[Federal Register Volume 62, Number 67 (Tuesday, April 8, 1997)]
[Notices]
[Pages 16809-16814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8941]


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FEDERAL TRADE COMMISSION


Notice and Request for Comment Regarding Compliance Assistance 
and Civil Penalty Leniency Policies for Small Entities

AGENCY: Federal Trade Commission.

ACTION: Notice of policies and request for comment.

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SUMMARY: The Federal Trade Commission is issuing two statements 
describing its policies for assisting small businesses and other small 
entities. These policy statements implement requirements of the Small 
Business Regulatory Enforcement Fairness Act of 1996. The first policy 
statement discusses the variety of mechanisms available for small 
entities to obtain advice about their obligations under statutes and 
rules enforced by the Commission. The second policy statement describes 
the Commission's approach to reduction or waiver of civil penalties for 
small entities in various mitigating circumstances.
    Although these statements reflect policies that are already in 
effect, the Commission is soliciting comments about them from 
interested persons. If, after considering any comments, the Commission 
determines to revise either policy, it will publish a revised policy 
statement.

DATES: The policy statements were effective on March 28, 1997. Comments 
will be received until May 12, 1997.

ADDRESSES: Comments should be identified as Small Business Policy 
Comments, and sent to: Secretary, FTC, Room H-159, Sixth and 
Pennsylvania Ave., N.W., Washington, D.C. 20580. Comments will be 
entered on the public record of the Commission and will be available 
for public inspection in Room 130 during the hours of 9 a.m. to 5 p.m.

FOR FURTHER INFORMATION CONTACT: Mary K. Engle, 202-326-3161, 
Enforcement Division, Bureau of Consumer Protection; or Neil W. 
Averitt, 202-326-2885, Office of Policy and Evaluation, Bureau of 
Competition.

SUPPLEMENTARY INFORMATION: Part A, the statement of the Small Entity 
Compliance Assistance Policy, is intended to explain to small 
businesses and other small entities what assistance is available to 
them from the Commission and its staff to help them understand and 
comply with obligations imposed by the statutes and rules enforced by 
the Commission. Part B, the statement of the Civil Penalty Leniency 
Policy, discusses how the Commission expects to consider mitigating 
factors in matters where small entities are subject to civil penalties. 
These statements are issued in implementation of sections 213 and 223 
of the Small Business Regulatory Enforcement Fairness Act (``SBREFA''), 
Pub. L. No. 104-121, enacted March 29, 1996.
    These policy statements provide guidance and information only, and 
do not create any rights, duties, obligations, or defenses, implied or 
otherwise. The Commission specifically retains its discretion for 
determining how to proceed in particular cases. Also, while the 
statements are drafted specifically with respect to small entities in 
order to

[[Page 16810]]

provide clear information to those entities about the applicable 
policies, comparable methods of providing compliance assistance, and 
comparable factors for selecting civil penalty amounts (as applied to 
the individual facts), may be used for larger entities as appropriate.

Part A--Small Business Compliance Assistance Policy

    Under Section 213 of SBREFA, agencies regulating the activities of 
small entities must establish a program to answer small entities' 
inquiries and provide information and advice on compliance in 
particular circumstances, when appropriate. Section 213 provides as 
follows: Whenever appropriate in the interest of administering statutes 
and regulations within the jurisdiction of an agency which regulates 
small entities, it shall be the practice of the agency to answer 
inquiries by small entities concerning information on, and advice 
about, compliance with such statutes and regulations, interpreting and 
applying the law to specific sets of facts supplied by the small 
entity. In any civil or administrative action against a small entity, 
guidance given by an agency applying the law to facts provided by the 
small entity may be considered as evidence of the reasonableness or 
appropriateness of any proposed fines, penalties or damages sought 
against such small entity.
    As discussed below, the Commission offers a comprehensive array of 
services, involving both general guidance and individualized advice, to 
help small entities understand their obligations under the laws and 
regulations administered by the Commission.

(1) General Guidance

    The Commission offers general information in a variety of forms to 
address issues and questions that small entities frequently encounter. 
Such guidance frequently will satisfy the needs of small entities for 
guidance as to their own obligations. For example:
    (i) The Commission has issued a brochure, entitled ``A Guide to the 
Federal Trade Commission,'' that includes brief descriptions of the 
principal antitrust statutes and consumer protection laws enforced by 
the agency.
    (ii) The Commission also issues many types of publications designed 
to explain how small entities and others can conduct their affairs in 
compliance with the laws and regulations administered by the FTC.\1\ 
These include materials specifically directed to businesses, such as:
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    \1\ Currently, more than 50 such publications are available.
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    (a) Business compliance guides explaining the requirements of 
specific Commission rules in a non-technical manner;\2\
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    \2\ The Commission has published compliance guides for many of 
its Rules affecting small businesses, including the Franchise Rule, 
Funeral Rule, Telemarketing Sales Rule, Telephone Disclosure and 
Dispute Resolution (``900'' Number) Rule, and Used Car Rule.
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    (b) Industry guides addressing common compliance issues under the 
Federal Trade Commission Act, as applied to particular industries or 
particular practices;\3\ and
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    \3\ Over 20 such guides are available, including guides for the 
use of environmental marketing claims, the feather and down products 
industry, the household furniture industry, and the jewelry 
industry.
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    (c) Guidelines and policy statements explaining the application of 
antitrust laws to particular practices or industries.\4\
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    \4\ The Commission, jointly with the Department of Justice 
(``DOJ''), has issued guidance on such issues as health care, 
international operations, licensing of intellectual property, and 
horizontal mergers. The Commission has separately issued guidelines 
on promotional allowances and services.
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    The Commission's industry guides and other guidelines frequently 
contain specific examples and illustrative fact patterns that show how 
the agency would apply the law to a particular set of facts.\5\
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    \5\ For example, in the area of medicine and health care, the 
FTC and DOJ have jointly issued guidelines discussing nine 
frequently encountered subjects, such as physician network joint 
ventures, and hospital joint ventures involving specialized clinical 
or other expensive health care services.
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    (iii) The Commission also produces and disseminates over 175 print 
and broadcast materials that, while directed to consumers, can benefit 
small businesses by identifying the practices that generate consumer 
protection issues between businesses and their customers.\6\
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    \6\ For example, in fiscal year 1996 the Commission distributed 
3,970,828 copies of its print materials. Also, small businesses are 
frequently consumers themselves; in particular, materials on such 
topics as disclosures to prospective franchisees and office supply 
scams that ship and bill for unordered merchandise can help small 
businesses avoid problems.
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    (iv) All these materials are readily available to small businesses 
and other small entities through a variety of sources, including:
    (a) Directly from the Commission. Materials on both competition and 
consumer protection issues can be obtained by writing Public Reference, 
Room 130, Federal Trade Commission, Washington, DC 20580, or by 
telephoning the Public Reference Room at (202) 326-2222.
    (b) Most Commission items are available through the Internet, at 
the Commission's website at http://www.ftc.gov. The Commission is in 
the process of making all of its business compliance guides and its 
antitrust guidelines and policy statements, as well as its consumer 
materials, available on the Internet. Industry guides, as well as 
Commission Rules, published in the Code of Federal Regulations are 
available at the U.S. House of Representatives Internet Law Library's 
website at http://law.house.gov/cfr.htm.
    (c) Materials also are available for distribution from the Small 
Business Administration regional centers, and the Consumer Information 
Center in Pueblo, Colorado.
    (d) The BusinessLine section of the Commission's website provides 
online access to all of the Commission's business education 
publications. Similarly, the Commission's ConsumerLine provides online 
access to all of the Commission's consumer education publications, as 
well as the business education publications. In addition to being 
accessible through personal computers, the ConsumerLine may be reached 
from online services provided to the public at the offices of the Small 
Business Administration and the U.S. Department of Commerce.
    (e) Materials are made available to state agencies, the military, 
schools and libraries, financial institutions, the media, and consumer 
and non-profit organizations.
    (f) Materials are made available to industry trade associations and 
other business organizations. Frequently, business publications obtain 
and publish Commission guidance, such as advisory opinion letters 
(discussed below), in order to make the compliance information readily 
available to industry members.
    (g) Commission guidance can often be found in commercial 
publications describing the Commission and its enforcement activities. 
For example, the Statements of Antitrust Enforcement Policy in Health 
Care are published at 4 CCH Trade Regulation Reporter para. 13,153.
    (v) Other sources of information about the Commission and its 
policies include staff and Commission advisory opinions, proposed 
Commission consent agreements, final orders, and other formal 
documents. These are available in the Commission's Public Reference 
Room or by mail from Public Reference. Many are available from the 
Commission's Internet website as well.
    (vi) Commissioners and Commission staff members frequently give 
speeches to business groups, and conduct programs geared to explaining 
statutory and regulatory requirements and to

[[Page 16811]]

answering attendees' questions. Where the topics are of particular 
interest to small business, these speeches may involve appearances 
before groups representing small-business interests. Small business 
groups may request speakers by contacting directly the office at the 
Commission that specializes in the subject matter of interest. Business 
groups may also request speakers by contacting the Commission's Bureau 
of Competition, (202) 326-3300, or Bureau of Consumer Protection, (202) 
326-3238. Copies of major speeches are available from the Office of 
Public Affairs, (202) 326-2180, and also on the Internet at the 
Commission's website.

(2) Individual Advice

    (i) Small entities may also ask specific questions of the 
Commission or its staff. Each substantive area under the Commission's 
laws and regulations has one or more staff members who are responsible 
for responding to compliance inquiries. A staff member may determine 
that the agency's published material provides the assistance sought and 
send that material to the inquirer. Where the sources of general 
information are insufficient to provide the needed guidance or 
assistance, the staff member may provide specific, informal advice or 
arrange for a more formal response.
    (ii) Small entities may make inquiries of the Commission by 
telephone, letter, fax, or e-mail. Inquiry by telephone rather than in 
writing is encouraged, since it is the agency's experience that the 
give-and-take of a conversation facilitates understanding an issue. If 
it appears that more detailed or complex information is needed to 
address an issue, the FTC staff may then ask the caller to provide a 
supplementary letter.
    (a) Telephone inquiries regarding competition issues may be made to 
the general inquiries number of the Bureau of Competition, at (202) 
326-3300; and calls regarding consumer protection issues may be made to 
the Bureau of Consumer Protection, at (202) 326-3238. From these 
contact points, calls will be forwarded to the staff member best able 
to address the particular issues presented.
    (b) Written questions or comments regarding competition matters may 
be mailed to the Office of Policy and Evaluation, Bureau of 
Competition, Federal Trade Commission, Washington, DC 20580. Inquiries 
may be sent by fax to (202) 326-2884.
    (c) Written questions or comments regarding consumer protection 
matters may be mailed to the Bureau of Consumer Protection, Federal 
Trade Commission, Washington, D.C. 20580. Inquiries may be sent by fax 
to (202) 326-3799.
    (d) Persons who are uncertain which of these offices to contact may 
write or call the Office of the Secretary, Federal Trade Commission, 
Washington, D.C. 20580, (202) 326-2515. Inquiries may be sent by fax to 
(202) 326-2496.
    (e) Inquiries can also be sent by e-mail to the address of 
``[email protected],'' where they will be reviewed and forwarded to the 
appropriate staff person. E-mail requests for advice should include the 
inquiring party's telephone number, again because it is the agency's 
experience that a telephone conversation is often needed to resolve an 
issue.
    (f) In addition to the above sources of information, the 
Commission's ten regional offices, which are listed below, also may be 
contacted for information and materials regarding consumer protection 
or competition issues:

Atlanta Regional Office, Suite 5M35, Midrise Building, 60 Forsyth St., 
S.W., Atlanta, GA 30303, (404) 656-1390 FAX: (404) 656-1379
Boston Regional Office, 101 Merrimac St., Suite 810, Boston, MA 02114-
4719, (617) 424-5960 FAX: (617) 424-5998
Chicago Regional Office, 55 E. Monroe St., Suite 1860, Chicago, IL 
60603, (312) 353-8156 FAX: (312) 353-4438
Cleveland Regional Office, 668 Euclid Ave., Suite 520-A, Cleveland, OH 
44114, (216) 522-4210 FAX: (216) 522-7239
Dallas Regional Office, 1999 Bryan St., Suite 2150, Dallas, TX 75201, 
(214) 979-9350 FAX: (214) 953-3079
Denver Regional Office, 1961 Stout St., Suite 1523, Denver, CO 80294-
0101, (303) 844-2272 FAX: (303) 844-3599
Los Angeles Regional Office, 11000 Wilshire Blvd., Suite 13209, Los 
Angeles, CA 90024, (310) 235-4040 FAX: (310) 235-7976
New York Regional Office, 150 William St., 13th Floor, New York, NY 
10038, (212) 264-8290 FAX: (212) 264-0459
San Francisco Regional Office, 901 Market St., Suite 570, San 
Francisco, CA 94103, (415) 356-5284 FAX: (415) 356-5284
Seattle Regional Office, 915 Second Ave., Suite 2896, Seattle, WA 
98174, (206) 220-6366 FAX: (206) 220-6366

    (iii) The FTC's Bureau of Competition has a special program to 
provide advice to firms that must give premerger notification pursuant 
to the terms of the Hart-Scott-Rodino Act. While premerger notification 
is generally required only for larger transactions valued at more than 
$15 million, some parties to such transactions may still come within 
the definition of ``small businesses.'' Any firm required to give 
notification (or that thinks it might be required to give notification) 
may receive guidance on the proper procedures from the Premerger 
Notification Office, in writing or by telephone, at (202) 326-3100. 
Interested firms may also obtain from the Premerger Notification Office 
a set of written guides describing the program and explaining how to 
determine whether a particular firm must file.
    (iv) The Commission also has a special procedure to provide advice 
to small entities and other persons who are subject to an order of the 
Commission. The Compliance Division of the Bureau of Competition and 
the Enforcement Division of the Bureau of Consumer Protection are 
responsible for overseeing enforcement of and compliance with the 
competition and consumer protection administrative orders of the 
Commission. The Commission's general practice is to send a letter to 
each person subject to an order shortly after the order becomes 
effective. In addition to describing the requirements of the order in 
general terms, the letter also identifies and provides the telephone 
number for a specific staff person who has responsibilities for the 
matter. Staff of the Compliance and Enforcement Divisions are available 
to handle telephone and written inquiries concerning outstanding 
orders. For any small entity uncertain of which staff person is 
responsible for its order, questions concerning the requirements or 
scope of a competition order may be sent to: Compliance Division, 
Bureau of Competition, Federal Trade Commission, Washington, D.C. 
20580, and questions regarding a consumer protection order to: 
Enforcement Division, Bureau of Consumer Protection, Washington, D.C. 
20580. Telephone inquiries may be made to the Bureau of Competition 
Compliance Division at (202) 326-2687, and to the Bureau of Consumer 
Protection Enforcement Division at (202) 326-2996.
    (v) If the above sources of advice are insufficient for the 
inquirer's purpose, the Commission has procedures for providing, where 
appropriate, either a Commission advisory opinion or, more commonly, a 
staff advisory opinion.7
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    \7\ 16 CFR 1.1-1.4.
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    (a) Advisory opinions are intended to clarify the law applicable to 
a course of action that the inquiring firm proposes to undertake, and 
ordinarily are not appropriate where the requester is already engaged 
in that course of action.

[[Page 16812]]

    (b) An advisory opinion from the Commission may be appropriate 
where the matter involves a substantial or novel question of fact or 
law and there is no clear Commission or court precedent; or the subject 
matter of the request and consequent publication of Commission advice 
is of significant public interest. Otherwise, the staff will provide a 
staff advisory opinion where practicable and appropriate.
    (c) An advisory opinion, whether from staff or the Commission, will 
ordinarily be considered inappropriate if the same or substantially the 
same course of action is already under investigation or is or has been 
the subject of current governmental proceedings; or an informed opinion 
cannot be made, or could be made only after extensive investigation, 
clinical study, testing, or collateral inquiry. Advisory opinions do 
not answer hypothetical questions.8
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    \8\ As previously noted, Commission staff on an informal basis 
provide advice or guidance in response to inquiries.
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    (d) The Commission may at any time reconsider the questions 
involved and rescind any advice it gives in a Commission advisory 
opinion. Nevertheless, the Commission will not proceed against the 
requester of the advice respecting an action taken in good faith 
reliance on the advice, so long as the requester presented all relevant 
facts fully and accurately and discontinues the action promptly upon 
notification that the advice has been rescinded. Advice rendered in a 
staff advisory opinion does not bar the Commission from rescinding it 
and, where appropriate, initiating an enforcement action.
    (e) The advice given to a small entity may be considered in an 
enforcement action as evidence of the reasonableness or appropriateness 
of any proposed fine, penalty, or damages sought against that small 
entity.
    (f) It is often most efficient to make a telephone inquiry to the 
staff person responsible for the relevant area, as described above, 
before deciding whether to seek a formal advisory opinion. Persons 
wishing to request an advisory opinion should submit a statement 
identifying the requester and stating the question, the relevant 
provision of law, and all material facts. The request and two copies 
should be submitted to the Office of the Secretary, Federal Trade 
Commission, Washington D.C. 20580. For further information, that office 
may be reached by telephone at (202) 326-2515.
    (g) For inquiries involving most types of issues under the Health 
Care Guidelines, the agency has committed itself to preparing advisory 
opinions within 90 days of the time that all necessary information has 
been submitted.9 For matters on other topics, the time for reply 
will depend on the complexity and novelty of the issues raised.
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    \9\ See Introduction, Statements of Antitrust Enforcement Policy 
in Health Care, 4 CCH Trade Reg. Rep. para. 13,153 at p. 20,800.
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    These wide-ranging programs are provided by the Commission to 
assist small entities in understanding their obligations under the laws 
and regulations administered by the Commission.

Part B--Civil Penalty Leniency Program

    Under Section 223 of SBREFA, agencies regulating the activities of 
small entities must establish, by March 29, 1997, a policy or program 
for ``the reduction, and under appropriate circumstances for the 
waiver, of civil penalties for violations of a statutory or regulatory 
requirement by a small entity.'' The statute suggests that ``[u]nder 
appropriate circumstances, an agency may consider ability to pay in 
determining penalty assessments.'' The statute further provides that 
the policy or program shall contain conditions or exclusions, which may 
include, but shall not be limited to:
    (1) Requiring the small entity to correct the violation within a 
reasonable correction period;
    (2) Limiting the applicability to violations discovered through 
participation by the small entity in a compliance assistance or audit 
program operated or supported by the agency or a State;
    (3) Excluding from the program small entities that have been 
subject to multiple enforcement actions by the agency;
    (4) Excluding violations involving willful or criminal conduct;
    (5) Excluding violations that pose serious health, safety, or 
environmental threats; and
    (6) Requiring a good-faith effort to comply with the law.
    Section 223 provides that the policy or program is ``[s]ubject to 
the requirements of other statutes,'' and thus does not supersede 
existing law on penalties. Also, because the leniency policy is 
prescribed only for civil penalties for violations of a statutory or 
regulatory requirement, it does not apply to Commission cease and 
desist orders, federal court injunctions, affirmative requirements for 
fencing-in or redress contained in Commission orders, or civil penalty 
actions under Section 5(l), 15 U.S.C. 45(l), for violations of 
Commission orders.
    None of the statutes or rules enforced by the Commission provide 
for the mandatory imposition of non-discretionary penalties. In most 
instances, as discussed below, the Commission is not authorized to 
assess civil penalties itself, but rather selects a civil penalty 
amount to be sought in a federal court action brought by the Department 
of Justice. In developing a policy statement that describes generally 
how the Commission will exercise its discretion in selecting penalty 
amounts for small entities, the Commission considered that it already 
exercises its discretion in a wide variety of contexts to consider 
mitigating factors when selecting penalty amounts. The Commission 
believes that this experience suggests a list of factors suitable for 
selecting the penalties appropriate to small entities.
    First, Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. 45(m)(1)(A), 
authorizes the Commission to seek, in federal district courts, up to 
$11,000 per violation of certain Commission rules.\10\ Such a civil 
penalty is assessable only if the defendant knew or should have known 
that its acts violated the rule. In determining the appropriate amount 
of a penalty, the courts are directed by Section 5(m)(1)(C), 15 U.S.C. 
45(m)(1)(C), to take into account the degree of culpability; any 
history of prior such conduct; ability to pay; effect on ability to 
continue to do business; and such other matters as justice may require. 
The Commission also evaluates these factors to determine appropriate 
penalties in cases that are not litigated.
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    \10\ The Commission recently issued a rule implementing the Debt 
Collection Improvement Act of 1996 (Pub. L. 104-134) by making 
inflation adjustments in the dollar amounts prescribed for each type 
of violation established by the statutory civil penalty provisions 
within the FTC's jurisdiction. See 61 FR 54548 (Oct. 21, 1996).
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    Second, one Commission rule has a separate enforcement mechanism. 
Under the Energy Policy and Conservation Act, 42 U.S.C. 6303(a), the 
Commission has authority to assess administrative civil penalties, up 
to $110 per violation, for violations of its Appliance Labeling Rule, 
16 CFR Part 305. The Commission's Rules of Practice provide that 
factors to be considered in determining the amount of penalty include 
the respondent's size and ability to pay; the respondent's good faith; 
any history of previous violations; the deterrent effect of the penalty 
action; the length of time involved before the Commission was made 
aware of the violation; the gravity of the violation, including the 
amount of harm to

[[Page 16813]]

consumers and the public caused by the violation; and such other 
matters as justice may require.\11\
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    \10\ The criteria for assessing penalties for violations of the 
Appliance Labeling Rule are set forth in Subpart K of Part 1 of the 
Commission's Rules of Practice, 16 CFR 1.92-1.97.
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    Third, civil penalties may also be imposed for violations of the 
Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. 18a 
(``HSR Act''). Under the HSR Act, acquisitions above a certain 
size,\12\ involving entities above certain sizes,\13\ cannot be 
consummated unless certain information is filed with the Commission and 
with the Department of Justice and certain waiting periods are 
observed. By statute, civil penalties of up to $11,000 for each day a 
person is in violation of the HSR Act may be imposed in a federal court 
action brought by DOJ. The Commission is charged with administering the 
premerger notification program established by the HSR Act, and 
recommends actions and penalty amounts to DOJ. The Commission generally 
will consider the firm's ability to pay when recommending appropriate 
penalties. The Commission generally will not seek an enforcement action 
for a violation of the HSR Act that appears to be truly inadvertent and 
where the filing is made promptly after discovery of the oversight. If 
the violation is the firm's first, and is not the result of gross 
negligence or a reckless disregard for the filing obligation, the 
Commission staff generally sends a letter calling attention to the 
filing obligation but indicating that no further action will be taken 
if the filing requirement is promptly met.
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    \12\ Generally, at least $15 million.
    \13\ Generally, one of the entities must have sales or assets 
above $100 million and the other must have sales or assets above $10 
million. Because of the ``size of person'' and ``size of 
transaction'' thresholds, many small businesses are not subject to 
the premerger notification reporting requirements of the HSR Act.
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    Fourth, judicial opinions interpreting Section 5(l) of the FTC Act, 
which provides for civil penalties of up to $11,000 per violation of 
FTC administrative orders, are instructive.14 The statute does not 
set forth criteria for assessing specific penalties for Section 5(l) 
violations, but the Third Circuit Court of Appeals in United States v. 
Reader's Digest Ass'n, 662 F.2d 955, 967 (3d Cir. 1981), cert. denied, 
455 U.S. 908 (1982), set out five factors bearing on the selection of 
an appropriate civil penalty or remedy: the good or bad faith of the 
respondent; the injury to the public; the respondent's ability to pay; 
the desire to eliminate the benefits derived from the violations; and 
the necessity of vindicating the Commission's authority. In each 
penalty case, the Commission selects an appropriate penalty amount 
after weighing the above factors, along with the litigation risks and 
penalties imposed in similar cases.
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     14 The Commission's order enforcement cases are not 
included in the SBREFA civil penalty leniency program because, as 
noted above, SBREFA only refers to entities accused of violating 
statutes and rules, not orders. Moreover, Section 5(l) defendants 
are, by definition, allegedly repeat offenders, and therefore are 
unlikely to be good candidates for leniency. (As in all cases, 
however, the agency would consider individual facts that may affect 
the penalty to be sought in each particular case.)
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    Finally, the Commission has undertaken an innovative approach to 
achieve compliance with one of its rules. In early 1996, the Commission 
approved a new program to increase compliance with its Funeral Industry 
Practices Rule, 16 CFR Part 453, which, among other things, requires 
funeral homes to give consumers a list of prices for various goods and 
services offered. The Funeral Rule Offenders Program, implemented 
jointly by the Commission and the National Funeral Directors 
Association (``NFDA''), offers to certain businesses that appear to 
have violated the Rule an alternative to a federal court enforcement 
action. Funeral firms entering the alternative program make a voluntary 
payment to the U.S. Treasury in an amount lower than would be sought in 
a civil penalty action. The NFDA then will review the firm's practices, 
revise those practices to comply with the Rule, and conduct on-site 
training and testing for all licensed employees. The NFDA also will 
provide follow-up training, and conduct testing each year for five 
years.
    In light of the Commission's experience exercising its discretion 
to consider mitigating factors when selecting appropriate penalty 
amounts, the innovative approach taken to achieve compliance with one 
rule, and the factors suggested in SBREFA itself, the Commission adopts 
the following policy for reducing, or in appropriate circumstances 
waiving, civil penalties for violations of a statutory or regulatory 
requirement by a small entity.
    When the Commission identifies a small entity as not being in 
compliance with a statutory or regulatory requirement within the 
Commission's jurisdiction, the Commission will consider the propriety 
of penalty waiver or reduction. The following factors will weigh in 
favor of leniency:
    1. The small entity reported the violation to the Commission 
promptly after discovering it.
    2. The small entity corrected the violation within a reasonable 
time, if feasible.
    3. The small entity had a low degree of culpability. The degree of 
culpability reflects the efforts taken by the entity to determine and 
meet its legal obligations. These efforts are judged in light of such 
factors as the size of the business; the sophistication and experience 
of its owners, officers, and managers; the length of time it has been 
in operation; the availability of relevant compliance information; the 
clarity of its legal obligations; and any active attempts to clarify 
any uncertainties regarding its obligations.
    4. The small entity is financially unable to pay the usual penalty, 
or the usual penalty would impair the small entity's ability to do 
business or to compete effectively.
    5. The small entity has not been subject to any previous 
enforcement action by the Commission or other federal, state, or local 
law enforcement jurisdiction for the same or similar conduct for which 
the small entity is being considered for leniency. Where there have 
been prior enforcement actions, however, the Commission may take into 
consideration, as possible mitigating factors, when the previous 
enforcement action occurred, and whether the small entity's management 
has changed since the previous enforcement action.
    6. The small entity's violations did not involve willful or 
criminal conduct.
    7. The violations did not pose a serious health, safety, 
environmental, or economic threat to consumers or the public.
    Each factor need not necessarily be present for a small entity to 
qualify for leniency, and, depending upon the particular circumstances, 
some factors may be weighed more heavily than others. Also, any other 
factors relevant in particular circumstances will be considered, as 
appropriate.
    The above criteria include most of the factors suggested in SBREFA. 
The one suggested factor that the Commission is not including is one 
that would limit the penalty reduction policy or program to violations 
discovered by the small entity through participation in an agency-run 
or state-run compliance assistance or audit program. The Commission 
does not have formal compliance assistance or audit programs. Given the 
variety and scope of the rules and statutes that the Commission 
enforces, imposing some parallel requirement, such as a self-auditing 
program, would unnecessarily restrict the availability of penalty 
waiver or reduction.
    In addition, the Commission has expanded somewhat the scope of two 
of the factors suggested in SBREFA. First, SBREFA suggests excluding 
entities that have been subject to multiple enforcement actions by the 
agency. The

[[Page 16814]]

Commission has broadened this category to include entities that have 
been subject to actions for the same or similar conduct by other 
federal agencies or state or local agencies. The law violations 
prosecuted by the Commission are frequently very similar to violations 
prosecuted by other federal, state, and local law enforcement 
agencies.15 It is therefore appropriate, in considering whether to 
exclude entities from lenient treatment, to consider whether similar 
conduct has been subject to enforcement efforts by such agencies.
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     15 In addition, the Commission often works with the State 
Attorneys General and other federal agencies, such as the United 
States Post Office, to investigate conduct that may violate laws 
enforced by the Commission. In cases where we work with certain 
agencies, the Commission must often enter conduct Orders to ensure 
that the violative behavior is prohibited nationwide.
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    Second, SBREFA also suggests excluding violations that pose serious 
health, safety, or environmental threats. The Commission will, in 
addition to such risks, also consider serious economic injury, as that 
form of injury is the type most often encountered in Commission cases, 
and in many instances may cause as much serious injury as that arising 
from health, safety, or environmental threats.

Part C--Request for Comments

    Members of the public are invited to comment on any issues or 
concerns that they believe are relevant or appropriate to the policies 
described above. The Commission requests that factual data upon which 
the comments are based be submitted with the comments. In this section, 
the Commission identifies specific issues on which it solicits public 
comments. The identification of issues is designed to assist the public 
and should not be construed as a limitation on the issues on which 
public comment may be submitted.

Questions

    (1) Should the Commission revise in any way the policies that it 
has adopted to assist small businesses and other small entities? If so, 
please provide specific suggestions.
    (2) How would the revisions affect the benefits provided by the 
current policies?
    (3) Are any of the criteria or means of guidance that the 
Commission has used in establishing small business compliance 
assistance and civil penalty leniency policies for small businesses and 
other small entities inappropriate? If so, please explain.
    (4) Are there any other criteria or economical means of guidance 
that the Commission should use? If so, please elaborate.

    Authority: Secs. 213 and 223, Pub. L. 104-121, 110 Stat. 847.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 97-8941 Filed 4-7-97; 8:45 am]
BILLING CODE 6750-01-P