[House Report 104-754]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     104-754
_______________________________________________________________________


 
          FEDERAL TRADE COMMISSION REAUTHORIZATION ACT OF 1996

_______________________________________________________________________


 August 2, 1996.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Bliley, from the Committee on Commerce, submitted the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 3553]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Commerce, to whom was referred the bill 
(H.R. 3553) to amend the Federal Trade Commission Act to 
authorize appropriations for the Federal Trade Commission, 
having considered the same, report favorably thereon without 
amendment and recommend that the bill do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     2
Background and Need for Legislation..............................     2
Hearings.........................................................     4
Committee Consideration..........................................     4
Rollcall Votes...................................................     4
Committee Oversight Findings.....................................     4
Committee on Government Reform and Oversight.....................     4
New Budget Authority and Tax Expenditures........................     4
Committee Cost Estimate..........................................     5
Congressional Budget Office Estimate.............................     5
Inflationary Impact Statement....................................     6
Advisory Committee Statement.....................................     6
Section-by-Section Analysis of the Legislation...................     6
Changes in Existing Law Made by the Bill, as Reported............     6
Additional Views.................................................     8

                          Purpose and Summary

    The legislation amends the Federal Trade Commission Act (15 
U.S.C. 41, et seq.) to authorize appropriations of $107 million 
in Fiscal Year 1997 and $111 million in Fiscal Year 1998 for 
the Federal Trade Commission (``FTC'). These authorization 
levels represent a current services authorization level and 
envision no expansion of personnel.

                  Background and Need for Legislation

    In July of 1994, the Congress passed the Federal Trade 
Commission Act Amendments of 1994 (P.L. 103-312), the first 
reauthorization of the FTC since 1980. The 1994 Amendments 
reauthorized the agency and made a number of substantive 
changes to its authorizing statute. Earlier that year, the 
Congress passed the Telemarketing and Consumer Fraud and Abuse 
Prevention Act (P.L. 103-297) (hereinafter ``Telemarketing 
Fraud Act'') which gave the FTC new statutory tools to combat 
deceptive and abusive telemarketing practices. Taken together, 
these two Acts represented a major step forward in addressing 
the responsibilities and authority of the FTC.
    In light of these major changes to the FTC's authorizing 
statutes and as the current authorization is set to expire, the 
Committee is faced with its own responsibility of evaluating 
the agency's performance. As H.R. 3553 demonstrates, the 
Committee does not believe that significant changes to the 
Federal Trade Commission Act, or other statutes administered by 
the agency within this Committee's jurisdiction, are necessary 
at this time.
    The FTC's unique role in the marketplace requires that it 
strike a delicate balance between its role as an independent 
law enforcement agency, and its role as a marketplace 
regulator. As discussed extensively in the Committee's report 
accompanying the Federal Trade Commission Act Amendments of 
1993 (H. Rpt. 103-138), the primary mission of the agency is to 
``promote the efficient functioning of the marketplace by 
seeking to protect consumers from unfair or deceptive acts or 
practices and to promote vigorous competition.'' At the same 
time, the FTC must guard against imposing measures which 
impinge on legitimate commercial speech. The agency can 
prosecute wrongdoing through the use of a variety of powerful 
legal and administrative tools, including rules, enforcement 
actions, criminal actions, or enforcement guidelines. No matter 
which mode of enforcement the FTC ultimately chooses, the FTC 
should act to protect businesses and consumers from those in 
society who, either intentionally or through ignorance, would 
seek to unfairly manipulate the market to their own advantage.
    While both the FTC and the consumer benefit from the 
agency's broad authority to seek out and prosecute those who do 
wrong in the marketplace, the potential for abuse continues to 
be an issue of concern to the Committee. Any business which 
finds itself the target of an FTC investigation must devote 
resources--monetary, legal, and human--to respond to such 
charges, which can cripple any small- to medium-sized business. 
While the Committee will continue to monitor this situation in 
the future, it is encouraged by the assurances of the FTC 
Chairman that the Commission and its staff will continue to 
consider this factor when deciding which mode of enforcement to 
pursue, particularly in cases where any potential violation 
does not appear to be intentional.
    Because the FTC has a unique role as an independent law 
enforcement agency, it must make every effort to maintain its 
independence, both in practice and in appearance. The agency is 
outside of the Executive Branch and has strict rules governing 
the disclosure of information to other government agencies and 
the Congress, precisely to insulate it from political pressure. 
The agency must continue to work to ensure that it remains 
impartial in disputes between competitors or interest groups 
that might seek to use the formidable power of the FTC to their 
own advantage.
    The Committee concurs in the report language recently 
adopted by the Committee on Appropriations (H. Rpt. 104-676) 
concerning the Commission's activities relative to franchiser 
abuse. During the previous Congress, the Committee held a 
hearing on problems in the franchise industry (Serial No. 103-
157). The Committee urges the Commission to consider 
appropriate improvements to its Franchise Rule and to devote 
suitable resources to investigative and enforcement efforts in 
this important area.
    The Committee is particularly pleased with the FTC's 
efforts to aggressively enforce rules against telemarketing 
fraud, particularly since the passage of the Telemarketing 
Fraud Act. Even under the FTC's existing section 5 authority, 
the agency had such notable successes as Project: Telesweep; 
Project: Roadblock; Operation: Senior Sentinel; and the 
Chattanooga Telemarketing Fraud Project. Since the 
Telemarketing Sales Rule became effective, the FTC has led four 
major operations, including Operation: Payback; Operation: Loan 
Shark; Operation Copycat; and their largest operation to date, 
Operation: Jackpot. Since January 1, 1996, there have been 103 
enforcement actions brought against individuals and 
corporations for violations of the Telemarketing Sales Rule by 
both the FTC and State officials under the Telemarketing Fraud 
Act. Further, the FTC has demonstrated a great deal of 
foresight in pursuing unscrupulous business people who exploit 
the nation's newest marketplace, the Internet. The Committee 
encourages the FTC to continue these efforts to aggressively 
ferret out wrongdoers so that the Internet may remain free for 
legitimate commerce.
    Finally, the Committee notes that the FTC's aggressive 
effort to review old rules, orders, and other administrative 
guidance serves as an important example to other government 
agencies. As FTC Chairman Pitofsky testified, ``the agency has 
found that a number of its actions from the distant past have 
outlived their utility and may hinder the operation of the 
marketplace by imposing burdens that are no longer justified.'' 
In the past year, the Commission has rescinded 32 percent of 
its Trade Regulation Rules and 30 percent of its Consumer 
Protection Guides and policy statements that are now outdated 
or obsolete. By eliminating burdensome regulations on its own, 
the FTC is fulfilling its primary mission--to ensure that the 
marketplace functions correctly. The Committee commends these 
efforts, started first by former Chairman Steiger and continued 
by current Chairman Pitofsky, and urges the Commission to 
continue to look for ways to streamline the agency and achieve 
further efficiencies.

                                Hearings

    The Subcommittee on Commerce, Trade, and Hazardous 
Materials held a hearing on H.R. 3553, the Federal Trade 
Commission Reauthorization Act of 1996, on July 11, 1996. 
Witnesses at the hearing included the Honorable Robert 
Pitofsky, Chairman of the Federal Trade Commission; the 
Honorable Mary L. Azcuenaga, Commissioner, Federal Trade 
Commission; the Honorable Roscoe B. Starek III, Commissioner, 
Federal Trade Commission; the Honorable Janet T. Steiger, 
Commissioner, Federal Trade Commission; and the Honorable 
Christine A. Varney, Commissioner, Federal Trade Commission. 
All of the witnesses testified in favor of the legislation.

                        Committee Consideration

    On July 18, 1996, the Subcommittee on Commerce, Trade, and 
Hazardous Materials met in open markup session and approved 
H.R. 3553, the Federal Trade Commission Reauthorization Act of 
1996, for Full Committee consideration, without amendment, by a 
voice vote.
    On July 24, 1996, the Committee on Commerce met in open 
markup session and ordered H.R. 3553 reported to the House, 
without amendment, by a voice vote.

                             Rollcall Votes

    Clause 2(l)(2)(B) of rule XI of the Rules of the House of 
Representatives requires the Committee to list the recorded 
votes on the motion to report legislation and amendments 
thereto. There were no recorded votes taken in connection with 
ordering H.R. 3553 reported. A motion by Mr. Bliley to order 
H.R. 3553 reported to the House, without amendment, was agreed 
to by a voice vote, a quorum being present.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, the Committee held a legislative 
hearing and made findings that are reflected in this report.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight.

               New Budget Authority and Tax Expenditures

    In compliance with clause 2(l)(3)(B) of rule XI of the 
Rules of the House of Representatives, the Committee states 
that H.R. 3553 would result in no new or increased budget 
authority or tax expenditures or revenues.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 403 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, the following is the cost 
estimate provided by the Congressional Budget Office pursuant 
to section 403 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 25, 1996.
Hon. Thomas J. Bliley, Jr.,
Chairman, Committee on Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3553, the Federal 
Trade Commission Reauthorization Act of 1996.
    Enactment of H.R. 3553 would not affect direct spending or 
receipts. Therefore, pay-as-you-go procedures would not apply 
to the bill.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

               congressional budget office cost estimate

    1. Bill number: H.R. 3553.
    2. Bill title: Federal Trade Commission Reauthorization Act 
of 1996.
    3. Bill status: As ordered reported by the House Committee 
on Commerce on July 24, 1996.
    4. Bill purpose: H.R. 3553 would authorize appropriations 
of $107 million for 1997 and $111 million for 1998 for the 
Federal Trade Commission.
    5. Estimated cost to the Federal Government: Assuming 
appropriation of the authorized amounts, CBO estimates that 
enacting H.R. 3553 would result in costs to the federal 
government of $218 million over the 1997-2002 period. Estimated 
outlays are based on historical spending rates for the 
authorized activities. The following table summarizes the 
estimated budgetary effects of H.R. 3553.

                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                     1996     1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
        SPENDING SUBJECT TO APPROPRIATION                                                                       
                                                                                                                
Spending Under Current Law:                                                                                     
    Budget Authority.............................       79  .......  .......  .......  .......  .......  .......
    Estimated Outlays............................       80        6  .......  .......  .......  .......  .......
Proposed Changes:                                                                                               
    Authorization Level..........................  .......      107      111  .......  .......  .......  .......
    Estimated Outlays............................  .......       98      111        9  .......  .......  .......
Projected Spending Under H.R. 3553:                                                                             
    Authorization Level \1\......................       79      107      111  .......  .......  .......  .......
    Estimated Outlays............................       80      104      111        9  .......  .......  .......
----------------------------------------------------------------------------------------------------------------
\1\ The 1996 level is the amount appropriated for that year.                                                    

    The costs of this bill fall within budget function 370.
    6. Pay-as-you-go considerations: None.
    7. Estimated impact on State, local, and tribal 
governments: H.R. 3553 contains no intergovernmental mandates 
as defined in Public Law 104-4 and would have no impact on the 
budgets of state, local, or tribal governments.
    8. Estimated impact on the private sector: This bill would 
impose no new private-sector mandates as defined in Public Law 
104-4.
    9. Previous CBO estimate: On June 14, 1996, CBO provided a 
cost estimate for S. 1840, the Federal Trade Commission 
Reauthorization Act of 1996, as ordered reported by the Senate 
Committee on Commerce, Science, and Transportation on June 6, 
1996. The bills are identical as are the two estimates.
    10. Estimate prepared by: Federal cost estimate: Rachel 
Forward. State and local government impact: Leo Lex. Private 
sector impact: Amy Downs.
    11. Estimate approved by: Robert A. Sunshine (for Paul N. 
Van de Water, Assistant Director for Budget Analysis).

                     Inflationary Impact Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee finds that the bill 
would have no inflationary impact.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

             Section-by-Section Analysis of the Legislation

                         section 1. short title

    This section provides the short title of the bill, the 
``Federal Trade Commission Reauthorization Act of 1996.''

                       section 2. reauthorization

    This section amends section 25 of the Federal Trade 
Commission Act (15 U.S.C. 57c) to authorize appropriations in 
the amounts of $107 million in Fiscal Year 1997, and $111 
million in Fiscal Year 1998 to carry out the functions, powers, 
and duties of the Commission.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):

             SECTION 25 OF THE FEDERAL TRADE COMMISSION ACT

  Sec. 25. There are authorized to be appropriated to carry out 
the functions, powers, and duties of the Commission not to 
exceed $92,700,000 for fiscal year 1994; not to exceed 
$99,000,000 for fiscal year 1995; [and] not to exceed 
$102,000,000 for fiscal year 1996; not to exceed $107,000,000 
for fiscal year 1997; and not to exceed $111,000,000 for fiscal 
year 1998.
           ADDITIONAL VIEWS OF THE HONORABLE CHARLIE NORWOOD

    My opposition to this legislation should not be interpreted 
to mean that I believe the Federal Trade Commission (FTC) does 
not serve a legitimate function in the United States in 
protecting Americans from businesses engaging in anti-
competitive behavior. It is not my intention to say that the 
FTC has no purpose in the anti-trust activities of this 
country. However, in some cases, the FTC has shown itself, 
through its strict and unyielding interpretation of the law, to 
be the guardian of large and ever expanding businesses in 
particular sectors of our economy at the expense of true 
competition, lower cost to consumers, and quality improvements 
in services.
    The market to which I am referring is the health care 
market. Over the past 20 years, managed care organizations have 
continued to expand their power in the health care market. 
According to some estimates, over 135 million people in this 
country are enrolled in some form of managed care plan. While 
managed care certainly did provide competition to traditional 
fee-for-service medicine when it was first promoted by the 
federal government in the 1970s, it has been able to overtake 
fee-for-service medicine by creating economies of scale, 
consolidating administrative functions, and capitating 
services. In many ways, these changes have been good.
    As managed care continued to grow, health care providers 
recognized that, as individuals, they would not be able to 
compete with managed care on the scale necessary to create 
similar efficiencies unless they banded together. 
Unfortunately, the FTC has often interpreted the collaboration 
of providers on issues of mutual pricing, consolidation of 
administrative services, and the collective assumption of risk 
as anti-competitive behavior between providers and deemed those 
arrangements as per se illegal under federal laws governing 
anti-competitive market behavior.
    To allow legitimate provider networks to operate, the FTC 
must recognize that we no longer exist in a fee-for-service 
environment where providers may have been the primary 
competitors. By and large, providers do not compete for 
contractual arrangements with employers to provide health 
services for employees. In the era of managed care, employers 
negotiate with insurance companies or managed care plans 
themselves, who in turn negotiate their contracts with health 
care providers. With that understanding, allowing providers to 
create networks to allow them to compete for contracts and 
negotiate with employers is the only way to insure that true 
competition exists in the market for the delivery of health 
care services.
    Unfortunately, too often the FTC did not recognize the 
genuine intentions of these providers. Rather than collusion 
between competitors to raise prices and therefore damage 
consumers, health care professionals banded together to create 
provider networks to allow them to compete with integrated 
managed care networks. Providers began to form these networks 
because they were concerned that health care decision-making 
was moving away from the control of the providers, who were 
trained to make medical decisions, to accountants and insurance 
company bean-counters who were, by nature, more interested in 
ensuring a profit for their CEOs and share-holders than they 
were for the well-being of their patients.
    In some cases, not only has the FTC used its power to limit 
the formation of provider networks, it has also abused its 
power by becoming a tool for big business. In one case I have 
been following, the FTC may have used its power to intimidate 
small health care entrepreneurs into joining managed care 
organizations despite the fact that these same providers 
decided not to join that organization. In my opinion, this 
coercion goes well beyond the scope of the FTC's power, and 
should be considered by Congress. It is neither the place nor 
the function of the FTC to act as a strongman for dominant 
players in any market. The moment a federal governmental 
agency, with the full force of the United States government 
behind it, decides to join sides with members of an industry it 
is meant to regulate, it abuses its power and delegitimizes 
itself and the role it was intended to play.
    Until only recently and under the threat of Congressional 
action, the FTC has resisted changes in its consideration of 
legitimate networks from per se illegality to considering the 
real life effects of the network operations under a rule of 
reason analysis. Rule of reason does not preclude the FTC from 
finding that a network which is acting in an anti-competitive 
manner is illegal under the nation's anti-trust laws. It simply 
requires the FTC to consider the totality of circumstances that 
contribute to the formation of a provider network, including 
variegated market share, a network's level of integration, and 
its pro-competitive effects on the health care market in which 
it operates.
    In January 1996, House Judiciary Committee Chairman Henry 
Hyde of Illinois introduced legislation that would have 
required the FTC to apply rule of reason analysis to providers 
that join together to compete with large integrated managed 
care networks. As a cosponsor of this legislation, I feel very 
strongly that, unless the FTC adapts its interpretations of 
federal law to consider the sum and substance of provider 
networks as pro-competitive endeavors, legislative action will 
be necessary to ensure that providers who form these legitimate 
networks with the best of intentions and in a pro-competitive 
manner are allowed to do so without unnecessary and 
counterproductive hassles from the federal government.
    Unfortunately, members of Congress have been subjected to a 
coordinated effort by insurance companies and managed care 
organizations to thwart action on reforming the FTC's 
interpretations of federal law regarding provider networking 
arrangements. This is understandable and should be an important 
sign to the FTC that there are, inherent in its 
interpretations, premises that protect big businesses from true 
competition. Such a lobbying effort has, in my opinion, been 
undertaken because these businesses recognize that rule of 
reason analysis of provider networks will lead to genuine 
competition in the health care market.
    I recently met with several representatives of the FTC, 
including FTC Chairman Robert Pitofsky, and have been somewhat 
reassured that the FTC is making a good faith effort to 
recalibrate its thinking on the issue of provider networks. I 
felt that the Commerce Committee's consideration of a bill to 
reauthorize the FTC offered the appropriate opportunity to 
remind the FTC that members of Congress are prepared to act if, 
upon release of the upcoming guidelines, no significant changes 
are made to allow providers to compete with managed care. While 
it may not be the best alternative, Congress will be forced to 
act to insure that the FTC makes the proper interpretation of 
federal law.
    In conclusion, as the former President of the Georgia 
Dental Association and a practicing dentist, I can attest to 
the fact that the strict interpretation of the nation's anti-
trust laws by the FTC has damaged competition in the health 
care market. I have seen it occur across the nation. I have 
seen it occur in my own back yard. I know that health care 
providers in my state would have long ago engaged in the 
establishment of provider networks had it not been for the 
FTC's often unreasonable and punitive reaction to their 
creation. Unfortunately, the FTC has created a climate of fear 
and has made legitimate attempts by providers to network 
together, not only to compete with massive corporations, but 
also to regain some level of control over the medical decision 
making process, to feel like they are criminals. By foisting 
this chilling effect on America's health care providers, the 
FTC has denied patients the improvement of the quality of care 
that competition between provider networks and managed care 
networks could bring to the market. This is the best reason for 
the FTC to reconsider its interpretations in this area.
    This nation's economy is based on the solid foundation of 
the free market that includes maximum competition on 
appropriate levels of scale. The Sherman Act and its sister 
acts were drafted to ensure that those competitive assumptions 
were retained in the face of monopolistic and anti-competitive 
behavior. When these laws, designed to ensure competition, are 
used to insulate big business from competition, something must 
be done to readjust those laws. That is why I had serious 
reservations about reauthorizing the Federal Trade Commission 
and why I will continue to oppose the narrow interpretation of 
the law that betrays its original intent.

                                                   Charlie Norwood.