[Federal Register Volume 67, Number 231 (Monday, December 2, 2002)]
[Notices]
[Pages 71566-71568]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-30479]


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FEDERAL TRADE COMMISSION


Notice and Request for Comment Regarding Textile Corporate 
Leniency Policy

AGENCY: Federal Trade Commission.

ACTION: Notice of Textile Corporate Leniency Policy Statement and 
request for comment.

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SUMMARY: The Federal Trade Commission (the ``Commission'') is 
announcing a policy statement describing the Commission's approach to 
self-reported minor and inadvertent violations of certain provisions of 
the rules and regulations implementing the Textile Fiber Products 
Identification Act (``Textile Act''), 15 U.S.C. section 70, et seq., 
and the Wool Products Labeling Act (``Wool Act''), 15 U.S.C. section 
68, et seq. Although this policy is already in effect, the Commission 
is soliciting comments about this policy from interested persons. If, 
after considering any comments, the Commission determines to revise the 
policy, it will publish a revised policy statement.

DATES: The policy statement is effective on December 2, 2002. Comments 
must be received by December 31, 2002.

ADDRESSES: Send written comments to Secretary, Federal Trade 
Commission, Room H-159, 600 Pennsylvania Ave. NW., Washington, DC 
20580. All comments should be captioned ``Textile Corporate Leniency 
Comments.'' Comments in electronic form should be sent to: 
[email protected] as prescribed below.

FOR FURTHER INFORMATION CONTACT: Constance M. Vecellio, Attorney, 
Federal Trade Commission, 600 Pennsylvania Ave., NW., Washington, DC 
20580, (202) 326-2966, or [email protected].

SUPPLEMENTARY INFORMATION: This policy statement discusses how the 
Commission expects to consider mitigating factors in matters where 
minor and inadvertent violations of the Textile or Wool Rules are self-
reported by a company. This policy statement provides guidance and 
information only, and does 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.
    As noted above, the Commission is soliciting comments about this 
policy from interested persons. If a comment contains nonpublic 
information, it must be filed in paper form, and the first page of the 
document must be clearly labeled ``confidential.'' Comments that do not 
contain any nonpublic information may instead be filed in electronic 
form (in ASCII format, WordPerfect, or Microsoft Word) as part of or as 
an attachment to email messages directed to the following e-mail box: 
[email protected]. Such comments will be considered by 
the Commission and will be available for inspection and copying in 
accordance with Section 4.9(b)(6)(ii) of the Commission's Rules of 
Practice, 16 CFR section 4.9(b)(6)(ii), on normal business days between 
the hours of 8:30 a.m. and 5 p.m. at Room 130, Federal Trade 
Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580.

I. Introduction

    The Commission is announcing a policy statement that describes 
generally how the Commission will exercise its discretion in matters 
where minor and inadvertent violations of the Textile or Wool Rules are 
self-reported by a company. The purpose of the policy is to help 
increase overall compliance with these rules while also minimizing the 
burden on business of inadvertent labeling errors that are not likely 
to cause injury to consumers. In developing this policy, the Commission 
looked for guidance to its existing Civil Penalty Leniency Program, 62 
FR 16809 (April 8, 1997). That program was adopted under Section 223 of 
the Small Business Regulatory Enforcement Fairness Act of 1996, (Pub. 
L. No. 104-21) (``SBREFA''), and affects only small businesses. This 
Textile Corporate Leniency Policy is not limited to small businesses, 
and it differs from the Civil Penalty Leniency Program in that it is 
not limited to situations involving the assessment of civil penalties.

II. Background

A. Statutory Disclosure/Labeling Requirements

    The Textile and Wool Acts cover most textile products, including 
apparel and home furnishings such as sheets and towels. They require 
that labeling of wool and other textile products convey three basic 
pieces of information to consumers: the fiber content, the country of 
origin, and the name (or registered identification number) of the 
manufacturer, importer, or some other dealer responsible for the item. 
The Textile and Wool Rules promulgated by the Commission explain in 
detail how this information should be conveyed, and these requirements 
have been well publicized through ``how to comply'' guides and industry 
seminars. The industry, however, is very large, and many of its members 
are small businesses. About 17.7 billion textiles were sold in the 
United States in 2001, and about 34,000 companies participated in the 
manufacture, importation, and sale of these items. Accordingly, it is 
not surprising that minor violations regularly occur.

B. Enforcement Authority and History

    The Textile and Wool Acts provide that violations of those acts, or 
of the implementing Textile or Wool Rules, are violations of the 
Federal Trade Commission Act.\1\ Violations of the Textile or Wool 
Rules can be prosecuted administratively or in district court. In 
addition, pursuant to section 5(l) of the Federal Trade Commission Act 
(``FTC Act''), 15 U.S.C. 45(l), violation of a Commission 
administrative order can result in a federal court action, with civil 
penalties of up to $11,000 per violation. The Commission also can seek 
penalties in appropriate situations under section 5(m)(1)(B) of the FTC 
Act, 15 U.S.C. 45(m)(1)(B). Under this section, a company that engages 
in a

[[Page 71567]]

practice that the Commission has found to be unfair or deceptive in a 
prior decision also can be subject to civil penalties of up to $11,000 
per violation. Thus, in appropriate instances, the Commission can seek 
civil penalties in federal court, even when the party is not subject to 
a prior order.
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    \1\ Section 3 of the Textile Act, 15 U.S.C. 70a; Section 3 of 
the Wool Act, 15 U.S.C. 68a.
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    There have been 31 Textile or Wool Act cases since 1990--nine of 
them federal court actions with civil penalties ranging from $10,000 to 
$360,000. One of these cases was a criminal action. (Under both the 
Textile and Wool Acts, willful acts of mislabeling can be charged as a 
misdemeanor.)

C. Current Informal Policy for Self-Reported Violations

    For many years, the staff of the Commission has been receiving 
reports from businesses about minor mislabeling problems and requests 
for advice on how to handle them. The staff has advised that it would 
not recommend enforcement action if the mislabeled goods are sold 
without relabeling under the following conditions: ``first offense'' of 
this type for the company; the mislabeling was inadvertent; the 
mislabeling is not likely to lead to consumer injury; and the company 
has undertaken to institute new procedures to ensure the mislabeling 
will not occur again. The Commission staff tells the company that its 
decision does not bind the Commission, and asks the company to affirm 
that it understands that the Commission remains free to take whatever 
action it deems appropriate and that the staff is making its decision 
not to recommend action on a one-time basis only. In many of these 
cases, the cost of relabeling is prohibitive, and the goods would be 
destroyed if they could not enter commerce without being relabeled.
    The following is a list of the types of mislabeling that have been 
reported to the Commission staff and have resulted in advice from the 
Commission staff that it would not recommend enforcement action if the 
goods were sold without relabeling:
    [sbull] Label with required information is accessible but not 
immediately obvious (e.g., covered by another label that may be lifted 
up).
    [sbull] Fiber content is correct but constituent fibers are not 
listed in order of prominence (e.g., 20% polyester, 80% cotton instead 
of 80% cotton, 20% polyester).
    [sbull] A trade name is used to identify the fiber rather than the 
generic name (e.g., lycra rather than spandex).
    [sbull] A shortened form of the generic name is used (e.g., 
``poly'' is listed rather than polyester).
    [sbull] Label contains country of origin but is not in the neck of 
the garment.
    [sbull] The fiber content is slightly incorrect (e.g., 90% nylon, 
10% spandex rather than 85% nylon, 15% spandex).\2\
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    \2\ The Textile Act itself provides a 3% tolerance, so 
variations of less than 3% do not violate the Act.
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    In instances such as these, the Commission staff has advised 
companies that it would not recommend enforcement action. The 
Commission believes it will be useful to publicly announce this policy, 
for the benefit of those companies that are not aware that they have 
the option of self-reporting and seeking a one-time reprieve from the 
expense of relabeling mislabeled goods.

III. Textile Corporate Leniency Policy

    The Commission announces that consideration of the following 
factors will lead the staff to allow mislabeled textiles to be sold 
without relabeling:
    1. The entity reported the violation to the Commission promptly 
after discovering it and the violation has not been discovered by the 
Commission or any other government agency.
    2. The entity undertakes, in writing, to adopt procedures that will 
help ensure that the violation does not occur in the future.
    3. The entity has a low degree of culpability. The degree of 
culpability reflects the efforts taken by the entity to determine and 
meet its legal obligations.
    4. The entity has not been granted leniency under this program in 
the last three years. In addition, it 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. 
Where there have been prior enforcement actions, however, the 
Commission staff may take into consideration, as possible mitigating 
factors, when the previous enforcement action occurred, and whether the 
entity's management has changed since the previous enforcement action, 
and other appropriate factors (for example, the use of a new sub-
contractor).
    5. The entity's violations did not involve willful or criminal 
conduct.
    6. The violations do not cause significant injury to consumers.
    As noted, the Commission looked to its Civil Penalty Leniency 
Program under SBREFA for guidance. The factors listed above are in most 
cases identical to, or similar to the factors listed in the SBREFA 
program. Factor 1 is similar to SBREFA factor 1 except that the Textile 
Corporate Leniency Program includes the additional requirement that no 
other government agency has discovered the violation.\3\ Factor 2 
differs from the second SBREFA factor, which states that the entity 
``corrected the violation within a reasonable time, if feasible.'' 
Under the Textile Corporate Leniency Policy, however, the entity is 
allowed to sell the mislabeled goods without correcting the 
mislabeling, for the reasons stated above, but it must undertake to 
adopt procedures that will help ensure that the mislabeling does not 
occur in the future. Factor 3 is identical to factor 3 in the SBREFA 
program in that the efforts taken by the entity to determine and meet 
its legal obligations are important in determining culpability. In the 
SBREFA program, however, efforts to comply with the law ``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.'' 
Because a company can have minor and inadvertent violations of the 
Textile and Wool Rules in spite of its size or sophistication or the 
other factors listed in the SBREFA statement, the relevant criteria for 
culpability, or lack thereof, in this program is based on the efforts 
taken by the entity to determine and meet its legal obligations.
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    \3\ In particular, violations of labeling rules discovered by 
U.S. Customs are not eligible for consideration under this policy. 
The Commission staff currently cooperates informally with U.S. 
Customs in assessing the seriousness of labeling violations, and 
will continue to do so.
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    Factor 4 in the SBREFA program--ability to pay the usual civil 
penalty--is not relevant to this program. Factor 4 in this program is 
identical to factor 5 in the SBREFA program, except that there is an 
additional requirement that the entity has not been granted leniency 
under this program in the last three years. Factor 5 in this program is 
identical to factor 6 in the SBREFA program, requiring that the conduct 
not be willful or criminal. Factor 6 in this program is similar to the 
last factor in the SBREFA program, except that reference to health, 
safety, and environmental threats has been omitted because the Textile 
and Wool Rules do not address health, safety, or environmental issues.
    The policy announced today is not limited to small businesses 
because the Commission believes it is a desirable policy for any 
business, large or small, that meets the criteria described above.

[[Page 71568]]

Nevertheless, the Commission believes it is primarily small businesses 
that will benefit from the publication of the policy because they, 
unlike larger businesses, may be unaware that self-reporting and 
seeking a one-time reprieve from relabeling is an option. For that 
reason, the Commission has used Section 223 of SBREFA as a model. 
Section 223 of SBREFA requires that agencies establish policies to 
reduce or waive penalties for small entities in appropriate 
circumstances. The primary goal of this provision is to foster a more 
cooperative, less threatening regulatory environment for small 
entities. Although the Commission has already established the policies 
required by SBREFA, it believes that the proposed corporate leniency 
policy for violations of the Textile and Wool Rules will also foster a 
more cooperative, less threatening regulatory environment for small 
entities. In addition, the Commission believes that the informal policy 
developed by Commission staff has resulted in more compliance with the 
Textile and Wool Rules because it has encouraged self-reporting of 
violations and subsequent reform of internal company policies to avoid 
future violations. The Commission believes that the policy announced 
today will also result in more compliance with those rules for the same 
reason.

IV. 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. This list 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 corporate leniency 
policy that it has announced? (e.g., should the policy be revised to 
include other possible violations, such as catalog disclosure 
requirements?) If so, please provide specific suggestions.
    (2) How would the revisions affect the benefits provided by the 
policy?
    (3) Are any of the criteria that the Commission has used in 
establishing the leniency policy inappropriate? If so, please explain.
    (4) Are there any other criteria that the Commission should use? If 
so, please elaborate.
    Such comments may be filed until December 31, 2002.

    Authority: 38 Stat. 717, as amended, 15 U.S.C. 41 et seq.; 15 
U.S.C. 68 et seq.; 15 U.S.C. 70 et seq.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 02-30479 Filed 11-29-02; 8:45 am]
BILLING CODE 6750-01-P