Copyright 2000 Federal News Service, Inc.
Federal News Service
February 9, 2000, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 7707 words
HEADLINE:
PREPARED STATEMENT OF PITOFSKY THE FEDERAL TRADE COMMISSION
BEFORE THE SENATE COMMITTEE ON COMMERCE, SCIENCE AND
TRANSPORTATION SUBCOMMITTEE ON CONSUMER AFFAIRS, FOREIGN COMMERCE AND TOURISM
BODY:
Mr. Chairman, the Federal Trade
Commission (FTC) is pleased to appear before the Subcommittee to present its
views on the agency's reauthorization. Since our last reauthorization hearing in
1996, the FTC has continued to protect American consumers in dynamic domestic
and world marketplaces. The FTC is the only federal agency with both consumer
protection and competition jurisdiction over broad sectors of the economy. 1
Congress has charged the FTC with maintaining a flee and fair marketplace by,
among other things, protecting American consumers and businesses from unfair
methods of competition and unfair or deceptive acts or practices. Our national
experience demonstrates that competition among producers and accurate
information in the hands of consumers yield the best products at the lowest
prices, spur innovation, and strengthen the economy.
As a deliberative
body and an independent agency, the FTC is well situated to study and respond to
a changing marketplace, and to champion consumer interests in this dynamic
setting. The FTC has investigatory power and often serves as a research resource
for Congress. The FTC also has limited regulatory power, which it uses sparingly
to address specific, widespread problems, often in response to express
Congressional mandates. First and foremost, however, the FTC is a law
enforcement agency. It is a small agency, but one with a record of achievement
for American consumers. Highlights of recent accomplishments include:
*
Saving consumers an estimated $1.6 billion in fiscal year 1999
from law enforcement actions brought in our consumer protection and competition
missions, achieving an estimated consumer savings of $14 for
every $1 spent on agency operations.
* Protecting
consumers and business from anticompetitive mergers before they occur by
reviewing the increasing number of proposed merger transactions filed under the
Hart-Scott-Rodino provisions of the Clayton Act. Reported transactions have
tripled from 1,529 in fiscal year 1991 to 4,642 in fiscal year 1999 and have
increased eleven-fold in total value during this period, from
$169 billion to $1.9 trillion.
*
Targeting 78 percent of FTC antitrust resources in rise year 1999 to four
sectors of the economy -- energy and natural resources, information and
technology, health care and pharmaceuticals, and consumer goods and services,
thus focusing on industries with major pocketbook benefits for consumers.
* Fighting Internet-related fraud since 1994 by bringing 100-plus
enforcement actions, which have targeted 300 corporate and individual defendants
on behalf of millions of online consumers and small business. The FTC's
enforcement actions have collected over $20 million in redress,
obtained orders freezing another $65 million, and stopped
Internet schemes with estimated annual sales of over $250
million.
* Offering consumers and business toll-free access to the FTC
through a consumer helpline. Launched in July 1999 with additional funds
appropriated by Congress, 1-877-FTC-HELP allows people from anywhere in the
United States to call with questions or complaints and speak to trained
counselors. The FTC now receives more than 9,000 consumer inquiries or
complaints per week.
* Operating Consumer Sentinel, a secure database
developed by the FTC and now shared with over 220 law enforcement agencies in
the U.S. and Canada. Currently containing more than 225,000 entries, the
database allows law enforcement to identify companies and individuals engaging
in fraud and to stop seams as they emerge.
* Safeguarding consumer
privacy by implementing the Children's Online Privacy Protection Act and by
bolstering industry self-regulation through educational efforts. The FTC
continues to monitor consumer privacy in cyberspace by, among other things,
conducting surveys to reassess how websites are implementing fair information
practices.
* Educating consumers and businesses about their fights and
responsibilities, and alerting them to potential frauds, by distributing 8.6
million educational publications in print and online during fiscal year
1999.Increased Resources to Meet Growing Challenges. To meet the growing
challenges in protecting consumers and keeping the marketplace competitive, we
request that our reauthorization include an increase in resources. Over the past
decade, the FTC has performed its mission in the face of a rapidly changing
marketplace. We have done so primarily by stretching our resources, re-inventing
our processes, and simply doing more with less. But if we are to keep up with
the growing demands that will be imposed by the 21st Century marketplace, we
need significant additional resources.
Two marketplace developments have
greatly increased the demands on the Prc -- the explosive growth of the Internet
and the dramatic increase in corporate mergers. Use of the Internet has grown
exponentially since commercial web browsers first became available in 1994 - 123
million Americans now have access to the Internet.2 Internet purchasing also is
skyrocketing, forecasted to rise from $20 billion in 1999 to
$184 billion in 2004.3 Developing Internet-related policies and
halting cyberfraud during just the few years of the Internet's existence already
has taxed tile FTC's resources. In 1996, the FTC's Bureau of Consumer Protection
(BCP) devoted 14 FTEs, about 4 percent of BCP total resources, to
Internet-related activities. In 1999, the workload required 79 FTEs, or about 23
percent of the BCP workforce, which overall remained at about the same level as
1996. 4
Similarly, the corporate merger wave continues into its tenth
straight year and strains FTC resources. The Washington Post recently
characterized the merger wave as "a frenzy of merger madness, capping a dramatic
wave of global corporate consolidation that has been gaining momentum through
much of this decade," quoting merger experts who note that a key force driving
merger activity is the Internet. 5 This restructuring may be necessary for
companies to compete in the new global, high-tech marketplace. At the same time,
antitrust review is necessary to identify and stop those combinations that could
diminish competition in specific markets as this restructuring proceeds.
While the number of Hart-Scott-Rodino mergers has tripled in the past
decade, the dollar value of commerce affected by these mergers is on an even
steeper trajectory, increasing elevenfold. 6 Overall, merger transactions are
increasingly larger and significantly more complex, requiring more exacting
analysis when they raise competitive issues. As a result, merger investigation
and litigation are more resource- intensive than before. 7
The FTC is
working cooperatively with industry and the antitrust bar to assess what changes
can be made in Hart-Scott-Rodino merger investigations to minimize burden and
make the process work as efficiently as possible. The FTC already has undertaken
a number of internal reforms to expedite merger investigations and to provide
parties with more complete information on the issues that give rise to an
investigation.
Finally, several other significant initiatives are
straining FTC resources. Two current examples are studying the marketing of
violent entertainment materials to children and creating an identity theft
database.
Late in fiscal year 1999, several Senators and the White House
both asked the FTC to study the marketing of violent entertainment materials to
children in the aftermath of school shootings in Littleton, Conyers, Jonesboro,
West Paducah, and Pearl.8 The entertainment industry is large (over
$40 billion a year in sales and rentals of movies, video games,
and music recordings), and this undertaking is substantial: FTC staff is seeking
relevant information from industry members, parents' and children's advocacy
groups, other consumer groups, academics, and parents and children themselves,
and tile Commission will issue a report.
The FTC also has devoted
resources to issues involving identity theft -- using someone else's personal
identifying information to commit fraud, such as opening a credit card account
using the stolen nan.. Congress passed the Identity Theft and Assumption Act of
1998,9 which directs the FTC to establish a "centralized complaint and consumer
education service" for victims of identity theft. The FTC has implemented three
parts of the program: establishment of a toll-free number (877-ID THEFT) for
reporting and seeking information on identity theft; a database to track these
complaints; and a consumer education program, including a soon-to-be published
booklet and a website devoted to identity theft issues --
www.consumer.gov/idtheft.
The FTC has been both innovative and
aggressive in meeting its expanding responsibilities. We reorganized and
streamlined our workforce by hiring cost-efficient paralegals to perform tasks
previously performed by attorneys, and by moving positions, wherever possible,
out of administrative offices and into front-line law enforcement. We have
prioritized our cases, shifting resources, to the extent possible, to areas of
highest need and with greatest consumer impact. We have leveraged our efforts
through cooperative arrangements with the states and the private sector to
obtain the greatest benefit for each dollar spent.
Nonetheless, the
growing demands of the marketplace are exceeding the FTC's ability at current
resource levels to maintain its missions adequately. We need additional staff
and funds to do the work effectively. An increase to the FTC's resources would
be a sound investment, reaping abundant dividends for American consumers and
business.
Forward-Looking Law Enforcement for American Consumers and
Business. At the brink of a new century, the FTC's law enforcement is forward-
looking and innovative. We are pleased to describe our accomplishment in (1)
keeping pace with the dynamic growth of electronic commerce, (2) anticipating
and responding to the changing marketplace to promote consumer and business
welfare, and (3) promoting efficient law enforcement.
1. Keeping Pace
with the Dynamic Growth of Electronic Commerce. The FTC is working to keep pace
with rapidly expanding Internet activity through a multitude of programs and law
enforcement efforts.
Fighting Electronic Fraud. The FTC is fighting to
protect consumers and business against new high-tech frauds, ingenious scares
that exploit the design and architecture of the Internet to defraud consumers.
FTC staff identified two tricks, "pagejacking" and "mousetrapping," in FTC v.
Carlos Pereira,/10 in which defendants in Portugal and Australia allegedly
captured unauthorized copies of U.S.- based websites, including those of Paine
Webber and The Harvard Law Review, and produced look-alike versions that were
indexed by major search engines. The defendants then diverted unsuspecting
consumers to a sequence of pornography sites from which they could not exit,
essentially trapping them at the site. The FTC obtained a court order stopping
the scheme and suspending the defendants' website registrations.
The FTC
also protects consumers from more traditional scares that have found new life on
the Internet. In fact, most of the FTC's 100-plus cases challenging Internet
fraud concern old frauds on a new medium-- 28 cases challenge credit repair
schemes, 13 cases challenge deceptive business opportunities, and 11 cases
challenge pyramid schemes. The Internet can give these old scares a sleek new
veneer as well as provide access to vastly more victims at little cost.
Among the most pernicious of old frauds finding a new home on the
Internet are health related frauds. The Internet offers consumers immediate,
free access to health information and a convenient and (sometimes) less
expensive source for health products. Not surprisingly, consumers are turning to
the Internet more and more for their health needs. 11 Yet, there are potential
risks: the quality of Internet information varies widely, and it can he
difficult to distinguish reliable sites from inaccurate or even fraudulent ones.
To address the proliferation of health claims on the Internet, the FFC
implemented Operation Cure. All, which began with two comprehensive "surfs" of
the Internet for suspicious health products and ended with cease-and desist
actions -- four to date? To educate consumers, the FTC publishes online
brochures on how to spot health scares, linked the FTC website to reliable
Internet health sites, and posted several "teaser" Internet sites that mimic
health scams and alert consumers to potential online health fraud.
Maintaining the Competitive Promise of the Internet. Just as the work of
the FTC's consumer protection mission strives to keep the Internet free from
fraud, the work of its competition mission strives to secure the competitive
promise of the Internet. In just a few years, the Internet has changed
traditional sales and distribution patterns for products of all types, promising
faster, cheaper, and more efficient ways to deliver goods and services.
Antitrust scrutiny is necessary to ensure that anticompetitive practices do not
stunt development of innovations. In 1998, for example, the FTC charged 25
Chrysler dealers with an illegal boycott designed to limit sales by car dealers
that marketed on the Internet. The dealers allegedly had planned to boycott
Chrysler if it did not change its distribution methods to disadvantage Internet
sellers? A successful boycott could have limited the use of the Internet to
promote price competition and could have reduced consumers' ability to shop from
dealers serving a wider geographic area via the Internet.
Using
Electronic Tools to Detect, Deter, and Educate about Fraud. To stay on top of
Internet developments, and to stop cyberfraud in its incipiency, the FTC has
developed innovative tools. Two of the most effective tools are Consumer
Sentinel, the comprehensive fraud database,/14 and 1-877-FTC-HELP, the toll-free
consumer helpline.
The FTC also holds "Surf Days" to use new technology
to detect and analyze emerging problems in the online marketplace. Through
organized Internet surfing, FTC staff and its law enforcement partners learn
about online practices and identify possible targets for law enforcement. To
date, the FTC and 250 partners have conducted 20 Surf Days on topics ranging
from pyramid schemes to health claims to environmental marketing claims, and
have identified over 4,000 sites making dubious claims. One way that FTC staff
responds when it discovers questionable claims is to use e-mail simply to warn
website operators that their sites appear to violate the law -- some operators
are new entrepreneurs unaware of existing laws. Although the results vary, the
warnings appear generally effective in prompting operators to correct or remove
their websites without any formal FTC enforcement action.
Second, the
FTC has created "teaser sites" to educate consumers about exercising caution in
dealing with website enterprises. Now numbering over a dozen, these sites mimic
common Internet scams, such as pyramid schemes and business opportunities, and
contain the customary glowing testimonials and false promises. After a few
"clicks" from the home page, the FTC teaser sites warn consumers that they could
be defrauded by participating in similar schemes and provide tips on how to
distinguish fraudulent pitches from legitimate ones.
Finally, the FTC
organized the development of www.consumer.gov to educate consumers. With more
than 100 federal agencies contributing information, the website is a one-stop
shop for consumers turning to the federal government seeking information, from
heath to money to technology. 15
Protecting Privacy Online. Since 1995,
the FTC has been at the forefront of issues involving online privacy. Among
other activities, the FTC has held public workshops; examined website practices
on the collection, use, and transfer of personal information; and commented on
serf-regulatory efforts and technological developments intended to enhance
consular privacy. The FTC has issued three reports to Congress based on its
initiatives in the privacy area. 16 The most recent, Self-Regulation and Privacy
Online, 17 issued in July 1999, examined website collection of consumer
information, consumer concerns about online privacy, and the state of
serf-regulation. The report recommended effective serf-regulation at that time
instead of legislation, but called for further efforts to implement "fair
information principles" and continued FTC monitoring.
The FTC is
particularly concerned about issues involving the online collection of
personal information from children.
In its 1998
privacy report, the FTC documented the widespread collection of
children's information, and recommended that Congress adopt legislation setting
forth standards on online collection. Four months after the report was issued,
Congress enacted the Children's Online Privacy Protection Act of 1998.18 As
required by the Act, the FTC issued a rule to implement the Act's fair
information standards for commercial websites collecting information from
children under 13.19 The rule, which takes effect in April 2000, describes what
constitutes "verifiable parental consent" in the collection of information from
children.
The FTC also has brought law enforcement actions to protect
privacy online. One action challenged the allegedly false representations by the
operator of a "Young Investors" website that information collected from children
in an online survey would be maintained anonymously, 20 and another challenged
the practices of an online auction site that allegedly obtained consumers'
personal identifying information from a competitor site (eBay. com) and then
sent deceptive, unsolicited e- mail messages to those consumers seeking their
business. 21
Since the 1999 privacy report, the FTC, together with the
Department of Commerce, held a public workshop on "online profiling" 22 to
educate the public about this practice and its privacy implications, and to
examine current industry efforts to implement fair information practices. The
FTC also has convened an advisory committee of e- commerce experts, industry
representatives, security specialists, and consumer and privacy advocates to
examine the costs and benefits of implementing online the fair information
practices of "access" and "security." 23 This advisory committee, convened
pursuant to the Federal Advisory Committee Act, 24 will provide a written report
to the FTC in May 2000. Later this month, the FTC will conduct another survey on
commercial website practices of personal information collection and then' use of
fair information practices of notice, choice, access, and security.
Working to Protect Consumers and Businesses in International E- Commerce
Markets. The FTC participates in international forums on e- commerce with two
major goals: tackling cross-border fraud, and developing e-commerce policies
that facilitate a safe and predictable commercial environment for businesses and
consumers. To stop international fraud, the FTC works with both domestic and
foreign law enforcement partners to shut down offshore scam artists who target
U.S. consumers, to repatriate ill-gotten gains moved offshore, and to combat
cross-border fraud. We enhance international cooperative efforts through our
involvement in international organizations, such as the 29-nation International
Marketing Supervision Network; and task forces, such as the U.S.-Canada
Telemarketing Task Force and the Mexico-U.S.-Canada Health Fraud Task Force. We
also participate in information sharing arrangements, such as through Consumer
Sentinel.
To develop e-commerce policies, the FTC is active in the
public policy debate on international consumer protection principles that should
govern the global electronic marketplace? The FTC sponsored a June 1999
international workshop addressing these issues. Additionally, the FTC just
announced that it will host, together with the Department of Commerce, a
workshop this spring on the use of alternative dispute resolution mechanisms for
consumer transactions in the borderless online marketplace.
2.
Anticipating and Responding to the Changing Marketplace to Promote Consumer and
Business Welfare. Electronic commerce, deregulation, and globalization are
transforming the American economy. The FTC is responding to these changes by
shifting resources to those areas where consumers and business are at increasing
risk from fraud, deception, or anticompetitive practices.
Responding to
the Retail Revolution. The United States, indeed the world, is undergoing a
"retail revolution." To remain competitive, retailers -- whether brick and
mortar or online -are restructuring and merging, and seeking new ways to market
both new and old products to a growing consumer market. Food retailing is
experiencing just such a period of consolidation. The number of supermarket
mergers increased from 20 in 1996, to 25 in 1997, to 35 in 1998. 26
While most supermarket mergers do not raise competitive concerns, some
do appear to threaten consumers' food bills, and the FTC has responded. Five
supermarket mergers reviewed by the FTC in the past 12 months have involved
firms with total annual sales of over $110 billion, including
Albertson's acquisition of American Stores (the second and fourth largest chains
in the U.S.) and Kroger's acquisition of Fred Meyer, which created the largest
U.S. supermarket chain. In the last four years, the FTC has brought more than 10
enforcement actions involving supermarket mergers, requiring divestitures of
nearly 300 stores, in order to maintain competition in local markets spread
across the U.S. 27
The FTC is addressing not only anticompetitive
mergers, but also anticompetitive practices that could hinder consumers from
reaping the full benefits of retail restructuring. For example, the Commission
sued Toys R Us, the nation's largest toy retailer, alleging abuse of market
power by trying to stop warehouse clubs from selling popular toys, such as
Barbie dolls. Although new to selling toys, warehouse clubs, such as Costco,
were selling them at lower prices and beginning to take market share from more
traditional retailers, including Toys R Us. In response, Toys R Us allegedly
pressured toy manufacturers to deny popular toys to warehouse clubs or to sell
to them only on less favorable terms. The FTC issued an administrative order to
stop these practices, and the matter is now on appeal in the U.S. Court of
Appeals for the Seventh Circuit. 28
Protecting Competition and Consumers
in Electric Power Deregulation. Deregulation is transforming the huge electric
power industry, which has annual sales of over $200 billion.
The FTC is working to ensure that consumers receive the benefits of deregulation
and that formerly regulated monopolists do not use their market power to impede
competition. The FTC has provided testimony and other comments to Congress on
issues of electric power deregulation. FTC staff has participated in various
industry forums and has provided comments to the Federal Energy Regulatory
Commission and 13 state governments to assist in the transition to a competitive
market. The FTC also conducted a workshop for state utility regulators and
Attorneys General on market power and consumer protection issues that states are
likely to face as they deregulate and restructure the electricity industry. The
FTC continues to emphasize the need to (1) adopt policies that lessen the market
power held by the formerly regulated monopolies to promote competition, (2)
ensure that consumers receive accurate and nondeceptive information to make
informed decisions among the choices that the competitive market should offer;
and (3) ensure fair and non-deceptive billing practices?. 28
Protecting
Consumers from Deceptive Telecommunications Practices. The FTC is addressing
consumer protection issues in another deregulating industry --
telecommunications. While deregulation can bring consumers substantial benefits
in the form of greater choice in products, services, and prices, it also has
brought new opportunities for fraud and deception. 29
Among the most
serious fraudulent practice is "cramming"- placing charges for unauthorized
purchases of goods and services on consumers' telephone bills. In 1998, cramming
ranked second among complaints received by the FTC's Consumer Response Center,
with almost 10,000 complaints. 30 Along with State Attorneys General, the FTC
has filed law enforcement actions against crammers, seeking injunctions and
restitution for injured consumers. 31 The FTC also amended its Pay- Per-Call
Rule 32 to require, among other things, express verifiable authorization for
charges placed on consumer telephone bills. 33 Finally, the FTC commented on the
Federal Communications Commission's "Truth-in-Billing" initiative, designed to
make it difficult to cram unauthorized charges on to consumers' phone bills by
making the bills easier to read and understand. 34
The FTC also has
worked closely with the FCC on "dial-around" long distance telephone services,
another innovation of the deregulated environment. Dial-around allows consumers
to bypass their pre- subscribed long-distance provider by using access codes --
a "10-10- XXX" number? Through national advertising, long-distance carriers,
both large and small, heavily promote dial-around services, which now gross
approximately $3 billion per year. 36 Nearly all of this
advertising focuses on price claims, and, unfortunately, much of it appears
deceptive. Early in fiscal year 2000, the FTC and the FCC jointly sponsored a
public workshop to focus attention on deceptive advertising and to examine how
both agencies might provide additional guidance to industry on advertising these
services non-deceptively.
Safeguarding Consumer Privacy as Financial
Markets Restructure. Financial markets also will be restructuring in the wake of
the Gramm- Leach-Bliley Act, 37 which dismantled Depression-era legal walls
between the banking, insurance, and securities industries. Despite the promise
of more efficient financial markets, the new law raises concerns about the
privacy of personal financial information,
given the technology available to collect and distribute this information.
The Act directs the FTC and the bank regulatory agencies to develop
rules to implement privacy protections, including requiring notice of an
entity's privacy policies and providing an opportunity, in certain
circumstances, to restrict the sharing of non-public personal information.
Release of the FTC's rule is scheduled for May 2000, just six months after the
President signed the Act.
Providing Expertise on the Evolving
Pharmaceutical Market. As pan of its program to study evolving industries, the
FTC's Bureau of Economics completed a detailed report on the rapidly changing
pharmaceutical industry, 38 an industry of increasing importance to the nation's
aging consumers. Developments in information technology, new state drug
substitution laws, federal legislation, and the emergence of market institutions
such as health maintenance organizations and pharmacy benefit management firms
all have contributed to a rapid pace of change in this market. The industry also
has undergone significant structural changes that include growth of the generic
drug segment and substantial horizontal and vertical consolidation. The report
attempts to provide a more complete understanding of the competitive dynamics of
this market and discusses possible anticompetitive concerns and procompetitive
explanations for new pricing strategies and other evolving industry practices.
In preparing the report, FTC staff drew upon its experience in reviewing
mergers in the pharmaceutical and health care industries. These industries have
been in the midst of a merger wave in the last several years, and during that
time, the FTC has brought 11 enforcement actions challenging several of these
mergers. 39 Antitrust scrutiny is vital because these transactions could have a
substantial and immediate impact on large numbers of consumers, possibly
threatening higher prices and slowing innovation of new life-enhancing products.
Investigating Mergers in a Globalized Economy. Globalization means that
increasing numbers of the FTC's merger investigations involve companies with
international ties and require cooperation with foreign competition authorities
to resolve concerns. For example, in the $80 billion oil
mega-merger of Exxon Corporation and Mobil Corporation, the FTC closely
coordinated its investigation, not only with the Attorneys General of several
states, but also with the European Commission. Actions brought by United Kingdom
and German authorities closely track the proposed FTC order. Upon completion of
its review, the FTC's order would require the largest retail divestiture in FTC
history -- the sale or assignment of 2,431 Exxon and Mobil gas stations in the
Northeast and Mid-Atlantic, as well as in California, Texas and Guam. In
addition, certain assets would be sold, including an Exxon refinery in
California, terminals, and a pipeline. 40
Similarly, the FTC coordinated
with foreign authorities in the investigation and eventual settlement of an
international pharmaceutical merger, of Zeneca Group PLC, based in the United
Kingdom, and Astra AB, based in Sweden. The parties agreed to divest rights to a
long-acting local anesthetic to a third party to ensure continued competition in
this important drug market. The European Commission and FTC staff shared their
respective analyses of the case, and the parties facilitated the process by
waiving confidentiality rights to permit full communication among FTC and BC
staff and the parties. 41
Formulating Guidelines on Competitor
Collaborations. Globalization and new technologies are driving companies toward
a variety of complex collaborations enabling them to expand into foreign
markets, fund innovation, or lower costs. The increasing use and variety of
these collaborations among competitors have led to requests for greater clarity
regarding their treatment under the antitrust laws. In response, the FTC and the
Department of Justice have issued, in draft, the first set of joint guidelines
that comprehensively address horizontal agreements among competitors.42 The
draft guidelines seek to enhance understanding of the possible antitrust
implications of a wide range of joint ventures, strategic alliances, and other
collaborations among competitors, thus encouraging procompetitive collaboration
and deterring collaboration likely to harm competition and consumers.
3.
Promoting Efficient Enforcement. The FTC attempts to leverage resources to
obtain the greatest efficiency by, among other things, working cooperatively
with other law enforcement agencies, at both the state and federal levels. The
FTC also attempts to promote direct and immediate benefits for consumers by
seeking disgorgement or restitution remedies in appropriate cases to put money
back in their pockets. Finally, the FTC seeks to minimize burden on business
throughout its enforcement and compliance programs.
Coordinating
"Sweeps" to Fight Consumer Fraud. An important innovation in the fight against
consumer fraud is the "sweep" -- a cooperative and concentrated fraud crackdown
by federal, state, and private groups. These efforts have led to multiple law
enforcement actions targeting a certain type of fraud, often with extensive
press coverage, and are more likely to reduce fraud than isolated actions by the
various state and federal groups. Since 1995, the FTC has partnered with state
and federal agencies and formed alliances to lead 49 sweeps culminating in 1,321
law enforcement actions on a variety of scams. These actions include 306 brought
by the FTC itself, which have prevented an estimated $500
million in consumer injury.43 The FTC also partners with private sector
organizations in education campaigns on how consumers can avoid being defrauded.
Redressing Anticompetitive Price Increases. The FTC won a preliminary
motion in its effort to give money back to millions of American consumers who
were faced with sudden and huge price increases when they filled prescriptions
for two generic drugs for treating anxiety. In late 1998, the FTC, along with 10
State Attorneys General, filed charges against Mylan Laboratories, Inc., the
nation's second largest generic drug manufacturer, and others, alleging that the
company had anticompetitively eliminated much of its competition by tying up the
key active ingredients for the two drugs.44 The complaint charges that Mylan's
actions allowed it to raise prices of two drugs: for one drug, the price
increase was 25 times the initial level; for the other, more than 30 times. In
total, the price increases allegedly cost American consumers over
$120 million. Trial is set for fall 2000.
Saving Homes
and Stopping Abusive Lending Practices. The dramatic growth of subprime lending
- lending to higher-risk borrowers- has been accompanied by reports of abusive
lending practices. The abusive practices often involve lower-income elderly and
minority borrowers and threaten their biggest assets - then homes. The FTC has
made abusive lending practices an enforcement priority, and last July announced
settlements 45 with seven subprime mortgage lenders from across the country
charged with violating the Home Ownership and Equity Protection Act (HOEPA) 46.
The FTC alleged these lenders made loans without regard to the consumers'
ability to repay the loans, included prohibited terms in the loan agreements,
increased interest rates after default, or imposed illegal prepayment penalties
or balloon payments. The settlements included injunctive and other relief and
consumer redress totaling $572,500 with injured consumers
receiving an average of $2,100 each.
The FTC also is
prosecuting an action against Capital City Mortgage Corporation, 47 a Washington
D.C. area mortgage lender. Filed in 1998, the complaint alleges that the
defendants made high-interest loans (up to 24%), many to elderly and minority
home owners living on fixed or low incomes, without fully disclosing their
terms. The loans were often interest-only balloon loans, with the full principal
amount due at the end, allegedly leading to foreclosure and loss of homes when
poor borrowers could not raise tens of thousands of dollars quickly to make
unexpected payments. The action seeks to obtain redress for hundreds of
victimized homeowners.
Reducing Burden on Business. While protecting
consumer interests, the FTC has taken steps to minimize burden on business in
the following ways:
- Maintained a comprehensive regulatory review
program that covers all FTC rules and industry guides since 1992. The program
provides for review of every rule and guide at least every ten years.
-
To date, the FTC has repealed roughly haft of the guides and discretionary trade
regulation rules in effect in 1992 (21 of 40 guides and 12 of 25 rules).
- The FTC has revised other rules to simplify disclosure requirements,
provide mere flexible compliance options, or promote international harmonization
to facilitate trade. For example, the FTC revised its Rule on Care Labeling of
Textile Wearing Apparel to permit the use of symbols in place of words,
relieving manufacturers and distributors of the need to translate care
instructions into multiple languages for trade purposes among NAFTA counties.
- Rules currently under review include those concerning the funeral
industry,48 franchise and business opportunity ventures, pay-per-call services,
9 amplifiers used in home entertainment products, 50 home insulation
products,/51 and textile wearing apparel.
52
- Maintained an
extensive program of business education and outreach to achieve compliance
without the burden of formal legal action. The efforts have included public
workshops, online and hard copy business guides, general and individual
compliance advice, "Surf Day" follow-up alerts, trade association and trade
press contacts, speeches and other presentations.
- Streamlined its
administrative trial procedures, establishing a one- year start-to-finish
procedure for certain matters. 53
- Sunsetted over 10,000 administrative
orders, with automatic sunsetting of all such orders more than 20 years old.
- Reduced the average time to grant "early termination"on H-S-R mergers
to less than 20 days, even though the statute allows a 30-day review period.
Mr. Chairman, we appreciate the opportunity to provide our views on the
Commission's reauthorization and to report on our accomplishments on behalf of
American businesses and consumers. We would be pleased to respond to any
questions you or the other Members may have.
1 The FTC has broad law
enforcement responsibilities under the Federal Trade Commission Act, 15 U.S.C.
Sections 41 et seq. With certain exceptions, the statute provides the agency
with jurisdiction over nearly every sector of the economy. Certain entities,
such as depository institutions and common carriers, as well as the business of
insurance, are wholly or partially exempt from FTC jurisdiction. In addition to
the FTC Act, the FTC has enforcement responsibilities under more than 40
additional statutes and more than 30 rules governing specific industries and
practices.
2 Nielson Media Research and NetRatings Inc., The
Nielson/Netratings Reporter (visited Jan. 13, 1999)
(http://www.nielson-netratings.com/press_releases/pr_000113.htm).
3
Forrester Research Inc., Online Retail to Reach $184 Billion by
2004 as Post-Web Retail Era Unfolds (visited Sept. 28,1999) (htpp://www.
forrester.com/ER/Press/Release/O,1769,164,FF.html).
4 See Attachment 1.
Internet-related initiatives include anti-fraud law enforcement, consumer and
business education, online privacy initiatives, and the development of
international consumer protection guidelines for commerce.
5 Sandra
Sugawara, Merger Wave Accelerated in '99; Economy, Internet Driving
Acquisitions, Wash. Post, Dec.31, 1999 at El.
6 See Attachment 2.
7 The demands from the merger wave and the requirements and statutory
deadlines under Hart-ScottRodino have forced a diversion of resources from the
FTC's nonmerger responsibilities, such as potentially anticompetitive agreements
in health care and other industries. While in 1991, the FTC spent 56 percent of
competition resources on merger matters and 44 percent on nonmerger matters; in
1999, that ratio changed to 67 percent for mergers and only 33 percent for
nonmergers. The nonmerger eases that have been opened m the past several years
are proceeding more slowly because of the lack of resources.
8 S. 254,
106th Cong. (1999). The specific provision of the proposed legislation,
Amendment No. 329, passed by a vote of 98-0.
9 18 U.S.C.Section 1028.
10 FTC v. Carlos Periera d/b/a atariz.com, No. 99-1367-A (E.D. Va.,Sept.
14, 1999).
11 One recent poll reveals that 80 million American adults
went online for health information during the previous 12 months. Harris Poll
(Aug. 1999).
12 Magnetic Therapeutic Technologies, Inc., C-3897 (FTC
Sept. 7, 1999); Pain Stops Here!, Inc., C-3898 (FTC Sept. 7, 1999); Melinda R.
Sneed and John L. Sneed d/b/a Arthritis Pain Care Center, C-3896 (ITC Sept. 7,
1999); Body Systems Technology, Inc., C-3895 (FTC Sept. 7, 1999).
13
Fair Allocation System, Inc., C-3832 (FTC Oct. 30, 1998).
14 In 1998,
Consumer Sentinel received the Interagency Resources Management Conference Award
as an exceptional initiative to improve government service.
15 In 1999,
www.consumer.gov received the Vice President's Hammer Award, which recognized
the site's innovative approach to providing online links to the websites of
federal agencies.
16 Self-Regulation and Privacy Online: A Report to
Congress (FTC July 1999) (http:llwww. ftc.gov/os/1999/9907/index.htm#13);
Privacy Online: A Report to Congress (FTC June
1998)(http:llwww.ftc.gov/reports/privacy3/toc.htm); Individual Reference
Services: A Report to Congress (FTC Dec.
1997)(http://www.ftc.gov/bcp/privacy/wkshp97/irsdoc1.htm).
17 Id. The
Commission vote to authorize release of the report was 3-1, with Commissioner
Anthony concurring in part and dissenting in part.
18 15 U.S.C. Section
6501. The Final Rule is available at
(htpp://www.ftc.gov/opa/1999/9910/childfinal).
19 16 C.F.R. Part 312.
20 Liberty Financial Companies, Inc., No. C-3891 (FTC Aug. 12, 1999).
21 FTC v. Reverse Auction.com, Inc., No. 00-0032 (D.D.C. Jan. 6, 2000).
22 Online profiling is the practice of aggregating information about
consumers' interests, gathered primarily by tracking their movements online, and
using the resulting consumer profiles to create targeted advertising on
websites.
23 "Access" refers to an individual's ability to review data
maintained about him or herself and the ability to correct inaccuracies in that
data. "Security" refers to a data collector's obligation to protect against loss
and the unauthorized access, destruction, use, or disclosure of the data. 24 5
U.S.C. App. Section 9(c).
25 Attachment 3 lists the international
working groups on electronic commerce to which the FTC belongs.
26 "How
Big is Too Big? The Role of the FTC in Supermarket Industry Mergers," 2 Grocery
Headquarters 24 (Feb. 1, 1999).
27 Red Apple/Sloan, C-9266 (FTC Mar. 29,
1995); Schnucks/National, C- 3584 (Icrc June 8, 1995); Schwegman/National 119FTC
783 (July 5, 1995); Stop & Shop/Purity Supreme, C-3649 (Icrc April 2, 1996);
Ahold/Stop & Shop, C-3687 (FTC July 7, 1996); Jitney Jungle/Delchamps C-3784
(FTC Sept. 23, 1998); Albertson's/Buttrey, C-3838 (FTC Dec. 8, 1998);
Ahold/Giant, C-3861 (ITC Oct. 20, 1998); Kroger/Fred Meyer, C- 3917 (FTC June 7,
1999); Albertson's/American Stores, No.981-0339 (June 30, 1999); Shaw's/Star,
No. 9910075 (FTC July 6, 1999); Kroger/John C. Groub, C-3905 (Nov. 8, 1999).
28 Toys R Us, Inc., No. 9278 (ITC 1998) appeal docketed, No. 984107 (7th
Cir. Apr. 16, 1999).
29 The FTC also has reviewed mergers that affect
the delivery of electricity to consumers and has taken action when concerned
about the merger's impact on competition and prices. See PacifiCorp, No. 9710091
(FTC consent agreement, Feb. 18, 1998) (transaction subsequently abandoned);
Dominion/Consolidated Natural Gas Co. C-3901 (FTC Dec. 9, 1999).
30
Telecommunications - State and Federal Actions to Curb Slamming and Cramming,
(GAO/RCED-99-193, July 1999).
31 FTC v. Interactive Audiotext Services,
Inc., No. 98-3049 CBM (C.D. Cal., Apr. 22, 1999); FTC v. International Telemedia
Associates, Inc. No. 1-98-CV-1935 (N.D. Ga., July 10, 1998); FTC v. Hold Billing
Services, Ltd., No. SA-98-CA-0629-FB (W.D. Tex., July 15, 1998). See also FTC v.
American TelNet No. 991597-CIV-King (S.D. Fla. June 14, 1999); FTC v.
Communication Concepts & Investments, Inc., No. 98-7450 (S.D. Fla., Dec. 22,
1998).
32 16 C.F.R. Part 30 (1999).
33 63 Fed. Reg. 58,524 (Oct.
30, 1998).
34 Truth-in-Billing and Billing Format First Report and Order
and Further Notice of Proposed Rulemaking, 63 Fed. Reg. 55,077 (Oct. 14, 1998).
35 Every long-distance carrier has an access or "10-10" code that allows
callers to access that carrier's network, even if callers have previously chosen
a different carrier to be their regular long- distance company.
36 10-10
Long Distance Calling, Consumer Reports, May 1999, at 64.
37 Pub. L. No.
106-102, 113 Stat. 1338 (1999)
38 Roy Levy, FTC Bureau of Economics
Staff Report, The Pharmaceutical Industry: A Discussion of Competitive and
Antitrust Issues in an Environment of Change (March 1999).
39 Hoechst
AG, 120 F.T.C. 1010 (Dec. 5, 1995); Glaxo PLC, 119 F.T.C. 815 (June 14, 1995);
Upjohn Co., 121 F.T.C. 44 (Feb. 8, 1996); Johnson & Johnson, 121 F.T.C. 149
(Mar. 16, 1996); Ciba-Geigy Ltd, 123 F.T.C. 842 (Mar. 24, 1997); Baxter lnt'l,
Inc., 123 F.T.C. 904 (Mar. 24, 1997); American Home Products Corporation, 123
F.T.C. 1279 (May 16, 1997); Roche Holding Ltd,, C-3809 (May 22, 1998); Zeneca
Group PLC, C- 3880 (June 7, 1999); Medtronic, Inc., C-3879 (June 10, 1999).
40 Exxon Corporation, No. 9910077 (proposed consent order, Nov. 30,
1999).
41 Zeneca Group PLC, C-3880 (FTC June 7, 1999).
42 64
Fed. Reg. 54,483 (1999).
43 Attachment 4 provides the list of sweeps the
FTC has participated in since 1995.
44 FTC v. Mylan Laboratories, Inc.,
CV-98-3115 (D.D.C. 1999) (mem).
45 FTC v. Barry Cooper Properties, No.
99-07782 WDK (Ex)(C.D. Cal. July 30, 1999); FTC v. Capitol Mortgage Corp., No.
2-99-CV-580G (D. Utah July 28, 1999); FTC v. CLS Financial Services, Inc., No.
C-99- 1215 (W.D. Wash. July 30, 1999); FTC v. Granite Mortgage LLC, No. 99- 289
(E.D. Ky. July 28, 1999); FTC v. Interstate Resource Corp., No. 99-CIV-5988
(S.D.N.Y. July 30, 1999); FTC v. lAP Financial Services, Inc., No. 3:99-CV-496-H
(W.D. Ky. July 28, 1999); FTC v. Wasatch Credit Corp., No. 2-99-CV-579 (D. Utah
July 28, 1999).
46 15 U.S.C. Section 1639.
47 FTC v. Capital
City Mortgage, Inc., No. 1:98 CV 00237 (D.D.C., Jan. 29, 1998).
48 See
Funeral Industry Practices Rule, 16 C.F.R. Part 453 (1999), Request for
Comments, 64 Fed. Reg. 24,250 (May 5, 1999).
49 See Trade Regulation
Rule Pursuant to the Telephone Disclosure and Dispute Resolution Act of 1992, 16
C.F.R. Part 308 (1999), Notice of Proposed Rulemaking, 63 Fed. Reg. 58,524 (Oct.
30, 1998).
50 See Power Output Claims for Amplifiers Utilized in Home
Entertainment Products, 16 C.F.R Part 432 (1999), Advance Notice of Proposed
Rulemaking, 63 Fed. Reg. 37,237; see a/so Notice of Proposed Rulemaking, 64 Fed.
Reg. 38,610 (July 19, 1999).
51 See Labeling and Advertising of Home
Insulation, 16 C.F.R. Part 460 (1999), Advance Notice of Proposed Rulemaking, 64
Fed. Reg. 48,025 (Sept. 1, 1999).
52 See Care Labeling of Textile
Wearing Apparel and Certain Piece Goods As Amended, 16 C.F.R. Part 423 (1999),
Advance Notice of Proposed Rulemaking, 60 Fed. Reg. 67,102 (Dec. 28, 1995); see
also Notice of Proposed Rulemaking, 64 Fed. Reg. 38,610 (July 19, 1999).
53 16 C.F.R. Section 3.11A (1999).
END
LOAD-DATE: February 10, 2000 
