[Senate Report 107-348]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 769


107th Congress 
 2d Session                      SENATE                          Report
                                                                107-348
_______________________________________________________________________

                        FEDERAL TRADE COMMISSION

                      REAUTHORIZATION ACT OF 2002

                               __________

                              R E P O R T

                                 of the

                  COMMITTEE ON COMMERCE, SCIENCE, AND

                             TRANSPORTATION

                                   on

                                S. 2946

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


               November 19, 2002.--Ordered to be printed











       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
                      one hundred seventh congress
                             second session

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








                                                       Calendar No. 769
107th Congress                                                   Report
                                 SENATE
 2d Session                                                     107-348

======================================================================
 
          FEDERAL TRADE COMMISSION REAUTHORIZATION ACT OF 2002

                                _______
                                

               November 19, 2002.--Ordered to be printed

                                _______
                                

      Mr. Hollings, from the Committee on Commerce, Science, and 
                Transportation, submitted the following

                              R E P O R T

                         [To accompany S. 2946]

    The Committee on Commerce, Science, and Transportation, to 
which was referred the bill (S. 2946) to reauthorize the 
Federal Trade Commission for fiscal years 2003, 2004, and 2005, 
and for other purposes, having considered the same, reports 
favorably thereon without amendment and recommends that the 
bill do pass.

                          Purpose of the Bill

  The purpose of the legislation is to reauthorize the Federal 
Trade Commission (FTC or Commission) for the next three fiscal 
years, to amend the FTC Act (15 U.S.C. 41 et seq) to include 
telecommunications common carriers within the jurisdiction of 
the FTC, to authorize the Commission to receive donations of 
books and volunteer services, and to authorize reimbursement 
for law enforcement expenses.

                          Background and Needs

  The FTC is an independent Federal agency, established by 
statute (Federal Trade Commission Act, 15 U.S.C. Sec. 41) in 
1914 to protect American consumers. The Commission's mandate 
has two distinct components: first, to protect consumers from 
unfair or deceptive acts or practices in or affecting commerce; 
and second, to protect consumers from unfair methods of 
competition. As part of this authority, the agency enforces 
some 46 statutes and is the only Federal agency with both 
consumer protection and competition jurisdiction in broad 
sectors of the economy.
  The Commission's consumer protection authority is provided 
under the FTC Act (15 U.S.C. Section 41 et seq). The Commission 
is charged with preventing a broad range of consumer abuses, 
including deceptive or misleading advertising practices, 
telemarketing fraud, credit report errors, labeling 
regulations, and telemarketing services. The Act also grants 
the FTC jurisdiction over unfair methods of competition and 
unfair or deceptive acts or practices that unreasonably impede 
a consumer's ability to make an informed choice or create 
fraudulent contractual inducements.
  The Commission's antitrust authority is derived from the 
Sherman Act (prohibiting unlawful restraints and 
monopolization), the Clayton Act (prohibiting arrangements, 
mergers, and acquisitions that threaten competition--the Hart-
Scott-Rodino Act (requiring merger review) is derived from this 
Act), and the Robinson-Patman Act, (barring price 
discrimination). Each of the Federal antitrust statues is 
administered concurrently by the FTC and the Department of 
Justice.
  The FTC is not currently authorized. The last reauthorization 
statute was passed in 1996 (P.L. 104-216), which authorized 
funding for fiscal years 1997 and 1998. The FTC's current 
budget for FY 2002 is $156 million with approximately 1065 
full-time staff. The Commission requested an increase for the 
next three fiscal years, in both dollars and staff, due in part 
to the planned implementation of a national registry for 
consumers to remove their names from telemarketing sales-call 
lists and the proposed expansion of its jurisdiction to include 
telecommunications common carriers. The FTC's budget request is 
as follows:

   FTC-REQUESTED BUDGET AND STAFF FOR FISCAL YEARS 2003, 2004, AND 2005

------------------------------------------------------------------------
                                        Budget  (in      Full-time Staff
              Fiscal Year               millions)
------------------------------------------------------------------------
2003..............................               $179              1,087
2004..............................               $207              1,158
2005..............................               $224              1,208
------------------------------------------------------------------------

  Throughout the 1980s, the Commission's staffing levels 
decreased each year, falling from 1,719 in FY 1980 to 894 in FY 
1989. In the 1990s, the Commission's staffing levels increased 
from 903 in 1990 to 964 in 1999. S. 2946 would authorize 
staffing levels of 1,087 in FY 2003, 1,158 in FY 2004, and 
1,208 in FY 2005.
  Currently, the FTC is unable to prosecute actions against 
telecommunications common carriers. The FTC does not have 
jurisdiction over these entities; therefore, telecommunications 
consumers do not benefit from established FTC protections 
against deceptive and unfair marketing, advertising, and 
billing practices. Staff at the FTC and the Federal 
Communications Commission (FCC) have worked together to 
identify and address consumer protection concerns arising in 
the telecommunications industry. However, it has been observed 
that the common carrier exemption frustrates effective consumer 
protection both with respect to common carrier and non-common 
carrier activities in the telecommunications industry. 
Ultimately, some believe that the existing distinction leads to 
inefficient use of both FTC and FCC staff consumer-protection 
resources.
  For example, there have been instances where consumers have 
received exorbitant phone bills for international audiotext and 
videotext services received on their phone lines without their 
informed authorization. The FTC has sued bill aggregators and 
vendors, as in the action against Verity International LTD. In 
that case, the FTC fought a motion to dismiss raised by Verity 
based on the common carrier exemption. The FCC filed an amicus 
brief in support of the FTC's position. Although the FTC was 
successful at the Federal district court level, the resolution 
of the issue had consumed FTC and FCC resources that may 
otherwise have been used to protect consumers.
  The common carrier exemption also has affected enforcement 
actions against cramming. Cramming is the placement of 
unauthorized charges on consumers' telephone bills. The FTC has 
successfully filed over a dozen cases to stop the cramming of 
unauthorized non-telecommunications charges onto consumers' 
phone bills. In similar cases where the potential defendant was 
or claimed to be a common carrier, the FTC did not bring 
charges against those companies due to the jurisdictional 
prohibition.
  It also has been found that some businesses, in an attempt to 
avoid FTC prosecution, will assert that they are common 
carriers when there is a question as to whether their core 
businesses would qualify for that designation. For example, in 
one investigation of an entity that charged consumers and 
institutional customers such as schools and hospitals for 
unauthorized audiotext services, a joint investigation with the 
FCC was necessary because the entity under investigation 
claimed that it was a common carrier. The entity's alleged 
common carrier activities significantly complicated an 
investigation that otherwise would have been a routine 
prosecution. In another instance, the FTC considered bringing 
an action against a company that the staff believed may have 
made misrepresentations regarding the online security it 
provided its customers. However, the entity also provided 
common carriage to its customers. The security representations 
it made in its business were dependent on the representations 
it made as a common carrier. Because the two issues were so 
intertwined, the FTC faced a substantial litigation risk of 
being denied jurisdiction.
  The difficulty the FTC faces when it decides whether to bring 
an action against a defendant with connections to 
telecommunication common carriage is delineating between what 
is, and what is not, a common carrier activity. The removal of 
the exemption in part or in full could reduce the potential for 
gamesmanship.
  The Commission also has received numerous complaints alleging 
deceptive advertising and marketing of pre-paid phone cards, 
particularly to the immigrant community. The FTC has brought a 
small number of cases involving the marketing of pre-paid phone 
cards. However, because of the common carrier exemption, the 
FTC does not have jurisdiction over all of the entities 
involved in the marketing of these phone cards, and in some 
instances may not have jurisdiction over the entities primarily 
responsible for the misrepresentations at issue.
  Consumers are inundated with marketing and advertising by the 
telecommunications industry every day. The industry spent $3.9 
billion in 1999 on long-distance advertising alone. The volume 
of advertising and marketing calls for additional resources to 
protect consumers in light of known fraudulent and deceptive 
acts occurring within the telecommunications marketplace. FTC 
jurisdiction over telecommunications common carriers may 
provide the additional resources and expertise that would 
protect consumers and serve the public interest.
  The FTC, in carrying out its consumer protection mission, 
often works cooperatively with State and foreign agencies. An 
additional change in authority would grant the FTC the ability 
to accept reimbursement for these joint enforcement actions, 
thereby better utilizing Commission funds. However, current 
statutory authority does not authorize the FTC to accept 
reimbursement for expenses when it works cooperatively with a 
State or foreign agency. Commission staff has been working 
closely with domestic and foreign law enforcement authorities 
to combat the dramatic rise in consumer protection violations 
and unfair methods of competition both domestically and abroad. 
These partnerships have resulted in enhanced law enforcement 
efforts and sharing of information. In certain matters, the FTC 
occasionally provides investigative or other services to a 
requesting law enforcement authority with no expectation of the 
Commission's participation in any enforcement proceeding. In 
other instances, particularly involving State actions, the 
Commission partners with the State to both investigate and 
prosecute the matter. In some of these situations, the foreign 
or domestic partner may be interested in reimbursing the 
Commission for the services it has provided or in sharing some 
of the investigation and prosecution costs.
  Unless authorized by law, a Federal agency may not keep money 
it receives from sources other than Congressional 
appropriations, but must deposit such funds in the Treasury. 
The Securities and Exchange Commission currently has authority 
to accept payment and reimbursement for investigative or other 
assistance that it provides to a foreign securities authority. 
The FTC would like to be able to accept reimbursement if 
offered, but it would not seek reimbursement for routine or 
statutorily required services that it already provides.
  Another change in statutory authority that would enhance the 
ability of the FTC to carry out its duties is gift-acceptance 
authority. Under Federal appropriations law, agencies have 
authority to spend only what the Congress appropriates. Thus, 
the Comptroller General has determined that, unless 
specifically authorized by law, agencies may not accept gifts, 
including volunteer services, because to do so would constitute 
an improper augmentation of appropriated funds.
  The FTC points out that this broad restriction on acceptance 
of gifts occasionally limits its ability to fulfill its mission 
in the most cost-effective manner, such as using volunteer 
services in the consumer complaint and information center. As a 
result of these restrictions, the Commission sometimes receives 
gifts of items that it is not in a position to accept. For 
example, the acceptance of a trade regulation publication that 
might be useful in the Commission library is barred. In order 
to accept such publications, the Commission needs statutory 
authority as proposed by S. 2946. Numerous agencies, including 
the Office of Government Ethics, the FCC and the Consumer 
Product Safety Commission, have this authority. The FTC is 
mindful of the need to employ any gift acceptance authority 
that it may receive in a manner that avoids the appearance of 
impropriety.

                          Legislative History

  The Subcommittee on Consumer Affairs, Foreign Commerce and 
Tourism held an oversight hearing on the FTC on July 17, 2002, 
where the full Commission testified, and asked Congress to 
amend its statute to include the provisions in S. 2946. The 
Subcommittee also heard from consumer and industry 
representatives. Senator Dorgan, Chairman of the Subcommittee, 
along with Senator Hollings, Chairman of the Committee on 
Commerce, Science, and Transportation, introduced S. 2946, the 
Federal Trade Commission Reauthorization Act of 2002, on 
September 17, 2002. The full Committee considered S. 2946 
during an executive session on September 19, 2002, and reported 
the measure by a vote of sixteen to seven.

                            Estimated Costs

  In compliance with subsection (a)(3) of paragraph 11 of rule 
XXVI of the Standing Rules of the Senate, the Committee states 
that, in its opinion, it is necessary to dispense with the 
requirements of paragraphs (1) and (2) of that subsection in 
order to expedite the business of the Senate.

                      Regulatory Impact Statement

  In accordance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee provides the 
following evaluation of the regulatory impact of the 
legislation, as reported:

                       NUMBER OF PERSONS COVERED

  S. 2946 would re-authorize the Commission to continue its 
dual missions of protecting American consumers and preventing 
unfair methods of competition. Additionally, the legislation 
would expand the Commission's jurisdiction to include 
telecommunications common carriers. Therefore, S. 2946 would 
affect all persons who are currently subject to FTC protections 
and enforcement, as well as persons who are providers and 
consumers of telecommunication common carriage.

                            ECONOMIC IMPACT

  S. 2946 would authorize funds for the Commission to continue 
its current responsibilities. Telecommunication common carriers 
may experience new costs due to the need to maintain compliance 
with FTC regulations they were not subject to because of the 
common carrier exemption.

                                PRIVACY

  S. 2946 would be expected to help increase the personal 
privacy of American consumers, since it is part of the FTC's 
mission to protect the public from illegal intrusions into 
personal privacy and to prosecute identity theft. S. 2946 would 
reauthorize the Commission to continue its duties concerning 
the protection of consumer privacy.

                               PAPERWORK

  S. 2946 would change the jurisdictional responsibilities of 
the FTC to include telecommunication common carriers, creating 
concurrent jurisdiction with the FCC and the Department of 
Justice. The legislation should generate similar amounts of 
administrative paperwork as other legislation requiring 
multiple agency enforcement.

                      Section-by-Section Analysis

Section 1. Short title
  This section provides that the Act be cited as the ``Federal 
Trade Commission Reauthorization Act of 2002.''
Section 2. Reauthorization
  This section would authorize the appropriation of funds for 
the Commission at $179 million for fiscal year (FY) 2003, $208 
million for FY 2004, and $224 million for FY 2005.
Section 3. Common carriers regulated by the Communication Act of 1934
  This section would provide the FTC jurisdiction over 
telecommunications common-carriers by rescinding the current 
telephone common carrier exemption in the FTC Act (see sections 
45 and 46 of title 15 U.S.C.). The removal of this part of the 
exemption would create concurrent jurisdiction with the FCC for 
matters concerning fraudulent advertising, deceptive business 
practices, and other consumer protection issues involving 
telecommunications companies where both agencies have 
enforcement authority.
  It is intended that S. 2946 would establish concurrent 
jurisdiction to better protect consumers who face questionable 
marketing and business practices by telecommunications common 
carriers and businesses that claim to be common carriers, 
although their core businesses are not common carriage. The FTC 
shares jurisdiction with several other Federal agencies in 
accomplishing its dual mission of consumer protection and the 
prevention of unfair methods of competition. Currently, the FTC 
shares jurisdiction and has two cooperative enforcement 
agreements with the FCC, therefore the expansion of FTC's 
jurisdiction in regard to telecommunications common carriers 
would not create a new venture between the agencies. The FTC 
also shares enforcement and investigatory responsibilities with 
the Department of Justice, the United States Department of 
Agriculture, the Food and Drug Administration, the Small 
Business Administration, the Federal Power Commission, the 
Department of Housing and Urban Development, the Office of the 
Comptroller of Currency, the Federal Deposit Insurance 
Corporation, the National Credit Union Administration, the 
Office of Thrift Supervision, and the Board of Governors of the 
Federal Reserve System. In light of the new jurisdictional 
regime that would be created by the legislation, it is intended 
that the FTC and the FCC, per normal agency practice, would 
prepare a cooperative enforcement agreement to avoid 
duplicative enforcement and the inefficient use of resources.
  Another effect of including telecommunications common 
carriers within the FTC's jurisdiction is the ability for the 
FTC to undertake a merger review involving a telecommunications 
common carrier. When the common carrier exception was placed in 
the FTC Act, there was only one telephone common carrier, the 
AT&T monopoly. Since the breakup of AT&T in 1984, there have 
been numerous mergers involving telecommunications common 
carriers, and these same common carriers are increasingly 
involved in non-common carriage activities, such as billing and 
collection services for membership clubs and merchandise 
vendors, Internet services and electronic data, and 
entertainment services. In the context of the growth of the 
telecommunications industry and the need to protect the 
marketplace from harmful concentrations of market power, the 
creation of concurrent jurisdiction over telecommunication 
common carrier mergers may better serve the public interest. It 
is recognized that as a policy matter, the 1993 Clearance 
Procedures for Investigations between the Antitrust Division of 
the Department of Justice and the Bureau of Competition of the 
FTC assign merger review authority to the agency with the 
greater expertise in a particular area. This Act is not 
intended to supercede the current agreement between the 
agencies in any fashion.
Section 4. Authority to accept reimbursements, gifts and voluntary and 
        uncompensated services
  This section would allow the FTC to accept reimbursements 
from domestic and international law enforcement agencies for 
services rendered by the FTC in support of an activity or 
statute administered by the agency. Those payments would be 
considered as reimbursement to the appropriated funds of the 
Commission. This section also would authorize the FTC to accept 
gifts, donations, and volunteer services, provide that no 
conflict of interest, or appearance of such conflict, occurs.

                      Rollcall Votes in Committee

  In accordance with paragraph 7(c) of rule XXVI of the 
Standing Rules of the Senate, the Committee provides the 
following description of the record votes during its 
consideration of S. 2946:
  The Committee ordered S. 2946 reported without amendment by a 
rollcall vote of 16 yeas and 7 nays as follows:
        YEAS--16                      NAYS--7
Mr. Hollings                        Mr. Burns
Mr. Inouye                          Mr. Lott\1\
Mr. Rockefeller\1\                  Mr. Brownback
Mr. Kerry\1\                        Mr. Fitzgerald
Mr. Breaux                          Mr. Ensign
Mr. Dorgan                          Mr. Allen
Mr. Wyden                           Mrs. Hutchison
Mr. Cleland
Mrs. Boxer\1\
Mr. Edwards\1\
Mrs. Carnahan
Mr. Nelson
Mr. McCain
Mr. Stevens
Ms. Snowe
Mr. Smith

    \1\By proxy

                        Changes in Existing Law

  In compliance with paragraph 12 of rule XXVI of the Standing 
Rules of the Senate, 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 material is printed 
in italic, existing law in which no change is proposed is shown 
in roman):

                      FEDERAL TRADE COMMISSION ACT

                              DEFINITIONS

                             [15 U.S.C. 44]

  Sec. 4. The words defined in this section shall have the 
following meaning when found in this Act, to wit:
  ``Commerce'' means commerce among the several States or with 
foreign nations, or in any Territory of the United States or in 
the District of Columbia, or between any such Territory and 
another, or between any such Territory and any State or foreign 
nation, or between the District of Columbia and any State or 
Territory or foreign nation.
  ``Corporation'' shall be deemed to include any company, 
trust, so-called Massachusetts trust, or association, 
incorporated or unincorporated, which is organized to carry on 
business for its own profit or that of its members, and has 
shares of capital or capital stock or certificates of interest, 
and any company, trust, so-called Massachusetts trust, or 
association, incorporated or unincorporated, without shares of 
capital or capital stock or certificates of interest, except 
partnerships, which is organized to carry on business for its 
own profit or that of its members.
  ``Documentary evidence'' includes all documents, papers, 
correspondence, books of account, and financial and corporate 
records.
  [``Acts to regulate commerce'' means the Act entitled ``An 
Act to regulate commerce,'' approved February 14, 1887, and all 
Acts amendatory thereof and supplementary thereto and the 
Communications Act of 1934 and all Acts amendatory thereof and 
supplementary thereto.]
  ``Acts to regulate commerce'' means subtitle IV of title 49, 
United States Code, and all Acts amendatory thereof and 
supplementary thereto.
  ``Antitrust Acts'' means the Act entitled ``An Act to protect 
trade and commerce against unlawful restraints and 
monopolies,'' approved July 2, 1890; also sections 73 to 77 
inclusive, of an Act entitled ``An Act to reduce taxation, to 
provide revenue for the Government, and for other purposes,'' 
approved August 27, 1894; also the Act entitled ``An Act to 
amend sections 73 and 76, of the Act of August 27, 1894, 
entitled `An Act to reduce taxation, to provide revenue for the 
Government, and for other purposes,' '' approved February 12, 
1913; and also the Act entitled ``An Act to supplement existing 
laws against unlawful restraints and monopolies, and for other 
purposes,'' approved October 15, 1914.
  ``Banks'' means the types of banks and other financial 
institutions referred to in section 18(f)(2).

           *       *       *       *       *       *       *


                    AUTHORIZATION OF APPROPRIATIONS

                            [15 U.S.C. 57c]

  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; 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.] There are authorized to be appropriated to carry out the 
functions, powers, and duties of the Commission not to exceed 
$179,271,000 for fiscal year 2003, $207,691,000 for fiscal year 
2004, and $224,493,000 for fiscal year 2005.

           *       *       *       *       *       *       *


SEC. 26. REIMBURSEMENT OF EXPENSES.

  The Commission may accept payment or reimbursement, in cash 
or in kind, from a domestic or foreign law enforcement 
authority, or payment or reimbursement made on behalf of such 
authority, for expenses incurred by the Commission, its 
members, or employees in carrying out any activity pursuant to 
a statute administered by the Commission without regard to any 
other provision of law. Any such payments or reimbursements 
shall be considered a reimbursement to the appropriated funds 
of the Commission.

SEC. 27. GIFTS AND VOLUNTARY AND UNCOMPENSATED SERVICES.

  (a) In General.--In furtherance of its functions the 
Commission may accept, hold, administer, and use unconditional 
gifts, donations, and bequests of real, personal, and other 
property and, notwithstanding section 1342 of title 31, United 
States Code, accept voluntary and uncompensated services.
  (b) Limitations.--
          (1) Conflicts of interest.--Notwithstanding 
        subsection (a), the Commission may not accept, hold, 
        administer, or use a gift, donation, or bequest if the 
        acceptance, holding, administration, or use would 
        create a conflict of interest or the appearance of a 
        conflict of interest.
          (2) Voluntary services.--A person who provides 
        voluntary and uncompensated service under subsection 
        (a) shall not be considered a Federal employee for any 
        purpose other than for purposes of chapter 81 of title 
        5, United States Code, (relating to compensation for 
        injury) and section 2671 through 2680 of title 28, 
        United States Code, (relating to tort claims).

                              SHORT TITLE

                             [15 U.S.C. 58]

  Sec. [26.] 28. This Act may be cited as the ``Federal Trade 
Commission Act''.

                                
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