a challenge that we accept. 
That's what we're supposed to do.
    Senator Durbin. Do you have such an agreement with Nigeria?
    Mr. Leibowitz. We do not believe we have one with Nigeria. 
But, I do believe, at this point, American consumers are on top 
of most Nigerian scams.
    Senator Durbin. Thank you.
    Senator Collins.
    Senator Collins. Thank you.
    Senator Durbin. Chairman Leibowitz, thanks for being here.

                     ADDITIONAL COMMITTEE QUESTIONS

    We'll work hard on your appropriation, try to find some 
more resources. You're doing important work. Thanks.
    Mr. Leibowitz. Thank you so much. Thank you.
    Senator Durbin. We may have some written questions.
    [The following questions were not asked at the hearing, but 
were submitted to the Commission for response subsequent to the 
hearing:]
            Questions Submitted by Senator Richard J. Durbin
    Question. The Energy Independence and Security Act of 2007 gave the 
Federal Trade Commission (FTC) authority to issue regulations 
prohibiting market manipulation involving wholesale transactions of 
crude oil, gasoline, and petroleum distillates. The FTC issued the 
Final Rule in August 2009 and provided guidelines to industry for 
compliance.
    How does the ``market manipulation'' rule change, expand, or 
enhance the FTC's jurisdiction and enforcement authorities?
    Answer. The market manipulation rule (MMR) is a fraud-based rule. 
The MMR prohibits persons from knowingly engaging in fraudulent or 
deceptive conduct connected with wholesale transactions of petroleum 
products. The MMR also prohibits persons from intentionally omitting 
material facts in statements whenever the omission can be expected to 
distort wholesale petroleum markets. Thus, in addition to the FTC's 
traditional enforcement program focused on anticompetitive conduct, 
including anticompetitive mergers and unfair business practices that 
result in a sustained diminution of competition, the MMR enables the 
Commission to prevent specific instances of fraudulent or deceptive 
conduct, even when that conduct does not have durable competitive 
consequences.
    Question. How will the FTC monitor compliance with the new rule?
    Answer. The Commission has established a dedicated e-mail and 
telephone MMR ``hotline'' to receive complaints from anyone who has 
information about conduct prohibited by the MMR. The Bureau of 
Competition also has a litigating section of approximately 25 attorneys 
who specialize in energy matters that will have the primary 
responsibility for bringing appropriate cases under the MMR. In 
addition, staff from both the Bureau of Competition and the Bureau of 
Economics regularly monitors the petroleum industry to discern any 
anomalous price movements that need further investigation to determine 
whether they are caused by shifts in market conditions or wrongful 
behavior.
    Question. The FTC published an investigation of the increases in 
gas prices occurring in 2006, concluding that rising gas prices could 
be explained entirely by market forces and not illegal anticompetitive 
behavior. Will the new market manipulation rule change the standard for 
how the FTC will evaluate and reach conclusions on behavior in the 
petroleum market?
    Answer. As noted above, the MMR targets fraudulent or deceptive 
practices that might not otherwise be reachable by Section 5 of the FTC 
Act. However, it does not alter the FTC's standard for evaluating 
behavior in the petroleum industry under either Section 5 or Section 7 
of the Clayton Act. The FTC's long-established enforcement aim is to 
protect consumers from unfair methods of competition or unfair or 
deceptive business practices. The issuance of the MMR does not change 
that mission; rather it provides the Commission with an additional tool 
to fulfill it.
    Question. The FTC shares concurrent jurisdiction with other 
agencies such as the Commodity Futures Trading Commission, the 
Securities and Exchange Commission, the Department of Justice, and the 
Food and Drug Administration.
    Please describe the FTC's concurrent jurisdiction with these and 
other agencies and how such jurisdiction is either complementary or 
duplicative.
    Answer. The FTC has concurrent authority with many agencies to a 
greater or lesser extent. The concurrence is broadly complementary; for 
example, the agencies may have generally consistent but different 
missions or goals (e.g., FTC with FDA, EPA, SEC, CFTC, CPSC), or divide 
up primary responsibility (e.g., FTC with FDA, FCC), or share 
enforcement over a very substantial number of entities or acts while 
arranging to avoid duplication (e.g. FTC with DOJ Antitrust Division), 
or aid each other with special expertise in certain areas (e.g. FTC 
with FDA, EPA, FCC), or can apply different remedies to the same or 
similar conduct, such as civil vs. criminal, injunction and restitution 
vs. seizing product (e.g., DOJ, U.S. Postal Inspector, EPA, FDA). 
Attached is a brief summary of the FTC's primary areas of coordination 
with various Federal agencies.
    Question. To curb fraudulent practices in the mortgage industry, 
the FTC plans to issue a rule banning upfront fees for mortgage 
modification or foreclosure rescue assistance. The FTC is also 
contemplating rules on advertising mortgages.
    How would new rules related to mortgage advertising practices 
strengthen the FTC's authorities in the mortgage arena?
    Answer. The Commission currently enforces mortgage advertising 
requirements under the FTC Act, the Truth in Lending Act (TILA), 
including the Home Ownership and Equity Protection Act (HOEPA), and 
Regulation Z rules written by the Federal Reserve Board (Board). The 
Commission lacks authority to obtain civil penalties for violations of 
these statutes and rules, with the exception of certain Regulation Z 
rules promulgated pursuant to HOEPA.
    The Commission has not published a proposed or final mortgage 
advertising rule, so I cannot discuss the specific conduct that a final 
rule might prohibit or restrict. Generally, however, enacting new rules 
in this area would enable the Commission to protect prospective 
borrowers more effectively by establishing clearer standards for 
mortgage advertisers and giving the Commission more effective tools to 
stop and deter violations. As you know, the Commission is conducting 
the mortgage advertising rulemaking using the authority Congress 
granted to it in the Omnibus Appropriations Act of 2009, as clarified 
by the Credit Card Accountability Responsibility and Disclosure Act of 
2009. Those laws authorize the Commission to enact rules with respect 
to unfair or deceptive mortgage practices, and to enforce those rules, 
with the states, through a variety of remedies including civil 
penalties.
    Question. The proposed rule prohibiting upfront fees for mortgage 
modifications is being implemented around the same time as the rule 
prohibiting upfront fees for debt settlement. Does the FTC plan to 
prohibit upfront fees for other financial services, given that these 
fees have been a key tactic for deceiving consumers?
    Answer. The Commission's amendments to the Telemarketing Rule 
governing debt relief services include a ban on the collection of 
advance fees. The FTC proposed rule on mortgage assistance relief 
services also would ban advance fees, but that rule is not yet final. 
With respect to the Telemarketing Rule's debt relief amendments, the 
Commission concluded that the collection of advance fees by debt relief 
providers, which often takes place in the context of transactions 
involving telemarketing that are permeated with deception, is an 
abusive practice under the Telemarketing Act. The record in the debt 
relief proceeding--including the public comments, a study by the 
Government Accountability Office, information gathered at a public 
forum, consumer complaints, and the law enforcement experience of the 
Commission and state enforcers--demonstrated widespread deception and 
substantial consumer injury in the provision of debt relief services. 
Consumers in the midst of financial distress suffer monetary harm--
often in the hundreds or thousands of dollars--when, following sales 
pitches frequently characterized by high pressure and deception, they 
use their scarce funds to pay in advance for promised results that, in 
most cases, never materialize. In finding this practice abusive, the 
Commission applied the test for an unfair practice in section 5(n) of 
the Federal Trade Commission Act. The Commission found that the 
practice (1) causes or is likely to cause substantial injury to 
consumers, that (2) is not outweighed by countervailing benefits to 
consumers or competition, and (3) is not reasonably avoidable. The 
Commission relied on a similar analysis in prohibiting under the 
Telemarketing Rule the collection of advance fees for credit repair 
services, recovery services, and offers for certain loans.
    At present, there are no other rulemaking proceedings in which the 
Commission has proposed or issued an advance fee ban. The determination 
of whether an advance fee ban is appropriate is very much dependent on 
the specific circumstances, including the extent to which the 
transactions at issue take place in the context of widespread 
deception.
    Question. The FTC reports that Identity Theft was the number one 
consumer complaint during 2009. Consumers are worried that in an 
increasingly high-tech world, their personal data is being collected 
improperly and stored insecurely.
    What responsibilities do Facebook and other companies have to their 
users to disclose their websites' privacy policy? What about changes to 
that policy over time?
    Answer. Although there is no generally applicable requirement for 
social networking companies to disclose their privacy practices, they 
still must satisfy certain responsibilities with respect to privacy 
policy disclosures. First, any claims they make must be truthful. The 
Commission has brought one case against a social networking site--
Twitter--for making a misrepresentation about the level of security 
provided. See In the Matter of Twitter, Inc., FTC File No. 092 3093 
(June 24, 2010) (consent order approved for public comment). Second, if 
websites collect information from children, they must provide parents 
with notice and an opportunity to consent. The Commission has brought 
several cases against companies for violating the Children's Online 
Privacy Protection Act by not securing the required parental consent 
before collecting information from children through social networking 
websites. See United States v. Xanga.com, Inc., No. 06-CIV-6853(SHS) 
(S.D.N.Y.) (final order Sept. 11, 2006); United States v. Industrious 
Kid, Inc., No. 08-CV-0639 (N.D. Cal.) (final order Mar. 6, 2008); 
United States v. Sony BMG Music Entm't, No. 08-CV-10730 (S.D.N.Y.) 
(final order Dec. 15, 2008); United States v. Iconix Brand Group, Inc., 
No. 09-CV-8864 (S.D.N.Y.) (final order Nov. 5, 2009). Third, if 
companies change their privacy policies in a way that materially 
affects data that consumers have already provided, they must provide 
clear notice and the opportunity for the consumers to provide their 
affirmative express consent to the change. See In the Matter of Gateway 
Learning Corp., FTC Docket No. C-4120 (Sept. 10, 2004) (consent order).
    Question. If users decide to cancel or restrict their accounts on 
Facebook, photo storage sites, or other sites where they have stored 
personal information, what assurances do they have that their personal 
information is completely removed and deleted from storage?
    Answer. Several companies make specific disclosures to consumers 
about what happens to their data once they leave a site. If the 
disclosures are false, the FTC can bring an enforcement action under 
Section 5 of the FTC Act. In addition, if a website does not honor 
requests from parents to delete information being stored about their 
children, the FTC can bring an enforcement action under the Children's 
Online Privacy Protection Act.
    We have also examined the issue of data retention as part of a 
series of roundtables we hosted on consumer privacy over the last 
several months. A number of roundtable participants and commenters 
emphasized the value of businesses' retaining data only as long as 
necessary to fulfill a specific business purpose. The Commission staff 
will make recommendations on this issue as part of an upcoming report 
on privacy, to be released later this year.
    Question. Net Cetera is a guide published by the FTC to assist 
parents in talking to their children about the Internet.
    How has the FTC distributed the Net Cetera guide?
    What feedback has FTC received on the guide?
    Answer. The FTC is working with outside groups to promote and 
distribute the booklet. For groups and individuals who want to share it 
with their families, friends, and communities, Net Cetera is available 
at OnGuardOnline.gov and in Spanish at AlertaenLinea.gov. People also 
can order free copies through the FTC's bulk order site, 
bulkorder.ftc.gov. Like all the FTC's consumer materials, Net Cetera is 
free and in the public domain. The FTC encourages groups and 
individuals to order as many copies as they can use, include sections 
of it in their newsletters and blogs, and grab the web button from 
OnGuardOnline.gov for use on their own websites.
    Many schools use OnGuardOnline.gov and Net Cetera as part of their 
online safety programs. Because so much computer and other media use 
takes place in the home, pairing teachers and parents in these efforts 
more fully encourages safe and responsible online behavior, and 
reinforces consistent messaging.
    Net Cetera has been available to the public since October 21, 2009. 
To date, the FTC has distributed more than 3,700,000 copies of the 
guide in English and more than 350,000 copies in Spanish. Distribution 
highlights include:
  --Schools or school systems in all 50 states and D.C. have ordered 
        copies of Net Cetera. This includes large orders by the Prince 
        George's County (MD) Public Schools (150,000), the Cobb County 
        School District (120,000), and the Cleveland Metropolitan 
        School District (50,000).
  --Illinois schools, police departments, and community groups have 
        ordered over 100,000 copies of the guide.
  --Members in both Chambers signed and circulated letters about Net 
        Cetera to their Hill colleagues, encouraging them to use the 
        guide in their districts and to link to it from their websites. 
        The FTC sent copies of the booklet to district offices as well, 
        and will continue to work with Congress to spread the word 
        about online safety.
  --Companies including Facebook, MySpace, and Sprint are linking to 
        Net Cetera from their safety or resources pages.
  --Nonprofits such as the Boys and Girls Clubs of America and the 
        Internet Keep Safe Coalition distributed the guide at events 
        across the country.
    As the order numbers illustrate, Net Cetera has been very well 
received by parents, educators, police officers, and online safety 
experts. The Online Safety and Technology Working Group highlighted Net 
Cetera as an ``outstanding'' project that should be promoted as an 
opportunity for public-private partnerships in online risk prevention. 
Also, the FTC has secured opportunities to speak about Net Cetera at 
conferences for groups including the International Society for 
Technology in Education and the National Association of School Resource 
Officers.
    Question. To stop advertisements from deceiving consumers into 
paying for so-called ``free'' credit reports, the FTC implemented a 
rule requiring that these advertisements contain a clear disclosure 
that the only authorized free credit report is available at 
AnnualCreditReport.com.
    How is the FTC enforcing the new rule requiring that a disclosure 
is displayed on all commercial ``free credit report'' websites?
    Answer. To determine compliance with the rule, the FTC monitors 
websites offering free credit reports. The FTC recently sent letters to 
18 websites offering free credit reports, warning them that they must 
clearly disclose that a free report is available under Federal law. 
This campaign appears to have been effective: several of the websites 
have changed their practices. The Commission anticipates follow up law 
enforcement action against those companies that do not come into 
compliance.
    Question. What other measures have been taken to inform consumers 
of AnnualCreditReport.com, and how effective have those measures been?
    Answer. The Commission has made extensive outreach efforts to 
educate consumers about their right to a free credit report through the 
authorized source, AnnualCreditReport.com. When the free annual credit 
report program initially took effect in 2004, the FTC issued press 
advisories and radio public service announcements informing consumers 
of their new rights, and published a ``how to'' guide on ordering the 
Federally-mandated free reports. The Commission also has issued public 
warnings about ``imposter'' sites that pose as the official free report 
site, AnnualCreditReport.com. In addition, the FTC has created videos 
that highlight the differences between AnnualCreditReport.com and other 
sites that claim to provide ``free'' credit reports. Moreover, each 
time the FTC announces an enforcement action or new rule in the credit 
reporting area, it publicizes the AnnualCreditReport.com website. Most 
recently, it did so when it announced the warning letters described 
above. We believe these measures have been quite effective. Since 2004, 
consumers have obtained over 150 million free credit reports from the 
nationwide CRAs.
    Question. Experian, the company that ran ``Free Credit Report.com'' 
has now shifted its strategy and set up ``Free Credit Score.com.'' Is 
the FTC continuing to monitor these companies to make sure they are 
complying with the new rule? Is there a plan to create a truly free 
credit score website similar to AnnualCreditReport.com?
    Answer. The FTC generally monitors consumer reporting agencies and 
other companies for their compliance with the provisions of the FCRA 
and other applicable rules. The Free Credit Report Rule does not apply 
to credit scores and consumers do not have a general right to a free 
credit score under the FCRA. Instead, the FCRA provides consumers a 
right to purchase a credit score from consumer reporting agencies and 
to obtain a free credit score in specified circumstances, such as when 
they apply for certain home loans. In addition, under the Risk-Based 
Pricing Rules which take effect on January 1, 2011, creditors can 
provide a free credit score, along with information about that score, 
to all consumers, instead of providing risk-based pricing notices to 
specific consumers. Finally, the Consumer Financial Protection Act of 
2010 will allow consumers turned down for credit or offered less 
favorable terms because of their credit report or score to get a free 
credit score disclosure with their adverse action notice. The FTC 
oversees compliance with all of these FCRA requirements for entities 
under its jurisdiction to ensure that consumers are able to obtain 
their credit scores as required by law.
    Question. In April 2010, the FTC launched ``Admongo,'' an online 
video game where kids explore a virtual world filled with commercial 
messages to teach them to think critically about advertisements.
    What was the cost of developing Admongo?
    How does the FTC plan to evaluate the program's effectiveness?
    Are there ongoing costs associated with operating the online game?
    Answer. The Federal Trade Commission has developed an interactive 
campaign to give kids the skills they need to understand how 
advertising works and to interpret the information that ads contain. 
The campaign, targeted to tweens (kids ages 8 to 12), is based on the 
website Admongo.gov, which teaches core ad literacy concepts and 
critical thinking skills through game play. Other elements of the 
campaign include in-school lesson plans, developed in cooperation with 
Scholastic, Inc., that are tied to state standards of learning for 
grades 5-6; sample ads that can be used at home and in the classroom; 
and teacher training videos.
    Advertising literacy funding was approved for up to $2.2 million 
per year for up to 4 years; the full amount was budgeted in the first 
year, but two subsequent years have seen funding set at $2 million. 
Through June 2010, at the end of the second year of funding, the cost 
of creating the website, all related lesson plans and materials, and 
the promotion of the site was approximately $4.2 million. The ongoing 
costs to operate the game will include FTC staff time, web hosting 
fees, and occasional technical support from experts in web programming, 
as needed. The amount of money involved should be minimal.
    Plans are underway now to evaluate the effectiveness of Admongo. 
FTC staff are initiating the Paperwork Reduction Act (PRA) approval 
process to conduct a study of student and teacher use of campaign 
resources. This will supplement the ongoing feedback we receive from 
teachers via the mailbox at [email protected] and through conferences and 
meetings.
    Question. The FTC anticipates reaching 200 million numbers on the 
Do Not Call List by this summer.
    Has the FTC received complaints about unwanted text messages? Does 
the FTC need specific authority to create a ``Do Not Text'' list or can 
it bar messages under the Do Not Call List?
    Answer. Since January 1, 2010, the Commission has received 
approximately 1,300 consumer complaints that primarily concern text 
messaging practices, including unsolicited text messages. In addition, 
approximately 5,600 of the more than 1 million Do Not Call complaints 
received during this period mention text messaging and may relate to 
unsolicited text messages. Including both groups, the total number of 
complaints concerning text messaging practices represents less than 1 
percent of all complaints received by the Commission since the start of 
the year.
    The Commission has not taken the position that sending an 
unsolicited text message violates the Telemarketing Sales Rule, which 
prohibits initiating an ``outbound telephone call'' to a person whose 
telephone number has been entered on the National Do Not Call Registry 
(DNC Registry). Moreover, it is not clear whether the rulemaking 
authority provided to the Commission under the Telemarketing and 
Consumer Fraud and Abuse Prevention Act (Telemarketing Act),\1\ which 
was the basis for the DNC Registry, extends to text messages.\2\
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    \1\ Public Law No. 103-297, 108 Stat. 1545 (1994). The Act defines 
telemarketing to mean ``a plan, program, or campaign which is conducted 
to induce purchases of goods or services by use of one or more 
telephones and which involves more than one interstate telephone 
call.'' Telemarketing and Consumer Fraud and Abuse Prevention Act, 
Sec. 7, Public Law No. 103-297, 108 Stat. 1545 (1994).
    \2\ The Commission could seek to promulgate a rule establishing a 
``Do Not Text'' registry under the rulemaking procedures of Section 18 
of the Federal Trade Commission Act. Section 18 would be an impractical 
tool for addressing a Do Not Text registry, however, as it includes 
numerous burdensome and time-consuming requirements that typically have 
required from 3 to 10 years to complete. See prepared statement of the 
Federal Trade Commission on ``Consumer Credit and Debit: The Role of 
the Federal Trade Commission in Protecting the Public'' before the 
House Comm. on Energy and Commerce, Subcomm. on Commerce, Energy, and 
Consumer Protection at 21-23 (Mar. 24, 2009), available at http://
www.ftc.gov/os/2009/03/P064814consumercreditdebt.pdf.
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    The question whether a text message may fall within the provisions 
of the Telemarketing Act is muddied, among other reasons, by the facts 
that text messages typically lack an audio component, and that their 
dissemination can take many forms.\3\ Although some unsolicited text 
messages are sent from one phone to another, others are sent over the 
Internet to an e-mail address that has been automatically assigned to 
the subscriber's account by his or her mobile carrier.\4\ For these 
reasons, the FTC's authority under the Telemarketing Act to address 
text messages is uncertain.\5\
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    \3\ The Commission has previously considered the limitations of its 
authority under the Telemarketing Act. For example, when creating the 
Telemarketing Sales Rule (TSR), the Commission considered a definition 
of ``telemarketing'' that would have covered campaigns involving fax 
machines, modems, or ``any other telephonic medium.'' This was 
rejected, however, upon the Commission's conclusion that a narrower 
definition would ``follow[] more closely the statutory definition set 
forth by Congress in the Telemarketing Act.'' 60 Fed. Reg. 30411 (June 
8, 1995). Instead, the statutory definition of telemarketing was 
incorporated almost verbatim into the TSR.
    \4\ Because an effective ``Do Not Text'' registry might involve the 
collection of e-mail addresses, the creation of such a registry would 
raise a number of the same concerns the Commission highlighted in its 
report to Congress regarding a National Do Not E-mail Registry. Federal 
Trade Commission, Report to Congress, National Do Not E-mail Registry 
(June 2004) (detailing security and privacy concerns, including the 
likelihood that an e-mail registry would be misused by spammers, 
thereby increasing rather than reducing the volume of spam emails).
    \5\ We note that the Federal Communications Commission has asserted 
that a text message is a ``call'' within the meaning of the Telephone 
Consumer Protection Act (TCPA), and thereby concluded that the TCPA 
prohibits the use of an automated dialer to send commercial text 
messages to a cellular telephone number without the prior consent of 
the recipient. See Federal Communications Commission, Rule and 
Regulations Implementing the Telephone Consumer Protection Act of 1991, 
69 Fed. Reg. 55765, 55767 (Sept. 16, 2004). The FCC's interpretation of 
the TCPA, however, does not resolve the separate issue of the FTC's 
authority under the Telemarketing Act.
---------------------------------------------------------------------------
    Some tools already exist that may minimize concerns about 
unsolicited text messages. Unlike telephone calls, text messages are 
not covered under common carrier regulations and therefore can be 
filtered by mobile carriers, which state that they block hundreds of 
millions of unsolicited messages every month.\6\ Consumers can also 
work with many carriers to block text messages entirely or just those 
messages from a particular unwanted source.\7\ In addition, consumers 
who have received certain types of unsolicited text messages may seek 
damages through a private right of action under the Telephone Consumer 
Protection Act.\8\
---------------------------------------------------------------------------
    \6\ Federal Trade Commission, Staff Report, Beyond Voice: Mapping 
the Mobile Marketplace (Apr. 2009).
    \7\ Id.
    \8\ See, e.g., Satterfield v. Simon & Schuster, Inc., 569 F.3d 946 
(9th Cir. 2009).
---------------------------------------------------------------------------
    Moreover, to the extent the sending of unsolicited text messages is 
an unfair or deceptive practice, Section 5 of the Federal Trade 
Commission Act provides the agency with a flexible tool for addressing 
commercial practices that are unfair or deceptive. The Commission has 
pursued a vigorous law enforcement program against unfair or deceptive 
unsolicited commercial messages in a variety of contexts \9\ and will 
continue to bring the same resolve to the issue as more of this 
activity migrates to the arena of text messaging.
---------------------------------------------------------------------------
    \9\ E.g., FTC v. Spear Systems, Inc., No. 07-5597 (N.D. Ill. 2007) 
($3.7 million judgment obtained against key players in an international 
spam ring); United States v. ValueClick, Inc., No. 08-1711 (C.D. Cal. 
2008) ($2.9 million civil penalty).
---------------------------------------------------------------------------
    In short, while the DNC Registry has proven to be extremely 
effective in curbing unwanted telemarketing calls, it is not clear at 
this point that adopting a similar program for unsolicited text 
messages would be advisable. However, should the Congress determine 
that a Do Not Text registry would help consumers, we will be happy to 
assist you with legislative language.
                                 ______
                                 
           Questions Submitted by Senator Frank R. Lautenberg
     Question. Manufacturers and retailers of electronic cigarettes (e-
cigarettes) claim that they are safe, and even that these products can 
help smokers quit traditional smoking. However, there have been no 
clinical studies to prove these products are effective in helping 
smokers quit, nor have any studies verified the safety of these 
products or their long-term health effects. The World Health 
Organization (WHO) has stated that it has no scientific evidence to 
confirm the products' safety and efficacy.
    What is the FTC doing to police health claims made in e-cigarette 
advertisements?
    Answer. Electronic cigarettes are battery-powered devices that 
usually contain cartridges filled with nicotine and other chemicals. 
The devices are designed to convert the nicotine and other chemicals 
into a vapor to be inhaled by the user.
    Electronic cigarettes are currently the subject of Federal court 
litigation, stemming from the Food and Drug Administration's (FDA) 
detention of certain of these products at ports of entry to the United 
States. Specifically, upon reviewing a number of electronic cigarettes, 
FDA determined that they qualified as both a drug and device under the 
Federal Food, Drug, and Cosmetic Act (FDCA), and that agency approval 
was therefore needed before the products could be marketed in the 
United States. Because such approval had not been obtained, FDA 
determined that their sale would violate the FDCA and denied them entry 
into the country.
    In April 2009, a lawsuit challenging FDA's jurisdiction over 
electronic cigarettes was filed in Federal district court. In January 
2010, the district court granted the plaintiff's motion for a 
preliminary injunction enjoining FDA from detaining or refusing 
admission into the United States of the plaintiff's electronic 
cigarette products on the ground that those products are unapproved 
drugs, devices, or drug-device combinations. Smoking Everywhere, Inc., 
v. FDA, 680 F. Supp. 2d 62 (D.D.C. 2010). The Department of Health and 
Human Services and the Food and Drug Administration appealed the 
court's order, and oral argument before the U.S. Court of Appeals for 
the D.C. Circuit is scheduled for September 2010.
    Under the FTC Act, the Commission has jurisdiction over deceptive 
or unfair claims made in the marketing of most products, including 
electronic cigarettes, and the Commission has a strong record of 
exercising its enforcement authority to protect the health and safety 
of consumers. If the district court's ruling that FDA lacks 
jurisdiction over electronic cigarettes is sustained on appeal, FTC 
monitoring of the marketing claims made for these products would be 
appropriate. However, if FDA's assertion of jurisdiction over 
electronic cigarettes is ultimately upheld by the courts, sale (and, 
therefore, marketing) of these products will be prohibited pending 
agency approval under the FDCA.
    Question. In 2003, the FTC recommended that the alcohol industry 
abide by a voluntary standard that required alcohol advertisements to 
be placed only in media in which at least 70 percent of the audience 
for each advertisement consisted of adults 21 and over. Since then, 
several reports have indicated that youth exposure to alcohol 
advertising is increasing.
    Despite the reported increase in youth exposure to advertising, the 
FTC's 2008 report entitled ``Self-Regulation in the Alcohol Industry'' 
did not increase the advertising standard. I am concerned that the 
report based this conclusion on premises that are not supported by 
research or the public health community, or are contradictory to 
previous statements by the Commission.
    Will you commit to reviewing the FTC's 2008 report, the process by 
which it was created, and any contradictions between the premises upon 
which the Commission relied and its earlier statements and those of the 
public health community?
    How will you evaluate whether the industry should increase its 
advertising standards to reduce advertising exposure to those who are 
not legally permitted to purchase alcohol?
    Answer. Underage drinking is a critical public health issue, 
contributing to risky behavior, injury, and an intolerable 5,000 deaths 
per year. Fortunately, reliable data show long-term, gradual declines 
in underage drinking. According to the Monitoring the Future survey, 
past 30-day alcohol use by 8th, 10th, and 12th graders, combined, has 
fallen by 27 percent over the past 14 years.\10\
---------------------------------------------------------------------------
    \10\ Johnston, L.D., et al., Monitoring the Future National Results 
on Adolescent Drug Use: Overview of Key Findings, 2009 (NIH Publication 
No. 10-7583), Table 3.
---------------------------------------------------------------------------
    Nonetheless, too many teens still drink. Federal, state, and local 
governments all play a role in reducing teen drinking. The FTC is a 
member of the Interagency Coordinating Committee to Prevent Underage 
Drinking. We have particular responsibility over alcohol marketing, and 
also engage in consumer education designed to help reduce teen access 
to alcohol, as further described below.
    The FTC addresses issues related to underage appeal of alcohol ads 
by pressing for effective industry self-regulation, through studies and 
ongoing monitoring. Our 2008 Alcohol Report evaluated industry 
compliance with the 70 percent standard. It showed that 92.5 percent of 
ads placed during the study period complied with the 70 percent 
placement standard, and that when all audiences for all ads were 
aggregated, more than 85 percent of the audience consisted of adults 21 
and older.
    The 2008 Alcohol Report made a number of recommendations for 
improvement of the industry's voluntary standards. Among other things, 
it announced that industry had agreed to adopt a 70 percent standard, 
with buying guidelines, for Internet advertising; it recommended that 
the beer and wine industries apply a 70 percent standard to sports 
sponsorships (the spirits industry already had done so); it recommended 
application of the 70 percent standard to product placements in movies; 
and it recommended that industry consider the need to maintain an 85 
percent aggregate audience composition when making placements. Although 
it did not recommend an immediate change in the baseline standard, the 
2008 Alcohol Report placed the industry on notice that it will be 
necessary to do so when the 2010 census data are released.
    Since 2008, the Commission has continued to press for additional 
changes in the self-regulatory standards. The staff has advised the 
industry that the baseline placement standard should be raised to 75 
percent. Additionally, the staff has advised industry members that ads 
on sites that have registered users, such as Facebook, MySpace, and 
YouTube, should be delivered only to persons who have registered as 
being 21 and older.
    This January, the Commission will begin the process of seeking 
Office of Management and Budget approval, under the Paperwork Reduction 
Act, to conduct another major study of alcohol marketing and self-
regulation.\11\ The study will evaluate the advertising practices of 
the major alcohol suppliers and consider the appropriateness of the 
placement standard. In the course of this study, the Commission will 
review the FTC's 2008 Alcohol Report, the process by which it was 
created, and the other issues you raise. Our analysis will be based on 
the record as a whole, including but not limited to public health 
concerns, any comments received during the study, the available 
placement data, and the potential costs and benefits of a modified 
standard.
---------------------------------------------------------------------------
    \11\ OMB approval under the PRA is required in cases where the 
Commission sends identical information requests to 10 or more entities. 
See 44 U.S.C. Sec. 3502.
---------------------------------------------------------------------------
    The Commission also knows that education is an important consumer 
protection tool. Data show that most teens who drink alcohol obtain it 
from social sources, such as older family members and friends. 
Accordingly, we developed a consumer education program to help parents 
protect their children from alcohol-related harm. The message of the 
``We Don't Serve Teens'' (WDST) program is, ``Don't Serve Alcohol to 
Teens. It's unsafe. It's illegal. It's irresponsible.'' Components of 
the WDST program include a website, www.DontServeTeens.gov; radio ads; 
and signs. WDST signage is used nationwide by alcohol retailers, police 
departments, schools, and mental health organizations.
                               attachment
 brief summary of the ftc's primary areas of coordination with various 
                            federal agencies
    FDA: concurrent jurisdiction with respect to labeling and marketing 
of foods, OTC drugs, and devices; under a Memorandum of Agreement the 
FDA has primary responsibility for overseeing product labeling and the 
FTC has primary responsibility for non-label advertising; the agencies 
cooperate closely and frequently.
    FCC: (1) broadly concurrent jurisdiction with respect to 
telemarketing; the agencies consulted on rulemaking, developed 
consistent rules; coordinate on enforcement; (2) concurrent 
jurisdiction with respect to advertising in broadcast media; under a 
liaison agreement the FTC has primary responsible for unfair or 
deceptive advertising in media and provides that the FCC will take 
false and misleading advertising into account in licensing and other 
decisions; in this and other areas, the agencies consult and coordinate 
as applicable.
    DOJ: nearly complete concurrent jurisdiction on antitrust matters; 
under a clearance agreement the agencies determine which one will 
examine any particular matter; FTC issues premerger review rules with 
DOJ concurrence; the agencies cooperate closely on these and other 
issues.
    EPA: concurrent jurisdiction with respect to unfair or deceptive 
practices involving the environment, e.g., pesticides; the agencies 
consult and coordinate on scientific issues, such as those involved in 
the FTC Green Guides and business education and in amending the FTC 
Care Labeling Rule, and on enforcement as applicable.
    SEC: concurrent jurisdiction with respect to unfair or deceptive 
practices involving securities and investment advice; FTC generally 
defers to SEC where securities expertise is needed; agencies coordinate 
on enforcement as applicable.
    CFTC: some concurrent jurisdiction with respect to unfair or 
deceptive practices involving commodities futures; agencies consult as 
applicable, such as in the FTC's petroleum market manipulation 
rulemaking.
    Postal Service/DOJ: concurrent jurisdiction with respect to mail 
fraud; agencies cooperate closely on enforcement, sometimes including 
parallel investigations and criminal referrals.
    BATF: concurrent jurisdiction with respect to unfair or deceptive 
practices involving alcohol, tobacco, and firearms; agencies consult on 
matters as applicable.
    CPSC: some concurrent jurisdiction with respect to unfair or 
deceptive practices involving product safety; agencies consult and 
coordinate on enforcement as applicable.
    Depository institution regulators: parallel jurisdiction, and 
limited concurrent jurisdiction, with respect to unfair or deceptive 
practices and a number of consumer financial laws; agencies consult on 
rulemaking, and some has been conducted jointly or in coordination; 
agencies consult or coordinate on enforcement as applicable.
    The new Consumer Financial Protection Bureau: concurrent 
jurisdiction with respect to some financial practices and entities; the 
statute provides for consultation and coordination on rulemaking, 
enforcement, and other matters.

                         CONCLUSION OF HEARINGS

    Senator Durbin. This meeting of the subcommittee will stand 
recessed.
    Thanks, everybody, for attending.
    [Whereupon, at 3:50 p.m., Thursday, May 20, the hearings 
were concluded and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]
