[Senate Hearing 107-1147]
[From the U.S. Government Publishing Office]
S. Hrg. 107-1147
FTC REAUTHORIZATION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CONSUMER AFFAIRS, FOREIGN COMMERCE AND TOURISM
OF THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
JULY 17, 2002
__________
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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, Democratic Staff Director
Moses Boyd, Democratic Chief Counsel
Jeanne Bumpus, Republican Staff Director and General Counsel
------
SUBCOMMITTEE ON CONSUMER AFFAIRS, FOREIGN COMMERCE
AND TOURISM
BYRON L. DORGAN, North Dakota, Chairman
JOHN D. ROCKEFELLER IV, West PETER G. FITZGERALD, Illinois
Virginia CONRAD BURNS, Montana
RON WYDEN, Oregon SAM BROWNBACK, Kansas
BARBARA BOXER, California GORDON SMITH, Oregon
JOHN EDWARDS, North Carolina JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri GEORGE ALLEN, Virginia
BILL NELSON, Florida
C O N T E N T S
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Page
Hearing held on July 17, 2002.................................... 1
Statement of Senator Dorgan...................................... 1
Statement of Senator Fitzgerald.................................. 44
Statement of Senator Hollings.................................... 1
Statement of Senator McCain...................................... 39
Statement of Senator Nelson...................................... 41
Statement of Senator Smith....................................... 36
Statement of Senator Wyden....................................... 2
Witnesses
Alldridge, Dennis H., President, Special Olympics-Wisconsin, Non-
Profit and Charitable Coalition Representative................. 73
Prepared statement........................................... 74
Anthony, Hon. Sheila F., Federal Trade Commission................ 27
Cannon, Lou, President, DC Lodge of the Fraternal Order of Police 83
Leary, Hon. Thomas B., Federal Trade Commission.................. 32
Mendoza, Hon. Charles, Member, AARP Board of Directors........... 51
Prepared statement........................................... 53
Muris, Hon. Timothy, Chairman, Federal Trade Commission.......... 5
Prepared statement........................................... 7
Sarjeant, Lawrence E., Vice President, Law and General Counsel,
U.S. Telecom Association....................................... 56
Prepared statement........................................... 58
Schwartz, Ari, Associate Director, Center for Democracy and
Technology..................................................... 66
Prepared statement........................................... 67
Swindle, Hon. Orson, Federal Trade Commission.................... 30
Thompson, Hon. Mozelle W., Federal Trade Commission.............. 28
Weintzen, H. Robert, President and CEO, Direct Marketing
Association, Inc............................................... 60
Prepared statement........................................... 62
FTC REAUTHORIZATION
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WEDNESDAY, JULY 17, 2002
U.S. Senate,
Subcommittee on Consumer Affairs, Foreign
Commerce, and Tourism,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:30 a.m. in
room SR-253, Russell Senate Office Building, Hon. Byron L.
Dorgan, Chairman of the Subcommittee, presiding.
OPENING STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. The Subcommittee hearing will come to
order. I would like to welcome the Federal Trade Commission, as
well as the witnesses who have gathered to provide testimony to
the Subcommittee today. Let me call on the Chairman of the Full
Committee for any statement he may wish to make at the opening.
Senator Hollings.
STATEMENT OF HON. ERNEST F. HOLLINGS,
U.S. SENATOR FROM SOUTH CAROLINA
The Chairman. Mr. Chairman, I want to thank you and the
Subcommittee under your leadership for this particular hearing.
It is very important. We have oversight responsibilities for
one of the most important agencies, the Federal Trade
Commission, and I wanted to pay my respects for the hard work
they are doing and their willingness to undertake additional
consumer protection responsibilities in the communications
field.
We have got a terrible drive to remonopolize
telecommunications, and they are being assisted materially by
the Federal Communications Commission. We have got a
distinguished Chairman over there whose first reaction to
WorldCom was to see who could buy them. He was not interested
in making the communications industry competitive and current.
Instead, it is off to Wall Street, encouraging merger fever.
That has been our problem, and the Federal Trade Commission is
our last great hope to take on and watch these particular
matters.
Chairman Morris just informed me that you have got some
lease expenses you might have to assume with our budget freeze.
The reason we had the budget freeze at the Commerce, State and
Justice Appropriations Subcommittee is that we had to do a lot
of eating. We had to provide for the Homeland Security. We had
to provide for the world and embassy security under the
Department of State. We had to take care of the 4.1 percent pay
increase, the prisons increase and, of course, the $300 million
more that 98 Senators voted for the day before yesterday.
With that, that is all we could do to hold the lines in the
budgets current as of this particular year, and so it was not
an effort to cut the Federal Trade Commission. We appreciate
what the Federal Trade Commission is doing, and you all keep up
the good hard work. We are depending on you.
Thank you very much, Mr. Chairman.
Senator Dorgan. Senator Hollings, thank you very much.
Senator Wyden.
STATEMENT OF HON. RON WYDEN,
U.S. SENATOR FROM OREGON
Senator Wyden. Thank you very much, Mr. Chairman. I
appreciate the opportunity to make this brief opener. After a
few minutes while I am in the Capitol, I will be back to
participate in the hearing. I share Chairman Hollings' view
that considerable good work is done at the Federal Trade
Commission. I will tell the folks at the Commission and the
Chairman here I really think that the Commission is AWOL on
energy issues, and particularly with respect to gasoline
pricing, and also electric issues.
With respect to gasoline pricing, the Commission found that
anticompetitive practices known as red-lining were rampant in
West Coast gasoline markets, and yet no action was taken.
Perhaps what is particularly troubling and to me--just
staggering--is the Federal Trade Commission in their inquiry,
and I will quote here: ``The investigation uncovered no
evidence that any refiner had the ability profitably to raise
prices market-wide or reduce output at the wholesale level.''
Well, Chevron and Texaco, their president testified just to
the opposite. He testified that the West Coast gasoline market
is dominated by a limited number of refiner marketers whose
individual actions can have significant market impact, and so
what you have--and I want to be very clear with the Commission
on this--is, you have oil company executives admitting to
practices that the Federal Trade Commission says they cannot
find evidence of. Think about that. Oil company executives come
to the Congress and admit to engaging in anticompetitive
practices that the Commission says it cannot find evidence of,
so I have some questions to ask about that.
I am also very troubled about the Commission's position
with respect to competitive effects of electric utility
transactions with non-utility subsidiaries and affiliates. This
is important for us on the West Coast because of Enron. The
agency, of course, does have jurisdiction with respect to
wholesale market impacts, and it seems that the agency gives a
lot of speeches about the benefits of deregulation, and I do
not see much about protecting consumers. I thank you, Mr.
Chairman, and apologize for having to be gone for a few
minutes, but look forward to the questioning later.
Senator Dorgan. Senator Wyden, thank you. Senator Wyden
will be returning, and there is a Senate vote at 10:30, and we
will go slightly into that vote before we take a very brief
recess, and then I will be recognized on the floor of the
Senate for the first amendment, I believe immediately following
the vote, so Senator Wyden will chair at that point.
Let me make a couple of comments. Senator Fitzgerald, I
believe, the Ranking Member, will also be here in a few
moments. But let me say that this hearing is a hearing to begin
the task of reauthorizing the Federal Trade Commission. It is
an independent Federal agency with broad consumer protection
mandates from Congress. The Commission's authorization has
expired. It is long past the time when Congress should do
something about that, and it is my hope to introduce a piece of
legislation at some point soon that would reauthorize the
activities of the Federal Trade Commission. The two specific
proposals that the Commission has that the Subcommittee will
focus on this morning are interesting proposals.
The first is the proposed national Do-Not-Call registry
that would amend the telemarketing sales rule and enable
consumers to eliminate most telemarketing calls by making one
call to the FTC. While consumers appear to overwhelmingly
support this initiative, and the idea of uninterrupted dinner
free from telephone solicitation appeals to many of us, we want
to be certain that doing so will not have unintended
consequences for groups such as charitable organizations that
depend on some solicitation to raise funds. But I must say that
if you go anywhere in the country and ask people what is
annoying them these days, especially while they are eating, it
is the incessant telephone calls that try to sell them a credit
card to refinance their home, to solicit some other sort of
contribution. The American people are upset by having their
privacy invaded in this way, and the Commission has a proposal
that is something we will talk about a bit today and will
consider as we take a look at the reauthorization as well.
The Commission has also expressed an interest in rescinding
the common carrier exemption for telecommunications issues.
This exemption was put in the Federal Trade Commission Act back
when there was only one federally-regulated telephone company.
There is an argument that with a variety of companies now
providing so many different types of telecommunications
services, sometimes in combination with common carriage,
sometimes as separate services, there needs to be an aggressive
agency with expertise in fraud and marketing practices to
police the industry.
There is some concern that this change will create
redundancy, since the Federal Communications Commission already
has jurisdiction, I personally think this subject needs to be
examined at some length, and I look forward to beginning that
discussion as well. I frankly do not think that there is as
aggressive a set of actions as should be taken by current
regulatory authorities, so for that reason I believe this is an
interesting proposal.
Let me just make a comment on Senator Wyden's observation,
especially with respect to energy and gasoline prices. In
recent months, I guess over the last year or so, I have been
concerned--in fact, I met with the Federal Trade Commission,
some of them, some of the officials, including the Chairman. I
have been concerned that consumers have not been well-served by
a range of Federal agencies.
For example, when we saw what happened with respect to the
Enron Corporation where investors lost their shirts, and the
people at the top of the corporation walked away with a pocket
full of gold, I asked the question, ``Well, who is looking out
for the people that are the consumers of stocks at this point,
and who were defrauded, in effect--bad information was put out
to them, they were manipulated in many ways, they lost their
shirts--who is investigating that?'' And I was told the FTC
really does not have jurisdiction. That is the Securities and
Exchange Commission.
Energy pricing, we had hearings in this room with respect
to the manipulation of wholesale energy prices, and therefore
retail prices in the State of California. We will have a
hearing tomorrow with Army Secretary White, who was involved in
Enron Energy Services, on that very subject, and he asked the
question, ``Well, who is active and involved in seeing that the
consumers were not defrauded out of billions of dollars in
California?'' The answer was, ``Really, nobody.'' It was
supposed to have been FERC, I guess, but FERC and the FCC and
others have done their best pillars of stone imitations and
essentially sat on their hands while consumers in a wide range
of areas have, in my judgment, been defrauded, or manipulated,
or in other ways disadvantaged.
I agree with Senator Wyden. I want watch dogs, and I want
agencies that are aggressive, not paper tigers. I want real
tigers going after those that are taking advantage of the
American consumer. I want agencies that are aggressively
pursuing fraud and price manipulation, and let me just say,
part of my angst about this goes back to last fall with the
hearings we had with respect to Enron and what happened to the
investors, and there was not anybody seeming to be very excited
about that in a regulatory area.
The American people were excited. Congress was excited. We
could not find regulators that were very excited about it, and
the same was true with respect to price manipulation. I happen
to think Californians were bilked to the tune of billions of
dollars, and it may well be to the tens of billions of dollars
in phony energy pricing and manipulative and fraudulent pricing
practices, and frankly, I see precious little evidence of
anybody aggressively going after that. Shame on those who have
the responsibility but do not assume it, and we will talk about
some of that today as well.
The Federal Trade Commission has a specific area in which
it works, and I mentioned earlier that we are going to talk
about trying to expand that in certain area so that we might
have the Federal Trade Commission involved in some of the areas
that I just mentioned.
The Securities & Exchange Commission was literally created
from the Federal Trade Commission. Congress took two
commissioners, the General Counsel and 120 attorneys out of the
FTC to create the new SEC many years ago. My own feeling is
that we ought to take a look at that once again. I am not
suggesting a wholesale merger these days of Federal agencies,
but I am suggesting that I think that we have Federal watch
dogs who have not been watching. I think the Federal Trade
Commission does a lot of good work in trying to prevent
consumer fraud, despite the fact that they are a small agency.
Since 1995, the Federal Trade Commission has brought over 1,000
fraud and deception cases, won more than $825 million in
consumer redress, and reviewed over 26,000 mergers worth nearly
$10 trillion. They have been active in a wide range of areas. I
will not describe them all. We have been pleased to work with
the Commission in many areas.
Mr. Muris will remember last fall when I was not pleased
that we could not find a way for the Commission to believe it
ought to go hip deep into the Enron issue. But you know, I
understand that you have certain jurisdictional areas that you
evaluate, and other agencies and other regulatory bodies have
jurisdiction. So I hope maybe we can find a way to sort all
this out, and decide if there are agencies that do not want to
regulate, then let us get rid of them and give the
responsibility to some agency that is staffed by people who do
want to regulate.
This system of ours, this market system, needs effective
regulation. This nonsense about let us just deregulate everyone
and let the consumer beware, if we have not gotten a belly full
of that in the last year, then somebody has been sleeping. You
need, in this market system, effective oversight and
regulation. There are people who are willing to defraud the
consumers, and we need not just in the criminal justice system
investigations, but we need regulatory agencies to prevent that
from happening.
So with that as a precursor, let me call on Mr. Muris to
begin providing us your comments this morning. Let me welcome
the Chairman and all the members of the Federal Trade
Commission, and let us include your entire statements as a part
of our permanent record, and you may summarize as you choose.
Chairman Muris, why don't you proceed.
STATEMENT OF HON. TIMOTHY MURIS, CHAIRMAN,
FEDERAL TRADE COMMISSION
Mr. Muris. Thank you, Mr. Chairman, we are happy to be
here, and we especially appreciate your support and kind words.
In attendance with me today are the full Commission. In order
of seniority, to my right is Commissioner Anthony, to my
immediate left is Commissioner Thompson, to my far right, at
least geographically and sometimes in other ways, is
Commissioner Swindle, and to my far left is Commissioner Leary.
We certainly appreciate the opportunity to appear before you
today.
Since our last reauthorization in 2000, I believe the
Commission has been very aggressive, and certainly I believe we
have continued in my Chairmanship the aggressive nature of my
predecessor, Bob Pitofsky.
On a personal note, I want to say that this is my sixth job
in the Federal Government. I have voted with my feet in
agreeing that we do need aggressive regulation. Four of those
jobs have been at the FTC. I am extremely proud to be the FTC's
Chairman. Our mission is vital, the issues are extraordinary,
and the people are great.
Let me outline our mission briefly. In the time you have
allotted, my colleagues will each discuss a specific issue. I
will talk very generally.
In consumer protection, which is one of our two main
missions, protection of consumer privacy is a key focus of our
efforts. In this fiscal year, we have increased our resources
50 percent to address consumer harm that results from the
misuse of consumer information. In addition to bringing 22
cases in this area in the last 14 months, as you mentioned, we
have proposed amending the Telemarketing Sales Rule to create a
national Do-Not-Call list. If we adopt that registry, it would
allow consumers to make one call to remove their name from most
lists.
We have also been active in another important privacy
issue, which is the ubiquitous spam that people receive. We are
probably one of the few places in the world that wants to
receive spam. We have something called the ``Refrigerator'' in
our computer lab that now has over 14 million spam. We have
recently begun systematically looking at those spam, picking
targets.
There are a great many deceptive solicitations made. For
example, we recently bought a case against a very pernicious
practice. Individuals would receive a spam that said, ``Receive
a free Sony Play Station,'' and in five clicks of their mouse
they would be on a pornographic website with their phone bill
being billed to a 900 number. We shut that down.
We certainly remain aggressive in fighting other frauds,
including a variety of telemarketing fraud; franchise fraud;
business opportunity and work-at-home schemes; advance fee
loans; credit loss protection; and false and unsubstantiated
claims for health and weight loss products.
I would like to give you a couple of recent examples. We
obtained a federal court order against the promoters of Miss
Cleo Psychic Services for misrepresenting the cost of the
services. Surprisingly, she did not see it coming.
[Laughter.]
Senator Dorgan. Do you want to go slower, Chairman Muris?
Mr. Muris. We also challenged the marketers of the devices
you may have seen on television promising washboard abs. Those
commercials and infomercials were ubiquitous at the end of last
year and the beginning of this year. We have sued, and we have
preliminarily stopped that activity.
Turning to antitrust, merger enforcement, of course,
continues to be a staple of our efforts. Recently there have
been fewer mergers, but there are still a great many cases that
require enforcement activity, and we have been bringing such
cases.
Health care is a major part of our effort. We have
increased our resources in this area in this fiscal year by 50
percent as well. Most of those resources, probably about 70
percent-plus, involve pharmaceuticals, and I testified recently
before you on that issue. Our focus has been on efforts by
branded drug manufacturers to slow or stop competition from
lower priced generics. We are particularly concerned about
anticompetitive gaming of certain parts of the Hatch-Waxman
Act, and the day I was here to testify on competition in the
pharmaceutical industry, we announced a case. We brought
another case recently, and we have many other investigations
underway.
I am sure the other Commissioners will want to respond to
Senator Wyden. I think he was quoting from Commissioners'
statements that were issued shortly before I arrived. Energy is
vital to our entire economy. We have spent a lot of effort on
maintaining competitive energy markets, and we recently have
increased our efforts. For the first time, on a real-time
basis, we are now tracking the price of gasoline in 360 cities.
We are looking for price anomalies, whatever their cause; one:
so that we can better understand what is going on in the
marketplace; and two: so we can identify enforcement targets if
appropriate ones exist.
As you mentioned, we have some legislative recommendations.
The first, which will be discussed in more detail by
Commissioner Anthony, involves the elimination of the exemption
for common carriers. We also request some technical changes, as
we describe in our written testimony.
Let me just conclude by saying, I firmly believe that we
have a vital role. I want to thank you for your continued
support of our mission, and I want to note that in
accomplishing this mission there is a very high degree of unity
among the five Commissioners. In fact, there is a near
unanimous pattern in voting, particularly when it comes to law
enforcement. That does not mean we agree on everything. We
spend a lot of time working issues out among ourselves to
achieve consensus, and we also work very closely with our
staff. As you will see, the Commissioners are independent-
minded, but I believe we work extraordinarily well together to
serve the public interest.
[The prepared statement of Mr. Muris follows:]
Prepared Statement of Hon. Timothy Muris, Chairman,
Federal Trade Commission
I. Introduction
Mr. Chairman and Members of the Subcommittee, the Federal Trade
Commission (FTC) is pleased to appear before you to support our
reauthorization request for Fiscal Years 2003 to 2005. Since our last
reauthorization hearing in February 2000, the FTC has continued to take
innovative and aggressive actions to protect consumers and promote
competition.
The FTC is the only federal agency with both consumer protection
and competition jurisdiction over broad sectors of the economy. \1\ We
enforce laws that prohibit business practices that are anticompetitive,
deceptive, or unfair to consumers. We also promote informed consumer
choice and public understanding of the competitive process. The work of
the FTC is critical in protecting and strengthening free and open
markets in the United States and, increasingly, the world.
The FTC is a small agency, but one with a large mission. The FTC
has shouldered an ever-increasing workload as the economy becomes more
global and more high tech. The agency has met its broad
responsibilities with only modest increases in resources. Highlights of
recent accomplishments include:
Enhancing consumer privacy and security. Since April 2001,
the FTC has brought 22 cases involving privacy and security
issues, ranging from ``pretexting'' (obtaining personal
information under false pretenses) and children's privacy to
``spam'' (unsolicited commercial e-mail). The agency also has
held three workshops to address privacy issues such as
financial privacy notices and the security of consumer
information.
Recovering as much as $60 million for nearly 18,000
consumers who were victims of fraudulent lending under the
terms of a proposed settlement that requires court approval.
Working with the AARP, six states, and individual plaintiffs,
in March 2002 the FTC settled charges against a mortgage
company and its CEO for misleading consumers about fees they
would be charged, which amounted to 10 to 15 percent of the
loans.
Attacking fraud. Since June 2001, the FTC has filed 98
federal court actions and obtained judgments for more than $160
million.
Stopping branded drug manufacturers from eliminating
competition from cheaper generic equivalents. Recent cases
addressing conduct allegedly stifling generic competition have
involved drugs for high blood pressure, anxiety, and angina and
other cardiac problems.
Preventing anticompetitive effects of mergers in the
petroleum industry. Last year, the FTC reviewed three multi-
billion dollar oil mergers and, where necessary, required
divestitures in two of the proposed mergers to ensure continued
competition in refining, distribution, and retail sales of
gasoline in markets across the United States.
Ensuring competition among health care providers. The FTC is
challenging as illegal agreements among providers to fix fees
and boycott health plans that resist paying higher fees. The
FTC's goal is helping to insure the existence of a competitive
health care industry that consistently delivers high-quality
care at competitive costs.
In accomplishing these goals, there is a high degree of unity among
the five Commissioners. In fact, there is near unanimity in voting
patterns, particularly with respect to votes concerning law enforcement
matters. The near unanimity of voting patterns reflects both a broad
consensus among the Commissioners about the types of cases the
Commission should pursue, and the careful and deliberate process by
which the Commissioners consider matters, consulting with the staff to
address the issues and concerns of individual Commissioners. As
Chairman Muris has stated, \2\ through the efforts of a talented,
dedicated, and professional staff, the current Commission is building
on the extraordinary work of former Chairman Robert Pitofsky.
II. Mission Focus
In the next few years, the FTC will focus its resources in
significant areas of the economy through law enforcement actions,
consumer and business education campaigns, and continuing assessment of
ongoing developments in the marketplace. As we explain in detail below,
the FTC's activities fulfill its mission on behalf of American
consumers by:
Continuing emphasis on critical areas of law enforcement--
stopping and preventing consumer fraud and deception as well as
stopping anticompetitive mergers;
Enhancing consumer privacy and security;
Preventing deceptive and anticompetitive health care
practices;
Promoting and maintaining competitive energy markets;
Keeping pace with technology and the changing marketplace;
Targeting special initiatives to specific groups of
consumers; and
Advancing efficient law enforcement.
A. Continuing Emphasis on Critical Areas of Law Enforcement
Two areas in the FTC's jurisdiction have become staples of its law
enforcement agenda--(1) fighting consumer fraud and deception, and (2)
preventing anticompetitive mergers. Since 1995, the FTC has attacked
fraud and deception by bringing 1,052 federal court and administrative
actions, and obtaining orders for more than $825 million in consumer
redress. \3\ During the same time period, the FTC reviewed over 26,000
proposed mergers worth a total of nearly $10 trillion, opened about
1,600 formal investigations (issuing ``Second Requests'' in more than
300 matters), and took enforcement action in over 230 transactions.
Over the next few years, the FTC plans to devote significant resources
to build on its solid record of achievement in these areas.
1. Consumer Fraud and Deception
The FTC targets both traditional types of fraud and deception and
those types that capitalize on new technologies. Simply stated, our
mission is to identify the most egregious forms of fraud and deception;
to bring cases, on our own and with our law enforcement partners across
the country and around the globe; and to educate industry about
complying with the law, consumers about how to protect themselves from
fraud and deception, and ourselves about emerging issues.
The FTC has two toll-free telephone numbers and an online form
available to consumers who have questions or complaints. Consumer
complaints are entered into a number of FTC databases, which are
accessible to increasing numbers of domestic and foreign law
enforcement partners. To identify the most pervasive forms of fraud and
deception, and to target wrongdoers for law enforcement actions, we
analyze the information collected through the following data systems:
Consumer Response Center. The FTC's Consumer Response Center
(CRC) fields complaints and inquiries on a wide variety of
consumer protection issues. Consumers can use a toll-free
number (1-877-FTC-HELP), as well as an online form and the
mail, to contact the CRC with complaints and inquiries. The CRC
now responds to more than 55,000 inquiries and complaints a
month.
Consumer Sentinel. Established by the FTC in 1997, Consumer
Sentinel \4\ is a fraud database available online to law
enforcement agencies across the U.S. and Canada. It receives
complaints from the FTC's CRC and from a growing number of
other organizations in the U.S. and Canada. Sentinel now
contains more than 680,000 complaints, and is the richest
source of consumer fraud data available to law enforcement
agencies. Since June 2001, the FTC has recruited 115 new
Sentinel members, bringing the total number of Sentinel users
to more than 460 law enforcement agencies. Law enforcement
agencies can use this centralized database to identify trends
and target companies that have received a large number of
consumer complaints. Consumers also can access publicly
available sections of this Web site for statistics about fraud,
including the schemes that garner the most consumer complaints,
the location of companies subject to complaints, and tips on
how to avoid fraud.
Identity Theft. Another FTC toll-free number, 1-877-ID-
THEFT, is a central clearinghouse and a critical source of
consumer complaint data on ID theft. Calls have increased from
2,200 calls per week one year ago to over 3,000 today. Building
on its experience with Consumer Sentinel, the FTC began making
the data available to its law enforcement partners through an
online database. More than 350 law enforcement agencies--46
separate federal agencies and 306 state and local agencies--now
can access the data. Among the agencies represented are more
than half of the state Attorneys General, as well as law
enforcement authorities from a number of major cities including
Baltimore, Dallas, Los Angeles, Miami, San Francisco, and
Philadelphia. To encourage even greater participation, we have
conducted law enforcement training and outreach since April of
this year to demonstrate the efficacy of the clearinghouse. As
one example of positive results from these efforts, within
three weeks after our most recent training seminar in Chicago,
approximately a third of the participating agencies without
prior access to the clearinghouse had signed up. We will
continue to focus resources and to devise new methods to expand
law enforcement access to the database. Finally, FTC
investigators, working with the Secret Service, have started to
prepare preliminary investigative reports based on
clearinghouse data, which are referred to Financial Crimes Task
Forces for possible prosecution.
Spam Database. Since 1998, the FTC has maintained an
electronic mailbox ([email protected]) to which Internet customers
can forward unsolicited commercial e-mail, commonly known as
``spam.'' This database currently receives, on average, 42,000
new pieces of spam every day. The total number of spam e-mails
has grown from 700,000 in the first year to more than 10
million today. The FTC staff searches the database to identify
trends and select law enforcement targets.
Surf Days. The FTC ferrets out online fraud and deception
through ``Surf Days.'' First used in 1996 to look for online
pyramid schemes, the law enforcement surf is now a staple of
FTC online scheme identification, usually conducted with other
law enforcement agencies. It provides both a window to learn
about online practices and a way to alert new Web site
providers--some of whom are new entrepreneurs unaware of
relevant laws--that their sites appear to violate the law.
Since May 2001, the FTC has conducted six surfs with more than
140 partners, focusing on claims about unsubscribing from spam,
remedies or preventive products for anthrax and other serious
diseases, bioterror protection devices, e-tailer holiday
shipping, and ultrasonic pest-control devices.
Drawing on consumer complaint data and information gathered from
Surf Days, the FTC targets fraudulent and deceptive practices. The
FTC's cases reflect a broad range of illegal activity, including
telemarketing fraud, franchise fraud, business opportunity and work-at-
home schemes, advance fee loan and credit loss protection schemes, and
false and unsubstantiated claims for health and weight loss products.
The FTC also has continued to bring deceptive advertising cases,
focusing in particular on cases that involve health or safety issues,
or significant economic injury. Recent cases include:
Project Busted Opportunity. In June 2002, the FTC, the
Department of Justice, and 17 state law enforcement agencies
announced law enforcement actions against 77 targets engaged in
the sale of business opportunities or work at home schemes. The
targets allegedly used deceptive earnings claims and paid
``shills'' to promote their schemes or otherwise violate
consumer protection laws. \5\
Operation Dialing for Deception. In April 2002, the FTC
announced the filing of 11 federal district court complaints
challenging ``in-bound'' telemarketing fraud--situations in
which consumers call companies based on classified ads,
Internet banners, or other promotions. Among those charged were
the purveyors of advance-fee loans and credit cards, at-home
medical billing programs, work-at-home envelope stuffing
schemes, and a ``consumer protection'' agency that was, in
reality, no more than a shill for a vending machine business
opportunity. \6\
Magazine Telemarketing. A federal court ordered a group of
magazine subscription telemarketers to pay $39 million in
consumer redress for violating the terms of a 1996 FTC
settlement. Among other provisions, the FTC's 1996 order barred
the defendants from misrepresenting the cost of subscriptions,
charging consumers' accounts without authorization, and
threatening to harm consumers' credit ratings. To facilitate
the redress process, the FTC established a special hotline for
consumers who think that defendants may have billed them
improperly. \7\
``Miss Cleo.'' The FTC obtained a federal court order
against the promoters of ``Miss Cleo'' psychic services after
charging that defendants misrepresented the cost of services,
billed for services never purchased, and engaged in deceptive
collection practices. Among other provisions, the court's order
enjoins the defendants from any future misrepresentations about
the cost of psychic readings and from making harassing
telemarketing calls. The FTC estimates that the defendants
billed consumers $360 million in connection with this alleged
illegal scheme. \8\
Ab Devices. In ``Project ABsurd,'' the FTC challenged widely
advertised ``ab'' devices. In suits against three marketers of
electronic abdominal exercise belts, the FTC charged that
infomercials falsely advertised that users would get ``six
pack'' or ``washboard'' abs without exercise. The 30-minute
infomercials were heavily aired on national cable television
stations, such as USA, TNN, Lifetime, E!, FX, and Comedy
Central, and were among the ten most frequently aired
infomercials in weekly U.S. rankings. The FTC's action seeks a
permanent injunction to stop future false or deceptive claims
and the payment of redress to consumers who bought the devices.
\9\
Wonder Bread. In March 2002, the FTC announced a settlement
with the marketers of Wonder Bread concerning allegedly
deceptive ads claiming that Wonder Bread could improve
children's brain function and memory. \10\
Palm, Inc. Palm, the leading manufacturer of Personal
Digital Assistants (PDAs), agreed to a settlement concerning
its claims that its PDAs come with built-in wireless access to
the Internet and e-mail, as well as other common business
functions--claims that the FTC alleged were not true for many
models of the popular PDAs. Announced in March 2002, the
settlement requires Palm to disclose, clearly and
conspicuously, when consumers have to buy add-ons to perform
advertised functions. \11\
2. Anticompetitive Mergers
Merger enforcement also continues to be a staple of the FTC's
enforcement agenda. Stopping mergers that substantially lessen
competition ensures that consumers pay lower prices and have greater
choice in their selections of goods and services than they otherwise
would. The level of merger activity in the marketplace, along with
other factors, affects the FTC's merger workload. During the 1990s,
record-setting levels of mergers, both in numbers and in size, required
extraordinary efforts by the FTC staff to manage the necessary reviews
within statutory time requirements. Recent economic conditions have
reduced merger activity, and amendments to the Hart-Scott-Rodino Act
\12\ have cut the number of proposed mergers reported to the
government. Even so, FTC merger enforcement remains a significant
challenge for the following reasons:
The size, scope, and complexity of mergers have increased.
The number of mergers still remains relatively high by historic
standards, and mergers also continue to grow in size, scope,
and complexity. The dollar value of last year's reported
mergers was about 82 percent higher, in nominal terms, than the
1995 total, even without any adjustment for the different
filing thresholds. In fact, the $1 trillion total in 2001
exceeded the average annual total dollar value of reported
transactions during the booming 1991-2000 decade. The size of
mergers affects the FTC's workload because mergers among large
diversified firms are likely to involve more products than
mergers among smaller firms, and thus generally involve more
markets requiring antitrust investigation. In addition, larger
firms are more likely to be significant players in the markets
in which they compete--increasing the need for antitrust
review. Finally, as new technologies continue to grow and as
the economy becomes more knowledge-based, the resulting
complexity of many mergers requires more extensive inquiry.
Large numbers of mergers still require scrutiny. The number
of proposed mergers raising competitive concerns remains
significant. Despite fewer reported transactions, the FTC's
level of enforcement activity remains at a high level. Through
the first eight months of this year, for example, we opened
well over 100 merger investigations and issued 20 requests for
additional information under the HSR Act (Second Requests),
numbers only slightly below those during the peak merger wave
years 1996 through 2000. Thus far in FY 2002, the FTC has taken
enforcement action in 21 mergers. Thus, despite a drop in the
number of merger filings, our merger enforcement workload
remains high because the workload derives mostly from the
number of transactions raising antitrust concerns, not from the
overall number of filings.
Non-reportable mergers now require greater attention.
Although fewer proposed mergers remain subject to the reporting
requirements of the HSR Act, the standard of legality under
Section 7 of the Clayton Act remains unchanged. \13\
Consequently, we need to identify through means such as the
trade press and other news articles, consumer and competitor
complaints, hearings, and economic studies, those unreported,
usually consummated, mergers that could harm consumers. So far
this fiscal year, the FTC has challenged two non-reportable
mergers. \14\
Resource-intensive litigation is more frequently needed.
While the FTC resolves most merger challenges through
settlement, it is sometimes necessary to litigate, particularly
when the merger at issue already has been consummated. Merger
litigation requires enormous resources. At the height of
preparation, a single merger case requires the full-time
attention of numerous staff members--not only lawyers, but also
economists, paralegals, and support staff. To counter arguments
and evidence presented by merging parties, these cases also
require analysis and testimony by outside experts with
specialized knowledge, which can be extremely costly. Since the
fiscal year began, the FTC has filed two administrative
actions, \15\ and has authorized federal court challenges to
five proposed mergers involving products including rum, \16\
food service glassware, \17\ pigskin and beef hide gelatin,
\18\ telescopes, \19\ and cervical cancer screening products.
\20\
B. Protecting Consumer Privacy and Security
A major focus of the FTC for the next several years will be the
protection of consumer privacy and security. Consumers are deeply
concerned about the privacy and security of their personal information,
both online and offline. Although privacy concerns have been heightened
by the rapid development of the Internet, concerns are by no means
limited to the cyberworld. This fiscal year, we have substantially
increased resources dedicated to privacy protection. The agency has
undertaken several major privacy initiatives to reduce the serious
consequences to consumers that can result from the misuse of personal
information.
1. Do Not Call Initiative
The FTC has proposed amending the Telemarketing Sales Rule (TSR)
\21\ to create a national do-not-call list that would be binding on
telemarketers and allow consumers to make one call to remove their
names from most telemarketing lists. The proposal also would restrict
the use of ``preacquired account information''--lists of names and
credit card numbers of potential telemarketing customers--to ensure
that these lists are not used to bill consumers for unwanted goods or
services. To date, the FTC has received over 40,000 comments on the TSR
proposal, reflecting a high degree of public interest.
2. Public Workshops
In December 2001, the FTC co-hosted, with seven other federal
agencies, a public workshop titled Get Noticed: Effective Privacy
Notices under Gramm-Leach-Bliley which assessed the impact of GLB
privacy notices, identified successful privacy notices, discussed
strategies for communicating complex information, and encouraged
industry ``best practices'' and consumer and business education. \22\
In May 2002, the FTC hosted a two-day public workshop to explore issues
related to the security of consumers' computers and the personal
information stored in them or in company databases. \23\
3. ID Theft
In 2001, identity theft was the number one consumer complaint made
to the FTC. To help stamp out this growing consumer problem, the FTC
has undertaken a number of initiatives:
Identity Theft Law Enforcement Training. Last March, the
FTC, the U.S. Secret Service, and the Department of Justice
kicked off a series of nationwide training seminars to provide
hundreds of local and state law enforcement officers with
practical tools to enhance their efforts to combat identity
theft.
ID Theft Affidavit. In October 2001, the FTC joined with
several companies and privacy organizations to create a
universal identity theft affidavit for victims of identity
theft to submit to creditors. Available online, the form helps
victims recoup their losses and restore their legitimate credit
records more quickly.
Identity Theft Education. The FTC has coordinated with other
government agencies and organizations to develop and
disseminate comprehensive consumer education materials for
victims of identity theft and those concerned with preventing
this crime. Since its publication, the FTC has distributed more
than 850,000 hard copies of its best-selling publication,
``Identity Theft: When Bad Things Happen to Your Good Name,''
and has logged over 700,000 visits to its Web version. The FTC
also launched an outreach effort to Spanish-speaking victims of
identity theft, releasing Spanish versions of the identity
theft booklet (Robo de Identidad: Algo malo puede pasarle a su
buen nombre) and the ID Theft Affidavit. We have added Spanish-
speaking phone counselors to our hotline staff and will soon
launch a Spanish version of our online complaint form.
4. Privacy Enforcement Actions
The FTC brings law enforcement actions when it has reason to
believe that laws protecting privacy have been violated. Recent FTC
privacy enforcement actions include:
Children's Privacy. Over the past year, the FTC brought six
cases involving the rule implementing the Children's Online
Privacy Protection Act (COPPA) for alleged violation of the
requirement that commercial Web sites give notice of their
information practices and obtain parental consent before
collecting, using, or disclosing personal information about
children under 13. As part of these settlements, the companies
agreed to pay civil penalties totaling $175,000. \24\
Eli Lilly. The FTC settled charges that Eli Lilly & Company
unintentionally had disclosed the e-mail addresses of users of
its Prozac.com and Lilly.com Web sites by failing to take
reasonable steps to protect the confidentiality and security of
that information. The settlement requires Lilly to establish a
security program to protect consumers' personal information
against any reasonably anticipated threats or hazards to its
security, confidentiality, or integrity. \25\
Pretexting Cases. The FTC has taken its first steps to
enforce prohibitions against ``pretexting''--the use of false
pretenses to obtain customer financial information--which is
prohibited under the Gramm-Leach-Bliley Act. \26\ FTC staff
found apparent violations after a surf of 1,000 Web sites and a
review of 500 publications. The FTC sent warning notices to 200
firms and settled three actions in federal court involving the
most egregious situations. \27\
Preacquired Account Information. \28\ A group of ``buying
clubs'' has agreed to pay $9 million to settle charges by state
Attorneys General and the FTC that they deceptively enticed
consumers into accepting free trial memberships and deceptively
obtained billing information from the consumers, which they
used to bill consumers for membership in the ``buying clubs''
without the consumers' knowledge or authorization. \29\
Spam. In February 2002, the FTC announced federal court
settlements with seven individuals who allegedly were
disseminating deceptive chain-letter e-mails involving pyramid
schemes with ``get rich quick'' schemes. \30\ In April 2002,
the FTC announced a law enforcement action challenging ``spam''
e-mail messages that deceptively claimed that consumers had won
a free Sony PlayStation 2 or other prize through a promotion
purportedly sponsored by Yahoo, Inc. When consumers responded
to the e-mail message, they were routed to an adult Internet
site via a 900-number modem connection that charged them up to
$3.99 a minute. \31\
C. Preventing Deceptive and Anticompetitive Health Care Practices
The cost of health care has become increasingly significant to both
the economy and the American family. Health-related products and
services account for over 13 percent of gross domestic product, up from
10.9 percent in 1988. \32\ A major FTC objective is to root out
deceptive practices that waste consumer dollars on ineffective or bogus
remedies, and to stop collusion and other anticompetitive practices
that drive up health care costs and decrease quality.
1. Internet Health Fraud and Deception
The Internet has become the newest venue for marketing snake oil.
Promoters of fraudulent products and services continue to use the
Internet to plague consumers searching for cures for various diseases
and preventative treatments to manage their health. The FTC has in
place several program to protect consumers from scam artists who prey
upon consumers' fears and concerns about their health.
Bioterrorism Project. Following the tragedies of September
11 and the anthrax attacks, the FTC targeted purveyors of phony
products related to bioterrorism diseases. Last October, staff
from the FTC, the Food and Drug Administration (FDA), and the
offices of 30 state Attorneys General conducted a surf and
followed it up with warning letters to 121 Web sites. These
sites were exploiting bioterrorism fears by marketing
ineffective products, ranging from oregano oil to gas masks. To
date, over 70 of the 121 warned sites have eliminated their
objectionable claims. In February, the FTC announced
settlements with marketers of an ineffective anthrax home test
kit \33\ and an on-line seller of a colloidal silver product
advertised to treat anthrax. \34\
``Teaser'' Web Sites. One of the principal challenges facing
the FTC is reaching consumers before they fall victim to a
fraudulent scheme. Knowing that many consumers use the Internet
to shop for information, agency staff have developed 14
different ``teaser'' sites that mimic fraudulent sites and that
are found easily by consumers who conduct research on the
Internet with popular search engines. Within three clicks, the
teaser sites link back to the FTC's site, where consumers can
find practical, plain language information on recognizing
fraudulent claims on a range of topics, including health care
products. Feedback from the public on FTC teaser sites has been
overwhelmingly positive. \35\
``Operation Cure.All.'' In June 2001, the FTC, in
cooperation with the FDA, Health Canada, and various state
Attorneys General, announced ``Operation Cure.All,'' the latest
round of enforcement actions against online purveyors of health
products that purported to cure serious diseases. The FTC
challenged allegedly unfounded claims regarding a DHEA hormonal
supplement, St. John's Wort, various multi-herbal supplements,
colloidal silver, and a variety of electrical therapy devices.
Commissioner Sheila Anthony recently discussed Operation Cure.All
before the Food and Drug Law Institute's 45th Annual Educational
Conference in a speech titled ``Combating Deception in Dietary
Supplement Advertising'' (April 16, 2002). \36\ This speech discussed
the FTC's recent law enforcement actions and proposed a strengthened
self-regulatory response and more media responsibility to address the
widespread problem of deceptive and unsubstantiated health claims for
dietary supplement products.
2. Collusion and Other Anticompetitive Practices
During the past year, the FTC has placed renewed emphasis on
stopping collusion and other anticompetitive practices that raise
health care costs and decrease quality.
(a) Antitrust Investigations Involving Pharmaceutical
Companies. The growing cost of prescription drugs is a
significant concern for patients, employers, and government.
Drug expenditures doubled between 1995 and 2000. \37\ In
response, the FTC dramatically has increased its attention to
pharmaceutical-related matters in both merger and non-merger
investigations. The agency now focuses one-quarter of all
competition mission resources on this industry. We also have
opened increasingly more pharmaceutical-related investigations.
In 1996, less than 5 percent of new competition investigations
involved pharmaceuticals, while in 2001, the percentage of new
investigations involving pharmaceutical products was almost 25
percent.
Mergers Affecting the Pharmaceutical Industry. Last year,
the FTC took action to restore competition in the market for
integrated drug information databases in a case involving
violations of both Sections 7 and 7A of the Clayton Act. This
case marked the first time the FTC sought disgorgement of
profits as a remedy in a merger case. The case resulted from
the 1998 acquisition by Hearst Corporation of the Medi-Span
integratable drug information database business. Pharmacies,
hospitals, doctors, and third-party payors rely on such
databases for information about drug prices, drug effects, drug
interactions, and the eligibility for drugs under various
payment plans. At the time of the acquisition, Hearst already
owned First DataBank, Medi-Span's only competitor. The FTC
alleged that the acquisition created a monopoly in the sale of
integratable drug information databases, causing prices to
increase substantially to all database customers. \38\ We
negotiated a settlement requiring Hearst to divest the Medi-
Span database and to disgorge $19 million in illegal profits,
which will be distributed to injured consumers. \39\
Pharmaceutical Firms' Efforts to Thwart Competition from
Generic Drugs. In its non-merger enforcement cases, the FTC
focused on efforts by branded drug manufacturers to slow or
stop competition from lower-cost generic drugs. While patent
protection for newly developed drugs sometimes limits the role
of competition in this industry, competition from generic
equivalents of drugs with expired patents is highly
significant. The Congressional Budget Office reports that
consumers saved $8 to 10 billion in 1994 alone by buying
generic versions of branded pharmaceuticals. \40\ The first
generic competitor typically enters the market at a
significantly lower price than its branded counterpart, and
gains substantial share from the branded product. Subsequent
generic entrants typically bring prices down even further. \41\
Anticompetitive ``gaming'' of certain provisions of the Hatch-
Waxman Act \42\ to forestall generic entry has been a major
focus of FTC enforcement actions. FTC Hatch-Waxman abuse cases
have fallen into three categories:
(i) Agreements Not to Compete. The first category involves
agreements between manufacturers of brand-name drugs and
manufacturers of generics in which the generic firm allegedly
is paid not to compete. The FTC has settled three such cases,
including a recent settlement with American Home Products
(AHP). That settlement resolved charges that AHP entered into
an agreement with Schering-Plough Corporation to delay
introduction of a generic potassium chloride supplement in
exchange for millions of dollars. The FTC had alleged that an
AHP generic would have competed with Schering's branded K-Dur
20, used to treat low potassium conditions, which can lead to
cardiac problems. \43\
(ii) Fraudulent ``Orange Book'' Listings. The second
category deals with unilateral conduct by branded manufacturers
to delay generic entry. Pursuant to the Hatch-Waxman Act, a
branded drug manufacturer must list any patent claiming its
branded drug in the FDA's ``Orange Book.'' Companies seeking
FDA approval to market a generic equivalent of that drug before
patent expiration must provide notice to the branded
manufacturer, which then has an opportunity to file a patent
infringement action. The filing of such an action within the
statutory time frame triggers an automatic 30-month stay of FDA
approval of the generic drug. Certain branded manufacturers
have attempted to ``game'' this regulatory structure by listing
patents in the Orange Book improperly. Such a strategy permits
the company to abuse the Hatch-Waxman's stay provision to block
generic competition without advancing any of the Act's
procompetitive objectives. The FTC recently filed an action
against Biovail Corporation (Biovail), alleging that it had
illegally acquired a license to a patent and engaged in such an
anticompetitive patent listing strategy with respect to its
high blood pressure drug, Tiazac. The matter was resolved
through a consent order, which requires Biovail to: (1)
transfer certain rights in the acquired patent back to their
original owner; (2) terminate its infringement suit against the
generic competitor, thereby terminating the 30-month stay; (3)
refrain from any action that would trigger another 30-month
stay; (4) refrain from future improper Orange Book listing
practices; and (5) provide the FTC with prior notice of the
acquisitions of any patents it intends to list in the Orange
Book. \44\
The FTC also recently filed an amicus brief in pivotal
private litigation involving allegations of fraudulent Orange
Book listing practices. \45\ In re Buspirone--which is the
subject of continuing litigation--involves allegations that
Bristol-Myers Squibb Co. (``BMS'') violated the antitrust laws
by fraudulently listing a patent on its branded drug, BuSpar,
in the FDA's Orange Book, thereby foreclosing generic
competition. BMS argued that the conduct in question was
covered by the Noerr-Pennington doctrine--a legal rule
providing antitrust immunity for conduct that constitutes
``petitioning'' of a governmental authority. In its amicus
brief opposing Noerr immunity, the FTC argued that submitting
patent information for listing in the Orange Book did not
constitute ``petitioning'' the FDA and that, even if it did,
various exceptions to Noerr immunity applied. The district
court subsequently issued an order denying Noerr immunity and
adopting much of the Commission's reasoning. \46\ The Court's
ruling does not mean that all improper Orange Book filings will
give rise to antitrust liability. An antitrust plaintiff must
still prove an underlying antitrust claim. The Buspirone
decision merely establishes that Orange Book filings are not
automatically immune from the antitrust laws or exempt from
their scrutiny.
(iii) Agreements Between Generic Manufacturers. The third
category of cases involves agreements among manufacturers of
generic drugs. In our recent complaint against Biovail and Elan
Corporation, plc (Elan), the FTC alleged that the companies
violated the FTC Act by entering into an agreement that
provided substantial incentives not to compete in the market
for the 30 mg and 60 mg dosage forms of generic Adalat CC.
Biovail and Elan are the only companies with FDA approval to
manufacture and sell 30 mg and 60 mg generic Adalat products.
In October 1999, Biovail and Elan entered into an agreement
involving both companies' generic Adalat products. Under their
agreement, in exchange for specified payments, Elan would
appoint Biovail as the exclusive distributor of Elan's 30 mg
and 60 mg generic Adalat products and allow Biovail to profit
from the sale of both products. Our complaint alleged that the
companies' agreement substantially reduces their incentives to
introduce competing 30 mg and 60 mg generic Adalat products.
The proposed order, which has a ten-year term, remedies the
companies' alleged anticompetitive conduct by requiring them to
terminate the agreement and barring them from engaging in
similar conduct in the future. \47\
Commissioner Thomas B. Leary has written and spoken in depth about
the issues that we must confront as we proceed with these cases at the
intersection of intellectual property rights and antitrust enforcement.
\48\
Generic Drug Study. The FTC currently is conducting an
industry-wide study focused on certain aspects of generic drug
competition under the Hatch-Waxman Amendments. The study has
examined whether the Commission's enforcement actions against
alleged anticompetitive agreements, which relied on certain
Hatch-Waxman provisions, were isolated examples or
representative of conduct frequently undertaken by
pharmaceutical companies. The study also has examined more
broadly how the process that Hatch-Waxman established to permit
generic entry prior to expiration of a brand-name drug
product's patents has worked between 1992 and 2000. \49\
(b) Antitrust Investigations Involving Health Care Providers.
So far this year, the agency has reached settlements with three
groups of physicians for allegedly engaging in collusive
practices that drove up consumers' costs. In May, the FTC
announced a settlement with two Denver-area physician
organizations to resolve charges that they entered into
agreements to fix fees and to refuse to deal with health plans.
According to the complaints, primary care doctors--who compete
with each other as internists, pediatricians, family
physicians, or general practitioners--formed groups to
negotiate contracts for higher fees and other terms more
advantageous than they could obtain by bargaining separately.
The FTC's proposed orders put a stop to further anticompetitive
collusive conduct. \50\
Earlier this year, the FTC settled charges that a group of
Napa County, California, obstetricians and gynecologists agreed
to fix fees and other terms of dealing with health plans and
refused to deal with health plans except on collectively
determined terms. The FTC's complaint further alleged that the
physicians' actions harmed employers, individual patients, and
health plans by depriving them of the benefits of competition
in the purchase of physician services. To resolve the matter,
the physicians agreed to refrain from engaging in similar
conduct in the future, and to dissolve the organization through
which they conducted their allegedly anticompetitive activity.
\51\
(c) Workshop on Health Care and Competition Law and Policy. On
September 9-10, 2002, the Commission will hold a public
workshop focusing on the impact of competition law and policy
on the cost, quality, and availability of health care, and the
incentives for innovation in the field. Given the significance
of health care spending in the United States, it is important
that competition law and policy support and encourage efficient
delivery of health care products and services. Competition law
and policy should also encourage innovation in the form of new
and improved drugs, treatments, and delivery options.
Developing and implementing competition policy for health care
raises complex and sensitive issues. The goal of this workshop
is to promote dialogue, learning, and consensus building among
all interested parties (including, but not limited to, the
business, consumer, government, legal, provider, insurer, and
health policy/health services/health economics communities).
D. Promoting and Maintaining Competitive Energy Markets
Representing a significant portion of total U.S. economic output,
energy is vital to the entire economy. The FTC focused considerable
resources on energy issues, including conducting in-depth studies of
evolving energy markets and investigating numerous oil company mergers.
1. Oil Merger Investigations
In recent years, the FTC has investigated numerous oil mergers.
Last year, the agency reviewed three large oil mergers and analyzed the
competitive effects in a host of individual product/geographic market
combinations. When necessary, the agency has insisted on remedial
divestitures to cure potential harm to competition. In Chevron/Texaco,
the FTC accepted a consent agreement that allowed the proposed $45
billion merger to proceed but required substantial divestitures to cure
the possible anticompetitive aspects of the transaction in 10 separate
relevant product markets and 15 sections of the country comprised of
dozens of smaller relevant geographic markets. \52\ In Valero/Ultramar,
the FTC obtained a settlement requiring Valero to divest a refinery,
bulk gasoline supply contracts, and 70 retail service stations to
preserve competition. \53\ In Phillips/Tosco, applying the same
standards, the Commission concluded that the transaction did not pose a
threat to competition and voted unanimously to close the investigation.
\54\
2. Study of Refined Petroleum Prices
Building on its enforcement experience in the petroleum industry,
the FTC is studying the causes of the recent volatility in refined
petroleum product prices. During an initial public conference held in
August 2001, participants identified key factors, including increased
dependency on foreign crude sources, changes in industry business
practices, restructuring of the industry through mergers and joint
ventures, and new governmental regulations. This information assisted
the agency in structuring a second public conference in May 2002,
focusing in greater depth on those factors identified as most important
in the earlier conference. The information gathered through these
public conferences will form the basis for a report to be issued later
this year.
3. Gasoline Price Monitoring
The FTC also recently announced a project to monitor wholesale and
retail prices of gasoline. FTC staff will inspect wholesale gasoline
prices for 20 U.S. cities and retail gasoline prices for 360 cities.
Anomalies in the data will prompt further inquiries and likely will
alert the agency to the possibility of anticompetitive conduct in
certain parts of the country. It will also increase our understanding
of the factors affecting the price of gasoline.
4. Consumer Gas-Savings Tips
In addition to focusing resources on protecting competition to keep
the family gasoline budget down, the FTC developed a series of consumer
education publications to help families fuel up wisely: Gas-Saving
Products: Facts or Fuelishness?; The Low-Down on High Octane Gasoline;
How To Be Penny Wise, Not Pump Fuelish; and Gas-Saving Products:
Proceed with Caution. Two of the publications were produced in
cooperation with the American Automobile Association. To date,
distribution totals for the four publications exceed 277,000.
E. Keeping Pace With Technology and the Changing Marketplace
As an agency with a history of studying marketplace developments,
\55\ the FTC is well-positioned to take a leading role in assessing the
impact of high technology and globalization on domestic and world
markets. In 1995, the agency held 23 days of hearings on these twin
phenomena, which culminated in a comprehensive, two-volume Staff
Report. \56\ Building on this base, the FTC continues to study the
impact of technology in general and specific innovations, such as the
Internet, and to work increasingly with foreign government agencies and
international bodies to promote competition and protect consumers both
at home and around the globe. The FTC organizes numerous task forces,
workshops, hearings, and conferences to gather information.
1. Technology
Internet Lab. To keep pace with rapidly changing Internet
technology, the FTC established an Internet Lab in 1999.
Equipped with state-of-the-art personal computers, the lab is a
resource for ongoing efforts to understand the medium and to
search for fraud, deception, and anticompetitive practices in a
secure environment. It provides the necessary equipment and
software to capture Web sites and preserve them as evidence.
The lab also provides the latest tools for staff to track the
manner in which technology is changing the way that commercial
information is transmitted to consumers. Unlike advertising in
traditional media, for example, advertising in electronic media
may vary in content and appearance depending on the appliance
and Web browser used by the consumer. FTC Internet enforcement
cases reflect the broad range of illegal activity carried out
online, from traditional scams like pyramid schemes, health
fraud, and bogus investments to high-tech frauds that take
advantage of the technology itself to scam consumers. Since
June 2001, the FTC has brought over 51 cases involving
fraudulent or deceptive Internet marketing practices, bringing
the total number of Internet cases filed since 1994 to 236.
Internet Task Force. In August 2001, an Internet Task Force
began to evaluate potentially anticompetitive regulations and
business practices that could impede e-commerce. The Task Force
grew out of the already-formed State Action Task Force, which
had been analyzing potentially anticompetitive state
regulations generally, and out of the FTC's longstanding
interest in the competition aspects of e-commerce. Over the
past year, the Task Force has met with numerous industry
participants and observers, including e-retailers, trade
associations, and leading scholars, and reviewed relevant
literature. The Task Force discovered that many states have
enacted regulations, ostensibly for other purposes, that have
the clear effect of protecting existing bricks-and-mortar
businesses from new Internet competitors. The Task Force also
is considering whether private companies may be curtailing e-
commerce by employing potentially anticompetitive tactics, such
as by collectively pressuring suppliers or dealers to limit
sales over the Internet. To date, three advocacy filings have
resulted in large part from the Task Force's efforts: (1) a
joint FTC/DOJ comment before the North Carolina state bar
expressing concerns about the impact on consumers of ethics
opinions requiring that an attorney be physically present for
all real estate closings and refinancings; (2) a joint FTC/DOJ
comment before the Rhode Island legislature on similar
requirements in a real estate bill; and (3) an FTC staff
comment before the Connecticut Board of Opticians, which is
considering additional restrictions on out-of-state and
Internet contact lens sellers. \57\
Internet Competition Workshop. In October, the Commission
will hold a public workshop on possible efforts to restrict
competition on the Internet. The workshop will include panel
discussions to address certain specific industries that are
important to consumers and that have experienced some growth in
commerce via the Internet, but that may have been hampered by
potentially anticompetitive state regulations or business
practices. For example, the workshop will include panels on
some or all of the following industries: retailing,
automobiles, cyber-charter schools, real estate, health care,
wine sales, auctions, contact lenses, and caskets. The Internet
Task Force expects that the workshop will (1) enhance the
Commission's understanding of these issues, (2) help educate
policymakers about the effects of possibly protectionist state
regulations, and (3) help educate private entities about the
types of business practices that may or may not be viewed as
problematic.
Standards Setting. As technology advances, there will be
increased efforts to establish industry standards for the
development and manufacture of new products. While the adoption
of standards is often procompetitive, the standards setting
process which involves competitors' meeting to set product
specifications, can be an area for antitrust concern. In a
complaint filed last month, the FTC charged that Rambus, Inc.,
a participant in an electronics industry standards-setting
organization, failed to disclose--in violation of the
organization's rules--that it had a patent and several pending
patent applications on technologies that eventually were
adopted as part of the industry standard. \58\ The standard at
issue involved a common form of computer memory used in a wide
variety of popular consumer electronic products, such as
personal computers, fax machines, video games, and personal
digital assistants. The FTC's complaint alleges that once the
standard was adopted, Rambus was in a position to reap millions
in royalty fees each year, and potentially more than a billion
dollars over the life of the patents, all of which would be
passed on to consumers through increased prices for the
downstream products. \59\ Because standard-setting abuses can
harm robust and efficiency-enhancing competition in high tech
markets, the FTC will continue to pursue investigations in this
important area. \60\
Intellectual Property Hearings. In February 2002, the FTC
and the DOJ commenced a series of hearings on ``Competition and
Intellectual Property Law and Policy in the Knowledge-Based
Economy.'' \61\ The hearings respond to the growth of the
knowledge-based economy, the increasing role in antitrust
policy of dynamic, innovation-based considerations, and the
importance of managing the intersection of intellectual
property and competition law to realize their common goal of
promoting innovation. During the hearings, business persons,
consumer advocates, inventors, practitioners, and academics are
focusing on:
(a) what economic learning reveals, and does not reveal,
regarding the relationships between intellectual property and
innovation, and between competition and innovation;
(b) ``real-world'' experiences with patents and competition;
(c) procedures and substantive criteria involved in
prosecuting and litigating patent claims;
(d) issues raised by patent pools and cross-licensing and by
certain standard-setting practices;
(e) the implications of unilateral refusals to deal, patent
settlements, and licensing practices;
(f) international comparative law perspectives regarding the
competition/intellectual property interface; and
(g) jurisprudential issues, including the role of the Federal
Circuit.
A public report that incorporates the results of the hearings, as
well as other research, will be prepared after the hearings.
Wireless Workshop. In March, FTC staff released a summary
and update of the proceedings of its December 2000 workshop,
``The Mobile Wireless Web, Data Services and Beyond: Emerging
Technologies and Consumer Issues.'' \62\ The workshop addressed
five topics: (1) an overview of the relevant technologies; (2)
privacy issues raised by these technologies; (3) security
issues; (4) advertising and disclosures in the wireless area;
and (5) self-regulatory programs. The FTC will continue to
monitor the development of wireless technologies, along with
the privacy, security, advertising, and other consumer
protection issues they raise.
2. Globalization
International Antitrust. Because competition increasingly
takes place in a worldwide market, cooperation with competition
agencies in the world's major economies is a key component of
our enforcement program. Given differences in laws, cultures,
and priorities, it is unlikely that there will be complete
convergence of antitrust policy in the foreseeable future.
Areas of agreement far exceed those of divergence, however, and
instances in which our differences will result in conflicting
results are likely to remain rare. The agency has increased its
cooperation with agencies around the world, both on individual
cases and on policy issues, and is committed to addressing and
minimizing policy divergences.
ICN and ICPAC. Last fall, the FTC, the DOJ, and twelve other
antitrust agencies from around the world launched the
International Competition Network (ICN). The ICN is an
outgrowth of a recommendation of the International Competition
Policy Advisory Committee (ICPAC) that competition officials
from developed and developing countries convene a forum in
which to work together on competition issues raised by economic
globalization and the proliferation of antitrust regimes. ICN
provides a venue for antitrust officials worldwide to work
toward consensus on proposals for procedural and substantive
convergence on best practices in antitrust enforcement and
policy. Sixty-one jurisdictions already have joined the ICN,
and we are working on initial projects on mergers and
competition advocacy.
Free Trade Agreement of the Americas. The FTC is working
with the nations of our hemisphere to develop competition
provisions for a Free Trade Agreement of the Americas.
OECD. The FTC is participating in the continuing work of the
OECD on, among other things, merger process convergence,
implementation of the OECD recommendation on hard-core cartels
(e.g., price-fixing agreements), and regulatory reform.
Technical Assistance. For the past ten years, the FTC has
been able to participate in assisting developing nations that
have made the commitment to market and commercial law reforms.
With funding principally from the U.S. Agency for International
Development, and in partnership with the DOJ, about thirty
nations have received technical assistance with development of
their competition and consumer protection laws. Currently, the
technical assistance program is active in South and Central
America, South Africa, and Southeastern Europe. The program
emphasizes the development of investigative skills, and relies
on a combination of resident advisors, regional workshops, and
targeted short term missions. These activities have enabled a
large number of career staff to share their expertise, although
great care is taken to avoid any intrusions on the time and
planning for domestic enforcement projects. Future plans are
focused on expanding this reimbursable program to the former
Soviet Union and to Asia.
International Consumer Protection. The number of consumer
protection cases with an international component continues to
rise. Consumers now increasingly participate in a global
marketplace, often receiving telemarketing or e-mail
solicitations from vendors outside the U.S. Increasingly, the
FTC is called upon to lead or participate in international
organizations. Last year, Commissioner Swindle became head of
the U.S. delegation to the OECD Experts Group for Review of the
1992 OECD Guidelines for the Security of Information Systems.
The revised guidelines will be released in early September and
will promote a ``culture of security'' in which we all have a
role to play. This spring, Commissioner Thompson was elected
Chair of the OECD's Committee on Consumer Policy.
Cross-Border Fraud. The FTC is increasing its efforts to
counter fraud that transcends borders. In particular, our
partnerships with Canadian officials allow the FTC to respond
more effectively to telemarketing scams emanating from Canada.
The FTC has forged two city-specific partnerships to coordinate
our law enforcement efforts: the Ontario Strategic Partnership,
in which the FTC's Midwest Regional Office has worked with
Canadian law enforcers to focus on Toronto-based telemarketing;
and Project Emptor, in which the Northwest Regional Office has
partnered with British Columbia officials to target Vancouver
boiler rooms. Drawing on these partnerships, in June 2002 the
FTC and 17 Canadian and U.S. law enforcement and consumer
protection agencies announced a coordinated criminal and civil
law enforcement initiative to stop fraudulent cross border
schemes and recover money for victims, many of whom are
elderly. Fraudulent schemes targeted by the initiative included
illegal international lottery scams, phony advance-fee credit
card offers, and bogus credit card loss-protection schemes.
\63\ The FTC has brought seven actions and obtained nine final
orders in cases involving cross-border fraud between the U.S.
and Canada in 2002.
IMSN Findings on Cross-Border Remedies. Last spring, the
International Marketing Supervision Network--an organization of
consumer protection agencies from 29 countries--under the
leadership of the FTC, issued ``Findings on Cross-Border
Remedies,'' which outlines obstacles to cross-border
enforcement of consumer protection laws and suggestions for
overcoming these obstacles.
econsumer.gov. In April 2001, 13 countries and the OECD
launched nsumer.gov public Web site where consumers can file
cross-border e-commerce complaints with law enforcement
agencies around the world, access education materials about e-
commerce, and contact consumer protection agencies. The site is
available to consumers in English, French, Spanish, and German.
Since its launch, three additional countries have joined the
project. To date, we have received over 1,700 complaints from
consumers in six continents about companies in more than 68
countries. Next steps for this project include adding
additional members, increasing outreach and publicity, adding
consumer education materials, and adding information about
alternative dispute resolution for e-commerce complaints on the
site.
F. Targeting Special Initiatives to Specific Consumer Groups
The FTC has initiated a variety of programs that seek to assist
specific consumer groups. Among these groups are children, minorities
and non-English speaking sections of the U.S. population, and
homeowners who may be special prey for fraudulent lenders.
1. Children and Violent Media
In response to Congressional requests, the FTC continues to monitor
violent media directed toward children. An FTC September 2000 report
concluded that the entertainment industry targeted advertising of
violent video games, movies, and music to children. \64\ Subsequently,
Congress directed that the FTC continue its efforts through three
related initiatives: consumer research and workshops, an underage
shopper retail compliance survey, and marketing and data collection.
\65\ In response, the FTC released a follow-up report, in April 2001,
outlining improvements in the movie and electronic game industries but
finding no appreciable change in the music industry's target marketing
practices. \66\ The FTC's second follow-up report, in December 2001,
found that the movie and electronic game industries had made continued
improvements, and that although the music industry had made progress in
disclosing parental advisory label information, it had not altered its
marketing practices. \67\ The FTC's third follow-up report, released in
June 2002, found continued progress by the movie and electronic game
industries and improvement by the music industry in including rating
information in advertising that would help parents identify material
that may be inappropriate for their children. This most recent report
also showed compliance by the movie and electronic games industries
with industry promises to limit ad placements, although the report
found advertisements by all three industries continue to appear in some
media popular with teens. \68\ The report concludes that the music
industry continues to advertise music with explicit content on
television shows and in print magazines popular with teens.
2. Children and Gambling
The FTC also is assessing the marketing of online gambling sites to
children. In June, the FTC announced the results of an informal survey
of web sites to determine the access and exposure that teens have to
online gambling. \69\ The FTC visited over 100 popular gambling web
sites and found that minors can, indeed, access these sites easily, and
that minors often are exposed to ads for online gambling on non-
gambling web sites. The FTC staff has met with representatives of the
online gambling industry to seek voluntary corrective action, and with
interested consumer advocates. The FTC, in conjunction with industry
representatives, has launched a consumer and business education
campaign warning about the dangers of underage online gambling. Online
gambling industry representatives have advised FTC staff that they will
devise a ``Guide to Best Practices'' regarding clear and conspicuous
warnings about prohibited underage gambling, effective blocking
methods, and restricted placement of industry advertisements.
3. Spanish-Speaking Consumers
To reach the expanding population of Spanish-speaking consumers in
the United States, the FTC instituted an Hispanic Outreach Program in
January 2002. This effort includes the creation of a dedicated page on
the FTC Web site, Proteccion para el Consumidor, that will mirror the
English page, and translation of 14 consumer publications, printed or
posted to the Web. We also translated the FTC Consumer Complaint Form
into Spanish. In addition, the FTC is conducting media outreach and
providing interviews in Spanish.
4. Native Americans
The FTC has partnered with the Indian Arts and Crafts Board, the
Alaska State Council on the Arts, and the Alaska Attorney General's
office in developing and distributing more than 100,000 postcards and
brochures to assure the authenticity of Alaskan Native art and help
prevent fakes. The materials provide numerous tips--mostly centered on
a ``Silver Hand'' certification program--on how to be confident that
Alaskan Native art is truly Native.
5. Homeowners
The FTC also has focused its consumer protection efforts on
homeowners, especially those in poorer urban areas, who sometimes are
the victims of deceptive lending practices. Since 1998, the FTC has
brought 15 cases involving a variety of deceptive lending practices.
This past March, the FTC, six states, AARP, and class action and
individual plaintiffs settled claims against First Alliance Mortgage
Company and its chief executive officer. The complaint alleged that the
defendants misled consumers about the existence and amount of
origination fees for their loans (which typically constituted 10 to 25
percent of the loan) and the interest rate and monthly payments of
their adjustable rate mortgage loans. Consequently, according to the
complaint, consumers believed they were borrowing less money at lower
interest rates than they actually were. The settlement, which requires
court approval, creates a consumer redress fund that will include all
of the remaining assets of First Alliance and its affiliates, now under
liquidation in bankruptcy court, as well as a payment of $20 million
from the company's principals. Nearly 18,000 borrowers could receive as
much as $60 million in redress, making this one of the FTC's largest
cases ever.
G. Advancing Efficient Law Enforcement
The FTC has undertaken a variety of efforts to streamline its
practices, leverage its resources, and minimize the burden on the
public. These ongoing ``good government'' initiatives share a common
theme: they represent efforts to go beyond the regular, ongoing work of
the agency and to find ways to make the FTC's work more effective, more
efficient, and less costly for businesses and consumers. We seek to use
our limited resources wisely, because each day or dollar saved can be
applied to additional activities that benefit consumers.
1. Sweeps and Partnerships with Enforcement Agencies
The FTC leverages its resources through coordinated enforcement
actions with other law enforcement agencies, both state and federal. In
particular, the FTC conducts ``sweeps'' to investigate and bring
actions against specific types of frauds and deceptions. In the past 12
months, the FTC and 12 partners have participated in sweeps covering
Internet health fraud, cold-call telemarketing, Internet scams, and
business opportunities, resulting in over 170 separate law enforcement
actions.
2. Training Staff from Other Agencies
Another way that the FTC promotes efficient law enforcement is to
train staff from other law enforcement agencies in new technologies or
techniques pioneered by the FTC. One example is the FTC's ongoing
Internet fraud training program. The FTC has created a series of
regional ``Netforces'' made up of law enforcement agencies that have
participated in our training. On April 2, 2002, the FTC began the first
of these efforts by joining eight state agencies in the northwest
United States and four Canadian agencies in an initiative targeting
deceptive spam and Internet fraud. Together, these agencies have
brought 63 law enforcement actions against Web-based scams ranging from
alleged auction fraud to bogus cancer cure sites, and have sent more
than 500 letters warning of the illegality of deceptive spam.
3. Streamlining Merger Review
A major focus of FTC efficiency efforts is the merger review
process. The FTC is working on a number of reforms to speed the process
and reduce the burden on merging parties without sacrificing the
sufficiency of information required by the agency.
Electronic Premerger Filing. As part of an overall movement
to make government more accessible electronically, the FTC,
working with the DOJ, will accelerate its efforts in FY 2003 to
develop an electronic system for filing HSR premerger
notifications. E-filing will reduce filing burdens for both
businesses and government, and also will create a valuable
database of information on merger transactions to inform future
policy deliberations.
Burden Reduction in Investigations. The agencies have taken
steps to reduce the burden in document productions responsive
to Second Requests. In response to legislation amending the HSR
Act, the FTC amended its rules of practice to incorporate new
procedures. The rule requires Bureau of Competition staff to
schedule conferences to discuss the scope of a Second Request
with the parties and also establishes a procedure for the
General Counsel to review the request and rule promptly on any
remaining unresolved issues. Measures adopted include a process
for seeking modifications or clarifications of Second Requests,
and expedited senior-level internal review of disagreements
between merging parties and agency staff; streamlined internal
procedures to eliminate unnecessary burdens and undue delays;
and implementation of a systematic management status check on
the progress of negotiations on Second Request modifications.
Merger Investigation Best Practices. The FTC is conducting a
series of national public workshops regarding modifications and
improvements to the merger investigation process. The FTC will
solicit input from a broad range of interest groups, including
corporate personnel, outside and in-house attorneys,
economists, and consumer groups, on topics such as using more
voluntary information submissions before issuance of a Second
Request, reducing the scope and content of the Second Request,
negotiating modifications to the Second Request, and focusing
on special issues concerning electronic records and accounting
or financial data. \70\
Merger Remedies. Other ``best practices'' workshops will
solicit comments on merger remedies. Among the issues to be
addressed are structuring asset packages for divestitures,
timing of divestitures (i.e., up front or after consummation),
evaluating the competitive adequacy of proposed buyers, and
assessing the preservation of competition after divestitures.
4. Consumer and Business Education
Yet another way the FTC seeks to make law enforcement more
efficient is by disseminating information about deceptive practices in
the marketplace. The less often consumers are victimized by deceptive
practices, the fewer enforcement actions the FTC must bring. Further,
the more that businesses, especially small businesses, understand their
obligations, the more readily they can comply. Thus, consumer and
business education is the first line of defense against fraud and
deception.
With each major consumer protection enforcement initiative, the FTC
launches a comprehensive and creative education campaign. Between May
2001 and May 2002, the FTC issued 108 consumer protection publications:
94 for consumers and 14 for businesses. Of those publications, 67 are
new and 41 are revisions; 23 are translations into Spanish, and six are
joint efforts between the public and private sectors. The FTC continues
to exceed previous distribution records. In the last year, the FTC
distributed more than 5.6 million printed publications to the public,
and received more than 12.5 million ``hits'' on publications posted on
the consumer protection portion of the FTC's Web site. Special FTC
educational undertakings include:
National Consumer Protection Week. For the fourth
consecutive year, the FTC took the lead in organizing National
Consumer Protection Week. This year, the event focused on
privacy. Other participants were the National Association of
Consumer Agency Administrators, AARP, the National Consumers
League, the Council of Better Business Bureaus, the Consumer
Federation of America, the U.S. Postal Service, the U.S. Postal
Inspection Service, the National Association of Attorneys
General, and the DOJ.
www.consumer.gov. The FTC continues to manage
www.consumer.gov and to recruit new members to participate in
the site, which offers one-stop access to federal consumer
information. In the past year, the number of members has grown
from 135 to 178.
Response to 9/11. In the wake of September 11th, the FTC
worked with other groups to alert consumers to possible fund-
raising fraud. The FTC released a Consumer Alert, Helping
Victims of the Terrorist Attacks: Your Guide to Giving Wisely
on September 21, at a press conference held by the FTC's
Northeast Regional Office in conjunction with the New York
Attorney General and the New York Better Business Bureau.
III. Legislative Recommendations
To improve the FTC's ability to implement its mission and to serve
consumers, we make the following recommendations for legislative
changes. We would be happy to work with the Committee to develop
appropriate language.
A. Eliminate the FTC Act's Exemption for Communications Common Carriers
The FTC Act exempts common carriers subject to the Communications
Act from its prohibitions on unfair and deceptive acts or practices and
unfair methods of competition. This exemption dates from a period when
telecommunications were provided by government-authorized, highly
regulated monopolies. The exemption is now outdated. In the current
world, firms are expected to compete in providing telecommunications
services. Congress and the Federal Communications Commission (FCC) have
dismantled much of the economic regulatory apparatus formerly
applicable to the industry. Telecommunications firms also have expanded
into numerous non-common carrier activities. Oversight by the FTC of
telecommunications firms' activities thus has become increasingly
important.
The FTC Act exemption has proven to be a barrier to effective
consumer protection, both in common carriage and in other
telecommunications businesses. The exemption also has prevented the FTC
from applying its legal and economic expertise regarding competition to
mergers and other possible anticompetitive practices, not only
involving common carriage, but in other high-tech fields involving
telecommunications. We believe that Congress should eliminate the
special exemption to reflect the fact that competition and deregulation
have replaced comprehensive economic regulation.
FTC efforts to halt fraudulent or deceptive practices by
telecommunications firms have sometimes been stymied by the common
carrier exemption. While common carriage has been outside the FTC's
authority, we believe that the FTC Act applies to non-common carrier
activities of telecommunications firms, even if the firms also provide
common carrier services. \71\ Continuing disputes over the breadth of
the FTC Act's common carrier exemption hamper the FTC's oversight of
the non-common carrier activities. These disputes have arisen even when
the FCC does not have, or does not exercise, jurisdiction over the non-
common carrier activity. These disputes may increase the costs of
pursuing an enforcement action, or may cause the agency to narrow an
enforcement action--for example, by excluding some participants in a
scheme--to avoid protracted jurisdictional battles and undue delay in
providing consumer redress.
The FTC has the necessary expertise to address these issues. The
FTC is the federal agency with broad consumer protection and
competition experience covering nearly all fields of commerce. The FTC
has extensive expertise with advertising, marketing, billing, and
collection, areas in which significant problems have emerged in the
telecommunications industry. In addition, the FTC has powerful
procedural and remedial tools that could be used effectively to address
developing problems in the telecommunications industry if the FTC were
authorized to reach them.
The common carrier exemption also significantly restricts the FTC's
ability to engage in effective antitrust enforcement in broad sectors
of the economy. The mix of common carrier and non-common carrier
activities within particular telecommunications companies frequently
precludes FTC antitrust enforcement for much of the telecommunications
industry. Further, because of the expansion of telecommunications firms
into other high-tech industries and the growing convergence of
telecommunications and other technologies, the common carrier exemption
increasingly limits FTC involvement in a number of industries outside
telecommunications.
B. Technical Changes
The FTC also requests two new limited grants of authority: (1) the
ability to accept reimbursement for expenses incurred by the FTC in
assisting foreign or domestic law enforcement authorities, and (2) the
ability to accept volunteer services, in-kind benefits, or other gifts
or donations. Both new authorities would be useful as the FTC tries to
stretch its resources to meet its statutory responsibilities.
The authority to accept reimbursement for expenses incurred in
assisting foreign or domestic law enforcement authorities would be
especially useful, since the FTC has been working closely with domestic
and foreign law enforcement authorities to address possible law
violations. Partnering with these law enforcement authorities has
resulted in enhanced law enforcement efforts and greater sharing of
significant information. In some of these situations, our foreign or
domestic partner is interested in reimbursing the FTC for the services
it has provided or in sharing some of the costs of investigating or
prosecuting the matter. Without specific statutory reimbursement
authority, however, the FTC cannot accept and keep such reimbursements
because of constraints under appropriations law. \72\
In addition, the FTC requests authority to accept donations and
gifts, such as volunteer services and in-kind benefits. Congress has
conferred this authority by statute on various agencies, including the
Office of Government Ethics, the FCC, and the Consumer Product Safety
Commission. \73\ Without this authority, the FTC cannot accept services
or keep items because of appropriations law constraints. This broad
restriction on acceptance of gifts sometimes limits the FTC's ability
to fulfill its mission in the most cost-effective manner. For example,
the FTC cannot accept volunteer services from individuals wishing to
provide such services to the agency. In addition, agency officials must
sometimes refuse donated items that could otherwise be useful in
carrying out the agency's mission, such as books and similar mission-
related items.
IV. Concluding Remarks
Mr. Chairman and Members of the Subcommittee, we appreciate this
opportunity to provide an overview of the Commission's efforts to
maintain a competitive marketplace, free of deceptive and unfair
practices, for American businesses and consumers. We believe that the
Commission's antitrust and consumer protection enforcement has
demonstrable benefits for consumers and the American economy--benefits
that far outweigh the resources allocated to maintaining our mission.
We would be pleased to respond to any questions you may have.
ENDNOTES
1. The FTC has broad law enforcement responsibilities under the
Federal Trade Commission Act, 15 U.S.C. Sec. 41 et seq. The statute
provides the agency with jurisdiction over the most of the economy.
Certain entities, such as depository institutions and common carriers,
are wholly or partially exempt from FTC jurisdiction, as is the
business of insurance. In addition to the FTC Act, the FTC has
enforcement responsibilities under more than 40 statutes.
2. Timothy J. Muris, Chairman Robert Pitofsky: Public Servant and
Scholar Remarks Before the American Antitrust Institute, Second Annual
Conference (Washington, D.C., June 12, 2001), available at .
3. Much of what the FTC challenges in its consumer protection
mission is hard-core fraud, and given the transient nature of many of
these illegitimate operations, we frequently are unable to collect the
full amount of the monetary judgment ordered. The judgment amount,
however, gives some indication of the extent of fraud and deception
stopped by the FTC.
4. This web site is available at .
5. Press Release, State, Federal Law Enforcers Launch Sting on
Business Opportunity, Work-at-Home Scams (June 20, 2002), available at
.
6. Press Release, FTC Sweep Protects Consumers from ``Dialing for
Deception'' (Apr. 15, 2002), available at .
7. FTC v. H.G. Kuykendall, Jr., No. CIV-96-388-M (W.D. Okla. Mar.
4, 2002).
8. FTC v. Access Resource Servs., Inc., No. 02-60226 (S.D. Fla.
Feb. 20, 2002).
9. FTC v. Electronic Products Distribution, L.L.C., No. 02CV0888
H(AJB) (S.D. Cal. May 7, 2002); v. United Fitness of America, LLC,.
CV-S-02-648-KJD-LRL (D. Nev. May 7, 2002); FTC v. Hudson Berkley Corp.,
No. CV-S-0649-PMP-RJJ (D. Nev. May 7, 2002).
10. Interstate Bakeries Corp., Docket No. C-3402 (Apr. 16, 2002)
(consent order).
11. Palm, Inc. Docket No. C-4044 (April 18, 2002) (consent order)
12. 15 U.S.C Sec. 18a, as amended, Pub. L. No 106-553, 114 Stat.
2762 (2000).
13. See 15 U.S.C. Sec. 18a, as amended, Pub. L. No. 106-553, 114
Stat. 2762 (2000).
14. MSC Software Corp., Docket No. 9299 (Oct. 10, 2001) (complaint
issued) (alleging that two MSC acquisitions violated Clayton Act).
15. MSC Software Corp., Docket No. 9299 (Oct. 10, 2001) (complaint
issued) (involving engineering software); Chicago Bridge Iron Co.,
Inc., Docket No. 9300 (Oct. 25, 2001) (complaint issued) (pertaining to
field-erected specialty industrial storage tanks).
16. Press Release, FTC Authorizes Suit to Block Joint Acquisition
of Seagram Spirits and Wine by Diageo PLC and Pernod Ricard S.A. (Oct.
23, 2001), available at .
17. FTC v. Libbey, Inc., Civ. Act. No. 02-0060 (RBW) (Memorandum
Opinion) (D.D.C. Apr. 22, 2002) (granting FTC's request for a
preliminary injunction).
18. Press Release, FTC to Challenge DGF Stoess's Proposed
Acquisition of Leiner Davis (Jan. 15, 2002), available at .
19. Press Release, FTC Authorizes Injunction to Pre-empt Meade
Instruments' Purchase of All, or Certain Assets, of Tasco Holdings,
Inc.'s Celestron International (May 29, 2002), available at .
20. Press Release, FTC Seeks to Block Cytyc Corp.'s Acquisition of
Digene Corp. (June 24, 2002), available at .
21. Telemarketing Sales Rule, 67 Fed. Reg. 4492 (Jan. 30, 2002)
(proposed Rule amendments).
22. Press Release, Workshop Planned To Discuss Strategies for
Providing Effective Financial Privacy Notices (Sept. 24, 2001),
available at .
23. Press Release, FTC to Host Public Workshop on Consumer
Information Security (Mar. 12, 2002), available at .
24. United States v. The Ohio Art Co., No. 3:02CV7203 (N.D. Ohio
filed Apr. 19, 2002); United States v. American Pop Corn Co., No. C02-
4008DEO (N.D. Iowa Feb. 28, 2002) (consent decree); United States v.
Lisa Frank, Inc., No. 01-1516-A (E.D. Va. Oct. 3, 2001) (consent
decree); United States v. Looksmart, Ltd., No. 01-606-A (E.D. Va. Apr.
23, 2001) (consent decree); United States v. Bigmailbox.com, Inc., No.
01-605-A (E.D. Va Apr. 23, 2001) (consent decree); United States v.
Monarch Servs., Inc., No. AMD 01 CV 1165 (D. Md. Apr. 20, 2001)
(consent decree).
25. Eli Lilly & Company, Docket No. C-4047, (May 10, 2002) (final
order).
26. 15 U.S.C. Sec. 6801.
27. FTC v. Information Search, Inc., No. AMD-01-1121 (D. Md. Mar.
15, 2002); FTC v. Guzzetta, No. CV-01-2335 (E.D.N.Y. Feb. 25, 2002);
FTC v. Garrett, No. H 01-1225 (S.D. Tex. Mar. 26, 2002).
28. The cases challenging the misuse of preacquired account
information and deceptive spam also involved issues of fraud.
29. TechnoBrands, Inc., and Charles J. Anton, Docket No. C-4041
(Apr. 15, 2002) (decision and order), available at ; FTC v. Technobrands, Inc., No. 3:02-CV-
86 (E.D. Va. filed Feb.15, 2002); FTC v. Ira Smolev, No. 01-8922 CIV
ZLOCH (S.D. Fla. filed Oct. 23, 2001).
30. FTC v. Boivin, No. 8:02-CV-77-T-26 MSS (M.D. Fla. Jan. 15,
2002) (consent decree); FTC v. Estenson, No. A3-02-10 (DND Feb. 5,
2002) (consent decree); FTC v. Larsen, No. 8:02-CV-76-T-26MAP (M.D.
Fla. Jan. 16, 2002) (consent decree); FTC v. Lutheran, No. 02 CV 0095 K
(RAB) (S.D. Cal. Jan. 18, 2002) (consent decree); FTC v. Va, No. 02-
60062-Civ-Zloch (S.D. Fla. Jan. 18, 2002) (consent decree); FTC v.
Pacheco, No. 02-CV-31L (D.R.I. Jan. 22, 2002) (consent decree).
31. FTC v. BTV Industries, No. CV-S-02-0437-LRH (PAL) (D. Nev.
filed Mar. 7, 2002).
32. Katharine Levit et al., Inflation Spurs Health Spending in
2000, 21 Health Affairs 172 (Jan.--Feb. 2002).
33. FTC v. Vital Living Products, Inc., No. 3:02CV74-MU (W.D. N.C.
Mar. 13, 2002).
34. FTC v. Pletschke, Docket No. C-4040 (Feb. 22, 2002) (decision
and order).
35. The titles of the teaser sites are: Looking for Financial
Freedom?; The Ultimate Prosperity Page; Nordicalite Weight Loss
Product; A+ Fast Ca$$h for College; EZTravel: Be an Independent agent;
EZTravel: Certificate of Notification; EZToyz Investment Opportunity;
HUD Tracer Association; CreditMenders Credit Repair; NetOpportunities:
Internet is a Gold Mine; National Business Trainers Seminars;
VirilityPlus: Natural Alternative to Viagra; ArthritiCure: Be Pain-Free
Forever.
36. Commissioner Sheila F. Anthony, Remarks Before the Food & Drug
Law Institute, 45th Annual Educational Conference, Combating Deception
in Dietary Supplement Advertising (Apr. 16, 2002), available at .
37. See National Health Expenditures, by Source of Funds and Type
of Expenditures, Health Care Financing Administration, available at
38. FTC v. The Hearst Trust, The Hearst Corp., and First DataBank,
Inc., Civ Act. No.1:01CV00734 (D.D.C. Apr. 5, 2001) (complaint)
(Commissioner Leary and Commissioner Swindle dissenting).
39. FTC v. Hearst, Civ. Act. No. 1:01CV00734 (D.D.C. Nov. 9, 2001)
(Stipulation for Entry of Final Order and Stipulated Permanent
Injunction).
40. Congressional Budget Office, How Increased Competition from
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical
Industry (July 1998), available at .
41. Id.
42. See Federal Food, Drug, and Cosmetics Act, 21 U.S.C. Sec. 301
et seq. The Hatch-Waxman amendments were contained in the Drug Price
Competition and Patent Restoration Act of 1984, Pub. L. No. 98-417, 98
Stat. 1585 (codified at 15 U.S.C. Sec. Sec. 68b, 68c, 70b; 21 U.S.C.
Sec. Sec. 301 note, 355, 360cc; 28 U.S.C. Sec. 2201; 35 U.S.C.
Sec. Sec. 156, 271, 282 (1984)).
43. Schering-Plough Corp., Dkt. 9297 (Apr. 2, 2002) (consent order
as to American Home Products). In an initial decision filed on June 27,
2002, an FTC Administrative Law Judge (ALJ) dismissed all allegations
of anticompetitive conduct in a March 2001 Federal Trade Commission
complaint against pharmaceutical manufacturers Schering-Plough
Corporation (Schering) and Upsher-Smith Laboratories (Upsher-Smith).
Schering-Plough Corp., Dkt. 9297 (June 27, 2002) (initial decision)
(available at ; Thomas B. Leary, Commissioner,
Antitrust Issues in Settlement of Pharmaceutical Patent Disputes,
Address Before the Sixth Annual Antitrust Healthcare Forum,
Northwestern University School of Law, Chicago, Illinois (Nov. 3,
2000), available at .
59. Id.
60. In 1996, the FTC brought a similar case against Dell Computer,
alleging that Dell had failed to disclose that it had an existing
patent on a personal computer component that was adopted as the
standard by a video electronics group. Dell Computer Co. Docket No. C-
3658 (May 20, 1996) (consent order) (Commissioner Azcuenaga
dissenting).
61. See 66 Fed. Reg. 58146 (Nov. 20, 2001).
62. Federal Trade Commission, Public Workshop: The Mobile Wireless
Web, Data Services and Beyond: Emerging Technologies and Consumer
Issues (Feb. 2002), available at .
63. Press Release, U.S., Canadian Law Enforcers Target Cross-Border
Telemarketing (June 10, 2002), available at .
64. Federal Trade Commission, Marketing Violent Entertainment to
Children: A Review of Self-Regulation and Industry Practices in the
Motion Picture, Music Recording & Electronic Game Industries (Sept.
2000), available at .
65. See Conf. Rep. No. 107-278, at 162 (Nov. 9, 2001).
66. Federal Trade Commission, Marketing Violent Entertainment to
Children: A Six-Month Follow-Up Review of Industry Practices in the
Motion Picture, Music Recording & Electronic Game Industries (Apr.
2001), available at .
67. Federal Trade Commission, Marketing Violent Entertainment to
Children: A One-Year Follow-Up Review of Industry Practices in the
Motion Picture, Music Recording & Electronic Game Industries (Dec.
2001), available at .
68. Federal Trade Commission, Marketing Violent Entertainment to
Children: A Twenty-One Month Follow-Up Review of Industry Practices in
the Motion Picture, Music Recording & Electronic Game Industries (June
2002), available at .
69. Press Release, FTC Warns Consumers about Online Gambling and
Children (June 26, 2002), available at .
70. See Press Release, FTC Initiates ``Best Practices Analysis''
for Merger Review Process (Mar. 15, 2002), available at .
71. See, e.g., FTC v. Verity Int'l, Ltd., 194 F. Supp. 2d 270
(S.D.N.Y. 2002).
72. The Securities and Exchange Commission (SEC) currently has
authority to accept payment and reimbursement for investigative or
other assistance that it provides to a foreign securities authority.
See 15 U.S.C. Sec. 78d(f). Congress were to grant the FTC similar
authority, that would permit the agency to accept reimbursement from
foreign or domestic law enforcement authorities for services provided
or for cooperative investigative or law enforcement activities.
73. See 5 U.S.C. App. 4, Sec. 403(b); 47 U.S.C. Sec. 154(g)(3); and
15 U.S.C. Sec. 2076(b)(6).
Senator Dorgan. Chairman Muris, thank you very much.
I think we will go in order if you would like. Commissioner
Anthony is next.
STATEMENT OF HON. SHEILA F. ANTHONY,
FEDERAL TRADE COMMISSION
Ms. Anthony. Mr. Chairman, Members of the Subcommittee, I
would like to take a moment to address our legislative
recommendation to repeal the FTC Act's exemption for
communications common carriers, but first I would like to thank
you, Chairman Dorgan, for tackling this important issue. There
has been a general feeling at the Commission for sometime that
this exemption should be eliminated, and this hearing today is
really the first time Congress has asked us to address this
topic, and this impediment actually to our ability to protect
consumers, and so I appreciate your leadership in this regard.
Section 5 of the FTC Act grants the Commission broad
authority to protect consumers. We deal with classic consumer
protection issues such as fraud and deceptive advertising, as
well as antitrust issues such as mergers and anticompetitive
conduct. One of the few activities expressly exempted from the
Commission's authority is common carriage subject to the
Communications Act. At the time this Act was adopted, early in
the 20th Century, the exemption made sense. As you noted,
telecommunications services were being provided in the United
States substantially by single service monopoly firms highly
regulated by the Interstate Commerce Commission first, and then
by the FCC. With pervasive regulation and a noncompetitive
marketplace, there really was little need for the FTC's
additional oversight.
I call your attention to a picture over here on the wall of
the committee room showing some old telephone systems, and just
draw the distinction that that was what we were operating under
a good while ago, but we are now at the dawn on of the 21st
Century, and the state of affairs in the telecommunications
industry is vastly different. Ma Bell's tightly regulated
monopoly has given way to competition and a largely deregulated
market.
In addition, the business activities of telecommunications
firms have now expanded far beyond common carriage and into
fields including Internet services and cable television. AT&T
is a good example. Opening the door to competition in
telecommunications also opens the door to a raft of consumer
protection issues that are the FTC's bread and butter.
Unfortunately, the exemption stands in the way of the FTC
protecting consumers in this new telecommunications
marketplace. The bottom line is that the exemption has outlived
its purpose, and consumers are being harmed.
Let me give you some concrete examples of what I am talking
about in the consumer protection arena. We have seen
telecommunications firms increasingly engage in aggressive
business activities, including fraud and deception to gain or
retain customer and market share both in their common carrier
businesses and in their other business. We have seen cramming,
which are unauthorized charges for goods and services on
consumer's telephone bills, and we have seen a torrent of
misleading long distance advertising.
The FTC has extensive experience with these types of
billing, marketing, collection and advertising issues.
Furthermore, even when telecom firms engage in fraudulent or
deceptive business practices that do not fall within the
exemption, the exemption can still pose an obstacle. Defendants
often argue that the exemption protects every action of a
company that enjoys common carrier status. The Commission
firmly believes that only the common carrier activities of such
companies are exempted, but litigating this issue, as the
Commission has been repeatedly forced to do, raises the cost of
pursuing enforcement actions. It forces the agency to make
pragmatic decisions about who to include in a complaint, and
about unnecessary delays in obtaining consumer redress and
other remedies.
In the competition arena, the exemption creates serious
antitrust enforcement obstacles. The exemption potentially
precludes the FTC from reaching a variety of conduct that may
warrant antitrust scrutiny. For example, a regulated common
carrier may seek to deter competition from providers of
Internet telephony by degrading connections, or through
connection fees. A telco might also refuse to deal with a DSL-
based broadband ISP except on conditions that disfavor Internet
telephony. The scenarios are virtually limitless.
The point is that the exemption effectively removes a large
part of the Government's resources, antitrust resources from
being available to address competition problems in markets that
are highly important to consumers and to our economy. Removal
of the exemption is in the public interest. The FTC is well-
equipped to address competition issues in markets undergoing
deregulation and technological change, as it has already in
natural gas, electricity, and cable.
The FTC was specifically created as an expert
administrative body with economic expertise to address complex
competition issues. In sum, American consumers will benefit if
the Congress repeals the communications common carrier
exemption from the FTC Act, and I urge this Subcommittee to
take the leadership in doing so.
Thank you.
Senator Dorgan. Thank you.
Commissioner Thompson.
STATEMENT OF HON. MOZELLE W. THOMPSON,
FEDERAL TRADE COMMISSION
Mr. Thompson. Good morning, and thank you, Chairman Dorgan
and Members of the Subcommittee, for the opportunity to appear
before you today and offer testimony in support of the FTC's
reauthorization.
Today, I would like to talk to you about a vital and
increasingly important area of the agency's work, the area of
international consumer protection. It is a unique time in our
history where improvements in communications and technology
have created a global marketplace where American consumers and
businesses play an active role. It is also a special time in
our economic history, where people in the United States and
throughout the world recognize that consumer confidence is a
necessary element for the global marketplace to survive.
Finally, it is an important time because people around the
world are looking to America for leadership on these issues.
The FTC has a long history of protecting consumers in the
American marketplace, which is the most vibrant, transparent,
and diverse in the world. Therefore, it is not surprising that
the FTC would now be called upon to play an important role
internationally in the area of consumer protection,
enforcement, and policy development. This leadership role is
evidenced by work in international organizations like the OECD
Committee on Consumer Policy, where I was recently honored to
be elected chair, and since it is the only international
policymaking forum that focuses solely on consumer policy
issues and the IMSN, or International Marketing Supervision
Network, an organization of international law enforcement
Agencies that share information about how to protect consumers
against fraud.
In addition, we work with important regional organizations,
whether it is APEC, Asia Pacific Economic Cooperation forum, or
the Free Trade Association of the Americas, as well as
stakeholder organizations like the Transatlantic Consumer
Dialogue and the Global Business Dialogue for Electronic
Commerce.
These last two organizations in particular provide us with
an opportunity to hear from businesses, consumers, and
Governments about international consumer issues.
Of course, all of these efforts benefit from the support of
Chairman Muris and his recognition that the FTC's role in
international consumer protection is of great benefit to both
American consumers and businesses.
Now, I would like to talk a little bit about the specific
areas that we are working on in international consumer
protection, since they help to illustrate our commitment and
the commitment of our international colleagues to the important
issue of consumer confidence. At both the OECD and the IMSN, we
are working with our international counterparts to develop a
common understanding of what constitutes core consumer
protection. We are beginning with work on a statement about
cross-border fraud. By working on such issues, we hope to
develop more effective means of going after those who commit
harm across national boundaries.
We are also continuing to develop bilateral relationships
that enable us to share information and take coordinated
enforcement action to protect consumers. Among the countries we
have entered into agreements with are Canada, Australia, and
the United Kingdom. These relationships have resulted in an
increase this year in cross-border prosecutions of cases that
have been developed, for example, between the FTC's regional
offices and our Canadian colleagues, but these international
efforts are not limited to simply consumer protection
enforcement.
We have also worked with our colleagues in a number of
other consumer protection areas, beginning, for example, with
our work with the OECD's groundbreaking guidelines for consumer
protection in the electronic marketplace, which was released in
2000, and at latest count has been translated into 17
languages. There, the Committee on Consumer Policy has also
examined questions of online ADR, or alternative dispute
resolution, that might provide cross-border consumers with
inexpensive alternatives to courts.
They have also worked on summaries and surveys of various
countries' protections for credit and debit card holders
because of the frequency with which such cards are used in
cross-border transactions.
To conclude, I expect the Commission will continue its work
in these areas, and will seek to actively participate in
international fora that reach out to countries such as those in
Asia, Latin America, and Eastern Europe. These international
relationships will continue to be important, because mutual
understanding about consumer protection is a key element in
ensuring that there will be consumer confidence in an American,
as well as a world marketplace.
I continue to have confidence that our economic system
produces the strongest, most transparent, and safest markets in
the world. However, our economic well-being in part comes from
active involvement of agencies like ours taking appropriate law
enforcement action and by providing leadership in a global
setting about appropriate as well as inappropriate business
conduct. In that way, I believe the FTC has a very important
place in making markets accountable to consumers in both our
antitrust and consumer protection missions, and I believe we
are demonstrating why we are among the most effective in the
world in doing so.
Thank you for your consideration, and I will be happy to
answer any questions you may have.
Senator Dorgan. Mr. Thompson, thank you very much.
Commissioner Swindle.
STATEMENT OF HON. ORSON SWINDLE,
FEDERAL TRADE COMMISSION
Mr. Swindle. Thank you, Mr. Chairman. I would like to
comment briefly about the Commission's activities in both the
security and privacy agenda.
Security and privacy of confidential personal information
have been concerns at the Federal Trade Commission for many
years, especially in the context of online technologies and
electronic commerce. In the wake of the September 11 tragedies,
all levels of Government and industry have directed an enormous
amount of attention to the critical nature of information
systems and network security. Adequately enhancing this
security is a complex challenge requiring a new way of thinking
for everyone involved.
The FTC's consumer security agenda complements the FTC's
privacy agenda, as set forth by Chairman Muris in October of
2001, which encompasses all aspects of consumer privacy both
online and offline. By protecting consumer privacy and
security, we hope to increase consumer trust in e-commerce, and
reap the benefits of this extraordinary tool for education,
entertainment, consumer interest, and commerce.
In May, the Commission held a 2-day workshop on consumer
security. We sought to identify critical topics that were
demanding attention in order to enhance consumer security and
minimize the vulnerabilities of the Nation's critical
infrastructure. Workshop participants, including experts from
academia, Government, and the private sector examined the most
relevant security threats that consumers may face on the
Internet. We explored best practices and how consumers'
activities in today's interconnected world might make them
unwitting participants in various security incidents. The
workshop will serve as a building block for future Commission
education and outreach efforts.
The Commission's Offices of Public Affairs and Consumer and
Business Education, in consultation with security and
technology experts inside and outside of Government are
developing a comprehensive, long-term education campaign aimed
at promoting a culture of security among consumers, businesses,
and organizations in the United States and beyond. The
education campaign will offer practical tips and best practices
such as encouraging home broadband users to install firewalls
to protect their computers from unwanted infiltration.
With the assistance of industry and consumer advocates, we
are currently determining what kinds of messages can and should
be delivered to ensure the largest possible number of groups
and individuals become aware of the challenges that we face
today. We hope that information about good security practices
will be available to consumers in virtually every aspect of
daily life: the workplace, schools, libraries, homes, and, of
course, on the Internet.
Our goal is to achieve a level of awareness where good
security practices become second nature to consumers. Ideally,
all of us will one day engage in sensible security practices in
the same way that we put on our seatbelts in the car before
starting it, or look both ways before crossing a street.
On the international front, the Commission is playing an
active role in the policy debate over information systems and
network security, especially as these topics relate to
consumers. Between December 2001 and June 2002, I served as the
head of the U.S. delegation to the Organization of Economic
Cooperation and Development experts' group charged with
revising the 1992 guidelines for security of information
systems. Originally written over 10 years ago, the OECD's
guidelines lacked relevance in today's interconnected world of
information systems and networks.
In light of contemporary threats, new technologies, and the
essential nature of these systems and networks to our critical
infrastructure, the OECD recognized that the guidelines should
be updated. The revised guidelines, which I expect to receive
formal approval later this month, apply to anyone involved with
computers, the Internet, and information systems and networks.
The guidelines will be available to both member and non-member
countries developing best practices for security in our global
economy.
The revised guidelines will be user-friendly and relevant
to the current times and the roles of all participants in the
information economy. The spirit of that document provides many
important messages that will be incorporated into the
Commission's outreach and education campaign to create a new
way of thinking, or a culture of security, among all members of
society when participating in information systems and networks.
Security is on our minds at the FTC, and we hope that
greater public awareness will soon follow.
Thank you, Mr. Chairman.
Senator Dorgan. Commissioner Swindle, thank you very much.
Commissioner Leary.
STATEMENT OF HON. THOMAS B. LEARY,
FEDERAL TRADE COMMISSION
Mr. Leary. Mr. Chairman, Members of the Subcommittee, I
would like to amplify on some earlier comments and emphasize an
aspect of our work that is sometimes overlooked. The Federal
Trade Commission does, indeed, have important law enforcement
responsibilities, but it is also supposed to investigate and to
educate.
People will be surprised if they study the legislative
history of this agency. When the Commission was created in
1914, President Wilson and Congress then recognized that the
commercial world was becoming increasingly complex, and that
people needed some guidance on what practices were reasonable
or unreasonable, fair or unfair. At the same time, we know that
the Commission members who provide that guidance cannot just
rely on their own preferences. They need to be educated, too,
because no single person can be expert on the myriad facets of
a complex economy. So, the ideal educational process should be
a two-way communication between the agency and people with
experience and expertise of their own.
For a variety of reasons, that historic mission of the FTC
has sometimes been neglected. However, it was revived in 1995,
when Bob Pitofsky, our former Chairman, scheduled extensive
hearings on global and innovation-based competition. Since that
landmark event, similar hearings or workshops have continued at
an accelerated pace. You have heard about some of them today.
Let me mention some more.
We have, for example, had hearings on so-called slotting
allowances and on issues in the B2B marketplace. We have had
public hearings on the complex factors affecting gasoline
prices--and I might just say in passing, if in any of our
inquiries we uncover any evidence of unlawful activity, we will
act, I promise you.
Most recently, we have had a series of hearings on the
interface between competition law and intellectual property
law. If these legal regimes have a common objective to promote
innovation and consumer welfare, they approach the objective
from opposite directions, and this can create tensions in
particular cases. These issues are complex. Opinions differ,
and some court decisions are hard to reconcile.
Commission hearings on this subject and others can be
helpful in a variety of ways. They provide a reality check on
our own enforcement agenda. They help to inform statements we
might make to legislative or administrative bodies at the
Federal or State level. They inform lawyers in the private
sector who advise clients day to day on compliance issues. They
also help to build some policy agreement among the diverse
interests that participate. We do not resolve all differences
by talking, of course. You people know that much better than we
do. But, it is encouraging to see how the debate becomes
narrowed and focused when people sit down together to address
these difficult issues in a forum that we provide.
Finally, you should be aware of the Commission's massive
educational efforts aimed at consumers as a whole. We actively
monitor the marketplace, particularly the Internet, in search
of consumer frauds, and we prosecute these frauds whenever we
find them. An equally important weapon in the battle against
fraud, however is consumer education. Consumers who are better
informed about the most common scams are less likely to be
victims. We have provided you today with a representative
package of these educational materials, and you can see that
they are prepared in a consumer-friendly format.
Last year, the FTC distributed over 5 million print
publications of this kind, and there were over 10 million hits
on our website. This is a very important part of what we do.
Thank you.
Senator Dorgan. Commissioner Leary, thank you very much.
Let me say to the Commissioners, we appreciate your testimony
and appreciate the work of your agency. I want to ask you a
series of questions, and did you arrange that ambient noise
just when we began to ask questions?
Mr. Muris. We are not that good.
Mr. Swindle. It is a new form of unrequested spam.
Senator Dorgan. I am going to ask you a series of questions
about what you are not doing and what you think you can not do,
and I would like to understand a little more why that is the
case.
Example: We had testimony at this table within recent weeks
by the Attorney General of New York. His investigation showed
that there were some firms on Wall Street that were saying to
the consumers ``Buy this stock, it is a great stock, we
recommend it.'' Internally in memorandums in their companies
they were saying, ``This stock is a dog, this is awful.'' So
they were cheating, defrauding the consumer, and using
deceptive advertising. Why can you not get a suit of armor on
and go get that? What prevents the FTC from involving
themselves in that situation?
Mr. Muris. If I could respond first, and then some of my
colleagues might want to chime in.
With advertising of any sort, we have a good argument that
we could act. I will say that in the specific case that you are
talking about, there are potential legal difficulties. As I
understand the situation, the individuals who are making these
claims have licenses and are regulated through the NASD and the
SEC. They have a whole series of regulations dealing with
advertising. Our normal practice as a matter of comity between
agencies would--we sit on a committee, at the Justice
Department that talks about who will do what with various sorts
of stock fraud.
Because the SEC has 1,000 people, as many people as we have
in our whole agency, that deal with stock fraud, we would tend
to defer to them.
But on a second point, we could run into legal
difficulties. We would have to look at the specific fact
situations, because of specific regulations that may be
implicated. There have been cases, in both the antitrust and
consumer protection contexts, where if someone was doing
something pursuant to and in compliance with the regulations of
another agency, then it would be very difficult for us legally
to act.
Senator Dorgan. Well, let us have you give me some
information about that, then. I would like to understand--if
you think there are some legal difficulties, let us think about
what they are.
Second, you are saying maybe the SEC has the jurisdiction
here. Do you think the SEC is doing anything about this?
Mr. Muris. Particularly since we had our initial
conversations, I think it was in January, I have met and had
continued conversations with people at the SEC and with people
at the Justice Department in many of these areas. I understand
they have a criminal task force. I do not personally know
everything they are doing.
They have told me that there are many individuals working
on these issues. I believe that they have briefed your staff,
although I do not know that for a fact, and I am sure they
would, if asked. The addition of criminal investigations causes
another complication for us, because law enforcers, including
the FTC, are quite reluctant to proceed civilly when there is a
criminal investigation.
Senator Dorgan. But in order to get to the evaluation of
whether there is a criminal act, someone has to investigate it.
When you have a company out there saying, ``Buy this stock,
this is a good deal, it is very important that you buy this
stock,'' and internally, they are saying ``this is a dog.'' It
seems to me that is deceptive advertising. Frankly, I think the
cracks are bigger than the platform when you talk about things
falling through the crack at the SEC, but that is a different
issue.
Let me ask--now, I understand a bit, and you will send me
some information about this issue. I understand why you are not
too involved in that.
Railroad pricing: Our public service commission in North
Dakota estimates that we are overcharged $100 million in North
Dakota for rail service by a monopoly rail service. Are you
able to be involved in price investigations with respect to the
railroads?
Mr. Muris. Commissioner Anthony, go ahead.
Ms. Anthony. I think that would be considered a common
carrier, and we again fall under that.
Senator Dorgan. So who would be working on that? Who in the
Federal Government would be working on that issue in a
regulatory way?
Mr. Muris. Well, the Department of Transportation and the
Surface Transportation Board have authority. The Justice
Department has tended to do antitrust in that area, and I know
they have had input into decisions of the Surface
Transportation Board involving mergers.
Senator Dorgan. Let me say, the Surface Transportation
Board is sort of driven into the same corral as the SEC on most
of these issues with respect to enforcement.
If you, God forbid, would have breast cancer and are taking
Tamoxifin for breast cancer, you are paying 10 times the price
for Tamoxifin that is paid in Winnipeg, Manitoba. Who would
look at that and see whether that might be a pricing problem?
They are charging not double, triple, or quadruple the price,
but 10 times the price that is charged 5 miles north of North
Dakota in a one-room drugstore in Emerson, Canada. Would that
be a pricing issue the FTC would have any jurisdiction in
looking at?
Mr. Muris. We have been quite active in the pharmaceutical
area for monopolization activities, but under the law there has
to be an act other than the charging of a high price. We have
been extremely active, and we have drastically increased our
resources in the pharmaceutical area, and I think we are
helping in many cases to lower the price of drugs.
Senator Dorgan. The same issue with respect to farm
chemicals that they tweak with respect to a formula sold in
Canada. They sell it here for double or triple the price, the
price-gouging, but let me go to the things we talked about just
very briefly, and I will not extend it.
The common carrier issue, is it the FTC's feeling that the
FCC is not doing its job in this area?
Commissioner Anthony.
Ms. Anthony. I would not like to characterize it that way,
Mr. Chairman. However, I do believe that the Commission, the
Federal Trade Commission is competent to tackle this problem
with a great deal of expertise. That is what we do day in and
day out.
Senator Dorgan. Could I ask it a different way,
Commissioner Anthony? If you felt that the Federal
Communications Commission was doing a bang-up job on consumer
issues, just one of these things you look at and say, that is a
sterling job, would you be asking us to deal with this rule in
this way?
Ms. Anthony. I know the Chairman will realize that I am
reluctant to criticize our sister agencies, and we try to work
with them in a harmonious fashion, so what I would just say is
that we do work with FCC frequently, and they have cooperated
with us often on our cramming cases and in our AOL-Time Warner
antitrust investigations in this area. Our job is to protect
consumers, and that is what we do day in and day out. We bring
value to the table, I think.
Senator Dorgan. Well, will rescinding the common carrier
exemption provide some benefits for the American people? In
other words, would you do something better than you are doing
now? Will rescinding the common carrier exemption improve
things, and if that is the case, I think I have my answer.
Ms. Anthony. We would like to think that we could certainly
add to the improvement of protecting consumers in this country,
yes.
Senator Dorgan. You should be in the State Department.
[Laughter.]
Senator Dorgan. So diplomatic, the FCC will appreciate
that.
Let me ask just one additional question on the Do-Not-Call
registry. We will have testimony in the second panel saying
that the way it has developed will be devastating to certain
charitable groups and others. Who can respond to that?
Mr. Muris. Under the Patriot Act, telemarketing for
charities by for-profit entities is now covered. I do believe
that the proposed rule as we stated, and we are still
evaluating it, has problems vis-a-vis charities. I believe that
for both constitutional and policy reasons. However, our law
applies to for-profit telemarketers on behalf of charities. We
should do it carefully, and I am still working my way through
this. We have not received materials from the staff to the
Commission yet, but I do believe there are bases to treat
charities differently.
Senator Dorgan. And with respect to financial institutions
and common carriers, your Do-Not-Call list would not apply,
would it, to those financial institutions or common carriers?
Mr. Muris. That is correct, but we are optimistic that the
Federal Communications Commission, if we adopt a rule, would
adopt a similar rule, and that that would apply.
Senator Dorgan. Are they talking about that?
Mr. Muris. I believe they are internally, yes.
Senator Dorgan. Commissioner Anthony, I was, of course,
being complimentary when I was talking about the diplomacy with
which you discussed your relationship with other agencies.
Well, I have some other questions that I am going to submit
in writing. I was asking a series of questions at the front end
describing areas where you are not involved. In some areas I
hope you would be, and lacking the authority, I would like to
explore with you the opportunity to have some additional
authority.
Let me thank you for your testimony once again. I would
call on Senator Smith.
STATEMENT OF HON. GORDON SMITH,
U.S. SENATOR FROM OREGON
Senator Smith. Thank you, Mr. Chairman. I would like to
follow up on your last question, which is the national Do-Not-
Call list. Senator Wyden and I have the privilege of
representing many telemarketers. There are 70,000 in the State
of Oregon. Our State leads the Nation in unemployment right
now, so we are concerned about those jobs. We certainly
understand the motive behind the establishment of this list.
none of us likes to be bothered by telemarketers, but on the
other hand, I am wondering that in the formulation of this
rule, have you done any studies on the economic impact to the
country, to the industry, to employment in this country?
Mr. Muris. Our record is voluminous. There are materials on
this issue. We held a 3-day workshop in June where we discussed
a variety of issues. My impression, Senator, from talking to
telemarketers is, they do not want to call people who do not
want to be called, and they could do their telemarketing more
efficiently on that basis.
We certainly have not reached final decisions. The staff is
in the process of assembling the comments and digesting them.
They will make recommendations to the Commission, and the
Commission will decide based upon the full rulemaking record.
Of course, what is said here will become a part of our record.
Senator Smith. Might you make an exception for businesses
to contact those consumers with whom they have an established
business relationship? Is that part of your rulemaking
contemplation?
Mr. Muris. Some very persuasive points were made at our 3-
day workshop. Again, I have not discussed this issue with my
colleagues, but I think that in certain limited circumstances
such an exemption, if narrowly tailored, might make sense. We
are evaluating it. Many states who have Do-Not-Call lists have
such a provision.
Senator Smith. I for one would encourage that exemption, or
exception, and I wonder if you have plans to harmonize with the
20 states that already have these Do-Not-Call lists? Have you
got coordination with the states on that?
Mr. Muris. Well, I think that is very important. I think we
all have the same goals and desires. At the staff level we have
been talking extensively with the state officials who are
involved with this issue, the State Attorneys General. That is
certainly desirable, and I personally do not see any reason why
we cannot accomplish harmonization.
Senator Smith. I think that is critical.
And finally, I wonder, can you share with us how you
propose to keep your list, the national list, current and
accurate, as that seems a fairly daunting task. Do you have a
system for keeping it current?
Mr. Muris. Thanks to modern technology, it is not nearly as
daunting a task as it would have been several years ago. We
have learned a lot from the various states. Some of the states,
for example, were keeping a list with index cards, and I think
that would not be practical on a national basis.
Senator Smith. I would not suggest that, either.
Mr. Muris. We have solicited request proposals from various
contractors on how we would implement a list. We have spent a
lot of time on that issue, and I do believe it is feasible if
it is done using modern technology.
Senator Smith. Thank you, Mr. Chairman. That is all my
questions.
Senator Dorgan. Senator Wyden.
Senator Wyden. Thank you, and I want to begin on this West
Coast gasoline pricing issue. You have got three West Coast
Senators here. We consistently pay higher gasoline prices than
the rest of the country, and I think the discussion begins with
last year's report where the Commission found that red-lining
anticompetitive practices were rampant in those West Coast
markets and did not take any action. I want to read you exactly
what the Commission said, Mr. Muris, and what the oil companies
are admitting to contradicts it, and let me just read you from
your report on it.
Your report said, the investigation uncovered no evidence
that any refiner had the ability profitably to raise prices
market-wide or reduce output at the wholesale level. That was
the finding at page 4 of the Commission's report, yet Chevron,
their president, Chevron-Texaco, told the Senate that his
company had sufficient market power to influence prices on its
own. He testified--and I will quote here--``the West Coast
gasoline market is dominated by a limited number of refiner
marketers whose individual actions can have significant market
impact, so what you have is an oil company executive telling
the U.S. Senate that he can do what the Federal Trade
Commission says it cannot find evidence of.''
So my question to you, Mr. Muris--and this has great impact
on all of us who represent the West Coast gasoline markets--
given the fact that a major oil company executive is
contradicting what your Commission found, does that indicate
that the study was flawed, or does it indicate that you all
just do not have the authority to go out and get the facts?
Mr. Muris. In fairness to my colleagues, all four of them
participated in that study, but I did not. If I could allow
them to respond, and then I could address your comments.
Senator Wyden. That would be fine. I would just like to
know how you reconcile something which has enormous impact for
consumers with two statements that are just directly
contradictory.
Mr. Leary. Well, Senator, I am willing to step into the
breach on that. I was here at the time. I would really like to
amplify on what I am about to say in writing to put this all in
the full context. However, just facially, there is a tremendous
difference between one company saying another company has big
influence on pricing in a marketplace, and that company
admitting that people have engaged in anticompetitive
activities, or that they can profitably restrict output in
order to raise prices.
You can have tremendous influence on a marketplace in a
downward direction as well, so the two statements that you are
talking about are, first, not necessarily internally
contradictory. Second, that report was about 100 pages long and
canvassed a vast amount of information. The Commission at that
time, on the information before it, unanimously concluded that
we could not find evidence of law violation.
Senator Wyden. You have an oil company executive admitting
to Congress that individual companies have sufficient market
power to be able to affect the West Coast gasoline market. You
said in your report that that could not be done.
Mr. Leary. No.
Senator Wyden. I read it to you. It says, ``The
investigation uncovered no evidence that any refiner had the
ability profitably to raise prices.''
Mr. Leary. That is not the same thing.
Mr. Swindle. Senator Wyden.
Senator Wyden. I do not know, a clear meaning to me is that
you all found that one company could not drive the market, and
yet you have Chevron and Texaco saying one can. I mean,
certainly the other point is right, you could drive it
downward, too. Nobody disputes that. I just do not see anybody
pushing real hard to drive things downward, and I see a lot of
people pushing to drive them upward.
Mr. Leary. I do not hear the executive you are quoting,
Senator, to be saying another company has the ability to
restrict output and raise prices.
Senator Wyden. He is saying one company, their individual
actions can drive the market, and you are saying you found
otherwise.
Mr. Swindle. Senator Wyden, if I may comment, the key word
here is profitably, and I think most companies are in the
business to make profit. We see examples every year of a single
refinery having an effect on the market oftentimes because it
had a fire, it had to shut down. No one is contesting the
capacity to affect the market, but the intentional conduct to
affect the market, I would think, in most companies, would have
to be accompanied by the ultimate goal of making profits.
I think it is a pretty dangerous game, even though there
are, as we all realize, limited numbers of competitors on the
West Coast. For them to jump in and try to do something
dastardly to the market by their own conduct and then suffer
the consequences themselves, it does not make sense. I think
there is a distinction between those two statements.
Senator Wyden. They do not suffer any dastardly
consequences. Basically, in much of the West Coast area three
companies control 75, 80 percent of the market, and you can
stick it to consumers when you couple it with red-lining, and I
guess if it is the position of the Federal Trade Commission
that when they said that they found nobody had the ability to
drive the market, and Chevron-Texaco says one company can drive
the market on the West Coast, I mean, if you all do not read
this the way I do, then we can just move on, but it sure looks
pretty clear to me.
Now, Commissioner Thompson, in your concurring opinion you
raised additional concerns about red-lining, but you also said
that there really was not much that could be done, or I guess
that you wanted to see done. Was that because you did not have
sufficient evidence, or what was the motivating factor with
respect to your joining the majority there?
Mr. Thompson. At the time, I believe that we did not have
sufficient evidence. Now, what I would say to you, my view
today is, if we have evidence, or have information that tells
me that we are likely to find evidence someplace, I would
support us going after it, but at the time of that report we
conducted a fairly thorough investigation and we could not find
that evidence, but my view is that we at the Commission are
always looking for opportunities to ferret out anticompetitive
behavior, and if you or anyone else can bring us information
that tells us that there is evidence, then I am sure that my
colleagues and I would be willing to go for it.
Senator Wyden. Well, with all due respect--my time is up. I
am going to return to this subject--I brought you that
evidence. I brought you case after case from the West Coast of
companies that were shellacked by anticompetitive practices,
and I will return to this on another round.
Senator Dorgan. There are 9 minutes remaining on the vote
that is occurring on the Senate floor. Let us try to get in as
much as we can before we break for the vote.
Senator McCain.
STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA
Senator McCain. I want to thank the witnesses for being
here, and I think you are doing a fine job. I appreciate the
many contributions you are making.
Mr. Muris, in a recent ``Seinfeld'' episode, Mr. Seinfeld's
phone rang. He picked up the phone and it was a telemarketer
and he said, ``You know, I am busy right now. Can I have your
home phone number and call you back?'' And the telemarketer
said ``No, I cannot be called at home.'' And he said ``Well,
neither should I,'' and hung up the phone. Could we allow
something like that to happen? Should the telemarketer's home
phone number be able to be revealed to the caller so that the
caller can call the telemarketer back at his or her
convenience? Do you think Seinfeld was onto something there?
Mr. Muris. I think he was certainly onto something about
the frustration people feel about this practice. We received
over 40,000 comments. It was the most we have ever received,
other than in one case where someone had gone to stock car race
tracks and passed out free comment cards. These comments are
all different. Everyplace we go, many people comment, and
comment favorably.
As I said, we need to do this rule right, we need to do it
sensibly, and we are moving in that direction. We also need
authority from Congress. The law allows us to raise the money
through fees, but we need authority from Congress to spend the
money, so under the proposal we have we will need legislation
before we can implement the rule.
Senator McCain. I think we can go to work on that. It seems
to me that that would be appropriate. I have a media report
here that says even with a list in place consumers could still
get phone pitches from industries and groups, including some
heavyweight telemarketers regulated by agencies other than the
FTC. Among them are phone companies, airlines, banks, brokers,
charities, and political campaigns. Is that true?
Mr. Muris. There are people we cannot reach. We are
optimistic that the Federal Communications Commission, if we
adopt a rule, will adopt a similar rule. We believe in the
aggregate that approximately 80 percent of the telemarketing
calls would be reached. The calls from politicians, however,
neither the FCC nor the Federal Trade Commission has authority
to regulate those calls.
Senator McCain. We would never want anything like that to
happen, would we?
[Laughter.]
Senator McCain. Because we have a vote now, I would like to
ask one more question and switch gears. You recently issued
another report on the marketing of violence to children by the
television, music, and movie industry. Again, I want to point
out: The whole point here was not that anyone was trying to
impose any kind of censorship. The problem we had was these
entertainment organizations marketing to children content that
they themselves had judged was not suitable for children.
I mean, I have to keep repeating that over and over again,
because I keep being accused of trying to impose some kind of
censorship. We think it is fair that when the movie industry
judges a certain movie not suitable for children below a
certain age, that they not market that product to children
below that certain age. That is what this is really all about.
I hate to be so redundant, but I keep hearing the charge that
we are trying to impose acts of censorship on the industry.
How is the industry doing, and how would you rate their
performance so far?
Mr. Muris. Well, let me respond briefly. I know
Commissioner Swindle has paid a lot of attention to this, and
maybe Orson wants to respond as well.
We just issued our fourth report. We have found more
progress, quite frankly, in the movie industry and in the video
game industry than in the music industry. If Commissioner
Swindle wants to elaborate.
Mr. Swindle. I think the Senator is right, the advertising
to children below the acceptable level of content----
Senator McCain. That they determine themselves.
Mr. Swindle. They are still doing it. It is rather complex,
in that we have markets that are obviously for children, we
have markets that our children watch, and then we have markets,
obviously, for adults, and it is that middle ground that I
think we see most of the violations today.
There have been great improvements, or there have been good
improvements, I should not say great. I think that could be
spun be the wrong way.
The movie industry has made progress. The video game
industry has made progress. The music industry for all
practical purposes is literally just putting a stick in our
eye. They do not choose to pursue this. They will plead First
Amendment over and over and over, which is absolutely not the
case. I do not think any of us really care what they publish,
but we do care about the marketing of it to children,
obviously, below the age level that should be listening to this
kind of stuff, and by their own standards they somewhat suggest
that there is a delineation here, but they simply are not
conforming.
Senator McCain. You know the sad thing about it,
Commissioner Swindle, is that they sat here, where you are
sitting, and said that they would make changes to stop
marketing this. So, it is remarkable that they would testify
before Congress that they would take certain actions,
particularly the record industry, and in your view, which is
far more informed than mine, then make little or no progress in
the direction that they committed to. It is really
reprehensible.
Mr. Swindle. I was at the hearing and heard that statement.
I would point out something here that I think is critical. We
all--I mean, the First Amendment is the cornerstone of our
society and our way of Government. We do not want to infringe
on that. If consumers do not like what is coming at them, they
have a manner in which they can correct that. Unfortunately, as
long as sufficient consumers buy the stuff, in particular, what
the music industry is putting out, they will continue to do it.
It is economics.
Senator McCain. But, to entice children to purchase a
product that they have deemed unsuitable for that child's
consumption seems to me to have nothing to do with the First
Amendment, but a whole lot to do with unsavory practices.
I thank you, Mr. Chairman. I thank the Commission.
Senator Dorgan. Senator Nelson.
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Nelson. Including, Senator--including Alcopops,
which is marketing alcohol to minors, and you all have a
lawsuit on that right now.
We have got to go vote, and I am going to have my questions
asked by the Chairman, but just let me say hello to my good
friends Orson Swindle and Sheila Anthony. It is good to see you
all, and as Sheila said, your role is to protect the consumer,
and please be very vigorous in what you are doing on protection
of the consumer. I will have the Chairman ask my questions.
Senator Dorgan. Thank you. Senator Wyden left to vote, and
he will be back early, so I expect within 5 minutes Senator
Wyden will pick up the gavel. We will recess for 5 minutes
until Senator Wyden is back. The hearing stands in recess.
[Recess.]
Senator Wyden. Let us resume the hearing, if we could have
all of our guests take their seats, please.
Senator Fitzgerald has joined us, and I think with the
Senator's leave, I will finish some additional questions, and
then we will recognize the Senator.
To continue on this West Coast gasoline pricing issue,
Chairman Muris, let me review what you have done since you have
been named Chairman. You were appointed Chairman and the agency
initiated daily monitoring of prices in 300 gasoline markets
around the country. You directed the FTC staff to review the
oil company mergers that the FTC allowed to go through in the
past several years to determine if the agency did not do enough
to remedy the anticompetitive impact of the mergers, and you
held a number of very widely publicized conferences on gasoline
pricing.
If you do not believe that there are anticompetitive
problems in the gasoline market, what is the purpose of
spending all this taxpayer money?
Mr. Muris. That is a very good question. Let me address
what we have done and why we have done it.
First of all, there are a variety of issues besides the
ones that you raise. There are concerns about the volatility of
prices. There are also, as Senator Levin's committee and their
report noted, concerns about increases in concentration. We
have taken four steps, because these are serious issues that
need to be addressed, and because I think it is important that
we continually reevaluate our work, particularly in the merger
area, where the standards are so factual, specific, and in some
ways ad hoc.
We are producing, based on the conferences you mentioned, a
study about gas price volatility that is underway right now. We
are updating an oil merger study that was done twice in the
1980s, which I think will address some of the issues that
Senator Levin addressed. We are looking at the impact of past
mergers, particularly a few mergers that the Commission did not
challenge. There has been a recent working paper that raises
some questions about the aftermath of one of the mergers.
Finally, we are, for the first time, tracking prices in real
time.
We are doing these things for several reasons, including
the educational function that Commissioner Leary mentioned, of
understanding what goes on in the marketplace; the function
that Commissioner Thompson and others have mentioned, of
looking for possible anticompetitive problems; and the function
of, quite frankly, I think Government agencies should
continually reevaluate the standards that they apply.
In terms of the gas price tracking, although we just
started it, we have found some anomalies. One of the anomalies,
for example, in California was attributable to an unreported
problem in a refinery. We are at an early stage in this
project. We have a few leads that may be anticompetitive
problems, and I believe it is appropriate for us to engage in
these activities because energy is a very important part of our
domain. I think what you heard, and this investigation
concluded before I arrived, was that people felt there was not
sufficient evidence to proceed; I think it is important that we
continue to look for evidence both to explain to the public why
there are problems, and to see if there are anticompetitive
violations.
Senator Wyden. In effect, what the Federal Trade Commission
is doing with the merger reviews and reconsidering the merger
reviews is, it is reconsidering merger reviews that it did
before the deals were allowed to go through, and what I am
wondering about is why we are not protecting consumers, doing
something to protect their interest at the outset instead of
essentially doing merger reviews twice, and as you know, I
would like to see the Commission particularly try to help
consumers in these highly concentrated industries at the front
end before the merger goes through.
I mean, you are going to go back and look at the whole slew
of mergers, BP and Amoco, Exxon and Mobil, BP-Amoco and Arco,
Chevron and Texaco, Phillips and Tosco. Would it not be better
to have a policy to try to protect the consumer at the front
end?
Mr. Muris. I am sorry if I left the wrong impression. That
is not what I am suggesting, and I will ask my colleagues if
they want to comment in a moment here. The Commission has been
quite aggressive in merger enforcement. Most of those mergers
occurred before I arrived, some have occurred since, the
Commission has taken remedial action in a large number of oil
industry mergers, requiring divestitures in the tens of
billions of dollars.
Some of what we are looking at in these retrospectives are
mergers that the Commission did not challenge. One of the
things we are particularly looking at, not just in oil but in
other areas, is the impact of those mergers we did not
challenge. Again, I will ask my colleagues if they want to
comment on our oil industry policy, merger policy.
Mr. Leary. Well, Senator, I was present for some of those
oil industry mergers, and I can assure you that they were
looked at very carefully, and there were gigantic divestitures
required at the level where it has the particular impact on
consumers. Divestitures were required at lower levels of
concentration than we have done for any other industry of which
I am aware.
However, foresight is never perfect. There is nothing
inconsistent at all, in my view, with having an extensive
review up front but, in an area that is of such significant
concern to people like yourself and others, going back to take
another look at it and see whether or not we got it right.
Senator Wyden. I do not quarrel with that. What has
happened in the West Coast, though, is nobody really does
anything until the damage is done. I mean, we have had the
competitive juices sucked out of the West Coast gasoline
markets. We have lost hundreds of stations. We have got in most
towns in my State a couple of companies driving the market,
documented red-lining. Commissioner Thompson asked, could we
have it. I have given you all of the cases. You found it, and
yet everybody says, ``Well, gosh, we do not have any evidence
of collusion.''
Well, of course you are not going to have a couple of big
oil company executives go somewhere and say, ``this is a great
day, let's set the market,'' but I will tell you, I find what
you have done with respect to the West Coast gasoline market, I
think it is a textbook case of how you do not do consumer
protection. I see absolutely no evidence of anybody trying to
stand up for West Coast gasoline consumers. I think all of the
studies and conferences and seances that you all seem to be
having really are not going to lead to much of anything.
I hope the merger issue produces something. I guess if it
generates a bunch of new reports that are going to collect dust
and not lead to any real enforcement action, I may do something
I have not done in all my years in the Congress, in 21 years in
the House and Senate, and I will move to cut off the money for
exercises that are just a joke with respect to consumer
protection.
I want to recognize my colleague, Senator Fitzgerald, and
then I will come back for some additional questions on other
subjects.
Senator Fitzgerald.
STATEMENT OF HON. PETER G. FITZGERALD,
U.S. SENATOR FROM ILLINOIS
Senator Fitzgerald. Well, thank you, Chairman Wyden. I
would also like to thank the Subcommittee Chairman Dorgan for
putting this hearing together. I know that the FTC has not been
reauthorized since 1996. I think it would be appropriate at
some point to reauthorize the FTC. You probably feel like
Rodney Dangerfield, you can't get no respect if you cannot get
reauthorized, but we are glad you are still operating. We
appreciate all of you being here today.
In my 3\1/2\ years in the Senate, I have already seen a
couple of situations in which oil prices spiked, and there were
demands for FTC investigations. I think oil prices spiked in
1999. My colleague from Illinois, Senator Durbin, asked the FTC
for an investigation. Chairman Pitofsky at that time undertook
an investigation to see whether there was any collusion or
price-fixing in the industry, and the FTC could not find
evidence of that. I think instead, the FTC found evidence that
supplies of petroleum were tight. There had been fires at a
pipeline, only one refinery in Illinois, and a declining supply
of oil that caused the price spikes.
Then last year, we had another price spike in oil. My
colleague from Illinois asked for another investigation, and I
believe that similar conclusions were reached. So I think there
is always a potential that people can figure that there is some
kind of conspiracy going on when oil prices go up, but I think
it primarily concerns the supply and demand.
Let me ask you a question along those lines, starting with
Chairman Muris. If you were to find evidence of illegal
collusion amongst oil companies, I take it that you would take
action to go after whoever was involved in such collusion? Is
that not correct?
Mr. Muris. Yes, Senator, absolutely. One of the reasons
that we are tracking prices on a real-time basis is to better
understand the reasons for price volatility. I have recently
sent a letter to all of the State Attorneys General, asking for
their help. If we do find localized problems we hope to be able
to work together to understand them, and if there are law
enforcement violations, to move on them.
An additional point I forgot to mention to Senator Wyden
is, I think one useful thing that has come out of the
Commission's work is the role of the EPA rules in terms of so-
called boutique fuels in contributing to the price spikes. Our
staff has submitted comments to the EPA and offered to work
with them to try to get competitive concerns considered as a
part of the calculus in what they are doing with these rules,
because when you divide up the country by requiring so many
different fuel blends, you are exacerbating problems that are
caused by refinery fires and other incidents.
Senator Fitzgerald. I think in Illinois, at one point, we
had four different types of fuel used in different parts of the
State, so clearly that presents a problem if the refineries
have to gear up for narrowly targeted markets. That is
happening all across the country.
Let me ask this. What does the FTC do if they find evidence
of collusion or price-fixing in an industry? Do they refer it
to the Justice Department for prosecution? What happens? What
are the mechanics when this is found?
Mr. Muris. It depends upon the nature of the collusion, and
what is going on. The Justice Department has criminal authority
and we do not, so they do criminal investigations. We have
brought price-fixing cases, and cases that look much like
price-fixing. Recently, for example, we brought three price-
fixing cases involving physicians, one in the Napa area in
California, and two in the Denver area.
Senator Fitzgerald. Did you do the investigation?
Mr. Muris. Yes, we did.
Senator Fitzgerald. And do you have authority to do
criminal investigations?
Mr. Muris. No. We brought these cases civilly, and the
Justice Department sometimes proceeds civilly as well. They
often proceed criminally. Quite frankly, it is very difficult
to convict professionals of criminal price-fixing.
Senator Fitzgerald. What did you find they had been doing,
and what did you allege?
Mr. Muris. We accepted consent agreements. What the consent
agreements alleged was that groups of physicians got together
and essentially hired an agent to negotiate. The only
integration that the doctors had was that an agent who they
hired negotiated with the managed care plans to raise the
reimbursement rates substantially, and we have obtained consent
agreements stopping those practices. The Justice Department
sometimes proceeds civilly and sometimes criminally. If we
really found evidence of a criminal violation, by virtue of our
relationship with the Justice Department, we would refer it to
them for criminal prosecution.
Senator Fitzgerald. On that issue, physicians have begun to
talk about asking for the right to collectively bargain,
because they feel they are excessively hampered. There are
hundreds of thousands of physicians in this country, and they
have to negotiate with a handful of HMOs in their areas. They
feel that the deck is stacked against them, and that every year
their reimbursements are cut, their cost goes up, and there is
nothing that they can do about it.
You may not want to get into this issue and recommend
anything for Congress, but it is possible that Congress is
going to be confronted with voting on legislation. I think
legislation that would give physicians the right to
collectively bargain has been introduced in the House and has
passed at least a committee in the House. Do you think it is
right that physicians, if they band together even in a small
group to negotiate with an HMO, should be subject to the
Federal Government coming after them?
Mr. Muris. First of all, there was a bill that passed the
House. The Commission opposed it. I believe all of my
colleagues--I was not on the Commission at the time--were
opposed.
Senator Fitzgerald. The Commission opposed the bill?
Mr. Muris. Yes.
Senator Fitzgerald. Why was that?
Mr. Muris. Because the bill would raise prices to
consumers. The Commission and the Justice Department have a
long history of bringing these cases, and these few cases that
we recently brought indicate what such a bill would do. It
would give people a license to raise prices, and that would be
anticompetitive.
I do think there are steps that physicians can take to get
together to improve their practices, to improve quality. Our
staff recently issued an advisory opinion for the first time
recognizing so-called clinical integration, which is where
doctors get together to try to share with each other
information on how to treat patients more effectively. That
does not violate the antitrust laws. In fact, we should
encourage that activity, but if the doctors are simply getting
together to fix prices, as they did in the cases that I
mentioned, then it does not make any sense, I believe, to
create a special class of people who can fix prices outside the
antitrust laws.
Senator Fitzgerald. And the reason would be that the
doctors are all self-employed businessmen. Typically, if they
are not employees of a company, their getting together to
negotiate with an HMO becomes businesses conspiring with each
other to fix prices. I am hearing a lot from doctors in
Illinois about how they feel that they have absolutely no
leverage when they are negotiating individually with an HMO.
The HMO tells the doctors that ``If you want to get patient
referrals, you must accept our price schedule,'' which is
typically low. The doctor, being one doctor when there are tens
of thousands in the area, feels overwhelmed, and that he or she
has no bargaining power. They feel that they are just getting
crushed to the point that medical school applications are
declining rapidly in this country because the practice of
medicine has become much less attractive.
Mr. Muris. There are serious issues about the relationship
between managed care and physicians, particularly on quality
issues. The antitrust laws should not be a bar to doctor's
dealing with those issues. Doctors do join together in many
areas now where they are not just individual practitioners, but
if what the doctors simply want to do is get together to fix
prices, I have no understanding in the world why public policy
should allow that to happen. That is anticonsumer, and it is
not helpful to the problems we have in the medical area.
Inflation is growing rapidly again in health care. We have
an active program, not just with doctors. By far most of our
resources go to pharmaceuticals. We are also looking at
hospital mergers in which concentration has increased.
Competition has a role in health care, but I do believe, and I
will say it again, that physicians--in terms of paperwork, in
terms of quality control, in terms of a lot of issues that do
not directly affect prices--can legally get together under the
antitrust laws.
Senator Fitzgerald. You think right now they have the power
to do that, to negotiate amongst themselves to set a unified
front in other areas besides the actual prices?
Mr. Muris. Absolutely, and this advisory opinion, which we
will be glad to send to you, will allow them to integrate for
the purposes of improving quality. In fact, we have non-public
investigations, and in some of them we are seeing doctors who
are engaged in such clinical integration. If they are doing
that, then I think that is commendable.
Senator Fitzgerald. When did you issue that advisory
opinion? Was it recent?
Mr. Muris. Yes. I believe it was in March.
Senator Fitzgerald. I would like to get a copy of that, if
I could, and with that, Mr. Chairman, I thank the panel for
being here.
Senator Wyden. I thank my colleague.
I want to go now with the Commission to another area of the
energy business, where troubling anticompetitive practices have
been uncovered as well. The Enron memos reveal significant
evidence that Enron was engaged in a deliberate scheme to
manipulate the West Coast electric market. Transcripts provided
to the Federal Energy Regulatory Commission by Portland General
Electric raise questions about the role of transactions between
utilities and their affiliates engaged in energy trading
activities that may have been used as part of the Enron scheme.
For example, one trader was quoted as saying, ``Enron wants
to do something kind of squirrely.'' Another transmission
employee is quoted as saying, ``They are doing that, selling
power to Enron, across the Bonneville Power Agency going down
to California again. They did that before, remembering there
are all those extra accounts, and then you guys have to make
sure you do whatever extra input you have to do.''
Now, these statements--and this is a question for you, Mr.
Muris--clearly suggests that these employees had concerns about
these transactions that their parent companies wanted to engage
in. My question is, to begin this area, Mr. Muris, doesn't the
Federal Trade Commission have jurisdiction over utilities
engaging in transactions with their subsidiaries and affiliates
that have anticompetitive impact on a wholesale market?
Mr. Muris. Yes, I believe we do, although there is
regulation by FERC, which applies directly to many of these
provisions. It is possible, because there may be an implied
exemption doctrine under the antitrust laws, depending on what
the FERC regulation is, that the antitrust laws do not apply.
Senator Wyden. Well, our reading again is that the FTC does
have authority here, and I would like to know whether the
Federal Trade Commission has ever used its authority to
investigate the use of affiliate transactions by Enron or
others in the electric utility business as part of a scheme to
manipulate a wholesale market.
Mr. Muris. I believe there are potential anticompetitive
problems here. This happens to raise an issue with which we had
some friction with Chairman Hollings. The Justice Department
and the FTC have, for over 5 decades, agreed with each other
that they would not investigate the same matters. Indeed, in
mergers, that is a legal requirement.
Historically, the Federal Trade Commission has done all of
energy except for electricity. We had agreed with DOJ that we
would change that, and that the FTC would do all of energy.
Pursuant to some problems Senator Hollings had that were not
related to that issue, the agreement was abrogated, and now
electricity remains with the Justice Department in terms of
antitrust issues. In terms of which agency has the expertise,
it has historically been the Antitrust Division, and under the
1993 Clearance Agreement which is now in place, since the 2002
Clearance Agreement was abrogated, it is the Justice Department
that has primarily been looking at electricity.
Senator Wyden. I again have to just walk away with all of
these problems, and the FTC certainly before anything you have
described had authority over wholesale market impacts in the
energy field. I cannot understand why, when there is an
egregious case of an electric utility engaging in an abusive
transaction with a subsidiary that has significant price impact
on the wholesale market, which is what happened on the West
Coast, I cannot see why the Federal Trade Commission is
unwilling to get involved.
Mr. Muris. Well, I completely agree with your premise.
Before we abrogated the agreement, in fact, the newspaper
stories which came out within a week of the agreement being
abrogated raised suspicions of anticompetitive conduct. Let me
be clear, I have no idea whether there are, in fact, violations
of the antitrust laws, but certainly the material I read in the
paper raises suspicions. Under our scheme, however, for decades
the two agencies have agreed that only one will investigate a
particular area and particular kinds of conduct. After we
abrogated the agreement, electricity returned to the Justice
Department.
Senator Wyden. Do you think that ought to be changed?
Mr. Muris. Well, I signed an agreement that was abrogated
that gave all of energy to the FTC. I thought that was
appropriate. For reasons unrelated to energy, Senator Hollings
wanted the agreement abrogated. The Justice Department
abrogated the agreement, and we returned to our prior state of
affairs.
Senator Wyden. It just looks to me like when you deal with
energy at the Federal Trade Commission, if you want to have a
conference you have gone to the right place. The Federal Trade
Commission will do it for you. If you want to do anything that
is going to protect the consumer to get a real enforcement
action, you have got to go elsewhere.
Mr. Muris. If I could just respond, most of this happened
before I was there, but I think the Commission was extremely
aggressive on the merger front, Senator
Senator Wyden. Well, what do you want to have changed? I
mean, you have said this happened before you, but I do not see
anything going to change. What I see is what I have described
in Oregon with respect to the West Coast gasoline market. We
have handed you the evidence of red-lining, of a whole host of
anticompetitive practices. That did not seem to be sufficient.
Here I am talking about areas where the Federal Trade
Commission has had authority, and you said you had given it up,
and I said, ``well, it is your watch now, you have got a chance
to lead, do you want to lead?'', and you have said, ``well, I
guess not.''
Mr. Muris. No. What I have said is, I preferred to lead.
Not by my choice was the agreement abrogated. We have returned
to the state of affairs that existed before we signed the
agreement, and under that state of affairs, it is the Justice
Department that has handled electricity. We were in the process
of hiring people to look at electricity mergers. I met with the
Chairman of FERC. We were trying to work out a process where we
could more actively participate in electricity issues and
electricity mergers, but if we did that now, I am sure I would
be accused of--in fact, I know I would be accused of--violating
something that we promised not to do, which was to implement
that agreement, so whatever else you think, or whatever other
charges you may want to lay, we are not guilty on that one.
Senator Wyden. Out of curiosity, Mr. Muris, on your watch
have Federal Trade Commission employees gone out at the state
level and testified on State deregulation issues with respect
to energy?
Mr. Muris. In gas prices, yes, sir.
Senator Wyden. But not on electric issues?
Mr. Muris. On electric issues, let me distinguish law
enforcement from advocacy and studies. The House Energy and
Commerce Committee asked the Commission a few years ago to
produce some studies on electricity deregulation. The
Commission has produced two studies, one a few years ago, one
last year just as I arrived, and we have used those studies to
talk to people at the State level, and we have also talked to
FERC about the state of competition in electricity.
On gasoline, we recently filed comments criticizing a
proposal that would have made it more difficult in the
Commonwealth of Virginia--this is at the staff level we have
done this--that would have made it more difficult to lower
prices.
The Commission has filed several comments like that in the
late 1980s and 1990s, and we filed this one last year. These
were laws aimed at some of these new hypermarket firms that
were coming into markets and selling gasoline at lower prices.
They were going to make it harder for those firms to lower
prices. We filed a comment with a Virginia legislative
committee. The committee, in fact, voted the bill down.
Senator Wyden. Well, that certainly sounds useful, I guess.
What I was driving at is that if you have told us you do not
have any authority in these energy matters any more really, and
that has essentially been your testimony, I am curious about
what is going on at the State level that sounds like what you
did at the Virginia initiative sounded useful.
Mr. Muris. Well, let me make clear, we have authority--
first of all, we have jurisdiction. We cannot divest ourselves
of our jurisdiction. Only Congress can do that, but for over 5
decades, since 1948, the two agencies have agreed that they
will not duplicate each other in terms of investigations. When
it comes to electricity mergers and electricity cases, those
have been done historically by, and the expertise resides in,
the Department of Justice. After we abrogated the agreement in
the middle of May, that expertise remains with the Department
of Justice. We are applying the rules we had in place pursuant
to the 1993 Clearance Agreement.
Senator Wyden. One last question on the energy question.
Commissioner Thompson, were you concerned at all with respect
to whether the rules are ones that will make it virtually
impossible to prove collusion, or anticompetitive practices.
When you wrote your opinion in the gas pricing question you
raised some issues, at least in my mind, with respect to what
you thought the rules should be on evidence. You heard me say
that I just do not think oil companies in 2002 show up
somewhere and say, ``Let us go fix prices.'' I am curious what
you meant with respect to the rules on proving collusion and
anticompetitive practices.
Mr. Thompson. I was concerned about whether we had
significant groundwork, enough to bring an action based on a
claim of site-specific pricing. Now, I think one of the things
the Chairman outlined is that the work that we are doing now in
examining what we looked at and whether they were effective in
remedying some of the conditions we are seeing now will help to
inform us as to whether we should be changing how we look at
those questions, and what kind of remedial action we should be
taking, but I raise the concern because I thought it was an
important one to consider and examine, and that is why I think
one of the things we are doing now is to actually look
carefully at whether some of the assumptions and some of the
conduct that we were concerned about and some of the remedies
that we in fact put into place actually get at----
Senator Wyden. What remedies were put in place? I cannot
find a single remedy, I cannot find a single thing that was
done for the West Coast consumer on this. Please enlighten me
with respect to the remedies you put in place.
Mr. Thompson. I am talking in a more general fashion about
things like divestitures, what we did in Exxon-Mobil, what we
did in a number of different cases. Now, I have not been around
for all of the mergers, but I think we have taken a very
aggressive position with regard to challenging the most recent
oil company mergers, but I think that we need to go back and
take a look and find out whether that aggressive position
actually resulted in the kinds of positive benefits that we had
hoped.
Senator Wyden. I will hold the record open for anybody on
the Commission, either the Chairman or any individual Member
who can give me some information with respect to anything
concrete, specific, that was done to help the West Coast
consumer, because I cannot find a single thing out there, and
in the interest of fairness the record will be open and we will
await the Commission or any individual commissioner's opinion
on it.
Unless you all have anything further, we will excuse you at
this time. Does anybody want to add anything further?
[No response.]
Senator Wyden. You are excused.
Our next panel, Mr. Charlie Mendoza, member, Board of
Directors, AARP; Mr. Lawrence Sarjeant, U.S. Telecom
Association; Mr. Robert Wientzen, Direct Marketing Association;
Mr. Harry Schwartz, Center for Democracy and Technology; Dennis
Alldridge, President, Special Olympics-Wisconsin; and Mr. Lou
Cannon, President of the DC Lodge of the Fraternal Order of
Police. If you all would come forward.
All right, gentlemen, we welcome you, and it is gentlemen
on this panel. Mr. Mendoza, we note that you have got kind of a
time crunch, so why don't we begin with you. We are going to
make your prepared statements a part of the record in their
entirety. I note that there is almost a kind of physical
compulsion to read a statement when you come, but we will put
it in the record in its entirety, and if you can just talk a
few minutes, that will give us a chance to get into your
issues.
Mr. Mendoza, welcome.
STATEMENT OF CHARLES MENDOZA, MEMBER,
AARP BOARD OF DIRECTORS
Mr. Mendoza. Thank you very much, Mr. Chairman. I really
appreciate--and I apologize, I have to be sneaking out of here,
but I am Charlie Mendoza, and I am a member of the AARP Board
of Directors, and on behalf of our membership, I really want to
thank you for allowing us to be here this morning to discuss
the performance of the Federal Trade Commission in fulfilling
its mission, and I think that our constituency, which is now
over 35 million consumers over the age of 50, we recognize the
importance of the role that the Federal Trade Commission plays
in protecting the wide interests of consumers on many, many
issues, and we do support the FTC in its efforts to serve the
Nation as its consumer protection agency, and we really do
commend it for adapting to address these evolving deceptive
practices despite, I guess, many limited resources.
But my testimony here today will focus on the Commission's
proposal to amend the telemarketing sales rule, and AARP
strongly supports the FTC's goal of implementing a national Do-
Not-Call category, or registry, preventing interference with
the caller's identification services and eliminating the
improper use by telemarketers of preacquired account
information.
Additionally, you will see in our submission that it
touches on other issues under the jurisdiction of the
Commission such as the FTC's work on the funeral rule identity
theft and misleading or deceptive product advertisements.
AARP's interest, though, in the telemarketing sale rules and
the concerns about telemarketing are longstanding.
We have been doing this for a long, long time, the
educative effort, and since the adoption of the rule in 1995 we
at AARP have really dedicated significant resources in
educating the consumers about telemarketing fraud, and I have
been personally all across the Nation talking on this issue
with Federal, State, and local law enforcement agencies.
We have also worked with State legislators to enact
telemarketing legislation. In fact, my own State of Georgia was
one of the first to enact a telemarketing law. AARP is a strong
supporter of the existing rule, and we believe that the
Commission's recommended additions to the rule will make it
even better.
The rule has empowered law enforcement agencies to
prosecute unlawful telemarketers, and I think it has held
legitimate telemarketers to established standards of conduct.
It also has provided the States with a floor of consumer
protection, and many States have been successful in raising
that floor. Close to 30 States have expanded upon the rule's
protections and prohibitions in developing State-specific laws
and regulations that better protect the consumers within their
States.
The Commission's proposal to implement a national Do-Not-
Call registry, I think, is a well-reasoned approach to address
the concern that our members have expressed regarding their
inability to stem the volume of telemarketing calls,
particularly in States that lack Do-Not-Call laws.
Provided it is properly implemented to benefit the
consumers, the establishment of the registry should be
substantial. A national Do-Not-Call listing would supply
consumers with a sense of comfort along with a return of
control over their telephone.
We are pleased that the prohibition applies to all calls
within the jurisdiction of the Commission, including calls
soliciting charitable contributions initiated by a for-profit
entity. We think that the expanded jurisdiction which has been
afforded the FTC through the enactment of the USA Patriot Act
and its amendments is welcome. It now prevents questionable
organizations soliciting on behalf of sound-alike charities
from calling consumers, while allowing the local church, fire
department, and fraternal organization to continue their
legitimate funding appeals.
Doing so allows credibility to the caller, and allows the
call recipient to make contribution decisions based on the
merits, with less concern about whether the caller is
representing a legitimate group.
AARP is also pleased that the FTC is considering expanding
the scope of the rule's coverage by eliminating the exemption
for common carriers. Taking such action is consistent with the
purpose of implementing a Do-Not-Call registry, which is
reducing the number of unwanted telemarketing calls to the
consumer. We believe that a joint effort between the Federal
Communications Commission and the Federal Trade Commission to
include common carriers under the Do-Not-Call provision of the
telemarketing sales rules would reduce confusion and lead to a
more comprehensive registry. The national Do-Not-Call registry
would complement the existing State Do-Not-Call lists.
The continued ability of the States to protect their
residents and to enforce their rules is a strong reason not to
preempt them with the establishment of the registry. While the
registry will provide much needed relief to consumers across
the country, some States will offer consumers even more.
AARP fully supports the Commission's efforts to prohibit
the blocking of caller identification, Caller ID. The proposed
changes to the rules that will require the disclosure of the
caller or the organization's actual name and telephone number
are to be applauded. We believe that consumers who spend money
on Caller ID services should be able to use the product for its
intended purpose. Adoption of the call blocking provision of
the rule will return control of the telephone where it belongs,
in the hands of the consumer.
I see the amber light is coming on, and they wrote more
than I really need to say, but the bottom line here is that we
believe this registry will support, will strengthen
particularly our consumers, people like me who have a heck of a
time hanging up. We listen to these calls. We have had the
training, we have had the education, but it is still difficult,
and so on behalf of our members, we would like you to consider
that, Mr. Chairman.
[The prepared statement of Mr. Mendoza follows:]
Prepared Statement of Charles Mendoza, Member, AARP Board of Directors
Chairman Dorgan and Members of the Committee:
My name is Charlie Mendoza and I am a member of AARP's Board of
Directors. On behalf of AARP and its 35 million members, thank you for
inviting us here this morning to discuss the performance of the Federal
Trade Commission (FTC) in fulfilling its mission. AARP recognizes the
important role that the Federal Trade Commission plays in protecting
the interests of consumers on a wide range of issues. We support the
FTC in its efforts to serve as the Nation's consumer protection agency
and commend it for adapting to address evolving and troublesome
deceptive practices despite limited resources.
Our testimony today will focus on the Commission's proposal to
amend the Telemarketing Sales Rule. AARP strongly supports the FTC's
goals to implement a national Do Not Call registry, prevent
interference with Caller Identification services and eliminate the
improper use by telemarketers of preacquired account information.
Additionally, our testimony will touch on other issues under the
jurisdiction of the Commission such as death care, identity theft and
advertising restrictions.
Telemarketing Sales Rule
AARP's interest in the Telemarketing Sales Rule and concerns about
telemarketing abuses are long-standing. Seven years ago we were active
participants in the original rulemaking proceeding. Since the adoption
of the Rule in 1995, AARP has dedicated significant resources to
educating consumers about telemarketing fraud and to working with
federal, state and local law enforcement agencies to combat it. We have
also worked with state legislatures to enact state telemarketing
legislation. The existing Rule has supported these efforts and we
believe that the Commission's recommended additions will strengthen the
Rule.
AARP's strong support of the Telemarketing Sales Rule is well
documented both at the Commission and here in the Congress through our
filed comments, testimony and participation in FTC-led workshops. The
Rule has served as a foundation from which AARP has been able to mount
education and awareness campaigns. Our advocacy efforts have built upon
the Rule's provisions regarding disclosures, prohibitions, and
enforcement mechanisms. We have also conducted research related to the
Rule, some of which will be described later in these comments.
The Rule has also empowered law enforcement agencies to prosecute
unlawful telemarketers and helped legitimate telemarketers to establish
standards of conduct. The existence of the Telemarketing Sales Rule has
improved the ability of federal, state, and local law enforcement
officials to take action against telemarketing firms, and specific
violations of the Rule have led to prosecutions and, in some cases,
remuneration for victims.
Finally, the Rule has provided the states with a floor of consumer
protection--and many have been successful in raising that floor. Close
to thirty states have expanded upon the Rule's protections and
prohibitions in developing state-specific laws and regulations that
better protect consumers. At least eleven of the states have enacted
laws using provisions from an AARP model law building upon the Rule,
and additional states are in the process of considering comprehensive
telemarketing legislation. In fact, recent AARP surveys conducted in
New Jersey, Minnesota and Michigan found that an overwhelming
percentage of survey participants favor additional state laws to
prevent unfair, misleading, or deceptive telemarketing practices. \1\
---------------------------------------------------------------------------
\1\ AARP NJ Telemarketing and ``Do Not Call'' List Survey (January
2002); AARP Michigan Telemarketing and ``Do Not Call'' List Survey
(April 2002); AARP Minnesota Telemarketing and ``Do Not Call'' List: An
AARP Survey (December 2001).
---------------------------------------------------------------------------
National Do-Not-Call Registry
AARP supports the Commission's decision to introduce a national Do-
Not-Call registry, asking only that it not preempt states' efforts to
establish stronger protections for consumers. As proposed, the national
Do-Not-Call registry would enable a consumer to call a toll-free number
to place his or her phone number on a national list. Telemarketers
would then be required to access the FTC's list, removing the numbers
of all consumers whose numbers appeared on the registry.
The Commission's proposal is a well-reasoned approach to address
concerns AARP's members have expressed regarding their inability to
stem the volume of telemarketing calls, particularly in states that
currently lack Do-Not-Call laws. Provided it is properly implemented
and strictly enforced, the benefit to consumers of the establishment of
the registry should be substantial. A national Do-Not-Call listing
would supply consumers with a sense of comfort along with a return of
control over their telephone.
We are pleased that the prohibition applies to all calls within the
jurisdiction of the Commission, including calls soliciting charitable
contributions initiated by for-profit entities. The expanded
jurisdiction accorded the FTC through enactment of the Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act (USA PATRIOT Act) amendments is
welcome. It now prevents questionable organizations soliciting on
behalf of sound-alike charities from calling consumers, while allowing
the local church, fire department, and fraternal organizations to
continue their legitimate fundraising appeals. Doing so adds
credibility to the caller and allows the call recipient to make a
contribution decision on the merits, with less concern about whether
the caller is representing a legitimate group.
AARP is also pleased that the FTC is considering expanding the
scope of the Rule's coverage by eliminating the exemption for common
carriers. Taking such action is consistent with the purpose of
implementing a Do Not Call registry, which is to reduce the number of
unwanted telemarketing calls to the consumer. We believe that a joint
effort between the Federal Communications Commission and the FTC to
include common carriers under the Do Not Call provisions of the
Telemarketing Sales Rule would reduce confusion, leading to a more
comprehensive registry.
The national Do-Not-Call registry would complement existing state
Do-Not-Call lists. AARP has been an active participant across the
country on behalf of state Do-Not-Call lists. The continued ability of
the states to protect their residents and to enforce their rules is a
strong reason not to preempt them with the establishment of the
registry. Statements by the Commission that ``state requirements should
be preempted only to the extent that the national Do-Not-Call registry
would provide more protection to consumers'' support our position and
are consistent with AARP principles that federal consumer protections
should serve as a floor, not a ceiling. While the registry will provide
much needed relief to consumers across the country, some states will
offer consumers even more.
Call Blocking
AARP fully supports the Commission's efforts to prohibit the
blocking of caller identification (Caller ID) information. The proposed
changes to the Rule that will require the disclosure of a caller or
organization's actual name and telephone number is to be applauded.
AARP has strongly advocated for this change in business practices. In
previous comments at the Commission and in support for legislation in
both the House and the Senate, we have urged implementation of this
type of requirement. We believe that consumers who spend money on
Caller ID services should be able to use the product for its intended
purpose. Increasingly, consumers are asked to ``take responsibility''
and ``make the best choice,'' and become ``empowered.'' Inasmuch as
consumers' purchase Caller ID services to become empowered and screen
telemarketers, they should be able to use these services for this
purpose. Why would legitimate telemarketers want their name and/or
phone number concealed, effectively rejecting a free advertisement? The
existing environment that allows telemarketers to block their
identifiers places consumers at a disadvantage. Not only are consumers
unable to identify who is calling as the call arrives, but also they
cannot return a call because the number is unavailable. Adoption of the
call blocking provision of the Rule will return control of the
telephone where it belongs, in the hands of the consumer.
Additionally, AARP has recommended that the name of the charitable
organization with a verifiable phone number of the organization appear
on the display. This would provide consumers with the information
necessary to decide if they want to pick up the call. It also supplies
the consumer with a phone number to call to verify that the
telemarketer is indeed calling on behalf of the organization and gives
the consumer a direct link to the charity if questions arise. Further,
this approach enables consumers to contact government agencies such as
the Better Business Bureau or state Attorney General to verify the
legitimacy of the organization, and helps prevent consumers from
becoming victims. Such a requirement would likely benefit legitimate
telemarketers as well, since a consumer is more likely to accept a call
from the American Cancer Society than from a telemarketing firm.
Preacquired Account Information
AARP strongly supports the proposed revision to the Telemarketing
Sales Rule that prohibits the practice of receiving any consumer's
billing information from any third party for use in telemarketing, or
disclosing any consumer's billing information to any third party for
use in telemarketing.
A telemarketer's ability to use preacquired account information
without the obtaining this information directly from the consumer is a
major concern. Historically, preacquired account information has been
used in conjunction with free trial offers that end up being paid
subscriptions, and complimentary memberships in travel clubs that show
up at the consumer's doorstep as negative option solicitations, with
dues or membership fees assessed for inaction. In these cases, not only
did consumers honestly believe that they were agreeing to a free-of-
charge service, they clearly were unaware of the fact that the
telemarketer was already in possession of billing information. Over and
over we hear from consumers that they had no idea that money could be
taken from their account without their providing an account number.
This is a deceptive, unfair, and abusive practice that should be
prohibited.
As with any rule or regulation, enforcement of the Telemarketing
Sales Rule is critical. Equally important is the disclosure of
information regarding enforcement actions. AARP is very concerned with
the lack of national data regarding enforcement actions, the
effectiveness of the Rule or even the amount of money that currently
being spent on telemarketing. Absent this type of information, it is
extremely difficult to measure the success of various education efforts
and enforcement partnerships, including those in which AARP is engaged.
Collecting national telemarketing data that is accessible to the
general public would prove beneficial to all interested parties.
In sum, AARP supports the FTC's efforts to amend the Telemarketing
Sales Rule to include a national Do Not Call registry with as few
exemptions as possible. Implementation of such a rule is clearly in the
public's best interest and should not be delayed or weakened.
Death Care
Another industry sales rule within the jurisdiction of the FTC that
is of importance to AARP and its members is the Funeral Rule. Over the
past decade significant change has taken place in the funeral and
burial industries. Changes include: consolidation of funeral homes and
cemeteries; cemeterians providing funeral goods and services and
funeral directors providing burial goods and services; an increase in
third-party providers; Internet shopping; and the proliferation of
preneed contracts.
These changes provide consumers with a mixed bag of results--some
good, some not so good. The Funeral Rule, implemented by the Federal
Trade Commission in 1984, was designed to ensure that ``consumers have
access to sufficient information . . . '' and prohibited
misrepresentations ``used to influence consumers' decisions on which
goods and services to purchase.'' The original Rule, however, could not
have anticipated the changes the industry has undergone. In the
interest of both consumers and industry, AARP has recommended that the
Rule be expanded to include all providers of funeral and burial goods
and services.
Expansion of the Funeral Rule by the FTC would better protect
consumers and provide a ``level playing field'' to all participants in
the funeral and burial goods and services marketplace. Even this type
of expansion, however, would not alleviate some of the problems
associated with the sale of preneed contracts. We have therefore also
recommended that the Commission include minimum contract standards in
the revised Rule. We believe that the FTC's current review of the
Funeral Rule should lead to action that will address our concerns.
Regarding the current review, while AARP recognizes the difficulty
the Commission has with the many demands on their limited resources, we
believe the FTC should respond to the Funeral Rule review process in
the very near future. It will be three years next month since comments
were due to the Commission. During that same interval, the industry has
continued to evolve and consumers have continued to fall victim to
misleading, deceptive and sometimes criminal behavior on the part of
death care providers. A Commission decision might not right all the
wrongs, but it could provide some clarity for consumers and providers
alike.
Other Issues
An alarming problem confronting consumers is that of identity
theft. The act happens quickly and quietly, yet the effects can be
devastating and can take literally years to clean up. However, the FTC
is to be commended for working on behalf of consumers to make the
rehabilitation of one's identity a little bit easier. Thanks to the
Commission's adoption of the ID Theft Affidavit, a consumer can now
fill out one form that will alert all of the credit agencies at one
time to the plight. Previously, victims were required to report the
theft to a number of different credit agencies.
Another area for which the Commission has responsibility are laws
that prohibit misleading or deceptive advertising. This oversight
authority can be particularly important in areas such as labels of
foods and nutritional supplements where false and misleading claims in
advertising may cause persons with serious illness and disease to
forego proven medical treatments in favor of products glamorized by
unsubstantiated claims and potentially risk even greater harm to their
health. Inadequate resources unfortunately limit the FTC's reach in
this area.
That leads to our final point: concern over limited funds. When
provided with the resources necessary to carry out its mission, the FTC
does an excellent job of enforcing the law. Inadequate funding clearly
hampers the agency's effectiveness.
Despite uneven enforcement, we support the Commission's efforts to
crack down on false and misleading advertising, deter fraudulent
telemarketers and uncover Funeral Rule infractions. We ask the Congress
to recognize the importance of the FTC to consumers when making
appropriations decisions, granting them the resources to effectively
enforce the rules they have promulgated.
Conclusion
Mr. Chairman, AARP appreciates having the opportunity to testify
today in support of the Federal Trade Commission's efforts to protect
consumers. In particular, we strongly support the proposed revisions to
the Telemarketing Sales Rule, including the national Do Not Call
registry, which will benefit consumers and should be adopted as
proposed with as few exemptions as possible.
In addition, we hope that the Congress will adequately fund the
Commission so that it can accomplish the mission it has been given: to
enforce consumer protection laws. Thank you for providing us with the
opportunity to voice our views.
Senator Wyden. Thank you. Very good.
Mr. Sarjeant.
STATEMENT OF LAWRENCE E. SARJEANT, VICE PRESIDENT, LAW AND
GENERAL COUNSEL, U.S. TELECOM ASSOCIATION
Mr. Sarjeant. Good morning, Mr. Chairman. Thank you and
Members of the Subcommittee for giving the United States
Telecom Association the opportunity to testify and present its
views on the issue of whether the Federal Trade Commission
should be authorized by Congress to have concurrent
jurisdiction with the Federal Communications Commission over
common carrier marketing and advertising practices.
USTA is the Nation's oldest trade organization representing
local telephone companies. USTA's carrier members provide a
full array of voice and data and video service over wire line
and wireless networks. USTA is opposed to giving the FTC
concurrent jurisdiction with the Federal Communications
Commission. USTA is opposed to conferring regulatory authority
over telecommunications common carriers upon another Federal
agency, resulting in potentially duplicative, conflicting, and
costly new regulatory requirements, especially where there is
not a clearly demonstrated public interest benefit in doing so.
The FTC, since its creation in 1914, has not had regulatory
authority with respect to common carriers. The reason for this
exemption is, there is no absence of regulations. There is no
void to fill. Those who would suggest that the Congress and the
FCC have dismantled the regulatory apparatus applicable to the
common carrier industry are simply wrong. Incumbent local
exchange carriers are still pervasively regulated by the FCC
and the States.
Yesterday, the FCC adopted revised rules implementing
Section 222 of the Telecommunications Act of 1996 concerning
carriers' use of customer proprietary network information,
CPNI, in marketing products and services. If one looks at 47
Code of Federal Regulations Section 64-2400, one would see that
the FCC has detailed requirements for common carriers in
rendering customer bills.
The stated purpose and scope of these truth-in-billing
rules is to, among other things, aid customers in understanding
their telecommunications bills, and to provide them with the
tools they need to make informed choices in the market for
telecommunications services. The FCC also has rules
implementing Section 227 of the Act known as the
Telecommunications Consumer Protection Act, which limits
unsolicited advertisements that use automatic telephone dialing
systems, artificial or prerecorded voice messages, and fax
machines.
It was during the William Kennard administration that the
FCC established an enforcement bureau, and the then-Consumer
Information Bureau, which is now the Consumer and Governmental
Affairs Bureau. Both have made it a priority to ensure that
consumers have access to both information about
telecommunications services and assistance in resolving
disputes with common carriers providing interstate
telecommunications services.
One of the many responsibilities of the Consumer and
Governmental Affairs Bureau is to provide staff assistance to
the Consumer and Disabilities Telecommunications Advisory
Committee, a Federal advisory committee that provides feedback
to the FCC on a regular basis on issues of interest and concern
to consumers generally and the disabilities community.
The FCC has determined that Section 201(b) of the
Communications Act of 1934, as amended, requires that common
carriers practices for and in connection with communications
services shall be just and reasonable, and any such practice
that is unjust or unreasonable is unlawful. The FCC has used
this Section 201(b) authority to determine that unfair and
deceptive marketing practices by common carriers constitute
unjust and unreasonable practices. The FCC has indicated that
its authority and actions pursuant to 201(b) of the
Communications Act, as amended, would be guided by the
principles of truth in advertising, developed by the FTC under
Section 5 of the FTC Act.
There is no existing lack of authority. The FCC has already
fully occupied the field when it comes to interstate
communications carriers. Nonetheless, the FCC has worked
jointly with the FTC to make sure that there are no gaps left
between the respective jurisdictions of the two agencies, and I
would direct the Subcommittee to the joint policy statement of
the FCC and FTC on March 1 of 2000. The FCC has been very
active from an enforcement perspective in a variety of areas
that impact consumers, such as telephone solicitation,
marketing, slamming, and unsolicited facsimiles. This
enforcement is accomplished through the Telecommunications
Consumer Division of the FCC Enforcement Bureau. I will not
identify all of the enforcement actions, but there is a website
that the FCC has, and this division has listed all the
different enforcement actions and the fines that have been
assessed.
As Chairman Powell has indicated in testimony before both
the House and the Senate, the FCC is dedicated to putting more
resources into enforcement, including litigation resources.
Chairman Powell also called upon the Congress to substantially
raise the forfeiture amounts for violations of the
Communications Act, and Congress has responded. Extending
concurrent jurisdiction to the FTC over telecommunications
common carriers would be counterproductive, as it would lead to
confusion. Common carriers would not know which agency to rely
on for advice, or which agency's compliance standards to
follow.
The FTC request for concurrent jurisdiction appears to be a
solution in search of a problem. There is no barrier to
effective consumer protection with respect to common carriers.
There being no compelling demonstration of a problem in need of
fixing, USTA ask that you not authorize the FTC to assert
concurrent jurisdiction with the FCC over telecommunications
common carriers.
Thank you.
[The prepared statement of Mr. Sarjeant follows:]
Prepared Statement of Lawrence E. Sarjeant, Vice President, Law and
General Counsel, U.S. Telecom Association
Thank you Mr. Chairman and Members of the Committee for giving the
United States Telecom Association (USTA) the opportunity to testify and
present its views on the issue of whether the Federal Trade Commission
(FTC) should be authorized by Congress to have concurrent jurisdiction
with the Federal Communications Commission (FCC) over common carrier
marketing and advertising practices. I am Lawrence E. Sarjeant and I
serve as Vice President Law and General Counsel of USTA. I appear at
the hearing today on behalf of the entire association. USTA is the
nation's oldest trade organization for the local telephone industry.
USTA's carrier members provide a full array of voice, data and video
services over wireline and wireless networks.
A. Telecommunications Common Carriers Are Already Subject to
Regulation of Their Market and Advertising Practices by the FCC
and the States
USTA would be strongly opposed to giving the FTC concurrent
jurisdiction. USTA is not opposed to regulatory authorities both state
and federal having the jurisdiction to police, enforce, remedy and
regulate these practices. What USTA is opposed to is adding one more
federal regulatory body resulting in potentially duplicative,
conflicting and costly new regulatory requirements.
The FTC since its creation in 1914 has not had regulatory authority
with respect to common carriers. This exemption for common carriers has
been recognized by the federal judiciary (See, e.g., FTC v. Miller, 549
F.2d. 452, 7th Cir, 1977), and it has been reaffirmed by Congress. The
reason for this exemption is that there is no absence of regulation--
there is no void to fill. Common carriers were regulated in 1914 by the
Interstate Commerce Commission, and when the FCC was created by
Congress in 1934, the regulatory authority over telephone common
carriers was transferred to it. The exemption from FTC authority was
continued. Incumbent local exchange carriers are still pervasively
regulated by the FCC and the States.
B. The FCC Has Determined That Telecommunications Carrier Marketing
Practices Is Subject to Section 201(b)
The FCC has determined that Section 201(b) of the Communications
Act of 1934, as amended ``requires that common carriers' practices . .
. for and in connection with . . . communication service, shall be just
and reasonable and any such . . . practice . . . that is unjust or
unreasonable is hereby declared to be unlawful . . . '' (FCC-FTC Joint
Policy Statement, FCC 00-72, 2/29/2000, para. 4). The FCC has used this
Section 201(b) authority to determine that unfair and deceptive
marketing practices by common carriers constitute unjust and
unreasonable practices. In February 2000, when the FCC and the FTC
issued a Joint Policy Statement for Advertising of Dial-Around and
other long distance services to consumers, the FCC indicated that its
authority and actions pursuant to Section 201(b) of the Communications
Act, as amended, would be guided by the ``principles of truth in
advertising developed by the FTC under Section 5 of the FTC Act.''
Consequently, there is no existing lack of legal authority. The FCC has
already fully occupied the field when it comes to interstate
communications carriers. With respect to intrastate communications, the
states continue to have full authority, pursuant to existing state
laws.
C. The FCC Has Taken Enforcement Actions Against Telecommunications
Carriers' Marketing Practices
The FCC has not only recognized that it has statutory authority to
take action against unfair and deceptive practices by common carriers,
it has taken affirmative enforcement actions pursuant to that
authority. The FCC has been very active from an enforcement perspective
in a variety of areas that impact consumers such as telephone
solicitation marketing, slamming, and unsolicited facsimiles. This
enforcement is accomplished through the Telecommunications Consumers
Division of the FCC Enforcement bureau. The following are marketing
enforcement actions taken by the FCC as identified on its' website--
MARKETING ENFORCEMENT ACTIONS
04-01-2000 $1,000,000 in total fines proposed in Notice of
Apparent Liability against NOS Communications, Inc. (NOS)
and Affinity Network Incorporated (ANI) for apparent unfair
and deceptive marketing practices
12-07-2000 Order on Reconsideration of 7/17/00 Order imposing a
forfeiture against Business Discount Plan, Inc. (denied in
part, granted in part). Forfeiture adjusted to $1,800,000.
03-01-2000 $100,000 Consent Decree with MCI WORLDCOM for marketing
and advertising practices
As Chairman Powell has indicated in testimony before both the House
and Senate, the FCC is dedicated to putting more resources into
enforcement, including litigation resources. Chairman Powell has also
called upon the Congress to substantially raise the forfeiture amounts
for violations of the Communications Act. The House in H.R.1542, has
responded to this request by means of the Upton Amendment added H.R.
1542 on the House floor. H.R.1542 as passed by the House, provides the
FCC with cease and desist authority in common carrier matters, while
also increasing the future amount to up to $10,000,000. Violations of
cease and desist orders will result in forfeitures of up to
$20,000,000.
USTA, therefore, believes that the FCC has taken steps to enhance
enforcement efforts, and it has taken enforcement actions with respect
to the marketing and advertising issues in question. There is, in
USTA's judgment, no need to complicate the issue by adding still
another independent regulatory commission to the mix. It would be one
thing if the FCC did not have the requisite authority, or if it did
have the authority, but failed to exercise it or exercise it properly.
This is not the case. There is no regulatory failure that USTA has
observed. Certainly, USTA members do not think so.
D. Adding Concurrent FTC Jurisdiction Over Marketing Practices of
Telecommunications Carriers Would Be In Conflict with
Congressionally Developed Regulatory Scheme
The FCC comprehensively regulates marketing, including
telemarketing, by common carriers and their agents. To add concurrent
FTC jurisdiction would be in conflict with the comprehensive regulatory
scheme developed by Congress and enforced by the FCC.
Relevant cases in point are: first, under Section 227 of the
Communications Act of 1934, as amended (Telephone Consumer Protection
Act, TPCA), the FCC exercises general jurisdiction over telemarketing
by common carriers as well as by their non-carrier affiliates.
Significantly, the TPCA and the FCC's implementing regulations apply to
both interstate and intrastate telemarketing by all carriers, non-
carriers and their agents; second, Section 222 of the Communications
Act, as amended and the FCC's implementing regulations address how
telecommunications carriers may use Customer Proprietary Network
Information (CPNI) they obtain from their customers in marketing
products and services, including in the course of inbound
telemarketing; and third, Sections 272 through 276 of the
Communications Act of 1934, as amended and the FCC's implementing
regulations create an additional set of rules governing marketing
activities by Bell Operating Companies and their non-carrier
affiliates.
Extending concurrent jurisdiction to the FTC over
telecommunications common carriers would be counterproductive, as it
would lead to confusion. Common carriers would not know which agency to
rely on for advice or which agency's compliance standards to follow.
There being no compelling demonstration of a problem in need of a
solution, USTA asks that you not authorize the FTC to assert concurrent
jurisdiction with the FCC over telecommunications common carriers.
Thank you.
Senator Wyden. Very good.
Mr. Wientzen.
STATEMENT OF H. ROBERT WIENTZEN, PRESIDENT AND CEO, DIRECT
MARKETING ASSOCIATION, INC.
Mr. Wientzen. Thank you, Mr. Chairman. I am Bob Wientzen. I
am President and CEO of the Direct Marketing Association. We
are the largest trade association for businesses interested in
interactive and database marketing. We have about 5,000 member
organizations here in the United States and 50 other countries.
We represent all aspects of the teleservices industry both on
the profit and non-profit side. They are members of our
association, and any change in the legal requirement for this
segment is necessarily going to have a significant impact on
our members and on that segment of the industry.
Telemarketing makes an important contribution to the U.S.
economy. Outbound consumer telemarketing generated about $274
billion in sales in 2001, and it is estimated to employ a
little over 4 million workers. The telemarketing industry
employs a high number of minorities and individuals in welfare
to work programs, and telemarketing companies often are located
in small towns, where they are the primary employer. It is an
inseparable part of an even larger $661 billion industry that
contributes close to 6 percent of the U.S. GDP, and more than 6
million jobs to the U.S. economy.
In addition, telemarketing is a mainstay for obtaining
charitable contributions in the United States.
I want to acknowledge the Commission for its efforts in
stopping fraud and deception through increased enforcement of
existing laws, rather than pushing for new laws. The Commission
already has broad authority to enforce against bad actors in
the marketplace. We have heard a good bit about that this
morning, and we at the DMA continue to work closely with the
Commission on stopping fraud through referrals of cases on a
regular basis.
I want to focus our testimony this morning on the
Commission's Do-Not-Call registry proposal and related issues.
The DMA believes the Commission has laudable goals in proposing
an amendment to the telemarketing sales rule and has filed
comments in the proceedings, as well as participated in its
workshops. I believe that a focus on enforcement rather than
additional regulation is the appropriate course to take in
respect to combatting what is admittedly cases of abusive
telemarketing. For this reason, the DMA opposes the creation of
a Government-administered Do-Not-Call list as currently
proposed by the Commission.
We believe the Commission's proposal extends way beyond the
Telemarketing Consumer Fraud and Abuse Prevention Act's purpose
of reducing abusive and deceptive practices, and that it will
interfere with legitimate telemarketing activities that
comprises a significant portion of our economy.
Likewise, we believe the proposal restricts legitimate
commercial speech that is protected by the First Amendment.
This is particularly the case with respect to the limitation on
businesses being able to communicate with their existing
customers who are on a national Do-Not-Call list.
Now, we believe the Commission's authority under the TSR
does not extend to the creation of a national Do-Not-Call list.
At the time of the enactment, the Congress specifically stated,
and I quote, ``The Committee does not intend to limit
legitimate telemarketing practices.'' There is no reference to
a Do-Not-Call list in either the statutory texts or the
legislative history of the Act. However, the Telephone Consumer
Protection Act, referred to as the TCPA, demonstrates that
where Congress wanted the agency to consider such a mechanism,
it did so in a statute.
Specifically, the TCPA authorized the Federal
Communications Commission to conduct a rulemaking proceeding in
which it was to consider a number of measures to protect
residential telephone subscribers' rights in an efficient,
effective, and economic manner, and without the imposition of
any additional charge to telephone subscribers.
Now, the Commission's current proposal would directly
contradict the FCC's consideration and rejection of a national
Do-Not-Call registry in its rulemaking in 1992. In its
rulemaking, the FCC found that a national Do-Not-Call list
would be costly, and I will quote here again: ``Costly and
difficult to establish and maintain in a reasonably accurate
form.'' Attached to this testimony and submitted for the record
are the comments we have submitted in this proceeding in
conjunction with the U.S. Chamber of Commerce, which set forth
in detail the legal and policy reasons against the Commission's
creating a Do-Not-Call list.
Now, we are not opposed to the concept of a national Do-
Not-Call list. The DMA has, in fact, had its telephone
preference service in place since 1985. There are currently
about 4.7 million consumers on our Do-Not-Call list. The TPS
file covers consumer telemarketers with no exceptions or
exemptions. Any consumer who wants to reduce the number of
unwanted telemarketing calls they receive can have the name
placed on the list for free, and I note with emphasis that the
proposed commission's list, unlike the DMA list, would not
cover common carriers, as you have already heard, or the
airlines, or banking, or insurance industries, among others,
whereas our list does apply to those.
With this background, I want to address specific concerns
that the DMA has regarding the Commission going ahead with such
a list. These areas are set forth in more detail in a letter we
have submitted and filed with the Commission on behalf of not
only the association, the Direct Marketing Association, but
five other associations. * These issues include the need for an
exemption to the list that would allow businesses to contact
customers with whom they already have an existing relationship,
harmonization of the national list with more than the 20-state
list that already exists, measures to ensure the accuracy of
the list, and we have significant concerns in that area, and
further evaluations of the actual cost of the list so as not to
impose a prohibitive cost on telemarketers.
---------------------------------------------------------------------------
* The information referred to has been retained in Committee files.
---------------------------------------------------------------------------
We think there are key reasons for these issues to be
considered, and again would stress the fact that we believe
that the existing private list conducted for a number of years
more than adequately deals with the concerns of consumers as
evidenced, Senator, by the fact that in those States that have
do-not-call lists, the vast majority of the people who have
already been on the DMA's list do not sign up for these lists.
They in fact find that they work just fine, and so we would
submit to you that the current FTC proposal is inappropriate,
and duplicative of the private sector and the States' existing
lists.
[The prepared statement of Mr. Wientzen follows:]
Prepared Statement of H. Robert Wientzen, President and CEO,
Direct Marketing Association, Inc.
I. Introduction
Good morning, Senator Dorgan, and Members of the Subcommittee, and
thank you for the opportunity to appear before you as the Subcommittee
discusses reauthorization of the Federal Trade Commission. I am Robert
Wientzen, President and CEO of the Direct Marketing Association, Inc.
(``The DMA'').
The Direct Marketing Association is the largest trade association
for businesses interested and involved in interactive and database
marketing, with approximately 5,000 member organizations from the
United States and more than 50 other nations. Founded in 1917, its
members include direct marketers from every business segment, as well
as the non-profit and electronic marketing sectors. All aspects of the
teleservices industry, both profit and non-profit, are represented in
The DMA's membership. Any change in the legal requirements for this
segment necessarily would have an impact on The DMA and its members.
Telemarketing makes an important contribution to the United States
economy. Outbound consumer telephone marketing generated $274.2 billion
in sales in 2001 and is estimated to employ 4.1 million workers. \1\
The telemarketing industry employs a high number of minorities and
individuals in welfare-to-work programs, and telemarketing companies
often are located in small towns where they are a primary employer. \2\
It is an unseparable part of an even larger $661 billion industry that
contributes almost 6 percent of U.S. GDP and more than 6 million jobs
to the U.S. economy. In addition, telemarketing is a mainstay for
obtaining charitable contributions in the United States.
---------------------------------------------------------------------------
\1\ These numbers are from a forthcoming WEFA Group study, Economic
Impact, U.S. Direct and Interactive Marketing Today, 2002 Forecast
\2\ The Faces and Places of Outbound Teleservices in the United
States: The People and Places that Would Be Harmed by a Decline in
Telemarketing, The Direct Marketing Association, Inc., June 2002.
---------------------------------------------------------------------------
I want to acknowledge the Commission for its approach in stopping
fraud and deception through increased enforcement of existing laws
rather than through pushing for new laws or adopting new rules. The
Commission already has broad authority to enforce against bad actors in
the marketplace. We at The DMA continue to work closely with the
Commission on stopping fraud through referral of cases to the
Commission on a regular basis and industry and consumer education on
fraud prevention. I would like to focus our testimony today on the
Commission's do-not-call registry proposal and related issues. The DMA
believes that the Commission has laudable goals in its proposed
amendments to the Telemarketing Sales Rule (``TSR''), and has filed
comments in the proceeding as well as participated in its workshop. I
believe that the focus on enforcement rather than additional regulation
also is the appropriate course to take with respect to combating
abusive telemarketing.
For this reason, The DMA opposes the creation of a government-
administered national do-not-call list as currently proposed by the
Commission. We believe that the Commission's proposal extends beyond
the Telemarketing and Consumer Fraud and Abuse Prevention Act's purpose
of reducing abusive and deceptive practices and will interfere with the
legitimate telemarketing activities that compose this significant
portion of the economy. Likewise, we believe that the proposal
restricts legitimate commercial speech that is protected by the First
Amendment. This is particularly the case with respect to the limitation
on businesses being able to communicate with their existing customers
who are on a national do-not-call list.
We believe that the Commission's authority under the TSR,
prescribed by the Congress, does not extend to the creation of a
national do-not-call list. At the time of enactment, the Congress
specifically stated that `` . . . the Committee does not intend to
limit legitimate telemarketing practices.'' \3\ There is no reference
to a do-not-call list in either the statutory text or the legislative
history of the Act. However, the Telephone Consumer Protection Act,
referred to as the ``TCPA,'' demonstrates that where Congress wanted an
agency to consider such a mechanism, it did so in a statute.
Specifically, the TCPA authorized the Federal Communications Commission
to conduct a rulemaking proceeding in which it was to consider a number
of measures to protect residential telephone subscriber rights in an
``efficient, effective, and economic manner and without the imposition
of any additional charge to telephone subscribers.'' \4\
---------------------------------------------------------------------------
\3\ H.R. Rep. No. 103-20, at 9 (1993), reprinted in 1993
U.S.C.C.A.N. 1626.
\4\ 47 U.S.C. Sec. 227(c)(2).
---------------------------------------------------------------------------
The Commission's proposal would directly contradict the FCC's
consideration--and rejection of--a national call registry in its
rulemaking implementing the TCPA in 1992. In its rulemaking, the FCC
found that a national do-not-call list would be ``costly and difficult
to establish and maintain in a reasonably accurate form.'' \5\ Attached
to this testimony and submitted for the record are the comments that
The DMA submitted in this proceeding in conjunction with the United
States Chamber of Commerce, which set forth in detail the legal and
policy reasons against the Commission creating a do-not-call list. *
---------------------------------------------------------------------------
\5\ Rules and Regulations Implementing the Telephone Consumer
Protection Act of 1991, 7 FCC Rcd 8752, para. 14 (1992) (the ``TCPA
Order'').
* The information referred to has been retained in Committee files.
---------------------------------------------------------------------------
The DMA, of course, is not opposed to the concept of a national do-
not-call list. The DMA has had its Telephone Preference Service
(``TPS'') in place since 1985. There are currently 4.7 million
consumers on the TPS do-not-call list. The TPS covers consumer
telemarketers with no exceptions or exemptions. Any consumers who want
to reduce the number of unwanted national telemarketing calls they
receive can have their names placed on the TPS list for that purpose
free of charge. I note that the proposed Commission list, unlike the
DMA list, would not cover common carriers, or the airline, banking, or
insurance industries, among others.
With this background, I want to address specific concerns with the
Commission's proposal that The DMA believes should be addressed if the
Commission proceeds with a do-not-call list. These areas are set forth
in more detail in a letter also submitted for the record with my
testimony that was filed with the Commission on behalf of The Direct
Marketing Association, the American Teleservices Association, the
Electronic Retail Association, the Magazine Publishers of America, the
National Retail Federation, and the Promotion Marketing Association
collectively. *
These include:
The need for an exemption to the list that would allow
businesses to contact customers with whom they have an
established business relationship.
Harmonization of any national list with the more than 20
states that have do-not-call lists, so that businesses and
consumers can deal with one list.
Measures to ensure the accuracy of the list.
Further evaluation of the actual costs of such a list so as
not to impose prohibitive costs on businesses to comply.
II. An Exemption to the Proposed National Do-Not-Call List Should be
Created to Allow Businesses to Contact Individuals with Whom
They Have an Established Business Relationship.
Of these issues, the most critical to The DMA is the creation of an
exemption that will preserve the ability of businesses to contact those
individuals with whom they have an established business relationship
who register for the do-not-call list. In other areas of the law
governing marketing, exemptions exist for contacting individuals when
such a relationship exists. For example, the FCC in its rules
implementing the TCPA provides for marketing to established customers
using both fax and telemarketing. The FCC concluded in this rulemaking
that ``a solicitation to someone with whom a prior business
relationship exists does not adversely affect subscriber privacy
interests. Moreover, such a solicitation can be deemed to be invited or
permitted by a subscriber in light of the business relationship.'' \6\
This reasoning is equally applicable under the TSR.
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\6\ TCPA Order at para. 34. The sponsors of federal legislation to
regulate unsolicited commercial electronic mail have incorporated a
similar established business relationship exemption in their bills,
including H.R. 3113, which passed the U.S. House of Representatives by
a vote of 427 to 1 in 2000.
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It is unrealistic to expect consumers who sign on to a national do-
not-call list to understand that, by doing so, businesses with which
they have relationships will no longer be permitted to contact them to
offer goods and services. It is for this very reason that almost all of
the states that have implemented do-not call lists have created
exemptions for customers with a pre-established business relationship.
The Commission proposes that, after signing onto the do-not-call list,
consumers with existing business relationships can exercise their
choice to receive calls from specific companies through the companies'
obtaining ``express verifiable written authorization.'' In these tough
economic times, where businesses are struggling to attract new
customers, it hardly seems appropriate to require written permission to
call an existing customer.
III. Any National Do-Not-Call List Should Be Harmonized with State
Do-Not-Call Lists.
The next issue that I would like to discuss is that of
harmonization of any national list with state lists. Any government-
mandated national do-not-call list that is established must be
harmonized with state lists so that companies could comply with one
list. In the past several years, many states have enacted do-not-call
lists. The current framework, in which telemarketers are required to
comply with more than 20 state laws, creates significant burdens on
businesses. A preferable approach would limit such burdens by creating
one list to which marketers could subscribe that would encompass state
lists and a national list.
This harmonization must extend beyond compilation and
administration of the list to include exemptions and enforcement
standards as well for interstate calls. However, such is not the case
as envisioned by the FTC in its TSR proposed revisions.
IV. Steps Should Be Taken to Help Ensure the Accuracy of a Do-Not-Call
List.
The national do-not-call list as proposed by the Commission will
not accurately reflect individuals who place their names on the list
because society is highly mobile, with telephone numbers changing
regularly. The Commission proposes that its list be based upon a
person's placement of his or her ``name and/or telephone number'' on
the Commission-maintained registry and the capture of Automatic Number
Identification (``ANT'') information. It is estimated that phone
numbers change for 16 percent of the U.S. population on an annual
basis. Phone numbers are usually reassigned approximately 90 days after
an individual has moved and is no longer using the number.
A list with solely name or phone number would be outdated annually,
if not sooner. Such a scenario would not honor consumers' preferences.
In fact, it could result in individuals who did not place their names/
numbers on the list not receiving calls that they may want. The DMA's
TPS, by obtaining name, address, and telephone number, can regularly be
checked against the U.S. Postal Service's National Change of Address
List. The Commission's proposal would not employ similar measures to
ensure an accurate list. An approach that solely captures name and
phone number would require at a minimum an annual renewal to afford
meaningful choice.
V. The Costs Estimated by the Commission Do Not Accurately Reflect the
Costs of Running a National List.
The Commission's forecasted annual $5 million cost of administering
a national do-not-call list far underestimates the true costs of
administering such a list. Under the current proposal based on this
estimate, the Commission will charge national telemarketers $3,000 per
year to purchase the do-not-call list. The Commission does not specify
who will bear the burden of the additional costs in the probable event
that this estimated cost for administration of the do-not-call list
proves inadequate. The DMA and its members are concerned that, if in
fact it costs significantly more to administer the do-not-call list,
such costs not be passed on to marketers.
As described above, the Commission's current proposal will not
create an accurate list. It will be far more expensive to compile a
list that is capable of being accurate and authenticated because
obtaining additional information beyond name and/or number cannot be
automated. For example, Experian, Inc., a company that offers marketing
lists to businesses, offers a consumer opt-out from being placed on
marketing lists that result from ``prescreening.'' In order to ensure
accuracy and verification to honor the opt-out, Experian uses automated
technology that confirms an individual's telephone number, address, and
Social Security Number. Experian estimates the cost per person solely
to collect and input a consumer's information to be $1.28. This does
not include the costs of administering the list. If, as some project,
the Commission's proposed list will result in 64 million names, using
the $1.28 figure, such a list would cost more than $80 million in the
first year alone. Similarly, the FCC found the high costs of such a
database, ranging from $20 million to $80 million in the first year and
$20 million per year thereafter, to be prohibitive.
Additionally, we note our belief that the Commission's proposal to
assess such fees violates both OMB Circular A-25 and the Independent
Offices Appropriations Act, both of which we believe would require a
specific delegation from Congress to assess such charges. For the
record, we have attached our filing to the Commission regarding the
issue of do-not-call list user fees, which sets forth our legal
analysis of this issue. *
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* The information referred to has been retained in Committee files.
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VI. Agents of Charities Should Not Be Subject to the Do-Not-Call List.
The DMA, through its Nonprofit Federation, has members who are very
concerned about an imposition of a do-not-call list on charities. The
Commission proposes that agents who perform telemarketing for non-
profit charitable organizations would be subject to the list.
Charitable organizations themselves would not be subject to the list.
The Commission should not extend the do-not-call list to non-profit
organizations' agents. Such an extension would have devastating
economic effects on charities' ability to raise funds as the number of
individuals whom they could contact would be severely limited.
Likewise, this type of extension to agents of charities would create an
uneven playing field between those non-profits that have to hire a
telemarketing firm for cost efficiency reasons, and those that can use
internal staff to telemarket.
VII. Transfer of Preacquired Account Information Should Be Permitted
for Legitimate Business Practices.
Finally, we would like to take this opportunity to discuss one
additional proposed amendment to the TSR other than the do-not-call
list. The Commission proposes a flat ban on the transfer of a
consumer's account information. The Commission bases its proposed
prohibition on the transfer of preacquired billing information on the
belief that ``the sharing of consumers' pre-acquired billing
information is likely to cause unauthorized charges to consumers.''
While again the Commission has laudable goals, its proposal goes beyond
deceptive and abusive practices and will limit useful and legitimate
practices. There are numerous transfers of account information that
provide practical efficiencies and benefits to both consumers and
businesses. We believe that the Commission's concerns can best be
addressed through appropriate informed consent from consumers.
For example, if a consumer calls and orders outdoor clothing from a
merchant and is offered by the same sales agent another merchant's fly-
fishing magazine, transfer of information should not be prohibited if
the customer agrees to the transfer. Likewise, it is a significant
benefit to consumers when the customer calls the merchant and is then
transferred for the second seller to be able to obtain and use
information such as address and credit card information generated from
the first sale. This eliminates the need for a consumer to restate to
the second sales representative information that was just provided to
the first sales representative. Transfer and/or use of account
information in such scenarios with disclosure to and consent by the
consumer is inherently more efficient for both the merchant and
consumer.
Similarly, legitimate marketers may elect to conduct joint
marketing programs pursuant to which one marketer, e.g. an airline, may
provide its customers' names and telephone numbers to a hotel chain so
that the hotel can solicit that customer to book hotel space for the
customer's business or vacation travel. Allowing the marketers to share
consumer billing information with the consumer's informed and express
verifiable consent again makes the transaction easy, convenient, and
efficient for marketers and consumers alike.
VIII. Conclusion
I thank the Chairman and the Members of Subcommittee for the
opportunity to express the views of The DMA. We know that Congress and
this Subcommittee will continue to monitor these issues closely and we
look forward to working with you.
Senator Wyden. Very good.
Mr. Schwartz.
STATEMENT OF ARI SCHWARTZ, ASSOCIATE DIRECTOR,
CENTER FOR DEMOCRACY AND TECHNOLOGY
Mr. Schwartz. Senator Wyden, I would like to thank you,
Senator Dorgan and the rest of the Subcommittee for having the
Center for Democracy and Technology here to testify today. As
you know, the Center has been following the Federal Trade
Commission's work in the area of privacy closely during the
last 7 years. During that time, we have been impressed with the
Commission's commitment of resources and intellectual capital
on this increasingly important issue.
In my written testimony, I have documented 10 areas where
the Commission has focused its privacy efforts over the past 2
years. Most of the Commission's privacy work has been tied
directly to its mission of preventing deceptive and fraudulent
business practices. For example, in an area where you have
concerns, unsolicited commercial e-mail, commonly known as
spam, the Commission has focused action on the area of
fraudulent scams. I think that the Chairman went into the
details of some of these scams they have gone after.
In their web privacy sweeps, the Commission has conducted
detailed reviews of privacy notices. This has allowed them to
convince companies to post online privacy notices while helping
to prevent vague and even fraudulent policies. While this work
has been largely successful, the actions of the Commission in
privacy areas enabled by specific statutes demonstrates that
the FTC already has sufficient expertise to take on general
privacy protection responsibilities.
The Commission has demonstrated the thoughtful and patient,
yet innovative and ultimately very workable, approach to
addressing privacy issues that has transcended through the
administrations. An example of this is the Commission's work to
enforce the Children's Online Privacy Protection Act, also slow
but steady improvement in the complex area of financial privacy
education and enforcement.
In each of these cases the Commission has brought a wide
range of players to the table to work out difficult issues
through an iterative and inclusive process. The Commission's
work on the do-not-call telemarketing registry also shows this
comprehensive approach to developing sound privacy protections.
The Commission has made it clear that it has no intention to
ban telemarketing outright, but instead to give consumers more
control over how and why calls come to their home during dinner
time.
CDT and the broad coalition of consumer and citizen groups
are generally pleased with the current rule as proposed.
However, we would support any effort to give consumers more
choices and more controls at the time of signing up for the
registry and after as the Commission continues to investigate a
balanced approach.
To give the Commission general authority and other consumer
privacy related areas, Congress must now pass privacy
legislation. The Full Commerce Committee has already taken up
this step by voting in favor of the Online Privacy Protection
Act earlier this year. We hope that the rest of Congress will
follow your leadership on this critical issue of corporate
trust and accountability.
Thank you.
[The prepared statement of Mr. Schwartz follows:]
Prepared Statement of Ari Schwartz, Associate Director, Center for
Democracy and Technology
I. Summary
Chairman Dorgan and Members of the Committee, the Center for
Democracy and Technology (CDT) is pleased to have this opportunity to
testify about the Federal Trade Commission (FTC) and its role in
consumer and privacy protection.
Over the past seven years the FTC's activities in the area of
information privacy have expanded. The Commission has convened multiple
workshops to explore privacy, issued several reports, conducted
surveys, and brought several important enforcement actions in the area
of privacy. The Commission's work has played an important role in
bringing greater attention to privacy issues and pushing for the
adoption of better practices in the market place.
Two years ago, CDT testified that ``(t)he work of the Federal Trade
Commission--through its public workshops, hearings . . . provides a
model of how to vet issues and move toward consensus.''
Chairman Muris has successfully continued the consultation and
education process, working with public interest groups and industry on
key issues and taking enforcement actions or instituting rulemakings on
several important new fronts.
CDT and other public interest and consumer groups have been pleased
with the Commission's thoughtful approach to creating a National ``Do
Not Call Registry.'' The registry will provide consumers with an easy
way to cut down on unwanted telephone calls and will offer industry a
streamlined means of complying with the growing number of state and
self-regulatory ``Do Not Call'' lists.
CDT has also been pleased with the Commission's extensive new
educational effort with the public and industry on privacy notices, ID
theft, wireless privacy, spam, and other issues. It should be noted
that each of these areas is clearly within the FTC's jurisdiction to
prevent deceptive trade practices.
However, CDT would like to see the Commission use its new resources
to stop unfair information practices as well as deceptive ones. These
unfair practices include: lack of meaningful notice and choice; the
ability to correct and amend personal information; and inadequate
security safeguards.
It has long been CDT's belief that unfair information practices are
already covered by the Commission's current authority. Yet, the long-
standing hesitancy of the Commission to proceed has made it necessary
for Congress to confirm this authority in law. Although Chairman Muris
has suggested that general federal privacy legislation is unnecessary,
CDT sees an urgent need for legislation similar to S. 2201, the Online
Privacy Protection Act, as passed by the full Senate Commerce Committee
earlier this year. Privacy protections in law--enforced by the FTC--are
an essential ingredient of building and maintaining consumer confidence
in the networked economy. We thank you, Chairman Dorgan, as well as
Chairman Hollings and the other Senators who worked so hard to move
this issue forward in the Committee. CDT looks forward to continuing to
work with you to see such a measure signed into law.
II. About CDT
CDT is a non-profit, public interest organization dedicated to
developing and implementing public policies to protect and advance
civil liberties and democratic values on the Internet. One of our core
goals is to enhance privacy protections for individuals in the
development and use of new communications technologies. We thank the
Chairman for the opportunity to participate in this hearing and look
forward to working with the Committee to develop policies supporting
civil liberties and a vibrant communications infrastructure.
III. The Role of the FTC as the Federal Government's Leader on Consumer
Privacy Issues
The FTC has used its current jurisdiction to take basic steps to
protect the privacy of Americans in several innovative and balanced
ways. The Commission is the government's leader in consumer privacy
policy and should be commended for its current work in the area given
its limited view of its own jurisdiction.
Last fall, Chairman Muris said that the Commission would increase
privacy enforcement by 50 percent. According to internal figures, the
Commission believes it is on track to reach this goal. This dramatic
increase was on top of the new attention given to privacy issues that
had begun five years earlier.
In particular, over the past two years, the Commission has worked
in ten areas of interest to CDT:
1. Telemarketing Sales Rule--``Do Not Call'' Registry
Under the 1994 Telemarketing and Consumer Fraud and Abuse
Prevention Act, \1\ the Commission was given the authority to regulate
telemarketing sales. The Commission's regulations, named the
Telecommunications Sales Rules (TSR), were put into effect in 1995. \2\
The TSR placed some basic time, place and manner restrictions on calls
and left the door open to revisiting the rule if it was not adequately
protecting consumers.
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\1\ 15 U.S.C. 6101-6108
\2\ 16 CFR Part 310
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Some have said that telemarketing is merely an annoyance and not a
privacy concern and therefore stronger rules are not necessary. CDT
disagrees. We define privacy as individual control over one's personal
information. Control over one's telephone number and other personal
information is central to the privacy issue in the modern world.
The American public seems to agree with us. An AARP study of New
Jersey residents showed that 77 percent viewed telemarketing first and
foremost as an invasion of privacy; 10 percent a consumer rip-off, and
only 2 percent a consumer opportunity. \3\
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\3\ http://research.aarp.org/consume/nj_telemarketing.pdf
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The Commission has responded to the public concern about
telemarketing by issuing a notice of proposed rulemaking, reopening the
TSR and seeking public comment about how the rule could be rewritten to
put consumers back in control of their telephones. \4\ As a part of
this process, the Commission has proposed the creation of a ``do not
call'' registry, similar to those already in existence in 15 states. On
this proposal, over 42,000 public comments have been submitted to the
Commission. Over 90 percent of them support the proposed ``Do Not
Call'' registry.
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\4\ http://www.ftc.gov/bcp/conline/edcams/donotcall/pubs/NDNCR--
therule.pdf
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CDT believes that consumer choice should play an essential role in
telemarketing: Telemarketing should not be banned, but consumers should
be able to decide what kind of marketing calls they want and when they
want to receive them. Currently, consumers must take one of several
different approaches to remove their names from telemarketing lists.
They must (1) sign up for the Direct Marketing Association's do-not-
call list; (2) enlist the help of some or all of twenty different state
laws that include do-not-call provisions; and/or (3) contact individual
companies to direct them to place them on a company-based do-not-call
list. Currently, consumers must find their way through this complex
maze of options.
CDT, in coalition with other consumer groups, filed extensive
comments with the Commission supporting the proposed new Do-Not-Call
list. \5\ (The coalition were also the creators of
ConsumerPrivacyGuide.org--a Web site designed to educate consumers on
what they can do to protect their own privacy.) Our joint comments
state that institution of a national ``Do-Not-Call'' list by the FTC
would provide consumers with a straightforward, easy-to-exercise
mechanism to remove their names from telemarketing lists. The FTC
initiative would lift the burden from consumers who must either use the
DMA service or a state do-not-call request on a company-by-company
basis.
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\5\ http://www.ftc.gov/os/comments/dncpapercomments/04/
consumerprivacyguide.pdf
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We stressed in our comments that the FTC's ``Do-Not-Call''
initiative should not dilute or undercut the protections afforded
consumers by the states against invasive telemarketing. Further, as we
pointed out, it is critical that consumers are not charged a fee to be
placed on the ``Do-Not-Call'' list--consumers' ability to protect the
privacy of their personal information should not be contingent upon
their ability to pay a fee.
CDT has been pleased with how the public process on this important
issue has progressed. To date it has been a model example of how a
complex but important issue can be addressed through an open, public
process. We hope that the Commission will follow an equally inclusive
process when it issues its final draft of the rule.
2. Privacy Education
The FTC has generally served a valuable role working with and
educating the business community about privacy best practices and
implementation of fair information practices. An important example is
the work the FTC has undertaken in the area of privacy notices. The
millions of confusing privacy notices mailed to consumers under the
Graham-Leach-Bliley Act highlighted the difficulties encountered in
providing consumers with clear, comprehensive and easily understood
notice.
While significant work had been undertaken by the business
community and advocates to explore and develop better ways to effect
good notice, the FTC workshop held in late 2001 was an important
opportunity to raise issues to be resolved and share findings in a
public discussion. Participants were able to voice concerns, note
accomplishments and chart out areas for future research.
Forums such as these are important tool in highlighting and
encouraging efforts to address specific privacy issues.
3. Unsolicited Commercial Email (Spam)
The Commission taken several useful steps regarding the issue of
unsolicited commercial email, or ``spam:''
The Commission has created an educational Web site for
consumers and businesses. The site provide consumers with
helpful information on how spam works, why they get spam, and
how to decrease the amount of spam they receive. The site
advises businesses on how to comply with a user's unsubscribe
request.
The FTC also conducted a study to test whether
``unsubscribe'' or ``remove me'' requests were being honored.
The study reported that the majority of consumer requests were
not getting through. The Commission thereupon sent out warning
letters to spammers.
In April of 2002, the FTC filed a complaint against Internet
spammers who allegedly sent out deceptive, unsolicited
commercial emails and participated in Web fraud. The FTC joined
several state law enforcement officials in the United States as
well as four Canadian law enforcement agencies in bringing 63
different actions against various Web schemes and scams that
targeted victims through spam.
While the Commission, given its limited view of its jurisdiction,
has taken these exemplary first steps in research, education and
enforcement regarding unsolicited commercial email, CDT would like to
see it given more power to tackle fraudulent spam Further appropriate
steps could be taken under provisions in the CAN SPAM Act (S.
630),sponsored by Senators Burns and Wyden and recently passed by the
full Commerce Committee. CDT is hopeful that we can begin to turn the
tide on spam while still protecting the First Amendment right of
anonymous non-commercial/political speech online. \6\
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\6\ For more information on CDT's views on the CAN SPAM act, please
see our recent Policy Post http://www.cdt.org/publications/
pp_8.12.shtml
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4. Gramm-Leach-Bliley Compliance
Under the new financial services law, the Commission has
jurisdiction over important financial institutions such as insurance
and mortgage companies. In an August 2001 survey, CDT found that these
companies were among the worst in posting privacy notices on Web sites.
That month, we filed a complaint with the FTC about several mortgage
companies that were not posting notices as required by the FTC's GLB
regulations. While the Commission has not officially closed the case,
the five remaining Web sites have now posted privacy policies.
CDT believes that there is probably still more basic, but important
enforcement work that the Commission could to do in the area of privacy
notice for insurance and mortgage companies.
5. Identity Theft and Identity Fraud
The FTC has been a leading agency in the prevention and prosecution
of identity theft through its identity theft program. The program
contains three key elements: the Identity Theft Data Clearinghouse; \7\
consumer education and assistance resources; collaborative enforcement
efforts involving criminal law officers and private industry.
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\7\ http://www.consumer.gov/idtheft/
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The Identity Theft Clearinghouse currently holds more than 170,000
victim complaints and serves as an important tool for 46 federal and
306 state and local law enforcement agencies, including the US Secret
Service, the Department of Justice, the US Postal Inspection Service,
and the International Association of Chiefs of Police. The FTC has also
been increasing outreach programs to educate law enforcement officials
on how the Clearinghouse database can be used to enhance investigations
and prosecutions.
In regards to consumer education and assistance resources, the FTC
has held training seminars for law enforcement officials at all levels
in an attempt to give law enforcement the necessary tools they will
need to combat identity theft. The FTC has also implemented a
nationwide, toll-free hotline that consumers can call if they have
become a victim and a Web site that consumers can access to file a
complaint and gain helpful prevention tips.
The Commission's work in this area shows that it can be a leader
with other law enforcement agencies, serving as the main contact to the
public. Hopefully the Commission's work, along with the passage of new
legislation in this area, can help to cut down on what many believe to
be the fastest growing crime in the country.
6. Wireless Privacy
In December 2000, the Commission held a workshop entitled ``The
Mobile Wireless Web, Data Services and Beyond: Emerging Technologies
and Consumer Issues.'' \8\ As this subcommittee knows well, the
wireless privacy issues have been a growing concern for consumers due
to the emerging use of location tracking technologies to provide
consumers with enhanced services. It was clear from the workshop that
the staff and Commissioners have the understanding and skills necessary
to undertake a serious privacy or security investigation in this area
if it is warranted. However, the Commission has taken little action in
this area since the workshop. CDT urges the Commission to follow-up
with another workshop in this area as wireless technologies and
location applications progress.
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\8\ A staff summary of the event was released in February 2002
http://www.ftc.gov/bcp/workshops/wireless/.
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7. Online Profiling and Data Mining
Online profiling is the practice of aggregating information about
consumers' preferences and interests, gathered primarily by tracking
their movements online. It remains one of the most complex and opaque
issues in privacy. Consumers are concerned because they know someone is
watching, but they don't know who, how or to what end.
In November 1999, FTC examined online profiling, focusing on the
use of the resulting profiles to create targeted advertising on Web
sites. \9\ In June and July of 2000, the FTC issued a two-part report
on online profiling and industry self-regulation. \10\ The
Commissioners unanimously commended the Network Advertising Initiative
(NAI) for its self-regulatory proposal that seeks to implement Fair
Information Practices for the major Internet advertisers' collection of
online consumer data. The July report also asked Congress to enact
baseline legislation to protect consumer privacy. In addition to its
several reports, the FTC has also held a series of public workshops on
data mining in an effort to educate consumers as well as it itself.
\11\
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\9\ Public Workshop on ``On-Line Profiling''--http://www.ftc.gov/
bcp/profiling/index.htm
\10\ http://www.ftc.gov/os/2000/06/
onlineprofilingreportjune2000.pdf and http://www.ftc.gov/os/2000/07/
index.htm#27
\11\ http://www.ftc.gov/bcp/workshops/infomktplace/index.html
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The reports and workshops that the FTC has undertaken in this area
have represented the best work done in this area internationally.
Unfortunately, since Chairman Muris has taken office, little public
work has been continued in this area. We hope that the Commission will
return to this area, one that causes concern to so many consumers.
8. Computer Security Education
The FTC has taken several steps to educate consumers on computer
security. In addition to holding workshops, the FTC is drafting a guide
for consumers on how to stay safe online using a high-speed Internet
connection. The guide details how users can protect their computers
from viruses and hackers by explaining security features such as
firewalls and updating virus protection software. The FTC has worked
diligently to make the report both understandable and appealing to the
average consumer through careful analysis and easy to read text. The
Commission has continued to work with consumer groups to ensure that
the guide is easy to use and contains the necessary information. In
addition, FTC held a public workshop in May to examine issues
surrounding the security of consumers' computers. \12\
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\12\ http://www.ftc.gov/bcp/workshops/security/index.html
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9. Internet Privacy Sweeps
Earlier this year, the Commission continued its ongoing assessment
of the state of Internet privacy which began five years ago and has
been repeated twice since. This year, the Commission embraced a report
\13\ organized by the Progress and Freedom Foundation and conducted by
the Ernst and Young accounting firm. The results show significant
improvement in the number of privacy policies posted and the growth of
the new privacy protocol, the Platform for Privacy Preferences (P3P).
\14\ This positive growth is due, in part, to the educational work of
the Commission.
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\13\ http://www.pff.org/pr/pr032702privacyonline.htm
\14\ CDT was the originator of the P3P concept and has continued to
work on the specification and its adoption. More information about P3P
can be found at http://www.w3.org/p3p and http://www.p3ptoolbox.org
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On the other hand, the study found that self-regulatory seal
programs have actually been shrinking. This is mainly due to the
bankruptcy of many dot com players, but it also indicates that we are
entering a time of a major privacy gap. Some companies are actively
involved in the privacy issue and are doing their best to build trust.
Meanwhile, a small number of free-rider companies are doing no work on
privacy. The marketplace has remained confusing to the average consumer
and many prefer to sit on the sidelines until baseline privacy is
assured. \15\
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\15\ Business Week has conducted a number of surveys showing that
privacy is the number one concern of both those who are not online and
those who are online, but do not shop online. The most recent is
available at http://businessweek.com/2000/00_12/b3673006.htm. Jupiter
Communications has estimated that $18 billion in consumer transactions
did not take place online because of privacy concerns (McCarthy, John,
``The Internet's Privacy Migraine,'' presentation, SafeNet2000,
December 18, 2000).
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CDT hopes that Congress will continue to support and monitor the
FTC's privacy sweeps--and we urge the Commission to work with a wide
range of organizations and academics, including consumer groups, when
preparing the parameters and methodology for future sweeps.
10. COPPA Compliance
In 1998, Congress passed the Children's Online Privacy Protection
Act (COPPA) \16\ in order to protect children's personal information in
interactions with commercial sites. The FTC was required to enact a
rule to implement COPPA and in doing so it clarified issues concerning
coverage and liability, modified several definitions that would have
interfered with children's ability to participate, speak and request
information online, and made every effort to create a predictable and
understandable environment for the protection of children's privacy
online.
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\16\ 15 U.S.C. 6501
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Since issuing its final Rule implementing COPPA, the FTC has taken
several effective and necessary steps to enforce and enhance compliance
with COPPA. This past spring, the FTC released a package of initiatives
that included:
The announcement of a settlement in its sixth COPPA
enforcement case, against the operators of the ``Etch-A-
Sketch'' Web site, resulting in a $35,000 civil penalty.
The release of an FTC COPPA compliance survey and a business
education initiative, including the publication of ``You, Your
Privacy Policy and COPPA'' to help children's Web site
operators draft COPPA-compliant privacy policies.
The announcement of warning letters to more than 50
children's sites alerting them to the notice provisions of
COPPA and the requirement that they comply with the provisions.
In response to public input, the decision to extend COPPA's
sliding scale mechanism for obtaining verifiable parental
consent until 2005.
While there is still work to be done, the COPPA experience
demonstrates that the FTC can develop workable privacy rules in complex
and sensitive areas that go well beyond its traditional arenas.
IV. The Future Role of the FTC in Privacy Issues
While the Commission's privacy work has been successful, it has
also been limited mainly to areas of deceptive or fraudulent practices.
CDT believes that this limited focus is preventing the Commission from
taking on urgently needed actions in the privacy area.
Proposed Privacy Legislation
CDT believes that a comprehensive, effective solution to the
privacy challenges posed by the information revolution must be built on
three components: industry best practices propagated through self-
regulatory mechanisms; privacy as a design feature in products and
services; and some form of federal legislation that incorporates Fair
Information Practices--long-accepted principles specifying that
individuals should be able to ``determine for themselves when, how, and
to what extent information about them is shared.'' \17\ Legislation
need not impose a one-size-fits-all solution. However, as a starting
point, strong privacy legislation is urgently needed to cover sensitive
personal information such as privacy of medical and financial records.
For broader consumer privacy, there need to be baseline standards and
fair information practices to augment the self-regulatory efforts of
leading Internet companies, and to address the problems of bad actors
and uninformed companies. Finally, there is no way other than
legislation to raise the standards for government access to citizens'
personal information increasingly stored across the Internet, ensuring
that the 4th Amendment continues to protect Americans in the digital
age.
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\17\ Alan Westin. Privacy and Freedom (New York: Atheneum, 1967) 7.
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On May 17, 2002 the Senate Commerce Committee passed S. 2201, the
Online Privacy Protection Act. S.2201 would set a true baseline of
privacy protection and would give the FTC the clear authority to go
after companies engaging in unfair information practices.
During the Committee process, Senator McCain asked the FTC
Commissioners to give their views on S.2201. In response, Chairman
Muris gave five reasons that such a bill was not necessary at that
time. \18\ CDT disagrees strongly with the Chairman. While CDT
continues to work with the FTC to help advance self-regulatory efforts,
privacy enhancing technologies and public education, we believe that
these efforts alone are not and cannot be enough to protect privacy or
instill consumer confidence on their own.
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\18\ http://www.ftc.gov/os/2002/04/sb2201muris.htm
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CDT commends the Senate Commerce Committee for its excellent work
in improving S.2201 during the Committee process. We hope that the
Committee continues to push for the FTC's expanded jurisdiction in this
area.
Proposed Rescinding of Common Carrier Exemption
The Committee also asked CDT to address the issue of rescinding the
exemption that prevents the Commission from exercising general
jurisdiction over telecommunications ``common carriers.''
The idea of creating a level playing field is appealing,
particularly when some communications services fall within the
jurisdiction of the FTC. In particular, lifting the restriction in
certain areas--such as billing, advertising and telemarketing--could
ensure that the agency with the most expertise in these areas is taking
a leading role.
However, rescinding the exemption completely could lead to
duplication of government regulation and/or confusion for consumers in
certain areas. For example, telecommunications companies are already
subject to the Customer Proprietary Network Information (CPNI) rules
administered by the Federal Communications Commission, which limit
reuse and disclosure of information about individuals' use of the phone
system including whom they call, when they call, and other features of
their phone service. At this point, we are not sure it would be wise to
take this issue away from the FCC. Similar questions may arise with
other issues: Which agency would take the lead? By which rules would a
complaint about deceptive notice be addressed? How will these decisions
be made?
The Commission has been thoughtful in these areas in the past, so
it is likely that any concerns could be addressed. Yet, if this
proposal moves forward, the Commission would need to be able to have a
detailed examination and plan for dealing with similar areas of
overlap.
Conclusion
The FTC is to be commended for taking some very laudatory steps to
address the serious and widely shared concerns of the American public
about privacy. Indeed, as the foregoing review of issues demonstrates.
The FTC already has sufficient expertise to take on general privacy
protection responsibilities. However, the Commission has, in our view,
taken an unduly narrow view of its jurisdiction, such that
Congressional action is needed to establish a baseline of fair
information practices in law. We will continue to work with this
Committee and the Commission to find innovative, effective and balanced
solutions to the privacy problems posed by the digital age.
Senator Wyden. Thank you.
Mr. Alldridge.
STATEMENT OF DENNIS H. ALLDRIDGE, PRESIDENT, SPECIAL OLYMPICS-
WISCONSIN, NON-PROFIT AND CHARITABLE
COALITION REPRESENTATIVE
Mr. Alldridge. I thank the Subcommittee and its fine staff
for allowing me to appear this morning regarding the Federal
Trade Commission's proposed national Do-Not-Call registry. My
perspective is that of President of Special Olympics-Wisconsin.
I speak on behalf of the Not-for-Profit and Charitable
Coalition. The Not-for-Profit Coalition has 277 member
organizations.
All are non-profit or charitable organizations. About 2
dozen are national groups such as Mothers Against Drunk
Driving, the Leukemia and Lymphoma Society, the National U.S.
Junior Chamber of Commerce, and Amvets, American Veterans.
About 250 are State and local groups and include scores of
charities, veterans groups, law enforcement, fire fighter,
paramedic and other public safety organizations.
Special Olympics-Wisconsin is a non-profit member of the
coalition. Our mission is to provide year-round sports training
and athletic competition in a variety of Olympic-like sports
for children and adults with cognitive disabilities, 9000
athletes who are currently being served by our program each
year. These athletes are helped along the way by 3,500 coaches
and more than 17,000 volunteers. We have 220 registered local
agencies, each under the direction of a volunteer agency
manager.
Our volunteers put in more than 350,000 hours of service
annually, which allow our athletes to log over 500,000 hours of
training and competition. Last year, we conducted 72 state-wide
competitions and Special Olympics-Wisconsin was proud to award
more than 27,000 medals and ribbons to deserving young men and
women who overcame disabilities that few of us can even
comprehend. Inspiring greatness in our athletes each and
everyday is our goal.
I speak only for the coalition, but I am confident that
thousands of non-profits and charities totally agree with our
views with respect to the Commission's proposed rulemaking. The
common thread is that we all use and rely upon public appeals
by professional representatives. These representatives perform
at least two critical functions. First, they account for the
lion's share of our revenue. For example, public appeals made
by professional representatives account for more than 37
percent of Special Olympics-Wisconsin's annual revenue.
Second, and I emphasize this as an often overlooked point,
they carry our program and mission to the general public, they
put out the call for volunteers, and they build attendance at
our games and competitions. That is very critical for a
volunteer-driven organization like Special Olympics.
Also, Mothers Against Drunk Driving often launches,
advocates, and supports national, State, and local legislative
and administrative campaigns. Their professional
representative's telephone calls serve as a public alert and
general call to arms with respect to those campaigns. Often,
appeals for financial support are not made until the end of the
conversation.
Fully two-thirds of all legitimate non-profits and
charities rely upon professional representatives to make these
public appeals. The Commission's proposed Do-Not-Call registry
would irreparably harm every single one of these organizations,
and it would deal a death blow to thousands of them. While the
Commission predicts that its national registry would cut the
potential donor call pool by 40 percent, knowledgeable
observers suggest that the FTC's guesstimate is extremely low,
and as if that were not enough, please allow me to explain how
the Do-Not-Call registry further terrorizes non-profits and
charities.
Special Olympics-Wisconsin has individuals who have donated
money to support our program in each of the last 5 years.
Motivated by their understandable desire to avoid commercial
telemarketing calls, one of these individuals may place their
name on the FTC's Do-Not-Call registry. The professional
representative for Special Olympics-Wisconsin would be
prohibited from calling that proven donor supporter unless that
individual had given his prior explicit consent to receiving a
telephone call from our representative.
Thus, by placing his name on the FTC's Do-Not-Call
registry, that long-time donor supporter has unwittingly shut
out contacts by Special Olympics-Wisconsin made by our
representative. Ironically, because the FTC's Do-Not-Call
registry totally exempts telemarketing calls for credit cards,
banks, insurance, airlines, long distance services, and
political candidates, they have left themselves open to many of
the types of commercial calls they were hoping to avoid in the
first place.
While the not-for-profit and charitable community is
bewildered and alarmed, we do not ascribe bad faith to the
Commission for including our professional representatives and
thus ourselves in this proposal. In Wisconsin, we had hearings
on the Do-Not-Call laws. They passed a law which specifically
exempts calls made on behalf of the not-for-profits. Also, as
you all know, charitable calling in Wisconsin and every other
State is highly regulated, so we respectfully ask that they
reconsider their position and completely exempt these public
appeals by our professional representatives and us.
Finally, we seek the Subcommittee's active support of our
efforts. Thank you.
[The prepared statement of Mr. Alldridge follows:]
Prepared Statement of Dennis H. Alldridge, President, Special Olympics-
Wisconsin, Non-profit and Charitable Coalition Representative
I. Introduction
Mr. Chairman and Members of the Subcommittee, my name is Dennis H.
Alldridge. I am the President of the Special Olympics Wisconsin
(``SOWI''). I appear today before the Subcommittee on behalf of the
Not-For-Profit and Charitable Coalition (``Coalition'') to offer
testimony on the irreparable harm on nonprofit and charitable
organizations that will result from the Federal Trade Commission's
(``Commission'') implementation of a national ``Do-Not-Call'' registry
pursuant to proposed amendments to the Telemarketing Sales Rule, 16
C.F.R. Sec. 310 et seq. (``TSR''). At the outset, I want to clarify
that my testimony is limited to the negative impact of the ``Do-Not-
Call'' registry as applied to nonprofit and charitable organizations
and their professional fundraisers, that is, noncommercial conduct that
is not intended to induce purchases of goods or services under the TSR
and the Telemarketing Consumer Fraud and Abuse Prevention Act, 15
U.S.C. Sec. 6101 et seq. (``Telemarketing Act'').
As discussed in written comments filed with the Commission \1\ in
response to the Commission's Notice of Proposed Rulemaking, see Notice
of Proposed Rulemaking, 67 FED. REG. 4492 (Jan. 30, 2002) (``Notice''),
SOWI and the Coalition strongly oppose the proposed TSR amendments and
the national ``Do-Not-Call'' registry as applied to nonprofit and
charitable organizations. \2\ The ``Do-Not-Call'' registry will
decimate an already cash poor nonprofit and charitable industry. By the
Commission's own estimates, up to 40 percent of all households will
sign up with the ``Do-Not-Call'' registry. See Federal Trade
Commission, Fiscal Year 2003 Congressional Justification Budget
Summary, at 6. This probably is a conservative estimate based on
information cited by the Commission. But even assuming the accuracy of
the estimate, there is no doubt that most nonprofit and charitable
organizations will not survive with a 40 percent reduction in
communications with current and prospective donors and commensurate
erosion of their charitable message and donations.
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\1\ SOWI's comment is available on the Commission's website at
http:///www.ftc.gov/os/ comments/dncpapercomments/04/sowisconsin.pdf.
The Coalition's comments are available at (1) http://www.ftc.gov/os/
comments/dncpapercomments/04/notfor profit.pdf, and (2) http://
www.ftc.gov/os/comments/dncpapercomments/supplement/npcc.pdf. These
written comments are incorporated by reference into this Prepared
Statement.
\2\ The Coalition participated in the public forum on the proposed
TSR amendments held by the Commission on June 5-7, 2002. A transcript
of the proceeding has not been released by the Commission.
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The Coalition has three major concerns. First, the ``Do-Not-Call''
registry as applied to professional fundraisers soliciting
contributions on behalf of nonprofit and charitable organizations will
devastate these organizations. It will reduce funding, impede the
fulfillment of mission objectives, and silence the constitutionally
protected dissemination of the nonprofit and charitable message.
Second, the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L.
107-56 (Oct. 25, 2001) (``USA PATRIOT Act'') did not give the
Commission jurisdiction to regulate nonprofit and charitable
institutions and their professional fundraisers. Nor did it give the
Commission authority to restrain nondeceptive, nonabusive, and
legitimate charitable solicitations by professional fundraisers acting
on behalf of legitimate nonprofit and charitable organizations. The
Commission's contrary interpretation departs from its 1995 Advisory
Opinion that the TSR generally imposes no restrictions on the
legitimate fundraising activities of nonprofits and their professional
fundraisers because a donation is not ``telemarketing'' under the
Telemarketing Act and the TSR. Finally, the Coalition believes that the
``Do-Not-Call'' registry is unconstitutional as applied to professional
fundraisers who solicit charitable donations on behalf of nonprofit and
charitable organizations. Such conduct by professional fundraisers is
fully protected noncommercial speech under the First Amendment.
We appreciate the willingness of the Subcommittee and staff to
listen to the concerns of the nonprofit and charitable community, and
we look forward to continuing our work with the Subcommittee in order
to achieve a resolution. We respectfully submit that the only viable
resolution is to permit nonprofit and charitable organizations to
continue to fulfill their vital public functions by excluding from the
Telemarketing Act and the proposed TSR amendments (including the
proposed national ``Do-Not-Call'' registry) charitable solicitations by
professional fundraisers on behalf of nonprofit and charitable
organizations.
II. Overview of Special Olympics Wisconsin and the Coalition
My testimony today is based on more than twenty years experience in
the nonprofit sector with the Special Olympics. I have been President
of SOWI since 1989. Prior to my position with SOWI, I was the Executive
Director of Illinois Special Olympics, Inc. between 1980-1989. As the
Chief Executive Officer of SOWI, I have responsibility for the
organization's planning, budgeting, public relations, and fundraising.
These responsibilities are conducted in accordance with the standards,
policies and procedures of the Special Olympics International and SOWI
including, for example, SOWI's fundraising guidelines and ``Do-Not-
Solicit'' list.
SOWI is an accredited program of Special Olympics, Inc. (``SOI'').
SOI is an international nonprofit organization founded by Eunice
Kennedy Shriver in 1968 to provide sports training and competition to
persons with cognitive disabilities. \3\ SOI programs are patterned
after the Olympic Games. In fact, SOI is the only organization
authorized by the International Olympic Committee to use the word
``Olympics'' in its corporate name. Similar to the Olympics, SOI has a
global presence, with programs in every state and in 150 countries. It
serves nearly 1,000,000 athletes and 500,000 volunteers who take part
in more than 15,000 Special Olympics games around the world, involving
24 summer and winter sports.
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\3\ Special Olympics' mission is to provide year-round sports
training and athletic competition in a variety of Olympic-type sports
for persons eight years of age and older with cognitive disabilities,
giving them continuing opportunities to develop physical fitness,
demonstrate courage, experience joy and participate in a sharing of
gifts, skills and friendships with their families, other Special
Olympics athletes and the community.
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SOWI alone serves 9,000 athletes in 220 Wisconsin communities
participating in 72 statewide competitions. Participation in sports
brings significant benefits to people with cognitive disabilities of
all ages and abilities. Through the work of SOWI, persons with
disabilities are given physical benefits (fitness, increased
coordination, cardiovascular fitness and endurance), mental benefits
(knowledge of rules and strategy, along with increased selfesteem,
self-confidence, and pride), and social benefits (teamwork, interaction
with peers and people without cognitive disabilities, opportunity to
travel and learn about other places and interests, family pride, and
increased community awareness and acceptance). These benefits empower
SOWI athletes to lead richer, more rewarding lives by applying new
skills and confidence to school, work, home and social life.
SOWI's nonprofit mission is reflective of other members of the
Coalition. The Coalition is composed of 277 national, state, and local
nonprofit and charitable organizations with tax-exempt status under the
United States Internal Revenue Code, 26 U.S.C. Sec. 501(c), that oppose
the Commission's proposed rule. The Coalition includes a broad spectrum
of organizations in the nonprofit and charitable sectors that provide
highly diversified program benefits to the public and their members. It
includes national nonprofits devoted to fighting disease and improving
the quality of life for Americans such as Mothers Against Drunk
Driving, The National Federation for the Blind, the Cancer Federation,
and the Leukemia and Lymphoma Society. Many Coalition members target
the special needs of sick or missing children such as The Kids Wish
Network, Miracle Flights for Children, National Children's Cancer
Society, and the Committee for Missing Children. In addition to these
national charities, the Coalition consists of more than 180 statewide
membership organizations representing hundreds of thousands of active
and retired law enforcement officers, professional and volunteer fire
fighters, Jaycees, and veterans.
The public benefits created by the Coalition members are
substantial and unparalleled. The various public safety organizations
represent police chiefs, sheriffs, highway patrol, state and municipal
police, narcotic officers, fire chiefs, professional fire fighters,
paramedics and state investigatory personnel. As full time public
safety personnel, the organizations are a unique and unrivaled source
of knowledge and expertise on law enforcement, the fire service, and
emergency medical services. They offer advice and counsel on criminal
apprehension, detention, enforcement, fire safety, delivery of fire
fighting services, and anti-terrorism expertise. They provide training
and education on topics such as enhancements in law enforcement and
fire fighting technology which improve the quality of services realized
by the public. And many of the organizations sponsor comprehensive
public service and educational programs on issues such as seat belt
usage, home fire prevention, alcohol abuse, safe driving, illegal
drugs, missing children, and community policing.
Thousands of charitable causes and state and local community
programs are sponsored, supported or funded by these public safety
organizations. A few examples illustrate the connection between the
Coalition members and community programs. Professional fire fighters
represented in the Coalition provide extensive volunteer and financial
support for The Muscular Dystrophy Association, and similar national
support is provided by law enforcement organizations to the Special
Olympics. Other examples include death benefit and benevolent programs
for public safety officers killed or injured in the line of duty,
scholarship programs for high school students, summer camps for
underprivileged youths, hospital visits to children with terminal
illnesses, and support of burn camps and burn victims.
The Coalition also includes a significant number of state military
veterans organizations affiliated with the American Legion, Military
Order of the Purple Heart, Veterans of Foreign Wars, AMVETS, and the
Vietnam Veterans of America. Together, these organizations facilitate,
support, and fund countless public initiatives such as emergency
financial aid; relocation, medical, employment and educational services
for veterans; support for orphans and widows of veterans killed in the
line of duty; assistance to disabled veterans in securing Veteran's
Administration benefits and obtaining medical treatment, coordinating
volunteer efforts that provide hundreds of thousands of hours of
uncompensated services to hospitals; assisting veterans in obtaining
employment; and providing transitional housing for homeless veterans.
III. Summary of the Proposed TSR Amendments
The TSR regulates specific deceptive and abusive telemarketing
practices as defined by the Telemarketing Consumer Fraud and Abuse
Prevention Act, 15 U.S.C. Sec. 6101 et seq. (``Telemarketing Act'').
Enacted in 1994, the Telemarketing Act represents an effort by Congress
to address fraudulent commercial telemarketing conduct harmful to
consumers. That mandate, however, does not support a regulatory
interpretation that creates a government-imposed prohibition against
communicating with certain consumers--upon risk of federal, state or
civil liability. Nor does it support a regulatory scheme creating a
mandatory fee-based telephone registry that will eliminate or
significantly reduce all nonprofit and charitable telephone calls
regardless of whether they are fraudulent, abusive or deceptive.
Under the Telemarketing Act, the Commission's regulatory authority
has been limited to deceptive and abusive telemarketing acts and
practices intended to induce the purchase of goods or services, that
is, commercial conduct. The Commission now proposes a fundamental
departure from this approach that will compromise substantially the
ability of nonprofit and charitable organizations to generate funding
necessary to fulfill their vital missions and silence their nonprofit
message. First, the Commission seeks to expand its jurisdiction by
regulating nondeceptive, nonabusive, noncommercial and admittedly
legitimate charitable solicitations by professional fundraisers acting
on behalf, and as an extension, of nonprofit and charitable
organizations. \4\ And second, the Commission seeks to implement a
national ``Do-Not-Call'' registry applicable equally to commercial
telemarketers and noncommercial charitable solicitations by
professional fundraisers on behalf of nonprofit and charitable
organizations. Combined, the proposed amendments will give the
Commission the authority to do indirectly what it acknowledges cannot
be done directly under the Telemarketing Act, that is, regulate
nonprofit and charitable organizations by asserting jurisdiction over
their inextricably linked agents and service providers that perform
charitable solicitations on their behalf and function as an extension
of these organizations.
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\4\ In fact, the Commission cites implicit Congressional support
for the ``Do-Not-Call'' registry to regulate nondeceptive and entirely
legitimate nonprofit and charitable communications. The Commission
states that ``Congress recognized that telemarketers' right to free
speech is in tension with and encroaches upon consumers' right to
privacy within the sanctity of their homes . . . Congress provided
authority for the Commission to curtail these practices that impinge on
consumers' right to privacy but are not likely deceptive under FTC
jurisprudence. This recognition by Congress that even non-deceptive
telemarketing business practices can seriously impair consumers' right
to be free from harassment and abuse and its directive to the
Commission to reign in these tactics, lie at the heart of Sec. 310.4 of
the TSR.'' See Notice, 67 FED. REG. at 4543. 16 C.F.R. Sec. 310.4, as
proposed, will make it an abusive telemarketing act or practice in
violation of the TSR if a professional fundraiser--acting on behalf of
a nonprofit and charitable organization--places an outbound telephone
call to any donor who subscribes to the ``Do-Not-Call'' registry.
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The Commission purportedly justifies the amendments on the grounds
that consumers have a heightened interest in residential privacy and
need protection against unscrupulous telemarketers that may perpetrate
fraudulent charitable solicitations, see, e.g., Notice, 67 FED. REG. at
4497 n.51. These are laudable goals, but there can be no serious
question by the Commission that SOWI and members of the Coalition are
not fraudulent. In fact, in the past, the Commission has found
comparatively little evidence of charitable solicitation fraud. \5\ The
vast majority of TSR comments filed with the Commission did not
identify fraud as an issue, much less alleged nonprofit and charitable
solicitation fraud. Notice, 67 FED. REG. at 4495 (``A majority of the
comments received during the Rule review focused on issues relating to
consumer privacy and consumer sovereignty, rather than on fraudulent
telemarketing practices''). Indeed, the Better Business Bureau and
other organizations consistently rank charitable solicitation fraud
extremely low on complaint lists. \6\ To the extent that residential
privacy is at stake, the Commission's broad and indiscriminate approach
to regulate all telephone calls is neither constitutional nor
reasonable based on the clear damage to nonprofit and charitable
organizations.
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\5\ Prepared Statement of the Federal Trade Commission on
Charitable Solicitation Fraud before the Subcommittee on Oversight and
Investigations of the Committee on Energy and Commerce, United States
House of Representatives (Nov. 6, 2001) (``To date, the findings of
fraud are few and far between, and the Commission continues to monitor
this situation as aggressively as any the Commission has ever
pursued'').
\6\ See, e.g., Better Business Bureau Annual Complaint Summary--
1999 (ranking complaints against national charities as 524th on its
list of complaints by type of business, with complaints against local
charities ranking 271st); National Fraud Information Center,
Telemarketing Fraud Statistics (charitable solicitation fraud not
listed in the ``Top 10 Frauds'' in 2000 and 2001).
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IV. The Proposed TSR Amendments Will Have a Devastating Impact on
Nonprofit and Charitable Organizations by Interfering with
Their
Nonprofit and Charitable Missions
The proposed TSR amendments will have an irreparable negative
impact that will limit dramatically the ability of nonprofit and
charitable organizations to use the services of professional
fundraisers. The consequences will be devastating for members of the
Coalition and include, but are not limited to, massive reductions in
donations, diminished ability to satisfy important public safety and
community functions based on limited resources, and substantial harm to
consumers who benefit from, and rely upon, these functions. Perhaps the
most significant harm will be silencing the communication and
fulfillment of the mission objectives of nonprofit and charitable
organizations. As noted by the United States Supreme Court, nonprofit
and charitable organizations use professional fundraisers ``who
`necessarily combine' the solicitation of financial support with the
`functions of information dissemination, discussion, and advocacy of
public issues.''' Village of Schaumburg v. Citizens for a Better Env't,
444 U.S. 620, 632 (1980) (citation omitted). See Riley v. Nat'l Fed. of
the Blind, 487 U.S. 781, 798 (1988) (``where the solicitation is
combined with the advocacy and dissemination of information, the
charity reaps a substantial benefit from the act of solicitation
itself'') (citations omitted). Interfering with the solicitation of
support likely would end the advocacy of ideas. Schaumburg, 444 U.S. at
632.
Professional fundraisers are essential to the fulfillment of the
nonprofit and charitable mission and necessarily involve the
fundraisers' communication of the nonprofit message. For example, SOWI
receives no federal funding. To provide expensive year-round program
benefits, SOWI relies on nonprofit contributions from organizations,
individuals, corporations, foundations, and fundraising by professional
fundraisers. Indeed, professional fundraisers provide approximately 68
percent of SOWI's annual income. 85 percent of these donations are from
individual donors with long and reciprocally valued relationships
involving financial support and volunteering with SOWI. These
relationships are jeopardized by the proposed TSR amendments.
Ultimately, the donations are used to fund competitions, training, and
programs that not only help our athletes improve their skills, but also
build self-esteem and confidence. In summary, SOWI fulfills its mission
only through small donations from a large number of donors. Fundraising
by professional fundraisers is essential to the survival of SOWI.
12 SOWI's reliance on professional fundraising is not unique. By
necessity or choice, many nonprofit and charitable organizations rely
on professional fundraisers to solicit charitable donations on their
behalf. An estimated 60 percent to 70 percent of nonprofit and
charitable organizations use professional fundraisers to deliver their
messages to consumers and solicit donations. Jeff Jones, Do Not Call:
Proposed FTC Rules Could Hurt, THE NONPROFIT TIMES (Mar. 2002) (citing
Paulette Maehara, CEO of the Association of Fundraising Professionals).
Similar to SOWI, many of these organizations have small staffs in
relation to the program benefits delivered. They simply do not have the
infrastructure, personnel, operational efficiencies, and expertise to
impart the fundraising message currently imparted by professional
fundraisers.
Many nonprofit and charitable organizations have built
constituencies through grass roots support. Telephones are the most
practical and cost effective interactive medium for these organizations
in recognition of the fact that direct (e.g., face-to-face)
solicitation is logistically impossible and direct mail is cost
prohibitive. Telephone calls by professional fundraisers confer obvious
benefits. Trained professional fundraisers deliver prepared scripts,
often created or approved by the nonprofit and charitable clients, to
communicate the clients' messages. The fundraisers understand the
unique state law requirements governing the communications. Most states
require registration, bonds, and point-of-solicitation disclosures. \7\
Ultimately nonprofit and charitable organizations reap benefits from
this process including (1) donations from consumers to support the
needs of the organization, and (2) delivery of the central message of
the nonprofit and charitable organization. In the case of SOWI,
telephone calls to current and prospective donors by professional
fundraisers allow us to (1) recruit volunteers to participate in SOWI
athletic competitions, \8\ (2) spread the special message of SOWI to
elicit public support for our programs, and (3) request donations.
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\7\ Donations to nonprofit and charitable organizations are
regulated extensively under state laws. The overwhelming majority of
states that have passed ``Do-Not-Call'' statutes of one form or another
expressly exempt or exclude coverage of nonprofit and charitable
solicitations including solicitations by professional fundraisers on
behalf of these entities--a approach rejected by the Commission here.
And virtually every state imposes statutory and regulatory requirements
on professional fundraisers soliciting donations on behalf of nonprofit
and charitable organizations such as registration and licensing,
posting of bonds, point-of solicitation disclosures, fraud protection
provisions, record keeping provisions, and annual reporting of
financial information. These requirements serve numerous functions.
They offer public information on the activities of charities, and they
also allow state enforcement authorities to identify violations and
prosecute where necessary.
\8\ SOWI relies on approximately 17,000 volunteers to contribute
350,000 hours to train our 9,000 athletes for 72 statewide
competitions.
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Nonprofit and charitable organizations rely on the expertise and
operational efficiencies of professional fundraisers to conduct their
fundraising campaigns and disseminate their message. SOWI employs
several professional fundraising firms to provide these services with
an extremely low incidence of complaints. There are advantages to this
approach. Successful and cost-effective fundraising requires basic
resources and specialized knowledge that nonprofit and charitable
organizations lack. There must be a substantial investment of capital,
a highly trained and supervised work force, and thorough knowledge of
the state and federal regulatory requirements. Trained professionals
offer significant resources, expertise and operational efficiencies
that cannot be duplicated by nonprofit and charitable organizations.
Indeed, that is why the substantial majority of nonprofit and
charitable organizations rely on professional fundraisers.
The implications of the proposed TSR amendments are staggering as
applied to nonprofit and charitable solicitations. The nature of
nonprofit and charitable organizations' communications with current and
prospective donors will change fundamentally. Nonprofit and charitable
organizations will be forced to assume this communications role
because, as the Commission advises, solicitation by their employees or
volunteers is not covered by the Telemarketing Act and the TSR. This
creates government imposed competitive disadvantages on smaller and
mid-sized nonprofit and charitable organizations that do not have the
resources, personnel and constituencies to take up the slack as
compared to larger, national nonprofit and charitable organizations
that are better funded and more capable of engaging in fundraising. \9\
Many nonprofit and charitable organizations--including SOWI--would lack
the ability and expertise to perform these functions. To be sure, the
proposed TSR amendments will have an adverse effect on SOWI by
eliminating a major source of support for our athletes, interfering
with the recruiting of support from volunteers and solicitation of
donations, and reducing our ability to provide our athletes with
programs including competitions and other education endeavors.
Comparable adverse results would be experienced by all nonprofit and
charitable organizations that depend on the services provided by
professional fundraisers.
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\9\ A compelling argument can be made that it would create an
appearance of impropriety for the many state trooper and police
organizations in the Coalition directly to contact donors.
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V. The Commission Has Exceeded its Authority Under the Telemarketing
Act and the USA PATRIOT Act by Expanding its Jurisdiction to
Include Professional Fundraisers Acting on Behalf of Nonprofit
and Charitable Organizations
The proposed TSR amendments misconstrue the Congressional purpose
of the USA PATRIOT Act. Although the Commission acknowledges that the
USA PATRIOT Act does not authorize the agency to regulate directly
nonprofit and charitable organizations, Notice, 67 FED. REG. at 4497,
nonetheless the agency employs a strained and flawed statutory
construction that the USA PATRIOT Act amended the Telemarketing Act in
a manner that ``compels the conclusion that for-profit entities that
solicit charitable donations now must comply with the TSR, although the
Rule's applicability to charitable organizations is unaffected.''
Notice, 67 FED. REG. at 4497 (footnote omitted).
In reaching this conclusion, the Commission attributes three
fundamental changes to the Telemarketing Act as a consequence of the
USA PATRIOT Act. First, it contends that Section 1011(b)(3) of the USA
PATRIOT Act amended and broadened the definition of ``telemarketing''
in the Telemarketing Act, 15 U.S.C. Sec. 6306(4), by adding the term
``charitable contribution,'' although excluding contributions to
political and religious organizations. Notice, 67 FED. REG. at 4496.
Second, it asserts that Section 1011(b)(2) added to the ``abusive
telemarketing acts or practices'' listed in the TSR certain disclosures
by persons engaged in ``telemarketing for the solicitation of
charitable contributions.'' Notice, 67 FED. REG. at 4496. And third,
the Commission asserts that the USA PATRIOT Act amended the ``deceptive
telemarketing acts or practices'' in the Telemarketing Act to include
``fraudulent charitable solicitations.'' Notice, 67 FED. REG. at 4496.
The Commission correctly notes a defect in the USA PATRIOT Act that
is relevant to understanding the underlying Congressional intention.
That is, Congress expressed no intention to expand upon the
Commission's jurisdictional limitations under the Telemarketing Act.
Notice, 67 FED. REG. at 4496 (``Notwithstanding its amendment of these
provisions of the Telemarketing Act, neither the text of section 1011
nor its legislative history suggest that it amends Sections 6105(a) of
the Telemarketing Act--the provision which incorporates the
jurisdictional limitations of the FTC Act into the Telemarketing Act
and, accordingly, the TSR'') (emphasis added). One such jurisdictional
limitation is the well-established lack of authority by the Commission
over nonprofit and charitable organizations. Notice, 67 FED. REG. at
4497 & n.49. And, as Congress unambiguously expressed in the
Telemarketing Act, the Commission has no authority under the statute to
regulate any activity not committed to the Commission's jurisdiction
under the Federal Trade Commission Act. 15 U.S.C. Sec. 6105(a). Accord
Notice, 67 FED. REG. at 4496-4497.
The Commission claims that the failure of Congress to remove the
jurisdictional limitations of the Telemarketing Act, when read in
conjunction with the USA PATRIOT Act's mention of fraudulent charitable
solicitations, ``compels the conclusion'' that the Congressional
purpose in the USA PATRIOT Act was to regulate professional fundraisers
soliciting charitable donations on behalf of nonprofit and charitable
organizations. Notice, 67 FED. REG. at 4497. This interpretation is
anything but compelled. It opens a Pandora's Box of inconsistencies and
inequities under the Telemarketing Act and TSR that certainly were not
intended by Congress. For example, though motivated by fraudulent
charitable solicitations, there is no basis in the USA PATRIOT Act nor
the legislative history to reach the conclusion that Congress believed
that consumers are in more need of the Telemarketing Act protections
where the charitable solicitation is performed by professional
fundraisers on behalf of nonprofit and charitable organizations, as
opposed to directly by the employees and volunteers of nonprofit and
charitable organizations. And yet, under the proposed rule, this
precisely is the outcome.
A more plausible interpretation of the USA PATRIOT Act is that
Congress intended to regulate bogus charitable solicitations where the
nonprofit or charitable cause itself is of a criminal or fraudulent
nature. This is vastly different from regulating all professional
fundraisers soliciting donations on behalf of legitimate nonprofit and
charitable organizations such as SOWI. The most compelling evidence of
this Congressional purpose is not even addressed in the Commission's
proposed rulemaking, that is, the legislative history of the USA
PATRIOT Act. The ``Crimes Against Charitable Americans Act'' was
introduced by Sen. Mitch McConnell (R-KY) on October 2, 2001. In his
explanation of the need for the legislation and its intended purpose,
Sen. McConnell consistently stated that the bill was intended to
address fraudulent charitable solicitations by ``crooks'' and ``false
charities'' of a ``criminal'' nature:
``But this largess have proven an irresistible target to
criminals who prey upon the generous and good-hearted nature of
Americans in this time of national emergency.'' 147 CONG. REC.
S10059, S10065 (daily ed. Oct. 2, 2001) (statement of Sen.
McConnell) (emphasis added).
``We heard reports of false charities exploiting well-
intentioned Americans during the Gulf War and after the
Oklahoma City bombing and we now hear similar reports that the
September 11 attacks have given these unusually heartless
criminals new opportunities to perpetrate fraud.'' 147 CONG.
REC. S10059, S10065 (daily ed. Oct. 2, 2001) (statement of Sen.
McConnell) (emphasis added).
``Almost daily we hear of American citizens receiving
solicitations from phony charities.'' 147 CONG. REC. S10059,
S10065 (daily ed. Oct. 2, 2001) (statement of Sen. McConnell)
(emphasis added).
``News reports from more than a dozen States, from New York
to Florida to California, reveal that Americans are being asked
to contribute to what turn[s] out [sic] to be bogus victim
funds, phony firefighter funds and questionable charitable
organizations.'' 147 CONG. REC. S10059, S10065 (daily ed. Oct.
2, 2001) (statement of Sen. McConnell) (emphasis added).
``Instead, this money is siphoned into the pockets of cold-
hearted criminals.'' 147 CONG. REC. S10059, S10065 (daily ed.
Oct. 2, 2001) (statement of Sen. McConnell) (emphasis added).
``These crooks often try to confuse their victims by using
names that sound like reputable charities and relief efforts.''
147 CONG. REC. S10059, S10065 (daily ed. Oct. 2, 2001)
(statement of Sen. McConnell) (emphasis added).
``Other crooks use the name `firefighter fund' or `victim's
survivors fund' in their fraudulent appeals.'' 147 CONG. REC.
S10065 (daily ed.) (Oct. 2, 2001) (emphasis added).
``Not only do they steal valuable resources from the most
worthy of recipients, but they erode the trust of the American
people in legitimate charitable organizations.'' 147 CONG. REC.
S10059, S10065 (daily ed. Oct. 2, 2001) (statement of Sen.
McConnell) (emphasis added).
The legislative history confirms that Congress sought to authorize
the Commission to address criminal and fraudulent charities, not the
legitimate nonprofit and charitable organizations now singled out by
the Commission. Sen. McConnell advised the Commission as such on June
14, 2002, when he wrote Chairman Muris and stated that ``[w]hen
Congress enacted this legislation, it did not envision, nor did it call
for, the FTC to propose a federal `do-not- call' list, and certainly
not a list that applied to charitable organizations or their authorized
agents . . .[T]he Crimes Against Charitable Americans Act never
intended, called-for, required, or even envisioned the `do-not-call'
list that the FTC is now proposing.'' June 14, 2002 Letter from Senator
Mitch McConnell to The Honorable Timothy J. Muris (available at http://
wwwgrandlodgefop.org/letters/ltr--020614--ftc.pdf) (accessed July 14,
2002).
In fact, the best evidence in support of this interpretation is a
Commission-issued Advisory Opinion interpreting the TSR and carefully
distinguishing between legitimate professional fundraisers as opposed
to fraudulent telemarketing. In an 1995 Advisory Opinion issued to
American Telephone Fundraisers Association, Inc., a professional
fundraiser, the Commission concluded that the TSR generally imposes no
restrictions on the legitimate fundraising activities of nonprofits,
including professional fundraisers, because seeking donations is not
``telemarketing'' under the statute and rule. See The Applicability of
the Telemarketing Sales Rule--The Telemarketing Rule generally Imposes
No Restrictions on the Legitimate Fundraising Activities of Nonprofit
Organizations, 120 F.T.C. 1154 (Dec. 15, 1995). The advisory opinion
states:
The Commission's understanding is that telephone fundraising on
behalf of nonprofit organizations is not, in fact, typically
undertaken as part of a ``plan, program or campaign . .
.conducted to induce the purchase of goods or services.'' . .
.Legitimate fundraising activity is conducted primarily to
elicit donations and not to induce purchases. Even when donors
receive gifts, premiums, memberships or other incentives,
representatives of the non-profit sector have advised the
Commission that legitimate charities generally do not conduct
telephone solicitations in which the stated or actual value of
goods or services offered exceeds the amount of a donor's
payment. The Commission's enforcement experience suggests that
fraudulent telemarketers, in contrast, obtain money from
consumers by promising goods or services with inflated values
as consideration for smaller ``donations.''
Id. (emphasis added). The Advisory Opinion also acknowledges that
the ``Commission's construction of the term `telemarketing,' as defined
in the Act and the Rule, is fully consistent with the legislative
purpose of the Telemarketing Act. The Commission's interpretation
permits efficient interdiction of fraud without encumbering the
legitimate use of telemarketing by sellers of good or services or by
non-profit entities. In summary, until the proposed TSR amendments were
introduced, the Commission's interpretation was that the Telemarketing
Rule generally imposes no restrictions on the legitimate fundraising
activities of nonprofit organizations.'' Id. (emphasis added).
VI. The ``Do-Not-Call'' Registry is Unconstitutional as Applied to the
Noncommercial Speech of Nonprofit and Charitable Organizations
and Their Professional Fundraisers
As applied to the noncommercial speech of nonprofit and charitable
organizations and their professional fundraisers, the proposed ``Do-Not
Call'' registry is unconstitutional because it violates the First
Amendment right to freedom of speech. \10\ The Commission acknowledges
that the First Amendment protections for nonprofit and charitable
organizations ``extend to their for-profit solicitors.'' Notice, 67
FED. REG. at 4497 n.51 (citation omitted). \11\ The Commission concedes
a ``strong First Amendment protection of charitable fundraising.''
Notice, 67 FED. REG. at 4522 n.286. And it agrees that solicitations by
professional fundraisers on behalf of nonprofit and charitable
organizations is fully protected speech, not commercial speech.
Ultimately, the proposed TSR amendments and the ``Do-Not-Call''
registry ``unduly intrude[s] upon the rights of free speech.''
Schaumburg, 444 U.S. at 633.
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\10\ U.S. Const. amend. I (``Congress shall make no law respecting
an establishment of religion, or prohibiting the free exercise thereof;
or abridging the freedom of speech, or of the press; or the right of
the people peaceably to assemble, and to petition the Government for a
redress of grievances'').
\11\ See Riley v. Nat'l Fed. of the Blind, 487 U.S. 781 (1988)
(``Our prior cases teach that the solicitation of charitable
contributions is protected speech, and that using percentages to decide
the legality of the fundraiser's fee is not narrowly tailored to the
State's interest in preventing fraud''); Village of Schaumburg v.
Citizens for a Better Env't, 444 U.S. 620, 632 (1980) (``Prior
authorities, therefore, clearly establish that charitable appeals for
funds . . . involve a variety of speech interests--communication of
information, the dissemination and propagation of views and ideas, and
the advocacy of causes--that are within the protection of the First
Amendment'').
---------------------------------------------------------------------------
The regulation of charitable solicitations by professional
fundraisers on behalf of nonprofit and charitable organizations does
not survive strict scrutiny, because charitable solicitations are fully
protected speech. Memorial Hosp. v. Maricopa County, 415 U.S. 250 n.21
(1974). The proposed rule is not narrowly tailored to further a strong
interest that the Commission is entitled to protect without interfering
with the First Amendment protections of members of the Coalition.
Secretary of the State of Md. v. Joseph H. Munson Co., Inc., 467 U.S.
947, 959-61 (1984); Schaumburg, 444 U.S. at 636-37. Where, as here, the
Commission attempts to regulate the content of protected speech, it
must employ the least restrictive means to advance the articulated
interest. Sable Communications of Cal., Inc. v. Federal Communications
Comm'n, 492 U.S. 115, 126 (1989). Clearly the Commission has not
satisfied this burden.
Even assuming that the privacy protection and fraud prevention
interests cited by the Commission warrant some change in the current
regulatory scheme, it does not follow that the ``Do-Not-Call'' registry
is narrowly tailored enough to accomplish this objective
constitutionally. Time and again, the Supreme Court has held
unconstitutional any effort by government to impinge upon free speech
rights by imposing unreasonable restrictions on professional
fundraisers acting on behalf of nonprofit and charitable organizations.
In Riley, as in Munson and Schaumburg, the government imposed
restrictions focused on unconstitutional economic regulations. Here,
the Commission proposes an equally infirm national ``Do-Not-Call''
registry (1) to which all professional fundraisers acting on behalf of
nonprofit and charitable organizations must subscribe, (2) through
which all communications with prospective donors must be filtered
monthly, and (3) by which the Commission will prohibit certain
solicitations or face federal, state or civil penalties.
Other constitutional problems are created by exempting specific
industries that engage in inherently commercial telemarketing (for
example, airlines, insurance companies, credit unions, telephone
companies, banks) and specific types of conduct (for example, religious
and political telemarketing and solicitations directly by nonprofit and
charitable organizations). This facially discriminatory approach raises
grave equal protection issues. By exempting certain commercial
telemarketing from the TSR \12\ but not excluding professional
fundraising on behalf of nonprofit and charitable organizations, the
Commission favors commercial speech over protected speech. The Supreme
Court has held unconstitutional a government ordinance that accorded a
greater degree of protection to commercial speech than noncommercial
protected speech. Metromedia, Inc. v. City of San Diego, 453 U.S. 490,
513 (1980). This is exactly what is accomplished by the proposed rule--
the commercial speech freedoms of banks, insurance companies and other
exempt industries would be unregulated by the Telemarketing Act, while
the fully protected speech of the nonprofit and charitable
organizations in the Coalition would be burdened.
---------------------------------------------------------------------------
\12\ See Notice, 67 FED. REG. at 4493 n.17 (``In addition to these
exemptions, certain entities including banks, credit unions, savings
and loans, companies engaged in common carrier activity, non-profit
organizations, and companies engaged in the business of insurance are
not covered by the Rule because they are specifically exempt from
coverage under the FTC Act'').
---------------------------------------------------------------------------
No less of a concern is the proposal to exclude political and
religious contributions from the TSR based on a policy decision that
religious discourse is a ``paramount societal value'' and a legal
conclusion that political contributions are neither commercial nor
charitable within the meaning of the USA PATRIOT Act. Notice, 67 FED.
REG. at 4499. The exclusions only reinforce the discriminatory effects
and unconstitutionality of the proposed rule. Under the proposed rule,
contributions for ``political parties and candidates'' are not covered
by the TSR because ``they involve neither purchases of goods or
services nor solicitations of charitable contributions, donations or
gifts . . . '' Notice, 67 FED. REG. at 4499. And, purely ``as a matter
of policy,'' the Commission proposes to exclude religious contributions
because ``the risk of actual or perceived infringement on a paramount
societal value--free and unfettered religious discourse--likely
outweighs the benefits of protection from fraud and abuse that might
result from including contributions to such organizations . . . ''
(emphasis added).
In doing so, the Commission favors political and religious speech
over fully protected free speech and discriminates against nonprofit
and charitable organizations. As the Supreme Court has explained,
however, appeals for charitable contributions are inextricably
intertwined with the underlying conveyance of information and ideas--
that is, speech. Schaumburg, 444 U.S. at 632 (``solicitation is
characteristically intertwined with informative and perhaps persuasive
speech seeking support for particular causes or for particular views on
economic, political, or social issues, and for the reality that without
solicitation the flow of such information and advocacy would likely
cease''). These protections are fully vested even where a professional
fundraiser is the conduit of the nonprofit and charitable
organization's speech. These speech rights are entitled to the full
protection of the First Amendment, and must receive no less protection
than political speech or religious discourse. \13\
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\13\ The Coalition's written comments to the Commission discuss
other constitutional infirmities with the proposed TSR amendments
including unconstitutional prior restraint and content based
restrictions and are incorporated by reference.
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VII. Conclusion
Thank you for the opportunity to share the views of SOWI and the
Coalition on the substantial harm to nonprofit and charitable
organizations as a result of the Commission's proposed TSR amendments
and, specifically, the ``Do-Not-Call'' registry. We look forward to
working with the Subcommittee to assure that the many important
consumer benefits conferred by nonprofit and charitable organizations
are not reduced or eliminated by the Commission's proposed TSR
amendments.
Senator Wyden. Very good.
Mr. Cannon.
STATEMENT OF LOU CANNON, PRESIDENT, DC LODGE OF THE FRATERNAL
ORDER OF POLICE
Mr. Cannon. Good morning, Mr. Chairman. I would like to
especially thank you, Ranking Member Fitzgerald and Senator
McCain for allowing me to appear before you here today.
My name is Lou Cannon. I am the President of the District
of Columbia Lodge Number 1. I am here this morning at the
request of the National President of the FOP, Steve Young, to
provide the Subcommittee with the concerns of the more than
300,000 members of the FOP with respect to the recent proposed
rulemaking by the FTC and specifically the proposed national
Do-Not-Call registry.
The FOP is the Nation's largest law enforcement labor
organization, with members in 43 State lodges and more than
2,000 local lodges. The majority of these lodges and members
are constantly engaged in charitable endeavors, and play an
active role in the life of the communities they serve. Here in
the District of Columbia, for example, the FOP is actively
supporting such worthwhile organizations as the Boys & Girls
Club, Concerns of Police Survivors, Easter Seals, Mothers
Against Drunk Driving, Special Olympics, and in conjunction
with the Washington Times, a local youth education program. All
of these charitable enterprises are supported in part by the
D.C. Lodge.
In turn, we depend on the generosity of the community
through grassroots fundraising efforts which enable us to
support these community-wide programs and services. Since our
organization is voluntary in nature, we do not have the staff
nor the resources to raise the necessary funds to carry out
these programs, and many of our State and local lodges must
rely on the efforts of professional fundraisers.
Sound public policy dictates that it would be inappropriate
for public safety personnel themselves to call residents of
their community and seek financial support. Indeed, in some
jurisdictions it is illegal to do so. Thus, the use of an
outside commercial telemarketing service bureau is a necessity
for the FOP.
The State and local lodges that hire these firms mandate
that they maintain their own Do-Not-Call lists, placing the
names of those who request it on the list. The creation of a
second Do-Not-Call list would cause unnecessary confusion, and
essentially mean that the firms employed by the FOP would be
forced to follow two sets of rules on behalf of a single
organization.
In January of this year, the FTC published in the Federal
Register a notice of proposed rulemaking to amend the
Telemarketing Sales Rule, (TSR), which will negatively impact
organizations like the FOP. As you know, the TSR prohibits
specific deceptive and abusive telemarketing acts or practices,
and it is currently limited to telemarketing for commercial
purposes only.
The proposed rule is aimed to implement Section 1011 of the
USA Patriot Act, also known as the Crimes Against Charitable
Americans Act. Although Section 1011 did not call for the FTC
to establish a national Do-Not-Call registry, it has been
included in the provisions of the proposed rule to implement
that Act. The intent of Section 1011 was to crack down on
fraudulent telemarketers using the September 11 terrorist
attacks to pose as fake charities in order to take advantage of
the compassion of American citizens.
The FOP strongly opposes the establishment of this national
Do-Not-Call registry. We further believe that the Government
should not restrict the right of non-profit organizations to
deliver their message and seek public support based solely upon
who compensates the caller. This proposed list would not apply
to all non-profits, only to those calls made on behalf of non-
profits by paid telemarketers, an issue on which the FOP has no
choice. We must hire telemarketers.
The fact that non-profits using paid employees to make the
same calls will not be subject to the Do-Not-Call list creates
a prohibited prior restraint on the non-profit organization
that does not have the resources to use its own employees. The
proposed rule places our regular supporters out of reach.
Individuals wishing to minimize or eliminate calls received
from annoying long distance companies will not realize they
have placed themselves in a position whereby they cannot be
called by organizations with which they have a prior,
longstanding existing relationship.
An added layer of the Do-Not-Call regulation will also have
the unintended effect of raising the costs of fundraising by
increasing compliance costs, and thereby reducing the net
amount of funds available for community services and
activities.
In conclusion, the FOP believes the FTC's proposed
amendments to the Telemarketing Sales Rules should be revised
so that it does not apply to calls made by, or on behalf of,
non-profit organizations that are not selling goods or
services. We further believe that the Commission's proposed Do-
Not-Call registry is outside of the scope or intent of the
Crimes Against Charitable Americans Act and should be
eliminated from the proposed rule.
On behalf of the membership of the FOP, let me thank you
again, Mr. Chairman, for the opportunity to appear here and
testify. I would be pleased to answer any questions you may
have.
Senator Wyden. Thank you very much.
My first question for the panel--and anyone who wants to
respond is welcome to. Twenty-two States have enacted Do-Not-
Call lists. Do any of you believe that there have been
significant--and I want to emphasize that--significant problems
for consumers, businesses, non-profits, others at the State
level?
Let me just go down the row, just significant problems.
Mr. Mendoza.
Mr. Mendoza. I do not think there have been significant
problems.
Mr. Sarjeant. I do not have any input on that.
Mr. Schwartz. I have not heard of any significant input. I
have spoken to many of the States.
Mr. Alldridge. Indiana has lost a significant amount of
money in charities because of the law.
Senator Wyden. One State out of 22. Any others?
Mr. Alldridge. Not that I am aware of.
Mr. Cannon. I do not have the specific States, but talking
to some of the telemarketers, they have said there have been
significant reductions.
Senator Wyden. We can keep it open if you folks at the
Fraternal Order of Police want to give us a further answer.
What I am looking for, obviously, I want to find out first if
there are any big problems for anybody at the State level of
the 22 States.
Mr. Wientzen. Senator, I think a number of small businesses
are telling us that they have had significant reductions in
their revenue as a result of lost business, and certainly the
teleservices industry has suffered in many of those States
where there is a large number of people who have signed up, and
the teleservices industry reports in a recent conference we
held that they are having a rather significant amount of
difficulty integrating the different rules that many of those
States have imposed.
Senator Wyden. If you all could get us some specific
examples, and particularly what I would like to know is, four
States, eight States, 12 States, every State, and some specific
examples so we can really kind of get our teeth into some of
the concrete problems that some seem to be concerned about.
Mr. Alldridge. Senator, Indiana is one of only two States
that does not have an exemption for the charitable call.
Mr. Schwartz. Can I add something, too? I have had a
problem doing the education, as someone who does education on
privacy issues, educating different States on what the Do-Not-
Call lists are.
One of the advantages of the national list is the ability
to give one number, one easy way to be able to do this.
Senator Wyden. Thank you for, in that adroit way, getting
into a new argument.
Mr. Wientzen. Senator, can I add one other point?
Senator Wyden. Then I want to move on.
Mr. Wientzen. Most of the States that have implemented Do-
Not-Call lists have prior business relation exemptions, I think
21 of the existing State laws exempt any prior business
relationship. If you start to have a situation where you cannot
call your customers, I think you will see a very significant
difference in a national list reaction.
Senator Wyden. For the DMA, how different is your list from
what the Federal Trade Commission is proposing?
Mr. Wientzen. Well, I do not think it is different. That is
one of our arguments. We have allowed people to get on this
list. It is free. In our case, people stay on for 5 years.
Perhaps the biggest difference is, we ask the individuals to
give their address as well as their name and phone number in
order that we can update that list as people change addresses.
You know, America is a very changing society. About 16 to
17 percent of the American society moves each year, gets a new
telephone number for the most part. With the Federal Trade
Commission proposal, we seriously doubt that those people will
have their new number put on the list and the old number
removed, and so our system is different in that regard.
Senator Wyden. Well, my only point for all of you at DMA,
and we have worked with you on a great many things, and I
appreciate it, I would urge you to work with the Federal Trade
Commission and see if we can find a way to resolve this,
because if you all believe that your list is a lot like theirs,
there ought to be at least some common ground here to see if we
can come up with something.
Mr. Schwartz. Can I also make an additional point here? I
have to disagree with Mr. Wientzen. His list is not free for
people who want to sign up on the Internet. It costs $5 if you
want to sign up on the Internet, and then also you cannot call
in to a toll-free number, as Chairman Muris suggested they
would allow at the FTC. You have to mail the piece in as well.
It is much more complex for consumers than the system that the
FTC is proposing.
Senator Wyden. Well, that is fair to comment on, but I do
think that the DMA folks, to their credit, if they are saying
what you are doing is in many respects like the Federal Trade
Commission, we ought to have an opportunity to bring people
together.
Mr. Wientzen. We are prepared to have those discussions,
Mr. Chairman.
Senator Wyden. Good. That is the point. For our non-profit
friends, tell us what percentage of the organization's funds
come from unsolicited telephone solicitations by professionals.
Even a ballpark sense would be good.
Mr. Alldridge. In the State of Wisconsin, that is 37
percent of our revenue out of a $5.5 million budget.
Mr. Cannon. It can vary depending on the amount of the
agreements, anywhere from, I would say 20 percent on up, and
there is a wide range across, with different agreements that
you have with the telemarketers.
Senator Wyden. Now, the Chairman, Chairman Muris said
earlier the Federal Trade Commission ought to consider whether
non-profits ought to be treated differently with respect to Do-
Not-Call lists. For those of you in the non-profits, what is
your view of what different could mean, and what would be
appropriate? Should soliciting by non-profits be totally
unregulated, or the other modifications that could help you?
Give us your sense of what that might consist of in a way,
again, that would strike a balance, and would allow an effort
to move forward.
Mr. Cannon. As I testified, we have our own Do-Not-Call
lists in place, so if you come across somebody that wishes to
be removed, we automatically take them off. We tried to do this
internally by using retired officers, and it was virtually
impossible to do, because of the nature of the equipment that
is needed, the cost of that equipment, and the amount of time
that has to be dedicated to that, thereby making it impossible
for it to be done internally, whereas the companies that do
this have all the necessary resources.
Also, we have developed longstanding lists that we have as
contributors, so to be able to force us to remove them because
of somebody that is calling for communications or something
puts us at an extreme disadvantage.
Senator Wyden. What if the Federal Trade Commission--and
this is for the two non-profits--gave consumers the option of
requesting to be put on the Do-Not-Call list for commercial
calls only? Would that be helpful to you?
Mr. Cannon. I think that would be extremely helpful, and
that it would also solve part of the problem, that you do not
want to be inundated by three or four long distance companies,
as I can tell you I personally have over the course of a week.
But, if you are interested, all of these deal with the
community which they are in.
It is not like DCFOP is going to call Wisconsin or
something like that. You are dealing with your community base.
You are bringing issues to the forefront that they may not know
about, affording them an opportunity to help their own
community by doing this. So I think that would certainly be a
step in the right direction, by eliminating the commercial
calls or separating them from your charitable calls.
Senator Wyden. Mr. Mendoza I know has to leave. Is there
anything you would like to add further?
Mr. Mendoza. No, thank you.
Senator Wyden. Anyone else?
Mr. Alldridge. That is exactly what happened in Wisconsin.
They were able to exempt the professional representatives and
the non-profits.
Senator Wyden. I am going to move on to cover a couple of
matters on the common carrier issue. I would only say I just
think this is doable, folks. I look at all of you, and I think
there ought to be a way to find common ground. The DMA people
have indicated they will talk to the Federal Trade Commission.
That sounds constructive. Our folks with the non-profits have
talked about various exemptions that could be helpful. I hope
you will leave this and go out and try to find a way to put
this together and do it in a way that works for all of the
parties.
A question for USTA and the Center for Democracy and
Technology, and that relates to the proposal to end the
exemption for the common carriers. Are there some areas like
the Telephone Consumer Protection Act, where the FTC and the
FCC both currently have some jurisdiction and responsibilities,
and are working together?
Mr. Sarjeant. Well, I think from an enforcement standpoint
with respect to common carriers, it is principally the FCC.
There may be some incidental areas where the FTC has been
involved with common carriers, but I think it is almost
exclusively the FCC.
Mr. Schwartz. Actually, there is one area that we are
focusing on that we focus on in our written testimony, which
was the customer privacy network information rule that the FCC
has really had quite a bit of back-and-forth on with the
courts, and actually just came up with a new ruling yesterday.
It would cover privacy of customer information, and that is
where our concerns lay. How will the jurisdictional issues on
privacy may go forward if the exemption is lifted. We would
just like more information on that. That was really our main
point here. How would the FTC deal with those issues where the
jurisdiction does overlap? Currently, the FCC has stronger
rules for consumers in some privacy areas.
Senator Wyden. Mr. Sarjeant, the FTC Commissioners
indicated that when the FTC tries to pursue enforcement against
a company that has got common carrier activities, the agency
goes out, spends a lot of resources and time repeatedly
litigating the question of whether the common carrier exemption
applies. What is your reaction to that? It does not look like a
good use of the FTC's limited resources. I want them to go out
and help my people with gas prices rather than wasting money.
Mr. Sarjeant. As I listened to the Commissioners speak this
morning, they seemed to be fairly accepting of the fact that
the jurisdiction as established by statute over common carriers
rests with the FCC. Certainly it is within their prerogative to
test judicially whether or not there may be some areas where
the statute may permit them concurrent jurisdiction, but what
little case law exists that I have seen would seem to suggest
that the courts have fairly well settled that the jurisdiction
over common carriers rests with the FCC or those other agencies
that regulate common carriers.
Senator Wyden. I think that essentially what we are trying
to do is make sure that we are not talking about common carrier
activities like phone service and not the other lines of
business the company may engage in like Internet services.
Those are kind of the lines we are trying to draw here, and it
seems to me that the Federal Trade Commission has got a good
argument here. We will want to follow it up again with you. Is
there anything you would like to add?
Mr. Sarjeant. Well, I would just say Internet is a very
good example. As the Senator probably knows, today the FCC has
before it several proceedings where it is wrestling with just
exactly what is Internet, and access to the Internet, whether
or not you are a common carrier providing transport and you are
connecting with an affiliated or an unaffiliated Internet
service provider.
The FCC is trying to get its arms around just exactly what
that is. I think this would be a very bad time, in particular,
for the FTC to begin to assert jurisdiction when we do not even
have clarity concerning exactly what the appropriate regulatory
classification for access to the Internet is.
Senator Wyden. I guess we could continue this. I am the
author of the Internet Tax Freedom Act, the Senate sponsor, so
I think I have a pretty decent sense of what the Internet is,
but I think we have gotten the drift with respect to your
remarks.
Does anybody want to add anything further? We wanted you
all to give us good information with respect to the do-not-call
issue and also on the common carrier exemption. I think it has
been constructive. We will give you the last word if anybody
wants to add anything.
Mr. Wientzen. Mr. Chairman, I think the Subcommittee would
be well-served to spend some energy looking into the proposed
cost, the estimated cost of a national Do-Not-Call registry
both to put it together and how it will be maintained. I think
it is far more complicated than perhaps has been uncovered to
this point.
Some of our folks are telling me that it is estimated it
will cost $80 million to put it together to start with, which
is way more, I think, than some of the initial estimates.
Senator Wyden. You might have quit while you were ahead,
because it sure is not going to cost $80 million if your good
people who are operating something that seems to be close to
the FTC work together with the FTC.
Mr. Wientzen. That might well be the case, Mr. Chairman.
That is why we are willing to talk about it.
Senator Wyden. Good. That is the bottom line, is trying to
figure out a way to get the stakeholders together and to get it
done.
We appreciate all of you. We have worked with you on many
occasions, and your organizations, and it has been very
constructive, and we look forward to working with you in the
days ahead.
The hearing is adjourned.
[Whereupon, at 12:15 p.m., the hearing adjourned.]