[Senate Report 107-348]
[From the U.S. Government Publishing Office]
Calendar No. 769
107th Congress
2d Session SENATE Report
107-348
_______________________________________________________________________
FEDERAL TRADE COMMISSION
REAUTHORIZATION ACT OF 2002
__________
R E P O R T
of the
COMMITTEE ON COMMERCE, SCIENCE, AND
TRANSPORTATION
on
S. 2946
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
November 19, 2002.--Ordered to be printed
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
one hundred seventh congress
second session
ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii JOHN McCAIN, Arizona
JOHN D. ROCKEFELLER IV, West TED STEVENS, Alaska
Virginia CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon SAM BROWNBACK, Kansas
MAX CLELAND, Georgia GORDON SMITH, Oregon
BARBARA BOXER, California PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri GEORGE ALLEN, Virginia
BILL NELSON, Florida
Kevin D. Kayes, Staff Director
Moses Boyd, Chief Counsel
Gregg Elias, General Counsel
Jeanne Bumpus, Republican Staff Director and General Counsel
Ann Begeman, Republican Deputy Staff Director
Robert W. Chamberlin, Republican Chief Counsel
Calendar No. 769
107th Congress Report
SENATE
2d Session 107-348
======================================================================
FEDERAL TRADE COMMISSION REAUTHORIZATION ACT OF 2002
_______
November 19, 2002.--Ordered to be printed
_______
Mr. Hollings, from the Committee on Commerce, Science, and
Transportation, submitted the following
R E P O R T
[To accompany S. 2946]
The Committee on Commerce, Science, and Transportation, to
which was referred the bill (S. 2946) to reauthorize the
Federal Trade Commission for fiscal years 2003, 2004, and 2005,
and for other purposes, having considered the same, reports
favorably thereon without amendment and recommends that the
bill do pass.
Purpose of the Bill
The purpose of the legislation is to reauthorize the Federal
Trade Commission (FTC or Commission) for the next three fiscal
years, to amend the FTC Act (15 U.S.C. 41 et seq) to include
telecommunications common carriers within the jurisdiction of
the FTC, to authorize the Commission to receive donations of
books and volunteer services, and to authorize reimbursement
for law enforcement expenses.
Background and Needs
The FTC is an independent Federal agency, established by
statute (Federal Trade Commission Act, 15 U.S.C. Sec. 41) in
1914 to protect American consumers. The Commission's mandate
has two distinct components: first, to protect consumers from
unfair or deceptive acts or practices in or affecting commerce;
and second, to protect consumers from unfair methods of
competition. As part of this authority, the agency enforces
some 46 statutes and is the only Federal agency with both
consumer protection and competition jurisdiction in broad
sectors of the economy.
The Commission's consumer protection authority is provided
under the FTC Act (15 U.S.C. Section 41 et seq). The Commission
is charged with preventing a broad range of consumer abuses,
including deceptive or misleading advertising practices,
telemarketing fraud, credit report errors, labeling
regulations, and telemarketing services. The Act also grants
the FTC jurisdiction over unfair methods of competition and
unfair or deceptive acts or practices that unreasonably impede
a consumer's ability to make an informed choice or create
fraudulent contractual inducements.
The Commission's antitrust authority is derived from the
Sherman Act (prohibiting unlawful restraints and
monopolization), the Clayton Act (prohibiting arrangements,
mergers, and acquisitions that threaten competition--the Hart-
Scott-Rodino Act (requiring merger review) is derived from this
Act), and the Robinson-Patman Act, (barring price
discrimination). Each of the Federal antitrust statues is
administered concurrently by the FTC and the Department of
Justice.
The FTC is not currently authorized. The last reauthorization
statute was passed in 1996 (P.L. 104-216), which authorized
funding for fiscal years 1997 and 1998. The FTC's current
budget for FY 2002 is $156 million with approximately 1065
full-time staff. The Commission requested an increase for the
next three fiscal years, in both dollars and staff, due in part
to the planned implementation of a national registry for
consumers to remove their names from telemarketing sales-call
lists and the proposed expansion of its jurisdiction to include
telecommunications common carriers. The FTC's budget request is
as follows:
FTC-REQUESTED BUDGET AND STAFF FOR FISCAL YEARS 2003, 2004, AND 2005
------------------------------------------------------------------------
Budget (in Full-time Staff
Fiscal Year millions)
------------------------------------------------------------------------
2003.............................. $179 1,087
2004.............................. $207 1,158
2005.............................. $224 1,208
------------------------------------------------------------------------
Throughout the 1980s, the Commission's staffing levels
decreased each year, falling from 1,719 in FY 1980 to 894 in FY
1989. In the 1990s, the Commission's staffing levels increased
from 903 in 1990 to 964 in 1999. S. 2946 would authorize
staffing levels of 1,087 in FY 2003, 1,158 in FY 2004, and
1,208 in FY 2005.
Currently, the FTC is unable to prosecute actions against
telecommunications common carriers. The FTC does not have
jurisdiction over these entities; therefore, telecommunications
consumers do not benefit from established FTC protections
against deceptive and unfair marketing, advertising, and
billing practices. Staff at the FTC and the Federal
Communications Commission (FCC) have worked together to
identify and address consumer protection concerns arising in
the telecommunications industry. However, it has been observed
that the common carrier exemption frustrates effective consumer
protection both with respect to common carrier and non-common
carrier activities in the telecommunications industry.
Ultimately, some believe that the existing distinction leads to
inefficient use of both FTC and FCC staff consumer-protection
resources.
For example, there have been instances where consumers have
received exorbitant phone bills for international audiotext and
videotext services received on their phone lines without their
informed authorization. The FTC has sued bill aggregators and
vendors, as in the action against Verity International LTD. In
that case, the FTC fought a motion to dismiss raised by Verity
based on the common carrier exemption. The FCC filed an amicus
brief in support of the FTC's position. Although the FTC was
successful at the Federal district court level, the resolution
of the issue had consumed FTC and FCC resources that may
otherwise have been used to protect consumers.
The common carrier exemption also has affected enforcement
actions against cramming. Cramming is the placement of
unauthorized charges on consumers' telephone bills. The FTC has
successfully filed over a dozen cases to stop the cramming of
unauthorized non-telecommunications charges onto consumers'
phone bills. In similar cases where the potential defendant was
or claimed to be a common carrier, the FTC did not bring
charges against those companies due to the jurisdictional
prohibition.
It also has been found that some businesses, in an attempt to
avoid FTC prosecution, will assert that they are common
carriers when there is a question as to whether their core
businesses would qualify for that designation. For example, in
one investigation of an entity that charged consumers and
institutional customers such as schools and hospitals for
unauthorized audiotext services, a joint investigation with the
FCC was necessary because the entity under investigation
claimed that it was a common carrier. The entity's alleged
common carrier activities significantly complicated an
investigation that otherwise would have been a routine
prosecution. In another instance, the FTC considered bringing
an action against a company that the staff believed may have
made misrepresentations regarding the online security it
provided its customers. However, the entity also provided
common carriage to its customers. The security representations
it made in its business were dependent on the representations
it made as a common carrier. Because the two issues were so
intertwined, the FTC faced a substantial litigation risk of
being denied jurisdiction.
The difficulty the FTC faces when it decides whether to bring
an action against a defendant with connections to
telecommunication common carriage is delineating between what
is, and what is not, a common carrier activity. The removal of
the exemption in part or in full could reduce the potential for
gamesmanship.
The Commission also has received numerous complaints alleging
deceptive advertising and marketing of pre-paid phone cards,
particularly to the immigrant community. The FTC has brought a
small number of cases involving the marketing of pre-paid phone
cards. However, because of the common carrier exemption, the
FTC does not have jurisdiction over all of the entities
involved in the marketing of these phone cards, and in some
instances may not have jurisdiction over the entities primarily
responsible for the misrepresentations at issue.
Consumers are inundated with marketing and advertising by the
telecommunications industry every day. The industry spent $3.9
billion in 1999 on long-distance advertising alone. The volume
of advertising and marketing calls for additional resources to
protect consumers in light of known fraudulent and deceptive
acts occurring within the telecommunications marketplace. FTC
jurisdiction over telecommunications common carriers may
provide the additional resources and expertise that would
protect consumers and serve the public interest.
The FTC, in carrying out its consumer protection mission,
often works cooperatively with State and foreign agencies. An
additional change in authority would grant the FTC the ability
to accept reimbursement for these joint enforcement actions,
thereby better utilizing Commission funds. However, current
statutory authority does not authorize the FTC to accept
reimbursement for expenses when it works cooperatively with a
State or foreign agency. Commission staff has been working
closely with domestic and foreign law enforcement authorities
to combat the dramatic rise in consumer protection violations
and unfair methods of competition both domestically and abroad.
These partnerships have resulted in enhanced law enforcement
efforts and sharing of information. In certain matters, the FTC
occasionally provides investigative or other services to a
requesting law enforcement authority with no expectation of the
Commission's participation in any enforcement proceeding. In
other instances, particularly involving State actions, the
Commission partners with the State to both investigate and
prosecute the matter. In some of these situations, the foreign
or domestic partner may be interested in reimbursing the
Commission for the services it has provided or in sharing some
of the investigation and prosecution costs.
Unless authorized by law, a Federal agency may not keep money
it receives from sources other than Congressional
appropriations, but must deposit such funds in the Treasury.
The Securities and Exchange Commission currently has authority
to accept payment and reimbursement for investigative or other
assistance that it provides to a foreign securities authority.
The FTC would like to be able to accept reimbursement if
offered, but it would not seek reimbursement for routine or
statutorily required services that it already provides.
Another change in statutory authority that would enhance the
ability of the FTC to carry out its duties is gift-acceptance
authority. Under Federal appropriations law, agencies have
authority to spend only what the Congress appropriates. Thus,
the Comptroller General has determined that, unless
specifically authorized by law, agencies may not accept gifts,
including volunteer services, because to do so would constitute
an improper augmentation of appropriated funds.
The FTC points out that this broad restriction on acceptance
of gifts occasionally limits its ability to fulfill its mission
in the most cost-effective manner, such as using volunteer
services in the consumer complaint and information center. As a
result of these restrictions, the Commission sometimes receives
gifts of items that it is not in a position to accept. For
example, the acceptance of a trade regulation publication that
might be useful in the Commission library is barred. In order
to accept such publications, the Commission needs statutory
authority as proposed by S. 2946. Numerous agencies, including
the Office of Government Ethics, the FCC and the Consumer
Product Safety Commission, have this authority. The FTC is
mindful of the need to employ any gift acceptance authority
that it may receive in a manner that avoids the appearance of
impropriety.
Legislative History
The Subcommittee on Consumer Affairs, Foreign Commerce and
Tourism held an oversight hearing on the FTC on July 17, 2002,
where the full Commission testified, and asked Congress to
amend its statute to include the provisions in S. 2946. The
Subcommittee also heard from consumer and industry
representatives. Senator Dorgan, Chairman of the Subcommittee,
along with Senator Hollings, Chairman of the Committee on
Commerce, Science, and Transportation, introduced S. 2946, the
Federal Trade Commission Reauthorization Act of 2002, on
September 17, 2002. The full Committee considered S. 2946
during an executive session on September 19, 2002, and reported
the measure by a vote of sixteen to seven.
Estimated Costs
In compliance with subsection (a)(3) of paragraph 11 of rule
XXVI of the Standing Rules of the Senate, the Committee states
that, in its opinion, it is necessary to dispense with the
requirements of paragraphs (1) and (2) of that subsection in
order to expedite the business of the Senate.
Regulatory Impact Statement
In accordance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the Committee provides the
following evaluation of the regulatory impact of the
legislation, as reported:
NUMBER OF PERSONS COVERED
S. 2946 would re-authorize the Commission to continue its
dual missions of protecting American consumers and preventing
unfair methods of competition. Additionally, the legislation
would expand the Commission's jurisdiction to include
telecommunications common carriers. Therefore, S. 2946 would
affect all persons who are currently subject to FTC protections
and enforcement, as well as persons who are providers and
consumers of telecommunication common carriage.
ECONOMIC IMPACT
S. 2946 would authorize funds for the Commission to continue
its current responsibilities. Telecommunication common carriers
may experience new costs due to the need to maintain compliance
with FTC regulations they were not subject to because of the
common carrier exemption.
PRIVACY
S. 2946 would be expected to help increase the personal
privacy of American consumers, since it is part of the FTC's
mission to protect the public from illegal intrusions into
personal privacy and to prosecute identity theft. S. 2946 would
reauthorize the Commission to continue its duties concerning
the protection of consumer privacy.
PAPERWORK
S. 2946 would change the jurisdictional responsibilities of
the FTC to include telecommunication common carriers, creating
concurrent jurisdiction with the FCC and the Department of
Justice. The legislation should generate similar amounts of
administrative paperwork as other legislation requiring
multiple agency enforcement.
Section-by-Section Analysis
Section 1. Short title
This section provides that the Act be cited as the ``Federal
Trade Commission Reauthorization Act of 2002.''
Section 2. Reauthorization
This section would authorize the appropriation of funds for
the Commission at $179 million for fiscal year (FY) 2003, $208
million for FY 2004, and $224 million for FY 2005.
Section 3. Common carriers regulated by the Communication Act of 1934
This section would provide the FTC jurisdiction over
telecommunications common-carriers by rescinding the current
telephone common carrier exemption in the FTC Act (see sections
45 and 46 of title 15 U.S.C.). The removal of this part of the
exemption would create concurrent jurisdiction with the FCC for
matters concerning fraudulent advertising, deceptive business
practices, and other consumer protection issues involving
telecommunications companies where both agencies have
enforcement authority.
It is intended that S. 2946 would establish concurrent
jurisdiction to better protect consumers who face questionable
marketing and business practices by telecommunications common
carriers and businesses that claim to be common carriers,
although their core businesses are not common carriage. The FTC
shares jurisdiction with several other Federal agencies in
accomplishing its dual mission of consumer protection and the
prevention of unfair methods of competition. Currently, the FTC
shares jurisdiction and has two cooperative enforcement
agreements with the FCC, therefore the expansion of FTC's
jurisdiction in regard to telecommunications common carriers
would not create a new venture between the agencies. The FTC
also shares enforcement and investigatory responsibilities with
the Department of Justice, the United States Department of
Agriculture, the Food and Drug Administration, the Small
Business Administration, the Federal Power Commission, the
Department of Housing and Urban Development, the Office of the
Comptroller of Currency, the Federal Deposit Insurance
Corporation, the National Credit Union Administration, the
Office of Thrift Supervision, and the Board of Governors of the
Federal Reserve System. In light of the new jurisdictional
regime that would be created by the legislation, it is intended
that the FTC and the FCC, per normal agency practice, would
prepare a cooperative enforcement agreement to avoid
duplicative enforcement and the inefficient use of resources.
Another effect of including telecommunications common
carriers within the FTC's jurisdiction is the ability for the
FTC to undertake a merger review involving a telecommunications
common carrier. When the common carrier exception was placed in
the FTC Act, there was only one telephone common carrier, the
AT&T monopoly. Since the breakup of AT&T in 1984, there have
been numerous mergers involving telecommunications common
carriers, and these same common carriers are increasingly
involved in non-common carriage activities, such as billing and
collection services for membership clubs and merchandise
vendors, Internet services and electronic data, and
entertainment services. In the context of the growth of the
telecommunications industry and the need to protect the
marketplace from harmful concentrations of market power, the
creation of concurrent jurisdiction over telecommunication
common carrier mergers may better serve the public interest. It
is recognized that as a policy matter, the 1993 Clearance
Procedures for Investigations between the Antitrust Division of
the Department of Justice and the Bureau of Competition of the
FTC assign merger review authority to the agency with the
greater expertise in a particular area. This Act is not
intended to supercede the current agreement between the
agencies in any fashion.
Section 4. Authority to accept reimbursements, gifts and voluntary and
uncompensated services
This section would allow the FTC to accept reimbursements
from domestic and international law enforcement agencies for
services rendered by the FTC in support of an activity or
statute administered by the agency. Those payments would be
considered as reimbursement to the appropriated funds of the
Commission. This section also would authorize the FTC to accept
gifts, donations, and volunteer services, provide that no
conflict of interest, or appearance of such conflict, occurs.
Rollcall Votes in Committee
In accordance with paragraph 7(c) of rule XXVI of the
Standing Rules of the Senate, the Committee provides the
following description of the record votes during its
consideration of S. 2946:
The Committee ordered S. 2946 reported without amendment by a
rollcall vote of 16 yeas and 7 nays as follows:
YEAS--16 NAYS--7
Mr. Hollings Mr. Burns
Mr. Inouye Mr. Lott\1\
Mr. Rockefeller\1\ Mr. Brownback
Mr. Kerry\1\ Mr. Fitzgerald
Mr. Breaux Mr. Ensign
Mr. Dorgan Mr. Allen
Mr. Wyden Mrs. Hutchison
Mr. Cleland
Mrs. Boxer\1\
Mr. Edwards\1\
Mrs. Carnahan
Mr. Nelson
Mr. McCain
Mr. Stevens
Ms. Snowe
Mr. Smith
\1\By proxy
Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the Standing
Rules of the Senate, changes in existing law made by the bill,
as reported, are shown as follows (existing law proposed to be
omitted is enclosed in black brackets, new material is printed
in italic, existing law in which no change is proposed is shown
in roman):
FEDERAL TRADE COMMISSION ACT
DEFINITIONS
[15 U.S.C. 44]
Sec. 4. The words defined in this section shall have the
following meaning when found in this Act, to wit:
``Commerce'' means commerce among the several States or with
foreign nations, or in any Territory of the United States or in
the District of Columbia, or between any such Territory and
another, or between any such Territory and any State or foreign
nation, or between the District of Columbia and any State or
Territory or foreign nation.
``Corporation'' shall be deemed to include any company,
trust, so-called Massachusetts trust, or association,
incorporated or unincorporated, which is organized to carry on
business for its own profit or that of its members, and has
shares of capital or capital stock or certificates of interest,
and any company, trust, so-called Massachusetts trust, or
association, incorporated or unincorporated, without shares of
capital or capital stock or certificates of interest, except
partnerships, which is organized to carry on business for its
own profit or that of its members.
``Documentary evidence'' includes all documents, papers,
correspondence, books of account, and financial and corporate
records.
[``Acts to regulate commerce'' means the Act entitled ``An
Act to regulate commerce,'' approved February 14, 1887, and all
Acts amendatory thereof and supplementary thereto and the
Communications Act of 1934 and all Acts amendatory thereof and
supplementary thereto.]
``Acts to regulate commerce'' means subtitle IV of title 49,
United States Code, and all Acts amendatory thereof and
supplementary thereto.
``Antitrust Acts'' means the Act entitled ``An Act to protect
trade and commerce against unlawful restraints and
monopolies,'' approved July 2, 1890; also sections 73 to 77
inclusive, of an Act entitled ``An Act to reduce taxation, to
provide revenue for the Government, and for other purposes,''
approved August 27, 1894; also the Act entitled ``An Act to
amend sections 73 and 76, of the Act of August 27, 1894,
entitled `An Act to reduce taxation, to provide revenue for the
Government, and for other purposes,' '' approved February 12,
1913; and also the Act entitled ``An Act to supplement existing
laws against unlawful restraints and monopolies, and for other
purposes,'' approved October 15, 1914.
``Banks'' means the types of banks and other financial
institutions referred to in section 18(f)(2).
* * * * * * *
AUTHORIZATION OF APPROPRIATIONS
[15 U.S.C. 57c]
Sec. 25. [There are authorized to be appropriated to carry
out the functions, powers, and duties of the Commission not to
exceed $92,700,000 for fiscal year 1994; not to exceed
$99,000,000 for fiscal year 1995; not to exceed $102,000,000
for fiscal year 1996; not to exceed $107,000,000 for fiscal
year 1997; and not to exceed $111,000,000 for fiscal year
1998.] There are authorized to be appropriated to carry out the
functions, powers, and duties of the Commission not to exceed
$179,271,000 for fiscal year 2003, $207,691,000 for fiscal year
2004, and $224,493,000 for fiscal year 2005.
* * * * * * *
SEC. 26. REIMBURSEMENT OF EXPENSES.
The Commission may accept payment or reimbursement, in cash
or in kind, from a domestic or foreign law enforcement
authority, or payment or reimbursement made on behalf of such
authority, for expenses incurred by the Commission, its
members, or employees in carrying out any activity pursuant to
a statute administered by the Commission without regard to any
other provision of law. Any such payments or reimbursements
shall be considered a reimbursement to the appropriated funds
of the Commission.
SEC. 27. GIFTS AND VOLUNTARY AND UNCOMPENSATED SERVICES.
(a) In General.--In furtherance of its functions the
Commission may accept, hold, administer, and use unconditional
gifts, donations, and bequests of real, personal, and other
property and, notwithstanding section 1342 of title 31, United
States Code, accept voluntary and uncompensated services.
(b) Limitations.--
(1) Conflicts of interest.--Notwithstanding
subsection (a), the Commission may not accept, hold,
administer, or use a gift, donation, or bequest if the
acceptance, holding, administration, or use would
create a conflict of interest or the appearance of a
conflict of interest.
(2) Voluntary services.--A person who provides
voluntary and uncompensated service under subsection
(a) shall not be considered a Federal employee for any
purpose other than for purposes of chapter 81 of title
5, United States Code, (relating to compensation for
injury) and section 2671 through 2680 of title 28,
United States Code, (relating to tort claims).
SHORT TITLE
[15 U.S.C. 58]
Sec. [26.] 28. This Act may be cited as the ``Federal Trade
Commission Act''.