<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:76308.wais]
CHALLENGES FACING THE FEDERAL TRADE COMMISSION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
COMMERCE, TRADE, AND CONSUMER PROTECTION
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 7, 2001
__________
Serial No. 107-68
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING, Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
TOM DAVIS, Virginia THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland LOIS CAPPS, California
STEVE BUYER, Indiana MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Commerce, Trade, and Consumer Protection
CLIFF STEARNS, Florida, Chairman
NATHAN DEAL, Georgia EDOLPHUS TOWNS, New York
Vice Chairman DIANA DeGETTE, Colorado
ED WHITFIELD, Kentucky LOIS CAPPS, California
BARBARA CUBIN, Wyoming MICHAEL F. DOYLE, Pennsylvania
JOHN SHIMKUS, Illinois CHRISTOPHER JOHN, Louisiana
JOHN B. SHADEGG, Arizona JANE HARMAN, California
ED BRYANT, Tennessee HENRY A. WAXMAN, California
STEVE BUYER, Indiana EDWARD J. MARKEY, Massachusetts
GEORGE RADANOVICH, California BART GORDON, Tennessee
CHARLES F. BASS, New Hampshire PETER DEUTSCH, Florida
JOSEPH R. PITTS, Pennsylvania BOBBY L. RUSH, Illinois
GREG WALDEN, Oregon ANNA G. ESHOO, California
LEE TERRY, Nebraska JOHN D. DINGELL, Michigan,
W.J. ``BILLY'' TAUZIN, Louisiana (Ex Officio)
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Muris, Hon. Timothy J., Chairman, Federal Trade Commission... 10
Material submitted for the record by:
Business Roundtable, The, report entitled Information
Privacy: The Current Legal Regime.......................... 40
Davis, Anna, Office of the Director, Congressional Relations,
Federal Trade Commission, letter dated December 5, 2001, to
Hon. Clif Stearns, enclosing response for the record....... 35
Simons, Joseph J., Director, Bureau of Competition, Federal
Trade Commission, letter dated December 3, 2001, to Hon.
Edward Markey, enclosing response for the record........... 38
(iii)
CHALLENGES FACING THE FEDERAL TRADE COMMISSION
----------
WEDNESDAY, NOVEMBER 7, 2001
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Commerce, Trade,
and Consumer Protection,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:08 a.m., in
room 2123, Rayburn House Office Building, Hon. Cliff Stearns
(chairman) presiding.
Members present: Representatives Stearns, Deal, Whitfield,
Shimkus, Bryant, Buyer, Terry, Bass, Tauzin (ex officio),
Towns, Markey, Eshoo, and Dingell (ex officio).
Staff present: Ramsen Betfarhad, majority counsel; Kelly
Zerzan, majority counsel; Brendan Williams, legislative clerk;
Jonathan Cordone, minority counsel; and Bruce Gwinn, minority
professional staff.
Mr. Stearns. Good morning. The subcommittee will come to
order. I welcome all of you, especially our witness, the
Chairman of the Federal Trade Commission, Mr. Muris. I am
pleased to have you today and look forward to your testimony.
I hope that your testimony today would be one of many
before the subcommittee during your tenure as Chairman of the
Commission. As a committee of jurisdiction with oversight
responsibilities over the Commission, I find it important that
there be good lines of communication between the committee and
the Commission.
I consider both our oversight obligations and our mandate
to protect consumers to be of utmost import, and therefore week
a close working relationship with the Commission.
I hope that all subcommittee members will take the time to
visit with the Chairman, and the other members of the Federal
Trade Commission.
I understand that your testimony today is on behalf of the
Commission, and that it will outline the Commission's agenda,
and specifically it is enforcement and programmatic priorities.
I commend you and the Commission for focusing on the
fundamentals which in the case of an enforcement agency, such
as the FTC, is a vigorous enforcement of the existing laws. I
also share with the Commission a keen interest in a number of
other matters identified in your testimony as being priority
issues for the Commission.
One of these issues, of course, is privacy. As you are
aware, and as we have talked about, our committee has held six
hearings on this matter, and we have amassed a great deal of
information on this subject, and we think our hearings have
been instrumental in a better understanding of the issue.
I welcome your attempt at focusing the Commission's
resources on enforcement, and as you have mentioned,
specifically enforcing existing laws that either directly or
indirectly have privacy implications. That is after all
precisely what an enforcement agency should be doing, enforcing
the law.
As was evident by the subcommittee's May hearing on cyber-
fraud and crime, I and many other members of the subcommittee
find cyber-fraud and crime to be particularly important and
worthy of special attention by the Commission.
The potential for such fraudulent and criminal activities
to impact thousands of consumers, and engender great financial
losses make them particularly troubling. The FTC's consumer
sentinel, Depository of Cyber-Fraud Complaints Accessible to
Law Enforcement Agencies, is an important step.
Nevertheless, effective law enforcement actions against
cyber-fraud crime I think requires greater participation by
both human and artificial intelligence. Moreover, the record
from our hearing in May suggested less than a stellar level of
cooperation between the various enforcement agencies when
confronting cyber-fraud and crime.
If such problems persist today, let us know. There is no
excuse for interagency turf issues impending or undermining
effective identification and prosecution of fraudulent and
criminal activities on-line or off-line. I also welcome the
Commission's commitment to a more aggressive enforcement and
education initiative targeting health care fraud, and in
particular, deceptive and misleading health claims.
Health fraud is especially repugnant, as it impacts members
of our society that are among the more vulnerable, such as the
elderly and the young. And health fraud impacts the life and
physical well-being of the American consumer, something much
more important than just his or her pocket book.
The Commission faces an arduous task combating health
fraud, one that was made more difficult with the advent and
proliferation of health websites. Also, taking a cue from your
testimony, I also want to highlight my interest in two other
issues.
First, I think that increasingly the intersection between
intellectual property rights and anti-trust law is being
colored by flux or tension, and as such it requires greater
vigilance on the part of our anti-trust enforcers.
Moreover, I think we have just begun to understand and
grapple with the significance of standards and standard setting
organizations, as key sectors of our economy now are subject to
network effects.
I commend the Commission for their focus and attention on
these two matters. Moreover, we are in agreement that consumer
education is a critical mission of the Commission. I do believe
that empowering the American consumer with knowledge is a most
effective and potent consumer protection.
I would encourage you and the Commission to explore new and
creative ways of informing the American public of your work. I
know very few people that are aware of the good work that the
Commission undertakes on behalf of the American consumer.
Let's make a concerted effort to change that. One thought
that I had was for the Commission to use banner ads to inform
the American public about its various activities, or alert
them, just simply alert them, to the various scams. Just a
thought.
And finally I would be remiss if I didn't raise an issue
that I, and I believe many Americans, find important today.
First and foremost, I would appreciate your comments as to
whether the FTC has any evidence of fraud being perpetrated
against the Americans using charitable giving for the September
11 victims as a pretext.
Second, I would like to know whether the Commission has any
persuasive authority with legitimate charitable organizations
convincing them--convincing them--to disperse all the money
collected for September 11 victims to those victims' families
in a timely manner.
We had an oversight hearing on this yesterday, in which it
was evident that a lot of these charities were accumulating
large sums of money and were very slow in dispersing it. I
thank you for your testimony today. I am glad that we are able
to do it in this room.
Unfortunately, we had to cancel the previous hearings, and
I appreciate your patience, and I am glad that you are here
today, and I look forward to working with you, and my
colleagues and I know that we are going to have a great
relationship with you during the 107th Congress.
And with that, I will close, and ask the ranking member,
Mr. Towns, the gentleman from New York, for his opening
statement.
Mr. Towns. Thank you very much, Mr. Stearns. I would like
to welcome the Chairman to the committee, and look forward to
his testimony. The Federal Trade Commission has always played a
pivotal role in America, standing with consumers and
representing them against commercial interests, and who do not
always have the customers' best interests in mind.
And so I am pleased to have the new Chairman before us
today, and having met with the Chairman a few weeks ago, I have
all the confidence in the world that you, Mr. Chairman, will
stand up for the consumers on every possible opportunity.
Having said that, there are some issues of concern that I
would like to see addressed today at the hearing. I would hope
that you would address what seems to be a never-ending list of
mergers which sits before the Commission and the issue of
consumer privacy in both on-line and off-line situations.
I know that you, Mr. Chairman, have every intention of
being open about the happenings at the Commission through your
testimony, and of course through your answers to our questions
as well.
I look forward to working very closely with you in the days
and months ahead, and on that note, Mr. Chairman, I yield back
the balance of my time.
Mr. Stearns. I thank the gentleman, and recognize Mr.
Shimkus for an opening statement.
Mr. Shimkus. Thank you, Mr. Chairman. I do want to welcome
the Federal Trade Commission Commissioner here, Mr. Muris, and
I want to focus my short comments and listening to the debate
on a couple of issues. And one was from my colleague on the
merger issue, but the focus that I have had since I have been
involved with the NATO parliamentary assemble and the EU issue
is the usability to deny mergers that in essence we have
approved here.
And in essence the competitive disadvantage placed upon the
United States and a lot of our fine companies because of the EU
application process, and then the barriers that they are able
to drop without--well, in essence, in negotiation, and we are
at a competitive disadvantage.
The other issue that I will address in the question and
answer period is on the Internet and some patrolling of some of
the business opportunities offered there, and the role in which
you play.
And I still have not--we know in the Department of Ag the
Packers and Stockyard Act is the vertical integration aspect of
merging concentration, and I am wondering where the line is
drawn when it goes into the corporate application of the
boxings of food and material. I know that is a big concern in
the agricultural sector, is the concentration of that market in
the hands of a few, leaving the producers at the whims of only
a handful of purchasers.
It is probably not in our venue. It is of my concern, and
those are the things that I will be listening for and going
into during questions and answers. Thank you, Mr. Chairman, and
I yield back my time.
Mr. Stearns. I thank the gentleman and recognize the
gentleman from Massachusetts, Mr. Markey.
Mr. Markey. Thank you, Mr. Chairman, and welcome, Mr.
Chairman, to your first meeting here with the Commerce
Committee. The FTC recently announced that it was no longer
going to recommend that Congress pass a law to protect the
privacy and freedom of Americans on the Internet.
Instead, the Agency announced that it would attempt yet
again to get more of the on-line industry to take voluntary
actions to protect personal privacy comprehensively. The
Commission also indicated that it would renew its commitment
toward stepping up its enforcement actions.
I salute the laudable efforts of certain segments of the
industry in trying to develop so-called self-regulatory
solutions to some of the privacy concerns that many have
expressed.
These undertakings are critical to increasing consumer
confidence and trust in the medium, and will be an important
component in any comprehensive set of privacy protections for
our consumers.
Relying solely upon voluntary industry efforts, however,
will not suffice. I believe that the progress that has been
made in part voluntarily must be coupled with comprehensive
protections for all Americans. There is no reason to delay in
developing standards for such privacy protection.
I do not accept the notion that the Internet is too complex
and technology changing too rapidly to develop enforceable
privacy protections for our consumers. As technologies change
and business plans for on-line commerce adjust, consumers'
privacy protections remain a constant.
Again, consumers can negotiate in the marketplace for
better privacy protection if they can get it, but no consumer
should be without basic privacy protections, or without
recourse to redress grievances for harm caused by privacy
invasions.
With respect to enforcement, increasing agency activity on
this front is certainly welcome. Efforts can be made to protect
Americans through enforcement, for example, of the law that we
passed to protect the privacy of children on the on-line
environment, as well as existing telemarketing laws.
I authored the law which was approved by this committee 10
years ago to establish do not call telemarketing rules to
protect consumers. That law also permitted regulators in
Section 227 of the Communications Act to establish a national
do not call data base, rather than company by company lists
which drives people crazy.
At the time the FCC chose not to endorse a data base
technology, although authority to implement it still exists on
the books today. I encourage the Federal Trade Commission to
step up its enforcement of the current do not call regulations
and explore how technology from the private sector can help
protect consumers today.
In addition, Mr. Chairman, my hope is that the FTC will
increase its investigation and analysis of products purported
to be secure for consumer use, especially when such on-line use
may include sensitive personal data.
In this regard, enhancing the FTC's role in protecting
consumers from security risks and new software products, and
on-line services such as those alleged by consumer groups to be
inherent in Microsoft's new Windows XP Operating System, and
its Passport Program, is also something that I believe the FTC
must explore in a timely fashion.
I would argue that the Federal Trade Commission should
begin its inquiry almost immediately since this product has the
potential of compromising consumers and I believe that we
shouldn't wait until after the damage is done to millions of
Americans before there is an inquiry which is announced, and
which may in and of itself be enough to protect consumers.
Increased enforcement, however, will not help anybody if
the egregious conduct is not yet against the law, and that is
why I continue to believe that we must pass on-line privacy
legislation.
I thank the chairman for calling the hearing, and I look
forward to working with you, Mr. Chairman, and again we welcome
you to our greatest of all committees in Congress. It is great
to have you with us.
Mr. Stearns. Thank you. The Chair recognizes Mr. Buyer for
an opening statement.
Mr. Buyer. Mr. Chairman and Mr. Towns, I want to thank you
for inviting the Chairman to come up and see us. Mr. Chairman,
I have--I may not be able to be here for the question phase,
and so I just want to let you know some areas of interest that
I have.
I note that in your testimony that you touched on five
areas, and I join Mr. Shimkus with a concern about vertical
integration in agriculture, and I noticed in your testimony
that you had mentioned that you had wanted to follow the
guidelines with regard to--you said that the Agency will
continue to follow the merger guidelines when assessing the
impact of the proposed merger on competition.
And then you cite horizontal guidelines, and I don't know
about how you handle vertical integration, but I do know that
farmers out there today have less choices, less choices where
they buy their equipment, and where they get their Ag inputs,
and even limit on their markets.
And it is very concerning what is happening out there in
the Ag world. I also have concerns with regard to--there is a
bill here in Congress called the Franchise E Act. It is a
concern between the franchise owners and the parent companies,
and it is a very serious issue, and it is one that we need to
look at.
The issue on--and one that I have never been able to figure
out in the 9 years that I have been in Congress, is multi-level
pricing in drug companies. I think the day that I can figure
out how they do pricing in airline tickets, I will be able to
figure out how they do multi-level prices in with drug
companies.
Another issue of concern that I have on consumer protection
deals with sports programming. What is occurring today is with
baseball as an example, and Congress gives baseball an anti-
trust exemption. The baseball owners then pay these outrageous
salaries to athletes.
And they pay $250 million to a shortstop, and people go how
can an owner do that. An owner can do that because he takes
those costs and passes them off to the programmers, and then
people don't know why their cable rates are going up.
They think cable rates are going up, Mr. Chairman, because
of infrastructure upgrades. Cable rates are going up because
sports programmers are taking advantage of consumers all across
the country, and that is something that really concerns me.
And it is a conversation that I want to continue to have
with you, and as a matter of policy, and before I yield back my
time, before I was on the Judiciary Committee for 4 years, and
would work with the anti-trust division of the Department of
Justice, I was really concerned about the level of merger mania
that occurred there in the 1990's.
And something bigger is better and can provide greater
efficiencies, and therefore the consumer gets something at a
lesser cost. Wait a minute. Time out. Aren't we about
protecting the small businesses and the entrepreneurs so that
we have an open and fair competitive marketplace?
I think that is what the job of government should be in a
capitalistic economic system. So as a matter of policy, I look
forward to your comments on how a new administration views the
world and the marketplace. I yield back and thank you for my
opening comments.
Mr. Stearns. I thank the gentleman, and the Chair
recognizes the distinguished ranking member of the full
committee, Mr. Dingell.
Mr. Dingell. Mr. Chairman, I thank you. I thank you for
holding the hearing, and I believe that it is an important one
on a very important subject. The issues facing the Federal
Trade Commission during these uncertain times are a matter of
great concern, and I look forward to hearing the views of the
Commission's new Chairman.
One issue that I am particularly concerned about is the
growing problem of identity theft, especially in the wake of
the terrifying events of September 11. Within the limitations
of its current resources and authority, I believe the FTC has
made some progress in addressing fraud perpetrated through the
use of stolen identities. I applaud these efforts.
But we will have to see whether they are sufficient and I
believe that there is evidence developing that they are not. We
now live in a new reality, a reality in which the production
and use of false identifications have very clear implications,
and not just for ordinary citizens, but for the very security
of the Nation itself.
It's not just our personal financial security at stake. We
once were only concerned with stolen identities, aiding thieves
and con artists. Now we must be concerned with stolen
identities aiding terrorists, and allowing them to conduct
activities anonymously, and potentially granting them access to
secure locations.
The Commission must conduct a thorough examination of who
has access to personally identifiable information in commerce,
and the processes by which such information is collected and
disseminated.
The collection and transfer of non-public information has
become an industry in and of itself, and it is used now to
enrich people, and very frankly to hurt the people whose
personal information is being used.
For a fee today intimate and personal detailed information
can be obtained by and about virtually anybody or everybody.
The genie of privacy has been released from the bottle, and we
are left with an extremely difficult task of putting it back
in.
Existing laws and government resources simply cannot
restrict broad access to personal information of consumers.
Years after the murder of Amy Boyer, Congress has still not
prohibited the unauthorized sale or transfer of Social Security
numbers that played such an important role in that case.
Alone, neither industry self-regulation nor the government
can fully protect the public against identity theft, and indeed
I would note that industry has shown very little concern or
interest in protecting the identities and the personal privacy
of American citizens.
Indeed, the most effective weapon against identity theft is
to empower consumers with control over their personal
information, and how that information is collected and
disseminated.
If citizens are armed with effective, and enforceable,
legal rights, then the individual consumer should be able to
manage access to his or her personally identifiable information
more responsibly than industry or government.
In conclusion, I agree with Chairman Muris that Congress
should not limit new privacy legislation to on-line practices.
Our goal must continue to be consumer control over their
personal information, whether on or off-line, or indeed
wherever it might happen to be.
Under your leadership, Mr. Chairman, we expect the FTC to
assist us in this endeavor. If we fail in this critically
important task, we should expect the States to address the
problem in ways that will pose far more problems for industry
than any new Federal law.
Indeed, the States could give us 50 or more different
solutions to a problem, which might create significant problems
for industry if industry does not recognize that situation.
So industry, like individual Americans, then has a strong
interest in seeing effective, enforceable, new authority and
rights enacted. We must stop identity theft and we must do it
now. We must see to it that the privacy of the American people
is protected for new reasons above and beyond those which Mr.
Markey and others on this committee and I have traditionally
pushed.
Mr. Chairman, I look forward to working with you on this
important matter, and I welcome Mr. Muris for his appearance
before this committee. Thank you, Mr. Chairman.
Mr. Stearns. I thank the gentleman. Mr. Terry is recognized
for an opening statement.
Mr. Terry. Thank you. I just want to thank the Chairman for
being here today, and I am anxious to hear your vision and your
philosophy for the department under your leadership; and I also
want to express my appreciation for your attempts to see each
of us individually.
That impressed me, and what also impressed me is how you
are going to get your arms around so many important issues.
Just listening to the opening statements today, each one of us
have different concerns, of which have incredible significance
and magnitude to them, and I am particularly going to listen in
as Mr. Boyer mentioned on vertical integration in foreign
policy.
But I am going to look at it and attack the issues, and see
when an Internet company is allowed to just control all of the
transactions, or how we allow more small tech businesses to be
involved in the process. So with that telegraph of where I will
ask my questions, I will yield back the rest of my time.
Mr. Stearns. I thank the gentleman, and the Chair
recognizes the gentleman from New Hampshire, Mr. Bass.
Mr. Bass. Thank you, Mr. Chairman, and I appreciate also
you holding this hearing. The Federal Trade Commission is more
than perhaps any regulatory agency the heart of the
jurisdiction of this committee besides Energy. I mean, Commerce
is trade, and we want to welcome the new Chairman.
There are many issues that we need to review and address
over the coming years, including issues such as identity theft,
privacy, anti-trust, and oversight, and other consumer
protection issues. So I think this is a great opportunity to
get an introduction, and we will be discussing many important
issues today, and I thank the chairman for holding the hearing.
Mr. Stearns. I thank the gentleman.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Ed Bryant, a Representative in Congress from
the State of Tennessee
I would like to thank Chairman Muris for testifying before us today
about the challenges facing the Federal Trade Commission. I look
forward to hearing from the Chairman on the Commission's work
protecting the welfare of our nation's consumers.
As the chairman discusses in his testimony, the FTC is the only
federal agency with jurisdiction across many sectors of the nations
economy in the areas of both consumer protection and competition. I am
particularly interested in hearing from the Chairman on the
Commission's work in regard to technology and intellectual property,
health care, privacy, energy, and mergers.
It is important that the FTC continues to fight Internet and health
care fraud and educate consumers about the characteristics of scams so
that the nation has educated and aware consumers.
I understand that many on the Commission do not believe there is a
need for Congressional action in regard to information privacy--I hope
to hear from the chairman on the reasons why some commissioners have
concerns about action in this area.
I consistently hear from a number of my constituents regarding the
deluge of unsolicited emails they receive, and I am glad to hear that
the FTC has an electronic mailbox where consumers can forward their
spam.
I also look forward to hearing about the Commission's work looking
out for the interests of the consumers in its evaluation of mergers.
I thank the Chairman for holding this hearing today and again,
thank Chairman Muris for testifying before us today on the agency's
work to protect the welfare of consumers.
______
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Let me thank you, Mr. Chairman, for calling this morning's hearing,
which promises to provide us an excellent opportunity to discuss
various challenges facing the FTC.
This hearing will allow us to look forward a bit, to see what may
be just over the horizon and how the federal agency charged with
consumer protection plans to confront them. So I am pleased, as well,
to welcome our distinguished guest, Federal Trade Commission Chairman
Tim Muris.
Given its general statutory authority to protect consumers from
unfair or deceptive acts or practices, the FTC serves as consumers'
principal federal guardian in the marketplace. From its policing of
Internet fraud to generic drugs, to gas prices, the FTC helps to ensure
the competition and honest dealing that is necessary for markets to
thrive. And as the former head of the Bureau of Consumer Protection,
Chairman Muris--I am sure--fully understands the scope of the public
trust he now holds.
Over the past few years, the FTC has also made its mark on the
Internet age, as the body in charge of approving mega-mergers, such as
the union of AOL and Time Warner, of establishing online anti-fraud
guidelines, and providing safeguards to protect the Internet users'
personal information. The future, doubtless, will contain many of the
same debates.
Privacy, for instance, is one issue that has been actively debated
in this Subcommittee and I look forward to more discussion on that
front this morning. I commend Chairman Muris for his thoughtful
examination of this complex issue, as demonstrated by his recent speech
in Cleveland, which focused on rededicating the FTC's attention and
resources to enforcement issues, specifically actions related to
consumer privacy. Chairman Muris' focus on enforcement is right on
target.
Although it is unlikely the Committee will have time to tackle the
issue this year, given the shrinking session, I do see a need to
explore additional legislative efforts that will help address an
apparent failure in the marketplace to protect consumers' privacy.
Perhaps there are some additional tools we can provide that will bring
confidence to consumers and the industry without unnecessarily
interfering with good business practices.
Finally, Chairman Muris has long argued, and I agree with him, that
the Commission should evaluate the economic impact of its actions
closely and make sure that any proposed action will benefit consumers.
The Commission should take aggressive law enforcement actions against
fraud and deception, but take care to steer clear from cumbersome rule-
makings designed to transform entire industries. Consumers benefit
tremendously from free markets and competition, and I look forward to
continued acknowledgement of this fact at the FTC.
Mr. Chairman, I look forward to the discussion today, and to
working with you during your term.
Mr. Stearns. At this point we welcome the testimony of
Timothy Muris, the Chairman of the Federal Trade Commission. I
think you have heard from a number of members who have brought
up some interesting topics that you probably had not intended
to talk about, such as baseball and the cable companies. But we
welcome your testimony this morning.
STATEMENT OF HON. TIMOTHY J. MURIS, CHAIRMAN, FEDERAL TRADE
COMMISSION
Mr. Muris. Thank you very much, Mr. Chairman. Let me
briefly summarize my testimony and submit my statement for the
record.
I am certainly pleased to be here today. It has been a
while since I testified before this committee, and this is my
first testimony as Chairman of the Federal Trade Commission.
I have been here at the FTC for 5 months. As your questions
imply, the FTC has a very broad mandate. It is the only Federal
Agency with both consumer protection and competition
jurisdiction in broad sectors of the economy.
This is the fourth job that I have had at the FTC, and I am
honored to be Chairman. Our mission is important, as your
questions have indicated. The issues are crucial and
fascinating, and the people with whom I work are outstanding
public servants.
I am especially pleased to appear before this subcommittee
for my first Congressional testimony as chairman. The committee
and its chairman have been good friends to the FTC, and I
especially benefited from the chairman's leadership on privacy.
Privacy was a new issue for me, and I learned much from this
committee's six hearings on the issue. The facts from those
hearings led to our new privacy agenda, including increasing
our resources devoted to protecting privacy by 50 percent.
The FTC's record is impressive, and unlike the 1980's when
I was last at the FTC, the FTC today is an example of
bipartisan cooperation. We will continue the excellent work of
our predecessors--my friend Bob Pitofsky and his colleagues.
Let me briefly discuss our two major missions, consumer
protection and anti-trust. In consumer protection, 20 years ago
the FTC shifted from an attempt to be the second most powerful
legislature in Washington, to enforcing basic consumer
protection laws: laws against fraud, against deception, and
against breach of contract. In the 1990's, this mission was
perfected and performed extremely well using a three-part
strategy of law enforcement, of consumer education, and of
cooperation and working with the business community.
Today the FTC is the leader both in fighting fraud on the
Internet and in using hi-tech tools to detect and deter fraud
and educate consumers about on-line scams. Last month, for
example, we obtained an injunction against a cyber-scammer who
allegedly used more than 5,500 copycat web addresses to divert
consumers from their intended destinations to one of his sites,
and then hold them captive while pelting them with a barrage of
advertisements, many of them for products such as pornography,
which many consumers regard as inappropriate.
Another recent example is that we announced a settlement in
a negative option case with more than $8 million in redress for
consumers. We also recently announced eight diet supplement
cases, which is an area in which we have seen an increasing
number of problems.
Following September 11, we have turned our attention to
many potential scams. We have recently worked with law
enforcement officials all over the country to search the
Internet for potentially fraudulent and deceptive claims
related to terrorism issues, and we have numerous
investigations underway. We have also launched an aggressive
consumer education campaign, warning consumers what to look for
in potential scams and also addressing the charitable
solicitation issue. We finally have been screening, along with
many other agencies, for fraudulent charitable solicitations.
Turning to anti-trust, the watch word again is continuity.
The merger wave was extremely significant in the late 1990's,
and it has receded somewhat, but we are still vigilant on the
merger front.
Last month, for example, we brought four merger cases. On
non-mergers, we are increasing our efforts, particularly in
health care. Health care costs as you know compromise about 15
percent of our GDP, up from 12 percent just 10 years ago. Not
surprisingly, health care cases are an important part of our
focus. In particular, we are increasing our efforts to prevent
firms from engaging in anti-competitive practices that raise
drug prices.
We have investigated claims that manufacturers use the
provisions of the Hatch-Waxman Act anti-competitively. One
problem involves agreements between makers of brand-name drugs
and makers of generics, under which the generic entrant is
essentially paid not to compete. A second issue under Hatch-
Waxman involves efforts unilaterally by brand manufacturers to
forestall competition, and we are looking hard at that area as
well.
In summary, and I did want to briefly summarize my
statement and allow you to turn to your questions, our mission
is simply to protect consumers. Today's FTC has forged a
widespread and bipartisan consensus on how to protect
consumers, and how to work with other Federal and State
agencies to provide maximum benefits. We will continue to use
the full panoply of our institutional tools in fulfilling this
important mission.
Thank you very much.
[The prepared statement of Hon. Timothy J. Muris follows:]
Prepared Statement of Hon. Timothy J. Muris, Chairman, Federal Trade
Commission
Mr. Chairman and Members of the Subcommittee, I am Timothy J.
Muris, Chairman of the Federal Trade Commission. I am pleased to appear
before you today on behalf of the Commission to discuss our law
enforcement and programmatic priorities.\1\
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\1\ The written statement presents the views of the Commission. My
oral statement and responses to questions are my own and do not
necessarily represent the views of the Commission or any other
individual Commissioner.
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The FTC is the only federal agency with both consumer protection
and competition jurisdiction in broad sectors of the economy.\2\ We
enforce laws that prohibit business practices that are anticompetitive,
deceptive, or unfair to consumers, as well as 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.
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\2\ 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 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.
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The FTC's record is impressive. The agency has fulfilled its
mission of protecting American consumers by pursuing an aggressive law
enforcement program during rapid changes in the marketplace--the past
decade saw the largest merger wave in history, the rapid growth of
technology, and the increasing globalization of the economy. Through
the efforts of a dedicated and professional staff, the FTC has
shouldered an increasing workload despite only modest increases in
resources. We also have benefitted greatly from the leadership of my
predecessor, Robert Pitofsky.
The guiding word at the FTC will be ``continuity.'' The agency
aggressively will pursue law enforcement initiatives, launch consumer
and business education campaigns, and organize forums to study and
understand the changing marketplace, just as it has done for several
years. We will continue to address competition and consumer protection
issues in the evolving economy with the same expertise and commitment
as before.
Our competition mission will continue to reflect the following
widely shared consensus: (1) the purpose of antitrust is to protect
consumers; (2) the mainstays of antitrust enforcement are horizontal
cases--cases involving the business relations and activities of
competitors; (3) in light of recent judicial decisions and economic
learning, appropriate monopolization and vertical cases are an
important part of the antitrust agenda; and (4) case selection should
be determined by the impact on consumers, guided by sound economic and
legal analysis, and made with careful attention to the facts. The FTC
is primarily a law enforcement agency, and we will continue aggressive
enforcement of the antitrust laws within the agency's jurisdiction. The
FTC is also an independent expert agency and a deliberative body, and
is thus well suited to studying an evolving marketplace and developing
antitrust policy--we will continue to hold public hearings, conduct
studies, and issue reports to Congress and the public.
Similarly, there is widespread agreement on how the FTC best
carries out its consumer protection mission. Twenty years ago, the FTC
shifted its emphasis toward more aggressive enforcement of the basic
laws of consumer protection. The staple of our consumer protection
mission is to identify and fight fraud and deception. The Commission
continually monitors trends and developing issues in the marketplace to
determine the most effective use of its resources. The FTC has become
the national leader in consumer protection and partners with other law
enforcement agencies at the federal, state, local, and even
international levels to maximize benefits for consumers.
The FTC will continue to address significant law enforcement and
policy issues throughout the economy, devoting the major portion of its
resources to those areas in which the agency can provide the greatest
benefits to consumers. I will highlight five areas today:
<bullet> Technology and Intellectual Property
<bullet> Health Care
<bullet> Privacy
<bullet> Energy
<bullet> Mergers
technology and intellectual property
Changes in technology and the growing importance of intellectual
property to the economy have caused a significant change in the FTC's
work in both missions. The consumer protection mission focuses
increasingly on high-tech frauds, while the competition mission works
to provide consumers with the full benefits of both innovation and
competition.
High-tech fraud. The FTC is the leader both in fighting fraud on
the Internet and in using high-tech tools to detect and deter fraud and
to educate consumers about online scams. The Internet has spawned new
deceptive practices, and also has given renewed vigor to traditional
scams. The FTC will continue to monitor rapidly evolving technologies
used by scam artists. The FTC has brought a number of cases involving
scams that depend on the special nature of technology. In a case filed
September 25, for example, \3\ we obtained an injunction against a
cyber-scammer who allegedly used more than 5,500 copycat Web addresses
to divert consumers from their intended destinations to one of his
sites and hold them captive while pelting their computer screens with a
barrage of advertisements.\4\
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\3\ See FTC v. Zuccarini, No. 01-CV-4854 (E.D. Pa. filed Sept. 25,
2001).
\4\ This scam involved registering Internet domain names that are
misspellings or transpositions of legitimate popular domain names to
lure surfers onto a Web site that they never intended to visit. Once
taken to the defendant's sites, consumers were ``mousetrapped,'' making
it difficult to exit. Mousetrapping involves the use of a special
programming code at the site that obstructs surfers' ability to close
their browser or return to the previous page. Clicks on ``close'' or
``back'' buttons only cause new unwanted windows to open. The
defendant's sites also contained a ``stealth'' feature, hidden under
the task bar, making it invisible to consumers. Its sole function was
to act as a timer, periodically launching additional pages of
advertisements, without any action by consumers. Thus, even as
consumers struggled to escape the defendant's multi-window
mousetrapping scheme, they were barraged with even more windows of
unwanted images.
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Traditional frauds have migrated to the Internet in large numbers.
Many of the 200 cases challenging Internet fraud brought by the FTC
since 1994 concerned old frauds in the new medium--28 cases challenged
credit repair schemes, 13 cases challenged deceptive business
opportunities, and 11 cases challenged pyramid schemes. The Internet
can give these old scams a sleek, new veneer, as well as provide access
to a larger pool of potential victims at little cost.
We also use technology in our fight against fraud. Our high-tech
undertakings include:
<bullet> Consumer Sentinel--A consumer complaint database and web-based
law enforcement tool that is maintained by the FTC and shared
with over 300 law enforcement agencies in the U.S. and abroad.
This database is an integral part of our overall consumer
complaint system. Analysis of the complaints in the database
enables staff to spot trends and identify targets. The database
already has been expanded to cover identity theft complaints,
and this year will be expanded further to cover additional
types of privacy complaints. We are also working with the
Department of Defense on Soldier Sentinel, a database tailored
to accept consumer complaints from military personnel and to
track trends in frauds specifically targeted at members of the
armed forces.
<bullet> E-consumer.gov--A joint effort with 13 other nations launched
earlier this year to gather and share cross-border e-commerce
complaints.\5\
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\5\ The other countries participating in this project are
Australia, Canada, Denmark, Finland, Hungary, Japan, Mexico, New
Zealand, Norway, South Korea, Sweden, Switzerland, and the United
Kingdom.
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<bullet> Surf Days--Joint initiatives whereby the FTC staff identifies
a deceptive practice that is prevalent on the Internet and
recruits law enforcement partners to fight it. Together we
search the Web for a specific period of time using a specially
tailored protocol. Surfs can be highly efficient tools that:
(1) enable law enforcement officials to learn about online
practices; (2) provide an opportunity for the FTC to alert and
educate Web site operators--some of whom are new entrepreneurs,
unaware of existing laws--whose sites appear to violate the
law; and (3) enable law enforcement authorities to identify the
more egregious violators for possible law enforcement action.
<bullet> Internet investigation training--FTC-conducted training for
more than 2000 individual law enforcement staff, including
representatives of 20 countries, 30 states, and 22 federal
agencies. This training will continue.
<bullet> Toll free number--The FTC's toll-free hotline, 1-877-FTC-HELP.
The hotline will receive additional resources to accept more
consumer complaints and help us to identify trends in consumer
fraud. Complaints received through the hotline are entered into
Consumer Sentinel and made available to law enforcement
agencies across the country.
Intellectual property. In past decades, our economy has become more
knowledge-based; for some companies, patent portfolios represent far
more valuable assets than manufacturing or other physical facilities.
Thus, an increasing number of the FTC's competition matters require the
application of antitrust law to conduct relating to intellectual
property. Both antitrust and intellectual property law share the common
purposes of promoting innovation and enhancing consumer welfare. On
occasion, however, there have been tensions in how to manage the
intersection between the doctrines, as well as questions about how best
to spur innovation through competition and intellectual property law
and policy. These issues may well merit broader and more in-depth
study. In addition, we continue to pursue investigations involving
intellectual property.
An example of our objectives in this area is to ensure that patent
holders do not improperly withhold critical information from industry
standard-setting groups to delay the creation of a standard or raise
the price of admission to its use. In Dell Computer,\6\ the FTC
considered the issue of the capture of a standard-setting body by a
holder of intellectual property rights that were critical to the
standard ultimately selected by that body. Dell, a member of a
standard-setting association, allegedly had influenced the choice of an
industry standard for computer graphics performance without disclosing
that its own intellectual property rights would benefit from the
adoption of that standard to the detriment of its competitors and,
ultimately, consumers. To settle the FTC's charges of antitrust
violations, Dell agreed not to enforce its intellectual property
rights. We currently are investigating matters that raise similar
issues.
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\6\ Dell Computer Co., C-3658 (May 20, 1996) (consent order).
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health care
Health care costs comprise a large part of both the family budget
and the national economy. Currently, health-related products and
services account for approximately 15 percent of gross domestic
product, up from 12 percent in 1990. Not surprisingly, health-related
cases constitute an important part of the FTC's focus.
Generic drugs. A major portion of the American health care dollar
purchases prescription drugs, and we will continue our efforts to
prevent firms from engaging in anticompetitive practices that raise
drug prices. In particular, we will strive to ensure that
anticompetitive practices do not delay market entry of generic drugs,
which cost less than name-brand pharmaceuticals. We will seek to ensure
that protections provided to drug innovators under the Hatch-Waxman Act
\7\ are not abused to the detriment of consumers. As you know, Hatch-
Waxman was designed to increase the flow of new pharmaceuticals into
the marketplace by carefully balancing two public policy objectives:
encouraging vigorous competition from generic drugs, while maintaining
incentives to invest in the development of innovator drugs.
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\7\ 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)).
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The FTC has investigated claims that manufacturers use the
provisions of this Act anticompetively in two different ways. The first
involves agreements between makers of brand-name drugs and makers of
generics, under which the generic entrant is essentially paid not to
compete. In Abbott/Geneva,\8\ for example, the parties allegedly agreed
that the generic manufacturer--in exchange for money paid by the
branded manufacturer--would not enter the market until their patent
litigation concluded; would not enter the market with any other generic
version of the product; and would not relinquish the 180-day period of
exclusivity given to it under Hatch-Waxman as the firm first to file an
application to make a generic equivalent.\9\ Such agreements may
unreasonably delay the entry of generic drug competition, potentially
costing consumers hundreds of millions of dollars annually.
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\8\ Abbott Laboratories, No. C-3945 (May 22, 2000), and Geneva
Pharmaceuticals, Inc., No. C-3946 (May 22, 2000) (consent orders).
\9\ See also Hoechst Marion Roussel, Inc., No. C-9293 (May 8, 2000)
(consent order). The Commission has also issued a complaint against
Schering-Plough and two producers of generic drugs challenging their
settlement agreements resolving patent litigation involving the drug K-
Dur. Schering-Plough, No. 9297 (complaint issued April 2, 2001).
Because the case is currently in administrative litigation, we cannot
comment further.
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The second issue involves unilateral conduct by branded
manufacturers designed to forestall competition. For example, some
branded manufacturers list additional patents in the FDA's ``Orange
Book,'' often shortly before their original patents expire, which sets
the stage for launching patent infringement suits against generic drug
firms poised to enter the market. Under Hatch-Waxman, such litigation
triggers an automatic 30-month stay on FDA approval of the generic
drug. If the listings do not meet statutory and regulatory
requirements, their inclusion in the Orange Book may constitute
unlawful restraints on competition.
To uncover whether strategies such as these are isolated examples
or represent patterns of anticompetitive conduct, the Commission has
undertaken a study, as requested by Representative Henry Waxman, to
provide a more complete picture of how generic competition has
developed under the Hatch-Waxman Act. The Commission has issued nearly
100 orders to innovator and generic drug companies to obtain documents
related to the issues identified through investigations and to identify
any other anticompetitive strategies that may exploit certain Hatch-
Waxman provisions. The facts obtained through this study may provide a
basis for policy recommendations in this area.
Health care fraud. Fraud in the health care sector poses a direct
and immediate threat of both economic and physical injury to
consumers.\10\ To fight health care fraud, the FTC launched ``Operation
Cure.All,'' a comprehensive consumer and business education and law
enforcement initiative targeting deceptive and misleading Internet
promotion of products and services as cures or treatments for serious
diseases. Just this summer, the FTC filed eight cases as part of
Operation Cure.All, targeting companies that market a variety of
devices, herbal products, and other dietary supplements to treat or
cure cancer, arthritis, Alzheimer's, diabetes, and many other
diseases.\11\
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\10\ Combating health fraud has been a longstanding priority of the
Commission. Since 1998, the Commission has brought 80 cases involving
health and safety claims in advertising.
\11\ See Panda Herbal Int'l, Inc., No. C-4018 (Aug. 8, 2001)
(consent order) (St. John's Wort and Herb Veil 8 marketed as treatment
for HIV/AIDS and skin cancer, respectively); ForMor, Inc., No. C-4021
(Aug. 8, 2001) (consent order) (St. John's Wort marketed as treatment
for HIV/AIDS; colloidal silver and shark cartilage marketed as
treatments for cancer, arthritis, and other diseases); MaxCell
Bioscience, Inc., No. C-4017 (Aug. 8, 2001) (consent order) (multi-
ingredient product containing DHEA marketed to reverse aging and
prevent age-related diseases); Michael Forrest d/b/a Jaguar Enterprises
of Santa Ana, No. C-4020 (Aug. 8, 2001) (consent order) (miracle herbs
and black box, magnetic pulser, and Beck-Rife units marketed as
treatments for cancer and arthritis); Robert C. Spencer d/b/a Aaron
Company, No. C-4019 (Aug. 8, 2001) (consent order) (colloidal silver
marketed as treatment for cancer and many other diseases); FTC v.
Western Dietary Products Co. (Skookum), No. C01-0818R (W.D. Wash.,
filed June 6, 2001) (herbal cure packages and ``zappers'' marketed as
treatments for cancer); FTC v. Western Botanicals, Inc., No. S-01-1332
DFL GGH (E.D. Cal., July 25, 2001) (Stipulated Permanent Injunction)
(comfrey products); FTC v. Christopher Enterprises, Inc., 2:01CV-0505
ST (C.D. Utah, stipulated preliminary injunction entered July 6, 2001)
(comfrey products).
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Although aggressive law enforcement is crucial, education may be
the best consumer protection by preventing deception in the first
place. As part of a comprehensive consumer education program, we
recently partnered with the FDA to announce a new publication, Miracle
Health Claims: Add a Dose of Skepticism, which provides detailed
information on spotting and avoiding health care fraud. Another
brochure, Who Cares: Sources of Information About Health Care Products
and Services, published jointly with the National Association of
Attorneys General, informs consumers about information for arthritis
cures, alternative medicine, and other health issues, and where to file
complaints about health care fraud. To alert older audiences about
health fraud issues, the FTC works with other federal agencies, such as
the Department of Health and Human Services' Administration on Aging,
and with private groups, such as the AARP.
We will continue to use the Internet and other media to distribute
our consumer education messages. Our Web site, www.ftc.gov, provides
links to reliable health information, including www.healthfinder.gov,
developed by the Department of Health and Human Services. In a little
over one year, the FTC's Web-based consumer education material dealing
with health issues has received nearly 80,000 hits.
To educate the unwary, the FTC also maintains three ``teaser'' Web
sites--``Arthriticure,'' ``Virility Plus,'' and ``Nordicalite''--
accessed using common search engines and designed to mimic fraudulent
health care sites. When consumers attempt to order the bogus products,
however, they are warned that if the promotions had been real, they
would have been scammed. Most important, the site provides consumers
with tips on how to identify Web sites that are most likely scams and
directs them to sources of reliable information. In the last two years,
the three teaser sites have received over 20,000 hits.
One specific type of health-related product--dietary supplements--
will continue to receive special attention.\12\ False or deceptive
claims in the advertising for these products are especially rampant.
Because total sales from such products were $15 billion in 1999 and are
increasing annually by about 10 percent, \13\ targeting deceptive
claims for dietary supplements is an important use of FTC resources.
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\12\ In 2001, the Commission has brought 14 cases challenging
advertising claims made for dietary supplements. During the period from
1998 through 2000, the Commission brought 46 such cases.
\13\ Nutrition Business Journal, Volume IV, No.6 ``Industry
Overview 1999'' at 3.
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privacy
Many consumers are deeply concerned about the privacy of their
personal information, both online and offline. Although privacy
concerns have been heightened by the rapid development of the Internet,
they are by no means limited to the cyberworld. Consumers can be harmed
as much by the thief who steals credit card information from a mailbox
or dumpster as by the one who steals that information from a Web site.
Of course, the nature of Internet technology may raise its own special
set of issues.
A majority of the Commission does not support online privacy
legislation at this time,\14\ but there is no doubt that consumer
privacy is an issue that will continue to be studied and debated both
at the FTC and in Congress. The Committee on Energy and Commerce, and
particularly the Subcommittee on Commerce, Trade, and Consumer
Protection, have made significant contributions to the discussion of
these issues. The Commission looks forward to continuing to work with
the Committee and Subcommittee on these issues.
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\14\ Commissioners Anthony and Thompson continue to support
legislation as recommended by the Commission last year. See Statement
of Commissioner Sheila Anthony on the Commission's Privacy Agenda (Oct.
4, 2001); Privacy Online: Fair Information Practices in the Electronic
Marketplace: A Federal Trade Commission Report to Congress (May 2000)
(Commissioner Orson Swindle, Dissenting, and Commissioner Thomas B.
Leary, Concurring in Part and Dissenting in Part).
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The FTC currently enforces a number of laws that address consumers'
privacy.\15\ The Commission intends to increase substantially the
resources dedicated to privacy protection. Our initiatives in this area
attempt to reduce the serious consequences that can result from the
misuse of personal information and fall into three major categories:
vigorous enforcement of existing laws, additional rulemaking, and
continued consumer and business education.\16\
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\15\ See, e.g., Federal Trade Commission Act, 15 U.S.C. Sec. 41 et
seq. (prohibiting deceptive or unfair acts or practices, including
violations of stated privacy policies); Fair Credit Reporting Act, 15
U.S.C. Sec. 1681 et seq. (addressing the accuracy, dissemination, and
integrity of consumer reports); Telemarketing and Consumer Fraud and
Abuse Prevention Act, 15 U.S.C. Sec. 6101 et seq. (including the
Telemarketing Sales Rule, 16 C.F.R. Part 310) (prohibiting
telemarketers from calling at odd hours, engaging in harassing patterns
of calls, and failing to disclose the identity of the seller and
purpose of the call); Children's Online Privacy Protection Act, 15
U.S.C. Sec. 6501 et seq. (prohibiting the collection of personally
identifiable information from young children without their parents'
consent); Identify Theft and Assumption Deterrence Act of 1998, 18
U.S.C. Sec. 1028 (directing the FTC to collect identity theft
complaints, refer them to the appropriate credit bureaus and law
enforcement agencies, and provide victim assistance); Gramm-Leach-
Bliley Act, 15 U.S.C. Sec. 6081 et seq. (requiring financial
institutions to provide notices to consumers and allowing consumers
(with some exceptions) to choose whether their financial institutions
may share their information with third parties).
\16\ See Remarks of Chairman Timothy J. Muris, ``Protecting
Consumers' Privacy: 2002 and Beyond,'' The Privacy 2001 Conference,
Cleveland, Ohio (Oct. 4, 2001).
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Law enforcement. The FTC intends to increase its law enforcement
efforts in the following areas:
<bullet> Challenging ``pretexting,'' the practice of fraudulently
obtaining personal financial information, often by calling
banks under the pretense of being a customer.\17\
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\17\ Some examples of recent ``pretexting'' cases brought by the
Commission include: FTC v. Information Search, Inc. and David Kacala,
No. AMD-01-1121 (D. Md. preliminary injunction entered May 4, 2001);
FTC v. Victor L. Guzzetta d/b/a Smart Data Systems, No. CV-01-2335
(E.D.N.Y. preliminary injunction entered Apr.19, 2001); FTC v. Paula L.
Garrett d/b/a Discreet Data Systems, No. H 01-1255 (S.D. Tex.
preliminary injunction entered May 1, 2001).
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<bullet> Enforcing privacy promises, focusing on cases involving
sensitive information, transfers of information as part of a
bankruptcy proceeding, and the failure of companies to meet
commitments made under the Safe Harbor Program to comply with
the European Commission's Directive on Data Protection.\18\
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\18\ The European Commission's Directive on Data Protection became
effective in October 1998, and prohibits the transfer of personal data
to non-European Union nations that do not meet the European
``adequacy'' standard for privacy protection. To bridge different
privacy approaches between the U.S. and the EU, and to provide a
streamlined means for U.S. organizations to comply with the Directive,
the U.S. Department of Commerce, in consultation with the European
Commission, developed a ``Safe Harbor'' framework, which was approved
by the EU in July 2000. Companies that self-certify to the Department
of Commerce that they comply with the Safe Harbor Principles may be
deemed by the EU to provide ``adequate'' privacy protection under the
EU Directive. The FTC will give priority to referrals of non-compliance
with safe harbor principles from EU Member States. See Department of
Commerce's Safe Harbor Website, www.export.gov/safeharbor.
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<bullet> Enforcing the Children's Online Privacy Protection Act, which
prohibits the collection of personally identifiable information
from young children without their parents' consent.\19\
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\19\ See Children's Online Privacy Protection Act of 1998, 15
U.S.C. Sec. 6501 et seq. The Commission has brought several actions to
enforce COPPA and its implementing Rule. See, e.g. United States v.
Lisa Frank, Inc., No. 01-1516-A (E.D. Va. filed Oct. 1, 2001) ($30,000
civil penalty).
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<bullet> Enforcing the privacy protections of the Fair Credit Reporting
Act, which ensures the integrity and accuracy of consumer
credit reports and limits the disclosure of such information to
entities that have ``permissible purposes'' to use the
information.\20\
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\20\ See Fair Credit Reporting Act, 15 U.S.C. Sec. 1681 et seq.
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<bullet> Bringing actions against fraudulent or deceptive spammers.\21\
Since 1998, the FTC has maintained a special electronic
mailbox, uce@ftc.gov, to which Internet customers can forward
spam. This database currently receives 10,000 new pieces of
spam every day. We will use this mailbox to identify targets
for law enforcement action.
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\21\ Deceptive spamming is a prime example of high-tech fraud,
discussed earlier.
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Rulemaking. The Commission plans to engage in the following
rulemaking activities:
<bullet> Considering whether to propose an amendment to the
Telemarketing Sales Rule \22\ to create a national do-not-call
list to allow consumers to make one call to remove their names
from telemarketing lists.
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\22\ See Telemarketing Sales Rule, 16 C.F.R. Part 310.
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<bullet> Considering whether to propose an amendment to the
Telemarketing Sales Rule to address the misuse of ``pre-
acquired account information,'' lists of names and credit card
account numbers of potential customers. Misuses include billing
consumers who believed they were simply accepting a free trial,
or billing consumers for products or services that they did not
purchase.\23\
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\23\ Recently, the Commission approved a federal district court
settlement against Ira Smolev, Triad Discount Buying Services, Inc.,
and other defendants to resolve charges that they deceptively
telemarketed buying clubs using negative option free trial offers and
pre-acquired account information. The proposed order prohibits the
defendants from obtaining account information from third parties,
unless the third parties disclose to account-holders that they will
transfer the account information and the account-holders agree to the
transfer. The order also prohibits the defendants from transferring
credit card information and personal identifiers to others, except as
needed to process consumer-authorized transactions. See In re Premier
Membership Services LLC, Case No. 00-35053-BKC-SHF (Bankr. S.D. Fla.).
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<bullet> Completing the current rulemaking on safeguarding consumers'
financial information pursuant to the Gramm-Leach-Bliley
Act.\24\
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\24\ The Gramm-Leach-Bliley Act, 15 U.S.C. Sec. Sec. 6801(b) and
6805(b), requires the FTC to issue a rule establishing appropriate
standards for safeguards to ensure the security, confidentiality and
integrity of customer records and information.
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Consumer and business education and outreach. The agency will
continue to conduct workshops and other educational activities:
<bullet> Training law enforcement officials of a number of agencies to
use the ID Theft database assembled by the FTC to spot trends
that will help them prosecute those who engage in ID theft.\25\
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\25\ See Identity Theft and Assumption Deterrence Act of 1998, 18
U.S.C. Sec. 1028. This Act makes the FTC a central clearinghouse for
identity theft complaints. Under the Act, the FTC is required to log
and acknowledge such complaints, provide victims with relevant
information, and refer their complaints to appropriate entities (e.g.,
the major consumer reporting agencies and other law enforcement
agencies).
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<bullet> Promoting the FTC's toll-free number, 1-877-FTC-HELP, so that
consumers know where to report privacy-related complaints.
<bullet> Hosting an interagency workshop on privacy notices required
under Gramm-Leach- Bliley \26\ to assess the impact of the
notices, identify successful privacy notices, discuss
strategies for communication of complex information, and
encourage industry ``best practices'' and consumer and business
education.
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\26\ The Gramm-Leach-Bliley Act, 15 U.S.C. Sec. 6801 et seq.,
requires financial institutions to provide notices to consumers and
(with certain exceptions) allows consumers to choose whether their
financial institutions may share their information with third parties.
The FTC will undertake enforcement efforts to ensure that financial
institutions comply with the law and will work to increase consumer
awareness of the notices.
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<bullet> Continuing to explore and monitor the privacy implications of
new and emerging technologies through workshops, reports, and
other public meetings.
<bullet> Joining with several companies and privacy organizations to
develop a universal fraud complaint form that victims of
identity theft can submit to each creditor involved. This form
will help victims recoup their losses and restore their
legitimate credit records more quickly.
energy
As are health care and privacy, energy is of critical concern to
consumers. The energy sector accounts for a significant portion of the
nation's total economic output, and is a vital input to virtually all
sectors of the economy. The FTC has long experience with energy issues.
We have investigated a number of oil mergers in recent years and have
brought cases where appropriate. For example, in Exxon/Mobil,\27\ BP/
ARCO,\28\ and Chevron/Texaco,\29\ the FTC required large divestitures
of oil fields, refineries, pipelines, and gas stations to ensure that
the combined companies would not gain market power at any level in the
petroleum industry. We will continue to investigate thoroughly any
activities that may raise competition issues.
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\27\ Exxon Corp. and Mobil Corp., No. C-3907 (January 26, 2001)
(consent order).
\28\ BP Amoco p.l.c. and Atlantic Richfield Co., No. C-3938 (Aug.
29, 2000) (consent order).
\29\ Chevron Corporation/Texaco, No. C-4023 (consent agreement
accepted for public comment Sept. 7, 2001).
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The Commission recently announced a series of comprehensive
conferences and hearings on ``Factors that Affect the Price of Refined
Petroleum Products'' to further explore the practices of, and the
changes occurring among, firms in the industry. The first conference
was held on August 2, 2001, and agency staff is planning a second set
of hearings. We expect that a significant number of experts in this
field will participate at these hearings, which will be held early next
year.
The FTC will investigate pricing behavior, where appropriate, in
energy markets. In just the past year, we investigated various price
spikes or pricing anomalies in petroleum products. Thus far, we have
found no evidence of collusive activity in violation of the antitrust
laws. Staff also investigated the recent gasoline price spikes in the
aftermath of the September 11th terrorist attacks. Although these
investigations did not find antitrust violations, Commission
investigations nonetheless both have a deterrent effect on wrongdoing
and provide the basis for action when anticompetitive practices have
occurred.
Drawing upon our experience with energy and environmental matters,
we have been advising states on emerging consumer issues as they
deregulate and restructure their electricity and natural gas markets. A
recent staff report prepared at the request of this Committee examines
state retail electric programs to determine which reforms appear to
have worked best in introducing competitive forces into the retail sale
of electricity. The report concludes that, although the transition to
competition is incomplete, the properly designed restructuring of this
industry on the state level ultimately will result in benefits to
consumers.\30\
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\30\ Staff Report, Competition and Consumer Protection Perspectives
on Electric Power Regulatory Reform: Focus on Retail Competition. This
report was prepared in response to a request from Chairman Tauzin of
the House Committee on Energy and Commerce, and Chairman Barton of that
Committee's Subcommittee on Energy and Air Quality.
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The agency also focuses on energy issues that have a direct bearing
on consumers' wallets. We have brought law enforcement actions
challenging deceptive energy savings claims for various products.\31\
We also educate consumers on energy issues by issuing alerts and other
materials on topics such as saving at the gas pump, purported gas-
saving products, and seasonal home heating and cooling tips. For
example, the June 2001 consumer alert with gas-saving tips, How to Be
Penny Wise, Not Pump Fuelish, has been well-received. We will update
our Web site with a special ``Energy and the Environment'' page for
easy reference of the relevant FTC rules, reports, and consumer and
business education materials.
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\31\ See., e.g., FTC v. Oil-Chem Research Corp. & Speedway
Motorsports, Inc., No. 1:01 CV 00126 (M.D.N.C. filed Jan. 31, 2001)
(challenging representations that vehicles using the zMax ``Power
System'' will experience at least a 10 percent gas mileage improvement
and reduced engine wear); United States v. Intermatic Inc., No.
00C50178 (N.D. Ill. May 31, 2000) (consent decree) ($250,000 civil
penalty in settlement of allegations that the company violated a 1979
FTC order by making unsubstantiated energy savings claims about an
electric water heater timer); Dura Lube Corp., No. 9292 (May 3, 2000)
(consent order) (resolving allegations that respondents deceptively
represented that their engine treatment product reduces emissions and
improves gas mileage by up to 35 percent; order prohibits future
deceptive claims and requires payment of $2 million in consumer
redress).
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mergers
The FTC's careful evaluation of mergers will continue.\32\ Although
there has been much speculation about how the new Commission will
regard merger cases, this area is yet another in which continuity, not
change, will be the norm.\33\ The agency will continue to follow the
Merger Guidelines when assessing the impact of a proposed merger on
competition.\34\ Merger cases are fact intensive--the impact of a
merger on competition can be assessed only with a careful investigation
of the market or markets involved. If our investigation convinces us
that a proposed merger will harm competition, the agency will assess
proposed restructuring options presented by the parties to determine
whether they will prevent that harm, or, when necessary, we will go to
court to stop it.
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\32\ In the last five fiscal years, the FTC has reviewed over
17,000 HSR filings, opened 1,078 merger investigations, issued 190
second requests, and required modification to, or otherwise challenged,
147 mergers and acquisitions.
\33\ See Remarks of Chairman Timothy J. Muris, ``Antitrust
Enforcement at the Federal Trade Commission: In a Word--Continuity,''
before the ABA Antitrust Section Annual Meeting, Chicago, Illinois
(Aug. 7, 2001).
\34\ U.S. Department of Justice and Federal Trade Commission,
Horizontal Merger Guidelines (1992, revised 1997), reprinted in 4 Trade
Reg. Rep. (CCH) para.para. 13,104 (1997), available at <http://
www.ftc.gov/bc/docs/horizmer.htm>
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Recent amendments to the Hart-Scott-Rodino Act \35\ have reduced
the overall number of HSR merger filings that the FTC and the Antitrust
Division of the Department of Justice receive. Despite this reduction
in HSR filings, the number of mergers raising competitive concerns
appears to remain significant, and many are likely to present complex
competitive issues that require thorough investigation. In addition,
the FTC will not limit its attention only to those mergers that are the
subject of an HSR filing. In a complaint filed this month, the FTC
alleged that an acquisition harmed consumers, even though it was not
reportable to the antitrust agencies under the HSR Act.\36\ It suffices
to say that the merger staff likely will remain quite busy.
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\35\ 15 U.S.C. Sec. 18a, as amended, Pub. L. No 106-553; 114 Stat.
2762 (Dec. 21, 2000), effective February 1, 2001.
\36\ MSC.Software Corp., No. 9299 (complaint filed Oct. 10, 2001).
The complaint filed this month challenges two acquisitions made by a
dominant supplier of a popular type of advanced computer-aided
engineering software. The complaint alleges that the defendant acquired
its only two competitors in transactions that fell below HSR
notification thresholds.
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The FTC also continues to focus attention on reducing the burden of
merger investigations. We are reviewing the burden caused--to both the
government and the parties--by document productions received in
response to so-called ``Second Requests.'' We are also assessing
whether merger investigations can be streamlined and shortened. As with
all matters involving merger standards and procedures, we are working
with the Department of Justice to address these issues. In particular,
we are working with our counterparts at the Antitrust Division to
determine the ``best practices'' that will minimize burdens while
maintaining or enhancing our enforcement capability.
conclusion
The agency's mission is to protect the welfare of consumers.
Today's Federal Trade Commission has forged a widespread consensus on
how to protect consumers and how to work with other federal and state
agencies to provide maximum benefits for consumers from our limited
resources. We will continue to use the full panoply of our
institutional tools in fulfilling this important mission.
Mr. Stearns. I thank the Chairman. I think the first
question obviously is what would you say your top 3 to 5 goals
that you will accomplish so that when you come back at the end
of the 107th Congress, and hopefully the 1st of October,
September of next year, that we can say that the Chairman said
that his top 3 to 5 goals are X, and this is what he
accomplished. And so maybe I will just start off with that
question.
Mr. Muris. Thank you, Mr. Chairman. I would----
Mr. Stearns. I would just point out that we do have a vote
here, and we have a series of a couple of votes. So I will try
and get through my opening questions, and then we will recess
and come back, and I know that the members will be asking
questions thereafter.
Mr. Muris. Thank you. I want to emphasize that we are
standing on the shoulders of people who did an excellent job at
the FTC, and we are hoping to build on the work that they did
to do it even better.
On the consumer protection side, as I have mentioned, we
are substantially increasing our resources on privacy. One of
our issues that Mr. Markey raised is we are going to propose a
National Do Not Call List, which for the first time will give
consumers a one-stop place to call and have their names taken
off of telemarketing lists. The Telemarketing Rule gives us
that authority, and we have discussed it with the FCC, and I
believe that will be a very important consumer initiative.
Thus, implementation of our privacy agenda would be one point.
A second point on the consumer protection side would be to
increase our effort against fraud, particularly on-line,
although obviously we will look at off-line fraud as well. The
diet supplement area is one of increasing importance, and we
are looking there. Also, we are trying to use more
sophisticated tools to search our data base, to look for
patterns of illegal activity, and to try to detect and stop
fraud even faster.
On the anti-trust side, with the slight receding of the
merger wave, we are turning more attention to non-merger cases.
We hope in the drug and other areas to have a very aggressive
agenda to protect and benefit consumers. In the merger area, I
would last point out that we are continuing aggressive
enforcement. At the same time, we believe there are steps that
we can take to reduce the compliance burdens of businesses that
have grown quite large. Thus, these four areas are ones in
which I hope we can accomplish a lot.
Mr. Stearns. Let me just get to a question that a lot of
people have asked me. Some have suggested that different types
of fraudulent schemes have been used to fund terrorist networks
in the United States. Do you have any evidence to support that
contention?
Mr. Muris. No. We are aggressively looking at scams that
attempt to take advantage of the events of September 11, but we
certainly have no evidence of the sort that you are suggesting.
Mr. Stearns. Are you receiving any complaints?
Mr. Muris. We are receiving many complaints about
potentially fraudulent scams, but we have no evidence that
links any of them to terrorist organizations. What we see are
people trying to take advantage of the situation. For example,
there are diet supplements that claim to cure or prevent
anthrax, and people selling perhaps deceptive kits to test for
various sorts of problems that are related to September 11.
Mr. Stearns. And in the area of charitable giving are there
any fraudulent schemes being perpetrated dealing with
charitable contributions as of September 11?
Mr. Muris. There are dozens of law enforcement agencies
that we are working with that are searching for such schemes.
At the moment, although there have been a few problems that
would surface briefly and then the companies would desist,
there do not appear to be problems. Again, there are dozens of
law enforcement agencies looking at this issue, including us.
Mr. Stearns. Recently, we have begun to see reduced risk
tobacco product ads claiming that those products pose a lower
health risk than regular tobacco products. Does the Commission
have the requisite authority to review the efficacy of these
ads, and if so, will it?
Mr. Muris. Yes on both accounts. The Commission has a long
history in the tobacco area. Although many of the issues of
tobacco advertising were resolved in the agreement between the
tobacco industry and the States, this is an active issue. I
would certainly recommend that the Commission move
appropriately against any deception or unfairness in such
advertising.
Mr. Stearns. Just briefly. Is there anything as a result of
September 11 that you are facing that part of the emergency
funding and supplemental that you see an area where you need
beefed up support that we in Congress should give you?
Mr. Muris. In terms of resources, the Commission in the
budget that is about to pass will receive a modest increase. I
personally think another modest increase would be beneficial.
Because of September 11, we have diverted resources from some
other areas that are important, and I do think that modest
increases in our budget are appropriate.
Mr. Stearns. Okay. Mr. Chairman, we are going to take a
recess for two votes, and it will probably be about 20 minutes,
and we appreciate your indulgence. You have been up here many
times and so you understand this.
Mr. Muris. Yes, thank you.
Mr. Stearns. And the subcommittee will take a recess.
[Brief recess.]
Mr. Stearns. The subcommittee will come to order, and I
have finished with my questions, and I will go now to the
ranking member, Mr. Towns of New York.
Mr. Towns. Thank you very much, Mr. Chairman. Talking about
identity theft, is there any one document or one piece of
personal information that seems to be used more than others by
those that engage in identity theft?
Mr. Muris. Well, certainly the Social Security number is.
If you want to steal someone's identity that is an excellent
way to do it. There are people who just get credit card
numbers, and that can be a problem as well, in the sense that
if you get the credit card number, then you can certainly run
up bills.
Mr. Towns. Since September 11, there have been numerous
press reports about how easy it is in certain States to get a
drivers license. One State has reportedly issued more than a
hundred-thousand licenses all with the number 99999 as a
substitute for a Social Security number that could not be
provided.
Do license requirements for a drivers license at that level
pose a significant problem in controlling identity theft, and
if so, what should be done about it?
Mr. Muris. That is certainly a good question. Congress had
us create an identity theft lab, and we have about 130,000
complaints and inquiries. I have actually sat in that lab and
listened to calls. My experience, and I am new at this
particular issue, is that the driver's license is less of a
problem than the other problems that I have mentioned, but I
would be certainly glad to look into it.
Mr. Towns. All right. How many of these identity theft
complaints received by the FTC would you say constitute actual
violations of the law, and how many result from legal
commercial practices?
Mr. Muris. Certainly most of the complaints that we have
received are identity theft. There are people who have charges
on their bills that they did not make. There are serious
problems in so-called pretexting which Congress gave us
authority to act against, and which we are acting against.
Pretexting is when someone calls a financial institution and
pretends to be you, and gets information. The Commission
brought some recent cases, and I think that is an outrageous
practice. We have complaints about it.
Mr. Towns. Thank you. Let me say that the means with which
web sites collect and distribute non-public personal
information is by-and-large governed only by the industry self-
regulation. We support the FTC's efforts to enforce industry
promises.
However, what can be done to address web sites that choose
not to participate in self-regulation, having inadequate or no
privacy policies at all? What can we do?
Mr. Muris. One of the things that is under-appreciated by
some is the extent to which there has been considerable
progress in posting privacy policies. All of the top web sites
have such policies.
If the operator of a website permits payment using a VISA
card, for example, VISA requires that the website post a
privacy policy. Obviously, most web sites that do transactions
would accept a VISA card.
Moeover, in the privacy area, in terms of security, when
information is leaked or sold either intentionally or
negligently, I think that under certain circumstances that can
be a violation of the FTC Act, and we are moving in that area.
Mr. Towns. One final question, Mr. Chairman. In many
communities across the country predatory lenders swindle
unsuspecting consumers out of millions of dollars every year.
What can the FTC do, if anything, about that?
Mr. Muris. The FTC has been quite aggressive under our
predecessors in attacking predatory lending. There are some
particularly bad practices out there, and the cases have been
appropriate. We are prosecuting them vigorously, and we are
looking for others.
Mr. Towns. Thank you very much, Mr. Chairman. I yield back.
Mr. Stearns. I thank the gentleman. The chairman of the
full committee is here, Mr. Tauzin, is recognized.
Chairman Tauzin. Thank you, Mr. Chairman. Let me welcome
you, Chairman Muris, and I know that our written statements
have been made a part of the record, and in the written
statement that I prepared for today's hearing I commended you.
And I wanted to commend you personally for the statements
that you made in Cleveland, I think it was, regarding the
privacy issue, and the fact that you intend to refocus the
Commission's attention to enforcing law in these areas, and
insisting that in fact that as much as possible that the
private sector respect the principles of privacy that have been
outlined by the Commission on previous occasions.
And also I wanted to thank you for attending the privacy
conference that Chairman Stearns and the Chamber of Commerce
held just recently at Landsdown, where in fact we got a better
sense of what the outstanding legislative initiatives may look
like next year when we take the issue up.
And particularly the concern that the States are beginning
to move, and particularly California, toward adopting State
privacy policies that might conflict with other States and
Federal policies in interstate conference.
And I want to thank you again for participating in that
session and for giving us the benefit of your thoughts and
advice in regards to that. And in that regard, while you
indicated initially in that speech that you thought that
legislation might not be as necessary as good enforcement, you
seem to have conceded the notion to us at that hearing that we
have sort of been wrestling with as well that if we are going
to have a privacy policy that works for the country, that
having States and/or different agencies adopting conflicting
policies could cause us great harm.
And that perhaps that we need at least some sort of
standard, some basic principles of policy upon which all of us
can function in interstate commerce. Is that correct?
Mr. Muris. Yes, Mr. Chairman. I appreciate your comments. I
have enjoyed working with you so far, and look forward to
working together in the future. The point that I made in that
speech, and also at Landsdowne, was that the particular issue
of broad based, Internet only legislation is still premature at
this moment. I did say and I do believe that the best argument
for such legislation is if we start getting inconsistent State
laws. At the moment that has not happened, but I understand
that there is some danger that that will occur.
Chairman Tauzin. Well, California came within the half-foot
line in football analogy from getting it done, right?
Mr. Muris. It was financial institutions. It was not the
on-line privacy issue, but in that financial institution area
it would create a serious problem.
Chairman Tauzin. And we also talked about the concept of
creating a safe harbor for private institutions that work
within self-regulatory regimes, and sealed organizations, so
that they might not be affected by any kind of Federal statutes
or rulemaking.
And at the same time, some sort of provision to catch those
that refuse or are unwilling to work within self-regulatory
structures. Is that a good frame upon which we should proceed?
Mr. Muris. Certainly if you are going to do legislation,
legislation that gives clear guidance with things like safe
harbors would be appropriate. Quite frankly there is a lot that
we can do under the FTC Act, and I thank you for you commending
us for doing more. One of the things that we are doing both in
our cases and in working with the self-regulatory agencies is
trying to set out some clear guidance. But again if you are to
do legislation, that would be appropriate.
Chairman Tauzin. And I want to touch on a topic that is
going to get I think a lot of attention next year. We are going
to begin work on a reauthorization of the FDAUFA statutes.
FDAUFA is a statute that deals with the FDA, and has to do with
the user fees that are collected for studying and for approving
new drugs.
When that statute opens, it is very likely that we are
going to get back into tobacco, and so I want to ask you a
couple of tobacco questions. We are beginning to see
advertisements by tobacco companies regarding their efforts to
reduce the carcinogenic compounds that are found in tobacco,
and their efforts to market products that have less of those
carcinogens in the tobacco.
We are also beginning to see new products, new smokeless
tobacco products, and we will begin to see advertisements on
those products. What is the FTC's role when it comes to
advertisements or claims about safer, or different, forms of
tobacco products?
Mr. Muris. The FTC has an important role involving
advertising. As I have stated, this is an area in which we
should be aggressive in policing advertising for deception and
unfairness, and I believe that the FTC will continue to do
that.
Chairman Tauzin. So that if a tobacco company were making a
claim that some tobacco product had a less serious deleterious
health effect, and that it was safer in some respect, or that
it contained less carcinogens, is it without the FTC's
jurisdiction and authority to examine those claims and to
enforce the law against false, misleading, or deceptive health
claims in regard to these tobacco products?
Mr. Muris. Absolutely. We have that authority now, and I
believe the FTC would exercise it appropriately.
Chairman Tauzin. I thank you very much, and I yield back,
Mr. Chairman.
Mr. Stearns. I thank the gentleman. The gentlelady from
California, Ms. Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman, and welcome, Mr.
Chairman.
Mr. Muris. Thank you.
Ms. Eshoo. It is good to see you, and have you here. I
wrote to you last month with some of my concerns, and so I am
looking forward to hearing back from you on the specifics of
that letter.
But let me ask some broader questions of you this morning.
I want to commend you for proposing that the FTC's enforcement
of existing laws--that your budget be, and your staff be
increased by I think 50 percent.
I think that is what you were asking for, and to devote it
to consumer privacy issues. Where is that right now? I mean,
very quickly. Is it in an appropriation bill?
Mr. Muris. No, what I was saying is that we would increase
within our total budget our resources----
Ms. Eshoo. And how much is that?
Mr. Muris. In the fiscal year that just ended, we spent
about 35 people full-time.
Ms. Eshoo. And how much is that? So you are going 50
percent over that?
Mr. Muris. Yes, 50 percent over that. Actually, it is a
little more than 50 percent, but we will spend somewhere in the
range of 55 to 60 people working on privacy, which is a
slightly more than 50 percent increase from the last year. I am
talking fiscal years, and the fiscal year that just began last
month.
Ms. Eshoo. Yes. I am aware of that. Thank you. Now, in the
50 percent increase of that staff, what exactly will they be
doing relative to consumer privacy issues? Can you give us a
thumbnail sketch?
And I think you know where I am going. Since it has been
your recommendation to kind of pull up the emergency brake so
to speak on legislative action, what I am pursuing is exactly
how you are going to make use of the staff at the FTC on this.
So how are you instructing them, and what exactly will they
be doing, and how do you pursue bad actors? What is a bad
actor, and how do you come down on them?
Mr. Muris. We have five very recent privacy statutes that
we enforce and we are increasing our enforcement. We have
statutes dealing with financial privacy, children's privacy,
health privacy, and we have recent amendments to the Fair
Credit Reporting Act. We also have recent identity theft
statutes. Plus, we have our own statute that we use in privacy,
and we are increasing our resources by 50 percent to enforce
those statutes. We will follow a tripartite strategy of case
enforcement, and that particularly deals with the----
Ms. Eshoo. How aggressive has this been, or is it something
that is awakening and really being shaped by you?
Mr. Muris. Privacy is a relatively new issue for the
Federal Trade Commission, but in the last few years the
Commission has become a leader in the privacy efforts. I
thought particularly with these new statutes that a further
increase in our effort would be appropriate. We are going to
bring cases. We also have excellent relations, and----
Ms. Eshoo. How do you determine bad actors? What is the
process for the Commission and its staff to pursue this? Again,
I think it is obvious why I am asking these questions. What I
am concerned about, and I know that obviously the letter that I
sent to you states this, that I think in some areas we need
umbrellas, Federal umbrellas, because of the 50 States, and the
patchwork quilt.
It is very difficult I think to give the answer to our
constituents of where we are on privacy, and how we have made
progress as a Nation, and what is acceptable, and what isn't
acceptable, and how we pursue, and what the rules of the road
are.
Right now if I were to describe it, I think it is like
nailing jello to a wall. I don't really think we have anything.
I think we have some operating principles that people think are
good things to go by. I certainly have introduced legislation
on this, and others have.
But what I am trying to nail down are some of the bright
lines of the FTC. So how do you determine bad actors? What are
you going to do about them? How does the staff bring this
about? Are they reported, or do you do this internally?
And I note that in your comments that you said that about a
hundred of the top companies have posted. Well, there may be a
hundred top companies, but I can think of at least 50 brand-
named companies in my Congressional District. And so a hundred
is not that many out of our country I don't think. So, anyway,
go at it.
Mr. Muris. Sure. First of all, I apologize. I am unaware of
your letter. Unfortunately for 2 weeks we had no mail delivered
to us, and if you sent it in the regular mail, it probably----
Ms. Eshoo. We will fax it to you. How is that?
Mr. Muris. I appreciate it. It probably was rerouted to
Ohio, and we are now starting to get mail delivered. We have a
complaint system, and it is one of the ways that we look for
cases.
Ms. Eshoo. So, from the outside coming in?
Mr. Muris. Yes, which we are improving. That complaint
system had never specifically addressed privacy concerns
before. The privacy groups asked to change our complaint system
to track privacy complaints. I thought that was an excellent
idea, and we are doing that.
Under the specific statutes that we enforce, we look for
people who create problems. For example, the Fair Credit
Reporting Act was our first privacy statute. It is 30 years
old, and it is an important privacy statute.
One of the things that it says is that if a consumer is
denied credit, insurance, or employment, because of something
that is in his or her credit report, the consumer has to be
told that that was why. And if the consumer is told, as credit
reports aren't always perfect, then they know that there is a
problem and to check on the problem.
We are stepping up and increasing our enforcement of that
provision. We are also quite frankly under the----
Ms. Eshoo. So if someone violates that and you find them,
quote, guilty, what happens to them?
Mr. Muris. We have a variety of remedies that we can seek.
In some cases, depending on the violation, we can get monetary
relief. Under the Fair Credit Reporting Act, for the most part,
we do what is called a cease and desist order.
Ms. Eshoo. Let me ask you this, because I think the clock
is going to go off, or maybe the red light is already on.
Mr. Muris. Okay.
Ms. Eshoo. In the areas that you listed out, and where you
have jurisdiction, in the last year how many violations that
were either detected or reported from the outside to the FTC
have been adjudicated and fines levied, or whatever the process
is?
Mr. Muris. Well, we have brought numerous cases. Under the
Children's Privacy Act, for example----
Ms. Eshoo. No, all of them combined.
Mr. Muris. All of them combined? I am not sure what the
answer is.
Ms. Eshoo. Do you think it is aggressive?
Mr. Muris. One of the reasons that I proposed a 50 percent
increase in resources is that I thought that we could do
better. The Commission has done a good job in the past in
making privacy a central issue, but I proposed an increase
because I thought it was an important issue that deserved more
effort.
Mr. Stearns. The gentlelady's time has expired.
Ms. Eshoo. May I ask unanimous consent for one more
question?
Mr. Stearns. So ordered.
Ms. Eshoo. Thank you, Mr. Chairman. Why do you consider the
Internet and main street, and how they operate, one and the
same? Why do you treat them the same way?
Mr. Muris. The point that I made about on-line and off-
line, which I know that Chairman Stearns' proposal agreed with,
is that collecting information is increasingly becoming
seamless. Companies that collect information off-line and on-
line are integrating those systems. To have one set of rules
for the Internet is going to punish the Internet relative to
off-line. For the sensitive financial and health information,
which are the most important kinds of collections, we ought not
to punish on-line.
Ms. Eshoo. I am not so sure I understand your answer. If
you draw a line between the two because they operate
differently--Mr. and Mrs. Smith's store on main stream, versus
an on-line privacy--I don't understand why you would treat them
the same?
Mr. Muris. The issue that we are talking about and that is
relevant for us is the collection of sensitive personal
information. If you have tougher standards for the----
Ms. Eshoo. But it operates differently though.
Mr. Muris. If you have tougher standards for the collection
of information on-line than you have for the collection of
information off-line, then you are punishing the on-line
companies.
Ms. Eshoo. And how would the FTC enforce that?
Mr. Muris. How? Certainly the FTC will enforce whatever
laws Congress tells us to enforce. But my point is that we
ought not to penalize the development of the Internet by
adopting tougher privacy standards for the collection of
information on-line than for the collection of information off-
line.
Ms. Eshoo. And my final comment, and I thank the Chairman
for his patience, is that I think that if you don't do more to
build the confidence of the American people in transactions on-
line, then we have lost the battle.
I think that there is enough out there that is cutting into
this confidence. We have many, many overlays today since
September 11, but I think that confidence is the gold standard
when it comes to our markets, and I think confidence is the
gold standard relative to the Internet.
I think that confidence, confidence, confidence, being
built in each important sector just cannot be overlooked. So I
think that we are missing that opportunity, but I look forward
to working with you. Thank you, Mr. Chairman.
Mr. Stearns. Thank you, gentlelady. Mr. Terry is
recognized.
Mr. Terry. Thank you, Mr. Chairman. We telephoned your
office to discuss an issue in my home town with one of my
constituents, and a couple of hundred of the employees that
work for Paypal, in a kind of interesting issue regarding
vertical integration of E-Commerce on the Internet, and who can
control the payment methods when making purchases on the
Internet.
So let me just ask you the general, and then if you can
move to the specific, but generally what is the philosophy of
your department, of the FTC, regarding anti-trust on E-Commerce
and vertical integration.
And whether or not specifically then in electronic commerce
if the method of on-line payment fits into that philosophy, and
again whether or not the philosophy will change from past to
now under your leadership.
Mr. Muris. To start at the most general level, we enforce
the anti-trust laws, and the anti-trust laws--mostly, but not
exclusively--focus on agreements among competitors and on so-
called monopolistic practices. It is possible in certain
circumstances to bring a case based on vertical integration.
The law is very tough because it is premised on lots of
empirical evidence that vertical integration often benefits
consumers.
Many of these cases frequently involve contractual
disputes, contractual issues more than they involve anti-trust
law. If you have a situation, however, when you have a company
that really has substantial market power, that company can
misuse vertical integration in a way that harms consumers. It
is a tough case to bring and win.
Mr. Terry. This issue is somewhere in the process at the
FTC, and where is it in--well, you mentioned about whether
somebody has sufficient market power to really cause damage.
Has there been any determination or early thoughts that E-Bay
in this particular situation has that level of market power to
really wreck havoc on these small businesses that focus on
electronic payment?
Mr. Muris. We would take a look at situations involving
abuses of market power. I personally do not know enough about
the specific matter that you have referenced. I just found out
about it last night, about the particular facts, and can not
comment on those facts. As I said, there can be appropriate
cases, but they are relatively few and they are hard to win.
Mr. Terry. Despite the difficulty in winning those, is this
somewhere in the process of being reviewed at the FTC?
Mr. Muris. Again, part of the problem is that we have had
this mail problem like everyone else has, and we will certainly
look at any recommendation we receive from you or any other
members of the committee.
Mr. Terry. I appreciate that. Thank you. I yield back.
Mr. Stearns. The gentleman yields back the balance of his
time. The gentleman from Massachusetts, Mr. Markey, is
recognized.
Mr. Markey. Thank you, Mr. Chairman, very much. First, I
would like to compliment you, Mr. Chairman, on announcing that
the Commission is going--and I am reading from your testimony,
that the Commission plans to engage in the following rulemaking
activities to consider whether to propose an amendment to the
telemarketing sales rule to create a national do not call list
to allow consumers to make one call to remove their names from
telemarketing lists.
What greater gift could you give to the American people
than to just have one call where you say I don't want anybody
else to call me again. You know, just keep them all away from
my house.
So this has always been my dream when I authored the Act in
1991. That the day would arrive when out of the Federal
Communications Commission, or the Federal Trade Commission,
that they would do this, and it was always my intention.
Because you just get worn down. You keep telling different
companies, and then you can't remember which company it was
that you told 3 weeks ago that you didn't want to be called
again, and so you are not sure whether you should be mad at
this one person who is calling you, but you are just mad in
general when you hang up because you were waiting for a call
from your Aunt Margie, and these people are just interfering
with it.
So I want to compliment you for doing it, but the hosannas
will rain down on you, Mr. Chairman, if more than just
considering whether to propose an amendment that you actually
announce that you are going to propose an amendment.
You name will ring in the heavens of this institution and
all across the country, because there never again will be a
greater achievement that will attach to your name than if you
actually do it. So I would just like you to know that on this
issue that there are no Democrats, and there are no
Republicans. We are united at water's edge here in our battle
against telemarketers.
So you will hear no dissenting views on this, I think,
except from companies that make money off of it. And the
interesting thing about privacy policy generally as you know is
that we have this privacy paradox, which is that if in fact a
company posts a privacy policy, and then violates its own
policy, then the Federal Trade Commission can bring an action
against them for engaging in unfair and deceptive practices.
However, if the company never posts a privacy policy, but
engages in personal information hijacking, then there is
nothing that you can do about it, which is just totally
backwards. The companies that don't protect privacy at all, you
can't do anything about, and the companies that say that they
are going to protect privacy and then don't, you have an action
against them because they didn't do as much as they promised
that they were going to do.
So the question that obviously constantly arises is why
don't we just put a regulation on the books so that these bad
people who don't protect any privacy at all have real
protections which are built in to the law so that there is a
minimal level of electronic ethics that every company has to
abide by, in terms of their relationship with the consumer.
Mr. Muris. I certainly appreciate your comments on the
telemarketing sales rule amendment, which we are about to
propose. Obviously, we have to look at the rulemaking record in
making our final determination.
The problem that I have at this time with on-line
legislation, besides the fact that it would discriminate
against on-line commerce, is that it is notice based. This
spring and summer everyone in America received several notices
from their financial institutions, as required by Gramm/Leach/
Bliley. We need to understand how to do notice legislation
better before we move to new notice-based legislation. We are
holding a workshop on December 4, where we are bringing in
everybody, the agencies who enforce Gramm/Leach/Bliley and the
people who send out the notices. We will try to see how we can
make it work better. Quite frankly that experience this spring
and summer was not a very salutary experience for notice-based
legislation.
Mr. Markey. Can I tell you, Mr. Chairman, that I am the
author of that language as well, although it is included in the
bill that you keep mentioning, those three names. But it is the
Markey language that is in there.
And what we are trying to do with the financial services
industry is to deal with the fact that there is an underlying
pathology in the financial services industry which doesn't want
to provide any privacy protections whatsoever, which is why
they fought us on this committee, which is where it came out
of, the privacy language.
They actually defeated it in the Senate and in the Banking
Committee across the corridor from me. So they are kind of
like--they are in a recovering privacy violators program. There
is a deep-seeded pathology that they have.
And then when you say to them, now, please give notice to
people that their privacy may or may not be protected, and here
is your two-page document that you have to sign, and this or
that, and there is triple-negatives that are in it that would
require a $500 an hour lawyer in order to figure it out, of
course it is not successful.
However, if you allowed a bunch of sixth graders to sit
around and just draft it up, or just check it this way or that
way, and it is going to cover you for everything, then it would
be all done.
And so it is not that complicated in fact. In just requires
somebody in your staff to just kind of draft it up, and just
say here is what you are going to do from now on or else we are
going to sue you, and it would be all solved for the next round
that we would have to go through.
But it doesn't require a lot to figure out that the people
who were charged with doing it at their company didn't want to
do it. I have one final question, Mr. Chairman, if I may, and I
apologize, and ask for your indulgence.
In recent days there has been an announcement of media
mergers that are going to receive a lot of attention. I think
that one of the ways in which we can gain some insights as to
what needs to be done would be looking just backwards a little
bit toward the AOL-Time Warner merger so that we can assess the
conditions that were imposed upon that merger, in terms of how
successful they have been.
So I would just like to just ask this quick question, and
then ask you to submit to the record, to the chairman, and to
the full committee, or to the subcommittee, in writing your
answer to this question within 2 weeks, and I would appreciate
it.
The consent AOL-Time Warner order, as summarized by your
agency's website, stipulates, quote, that AOL would be required
to open its cable system to competitor ISPs, prohibited from
interfering with content passed along the bandwidth, and
contracted for by non-affiliated ISPs, and from interfering
with the ability of non-affiliated providers of interactive
t.v. services, to interact with interactive signals, triggers,
or content that AOL-Time Warner has agreed to carry; and
prevented from discriminating on the basis of affiliation in
the transmission of content, or from entering into exclusive
arrangements with other cable companies with respect to ISP
services or interactive t.v. services.
And required to market and offer AOL's digital subscriber
line services to subscribers in AOL's cable areas where
affiliated cable broadband service is available in the same
manner, and at the same retail pricing, as they do in these
areas where affiliated cable broadband ISP service is not
available.
So what I would like to ask, Mr. Chairman, is perhaps not 2
weeks, but perhaps by December 1, if the Agency could submit to
us in writing how much compliance in their opinion they believe
the AOL-Time Warner has given to this language.
Mr. Stearns. I think that is a good question that we would
like to have.
Mr. Markey. And if I may, we would like a status report on
each condition so that we can have an idea in each area how
well the FTC is overseeing the implementation of the Act. Thank
you, Mr. Chairman.
Mr. Stearns. Yes, I thank the gentleman.
Mr. Markey. Would the Chairman be willing to do that?
Mr. Muris. Yes, sir.
Mr. Stearns. Okay. The gentleman from New Hampshire, Mr.
Bass, is recognized.
Mr. Bass. Thank you, Mr. Chairman. Mr. Chairman, the
Oversight and Investigation Subcommittee had a hearing
yesterday on the issue of charitable--the disposition of funds
raised for charitable purposes in the aftermath of the
September 11 tragedy.
And I asked Mr. Beamis yesterday about the issue of whether
he thought the FTC needed additional authority to oversee the
practices of charities, and I am just wondering what your
thoughts are on that subject.
Mr. Muris. One of the issues in the national do not call
list is that it would cover 80 percent of the calls, but it
would not cover political fundraising calls, or most charitable
calls. If Congress proposed to extend our ability to cover
charities in that sense, that certainly would be something that
we would consider. You recently amended the Telemarketing Sales
Rule to give us more authority over charities, and we are
trying to understand the new law.
Mr. Bass. In the Patriot Act you mean; is that right?
Mr. Muris. Yes. When there is outright fraud, we already
have sufficient jurisdiction. There are serious constitutional
problems in dealing with charities, however. A final issue with
non-profits in general, and not just charities, is that their
exemption causes us a problem under the anti-trust laws. There
can be anti-competitive conduct by non-profits that we cannot
reach, although the Justice Department, which also enforces the
anti-trust laws, can reach those.
Mr. Bass. Okay. Another issue is what level of success have
you had with enforcing rules when the seller is overseas, and
it is probably an Internet more than anything else issue.
Mr. Muris. That is an excellent question and it is one to
which we need to pay increasing attention. Cross-border fraud
is a growing issue. As we have moved in the United States, for
example on the telemarketing front to crack down on fraud, many
telemarketers have gone to Canada. We have good cooperation
with the Canadians, and we are hoping to increase it.
I hope to emulate something that occurred on the anti-trust
side. Over the last 15 years, anti-trust authorities
internationally have achieved good cooperation in attacking
price fixing. I hope that we can emulate that cooperation on
the cross-border front. We have begun with Canada, and I hope
that we increase our work in that area.
Mr. Bass. Do you need Congressional help to achieve that,
or can you do it anyway?
Mr. Muris. We might need Congressional help, and it is
something that I am studying. I certainly would not hesitate to
ask for your help, and this committee would obviously be the
place to start.
Mr. Bass. One last question. Mr. Tauzin talked about the
issue of privacy and preemption of State regulatory efforts.
Are there any other areas where you think the FTC may have some
issues with State regulation versus Federal?
Mr. Muris. For the most part, we have an excellent
cooperative relationship with the States. In fraud in
particular, we bring cases together with the States. The same
thing happens on the anti-trust side. It is clear that State
legislation can cause problems. In terms of enforcement, it is
mostly cooperation and not any sort of adverse competition.
Mr. Bass. Thank you, Mr. Chairman.
Mr. Stearns. Thank you. I thank the gentleman. Mr. Deal is
recognized.
Mr. Deal. Thank you, Mr. Chairman and thank you for being
here today as well. I have a couple of very diverse areas, and
to follow up on your last comment, I have just a matter of
inquiry with regard to the enforcement of fraud schemes in
cross-country relationships.
Is there anything in WTO that binds all of the WTO members
to a common agreement with regard to prosecuting those, and if
not, is that an area that perhaps should be looked at as one
that our country should push?
Mr. Muris. No, there is not. We should push bilateral
agreements. We are not at the stage yet when a multi-lateral
WTO agreement would be appropriate, but certainly bilateral
agreements, which is what we first used in the anti-trust laws,
are appropriate. I plan to make this a priority.
Mr. Deal. I would urge you to do that, and as we go forward
with the bilateral agreements, certainly I think we ought to
make it a priority in those agreements. Let me go--we all have
our favorite issues that we have complaints about, and as a
member who has three--my wife and my own family members, who
are 86 through 95 years of age, and live with us in our home, I
have become increasingly aware of the fraud that is attempted
and continue to be perpetrated and aimed at senior citizens and
the so-called sweepstakes type solicitations.
I assume that at least part of that issue is within your
jurisdiction, and I would just ask you if you would bring us up
to date as to what has been done. I mean, if I could just add
together all of the winnings that these three senior members of
our family have been told they have won, they would all be
multi-millionaires.
However, if I added up the amount of fees that have to be
paid just to get their earnings, whether it be send us $11.65
so that we can mail you your $25,000 check, and we will do so
immediately, I think we have sort of all lost focus of that
problem, and to me it is a huge problem.
There may be problems in the mail elsewhere, but there is
no problem with those letters getting through. What is being
done and what if anything else do we need to do legislatively?
Mr. Muris. The situation that you described would probably
be illegal. The Commission has brought cases. The typical one
involves consumers paying money for a promise to help them win.
The States were very active and have announced in the last few
years settlements with major sweepstakes companies. Congress in
the last year or 2 passed legislation requiring additional
disclosures. Thus, there has been much that has happened on
this front.
We in general work with the AARP and other groups on
particular problems that the elderly have. Health care issues
are probably a bigger issue, but sweepstakes is a significant
issue as well. We have been aggressive in those areas.
Mr. Deal. Do you need any other legislative authority to
assist in that regard?
Mr. Muris. This is an area where our legislative authority
is quite good.
Mr. Deal. All right. Let me move to a totally different
subject, and that is the area of health care, and your written
testimony I think is very good in that regard, in your efforts
to deal with fraudulent and scam operations in the health care
area.
Let me bring the question as it relates to an issue that we
get complaints from in my office, and that is the question of
the ordering of prescription drugs over the Internet. And the
question that is raised by many local pharmacists, for example,
that the adequate safeguards that are required of a local
pharmacist, in terms of advising, and follow-up, and
counseling, are not accompanying those kinds of orders. Is that
an area that you have been involved with, and what is the
status of that? If you would comment.
Mr. Muris. In general we have been looking at several
issues of products migrating on-line--whether they are sold
deceptively and whether there are restrictions imposed upon
them that are appropriate. We have looked at some issues
involving the on-line sale of pharmaceuticals. I would be glad
to get back to you with the details, because I do not know
specifically the status.
Mr. Deal. All right. If you would, because I think as you
recognized as more migrates to that medium for purchase, we
can't tighten up on the local pharmacist, and at the same time
relieve the other sales venues from those kind of controls.
And one final very unrelated question, and that is the safe
harbor provisions that the EU has put in place. I noticed in
your testimony, and I believe it is Footnote 18 to the
testimony, that your organization is giving priority to
complaints of non-compliance.
I think that all of us recognize that some people think
that we are going too far in enforcing European law on American
companies. What is your general view of the safe harbor under
the EU and your role in enforcement?
Mr. Muris. It is important to understand what my
predecessor promised to do, which promise I will abide by. We
are not going to enforce the European law. What we are going to
enforce is American companies promises to their consumers.
In this case, if they promised that they will enforce
certain privacy provisions and if they break that promise, we
will act.
Mr. Deal. That is a good distinction. Thank you very much,
and thank you, Mr. Chairman.
Mr. Stearns. I thank the gentleman. Before we close, Mr.
Chairman, you touched in one of your answers to one of my
colleagues that as a result of September 11 and these
charitable contribution funds, there have been some complaints
that they have not distributed the money.
You sort of indicated that perhaps you could be given more
authority to help out in this area. The State of Minnesota has
a proposal that if you have a charitable, not-for-profit fund,
that you have to notify the State.
And second that you have to provide information on your
expenses and your overhead. You don't have to provide the
privacy of the individuals contributed, but you have to show
how much money was expended in overhead, or administrative
expense, and how much was given out in a charitable way.
And I was wondering if you thought on a national basis that
we should have perhaps as a start just for national
emergencies, like Hurricane Andrews down in Florida, or
September 11, and perhaps we have, god forbid, additional
terrorist acts, that these national tragedies which we see
people develop huge amounts of money, and yet the money is not
distributed, is it possible that we should have some national
legislation that would give you more power so that you would
develop, say, a data base on these people to make sure that
they are legitimate, and that there is no fraud.
And then second that they have a reporting system where
they would have to tell what their expenses are and how much
money they give out, because just the light of day, the
sunlight, would perhaps give the American citizens knowledge,
whether they are giving money to the United Fund, or the Red
Cross, or the Julianne Fund, what it is doing with the money
and when. I would just be curious to hear your comments.
Mr. Muris. That is an excellent question, Mr. Chairman.
This is not an area in which we have current jurisdiction, and
I would have to look at it more closely to give you a
definitive answer. I do know that there are serious
constitutional issues just in doing what you are stating,
particularly with religious institutions. The Supreme Court
struck down a State law that required some of the information
that you are discussing on First Amendment grounds.
I certainly think that sunshine is appropriate. I know that
there are some self-regulatory organizations that provide that
information. Through our consumer education programs, we try to
help educate consumers. But on the issue of additional
legislation, I would have to study it more closely.
Mr. Stearns. You might do that for me and just get back in
writing.
Mr. Muris. Yes.
Mr. Stearns. And as I pointed out, as I understand it, some
States have been successful in this, and have met the
Constitutional requirements. So that is the area that we would
work at. The ranking member, I will ask for his----
Mr. Towns. I have a unanimous consent request.
Mr. Stearns. Yes.
Mr. Towns. I ask consent for all members to be able to
submit statements for the record.
Mr. Stearns. Without objection, so ordered.
Mr. Towns. And on that note, I ask that Congresswoman
DeGette, I would like permission for her to submit for the
record a report of the Business Roundtable, dated July 2001,
entitled, Information Privacy, the Current Legal Regime.
Finally, Mr. Chairman, I request permission for Mrs.
DeGette to submit questions to the Chairman, and that his
responses be included in the record of this hearing.
Mr. Stearns. By unanimous consent, so ordered.
Mr. Towns. Thank you.
Mr. Stearns. Mr. Chairman, thank you very much for your
patience while we went to vote and we are delighted that we had
this first opportunity to engage in a discussion, and we look
forward to seeing you again. With that, the committee is
adjourned.
Mr. Muris. Thank you.
[Whereupon, at 11:58 a.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Federal Trade Commission
Office of the Director, Congressional Relations
December 5, 2001
The Honorable Cliff Stearns
Chairman
Subcommittee on Commerce, Trade and Consumer Protection
Energy and Commerce Committee
United States House of Representatives
Washington, D.C. 20515
Dear Chairman Stearns: Enclosed please find the written responses
from Chairman Muris to questions raised during the November 7, 2001
hearing. Please let me know if I can be of further assistance.
Sincerely,
Anna Davis
Enclosure
Question 1 (from Representative Bass): Does the Federal Trade
Commission need additional authority to oversee the practices of
charities?
Response. I believe the Commission currently has sufficient
authority to combat fraudulent charitable fundraising practices,
particularly in light of the additional authority that the new USA
PATRIOT ACT of 2001 confers.
Under the Federal Trade Commission Act (``FTC Act''), the agency's
mandate is to take action against ``unfair or deceptive acts or
practices'' that are ``in or affecting commerce.'' \1\ The FTC Act also
equips the FTC with a wide array of tools to enforce this mandate.\2\
Sections 4 and 5 of the FTC Act provide the Commission with
jurisdiction over corporations only if organized to carry on business
for their own profit or that of their members.\3\ Over the years,
federal courts have construed Section 4 to bar the Commission from
suing any truly nonprofit organization under the FTC Act, thereby
removing many charitable organizations from the FTC's scope of
authority.\4\
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\1\ 15 U.S.C. Sec. 45(a). The Commission also has responsibilities
under more than 45 additional statutes, e.g., the Fair Credit Reporting
Act, 15 U.S.C. Sec. Sec. 1681 et seq., which governs the privacy,
fairness, and accuracy of certain sensitive consumer information; the
Truth in Lending Act, 15 U.S.C. Sec. Sec. 1601 et seq., which mandates
disclosures of credit terms; and the Fair Credit Billing Act, 15 U.S.C.
Sec. Sec. 1666 et seq., which provides for the correction of billing
errors on credit accounts. The Commission also enforces over 35 rules
governing specific industries and practices, e.g., the Used Car Rule,
16 C.F.R. Part 455, which requires used car dealers to disclose
warranty terms via a window sticker; the Franchise Rule, 16 C.F.R. Part
436, which requires the provision of information to prospective
franchisees; and the Telemarketing Sales Rule, 16 C.F.R. Part 310,
which defines and prohibits deceptive telemarketing practices and other
abusive telemarketing practices.
\2\ These include the authority to file civil actions in federal
district court, as well as to bring administrative cease and desist
actions, against those who engage in deceptive practices. The FTC Act
also enables the Commission to obtain a full range of relief for
injured consumers. Typically these civil actions seek preliminary and
permanent injunctions to halt the targeted illegal activity, as well as
redress for injured consumers.
\3\ Section 5(a)(2) of the FTC Act states:
The commission is hereby empowered and directed to prevent persons,
partnerships, or corporations . . . from using unfair or deceptive acts
or practices in or affecting commerce. 15 U.S.C. Sec. 45 (a) (2).
Section 4 defines ``Corporation'' to include:
any company, trust, so-called Massachusetts trust, or association,
incorporated or unincorporated, which is organized to carry on business
for its own profit or that of its members . . . 15 U.S.C. Sec. 44.
\4\ See Community Blood Bank of Kansas City, Inc. v. FTC, 405 F.2d
1011 (8th Cir. 1969).
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Significantly, however, the Commission does have jurisdiction over
a nonprofit organization that is merely an instrumentality or a shell
used to seek direct monetary gain, either for itself or for its
members.\5\ The Commission also has jurisdiction under the FTC Act over
entities that are organized to carry on business for profit. These
entities include for-profit telemarketers, sometimes referred to as
``telefunders,'' that contract with nonprofit organizations to perform
the nonprofits' fundraising activities.\6\ The Commission has used this
jurisdiction aggressively to attack instances of fraud.
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\5\ Community Blood Bank, 405 F.2d at 1019; Ohio Christian College,
80 F.T.C. 815 (1972).
\6\ See FTC v. Saja, 1997-2 Trade Cas. (CCH) para. 71,952 (D. Ariz.
1997). Cf. California Dental Ass'n v. FTC, 526 U.S. 756 (1999).
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The recently-enacted USA PATRIOT ACT of 2001 provides the FTC with
an additional tool to address charitable fraud.\7\ The USA PATRIOT law
amends the statute authorizing the FTC's Telemarketing Sales Rule
(``TSR'') to apply to certain solicitations of charitable
contributions. The Commission is currently considering proposed
amendments to the TSR that will implement this new authority.
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\7\ USA PATRIOT Act, Pub. Law No. 107-56, Sec. Sec. 6102(a)(2),
(3)(D), 6106(4), __ Stat. __ (2001).
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Acting within the parameters of its authority, the Commission has
asserted a strong enforcement presence in the fraudulent fundraising
arena. In the past decade, the Commission has filed over 25 cases in
federal district courts challenging deceptive fundraising practices by
for-profit solicitors. Many of these cases involved ``badge fraud,''
where a telemarketer poses as a law enforcement officer or an affiliate
and typically claims that he is raising money to support law
enforcement efforts in the donor's local area. In fact, the
telemarketer is not a law enforcement officer or affiliate, and the
money is not used to support local efforts, as promised. In these
cases, the Commission obtained injunctions stopping the deceptive
fundraising and, in many cases, recovered monetary redress for
consumers.
Question 2 (from Chairman Stearns): Does the Federal Trade
Commission wish to be given the authority to develop a national
database and corresponding reporting system to track charitable
solicitation that occurs in response to national tragedies such as
terrorist attacks and natural disasters, similar to the statute that
exists in Minnesota?
Response. I am concerned that creating a new, nationwide
registration and reporting system to track charities would impose
significant costs, that a viable alternative to an FTC-run system might
already exist, and that the costs of creating a new system would not
outweigh the incremental benefits.
Creating a new registration and reporting system would burden all
charities, the vast majority of which are legitimate. With increased
administrative costs, charities would have less funds to deliver
program services; thus, less of a donor's contribution would go for its
intended purpose. Moreover, creating a new system would require
significant government resources. For example, many states that have
registration requirements have large staffs devoted exclusively to
auditing and registration compliance issues.
Notably, an arguably analogous nationwide system is already in
place. Currently, in order to obtain tax-exempt status from the
Internal Revenue Service, many charities must file with the IRS an
application that contains financial statements. In addition, each year,
many charities must file a Form 990 return, which requires charities to
detail their costs and expenditures and to describe their specific
program endeavors. In partnership with the IRS, a private non-profit
company, Guidestar, publishes and makes available to the public many of
the Form 990 filings that these charities file each year. See
www.guidestar.org. In light of the IRS-Guidestar system, it is not
clear that the incremental benefits of creating a new FTC-run system
would justify the significant additional costs of creating a new
system.
Another possible reason to pass new legislation is if it would
meaningfully increase the distribution to potential donors of
information about charities (whether it be information already
collected by the IRS or information that would be collected under the
new law). However, the government's ability to require such
dissemination is severely constrained by the First Amendment.\8\ The
Supreme Court has held that charitable fundraising is fully protected
speech under the First Amendment. Thus, for example, the government
cannot require professional fundraisers to disclose to potential donors
the percentage of donations the fundraisers keep,\9\ and presumably the
government could not require charities that do their own fundraising to
disclose the percentage of donations that actually goes to charitable
works.
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\8\ Courts have expressly held that enforcing anti-fraud statutes
does not violate the First Amendment. Riley v. National Fed'n of the
Blind of N. Carolina, 487 U.S. 781, 795 (1988). The Commission has
successfully argued that false speech, which is the type of speech that
the Commission targets for enforcement under Section 5, is not
protected by the First Amendment, Beauhanis v. People, 343 U.S. 250,
266 (1952).
\9\ Riley, 487 U.S. at 800.
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Ultimately, I believe that resources might be better expended
targeting law enforcement and regulatory efforts to combat deceptive
activity.
Question 3. (from Representative Deal): The safeguards that apply
to local pharmacists, in terms of advertising, followup, and
counseling, do not appear to apply when consumer purchase prescription
drugs online. What is the role of the FTC in the oversight of online
pharmacies?
Response. The primary responsibility for the regulation of the
dispensing of prescription drugs, both online and offline, is with the
state medical and pharmacy licensing boards and the Food and Drug
Administration.
The Federal Trade Commission's authority derives from the agency's
mandate to prevent deceptive or unfair acts or practices in commerce,
pursuant to Section 5 of the Federal Trade Commission Act (``FTC
Act'').\10\ In addition, Section 12 of the FTC Act prohibits the false
advertisement of ``food, drugs, devices, services, or cosmetics.'' \11\
The marketing of prescription drugs, either online or offline, would be
deceptive in violation of the FTC Act if it involved a
misrepresentation or omission likely to mislead consumers acting
reasonably under the circumstances to their determent. Thus, the
Commission has authority to bring an enforcement action where an online
pharmacy makes false or misleading claims about the products or
services it provides and to obtain injunctive relief prohibiting the
entity from making false or misleading claims in the future.
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\10\ 15 U.S.C. Sec. 45(a).
\11\ 15 U.S.C. Sec. 52.
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Beginning in 1999, the FTC staff has conducted periodic monitoring
of online pharmacy sites, most recently looking at sites selling Cipro
(ciprofloxacin) online, to determine whether websites are engaged in
deceptive or misleading advertising. The Commission has filed one case
against an online pharmacy.\12\ In this case, the Commission alleged
that defendants falsely represented that their customers were served by
a clinic with physicians and an on-site pharmacy. According to the
Commission's complaint, defendants' customers were not served by a
medical clinic or an on-site pharmacy. Defendants employed one
physician in another state to review customers' medical questionnaires.
For this service, customers were charged $75.00, if the prescription
was approved, and the doctor was paid $10.00 for each of the first 50
prescriptions he approved per week and $7.50 for each additional
approved prescription request. The final stipulated order prohibits the
defendants' alleged misrepresentations and requires the defendants to
clearly and conspicuously disclose certain identifying information to
help consumers and state regulatory authorities identify the owners of
the website and the pharmacy and physician involved in dispensing the
drugs.
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\12\ FTC v. Rennert (CV-S-00-0861 JBR) (D. Nev.) (July 6, 2000).
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As noted above, traditionally, state licensing boards and the Food
and Drug Administration have been responsible for regulating the
dispensing of prescription drugs. Accordingly, a number of states have
actively challenged online companies that dispense prescription drugs
without a valid prescription. Kansas,\13\ Missouri, and Illinois filed
actions against so-called Internet pharmacies, and Michigan issued
intent-to-sue letters to 17 sites.\14\ The state actions are based on
violations of state consumer protection statutes as well as state
medical and pharmacy laws. In addition, at least a dozen states have
initiated professional disciplinary actions. In one case, an Oregon
physician was put on 10 years probation and fined $5,000 for
prescribing drugs online without an examination.\15\
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\13\ See, e.g., Kansas v. Focus Medical Group, Inc., No. 99C749 (D.
Kan., Shawnee County, June 9, 1999).
\14\ Testimony of Kansas Attorney General Carla J. Stovall before
the Health, Education, Labor, & Pensions Committee, Hearing on E-Drugs:
Who Regulates Internet Pharmacies, March 21, 2000.
\15\ Pittsburgh Post-Gazette, Internet Viagra, April 2, 2000, pg.
A-12
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Under Federal law, the FDA has regulatory responsibility over
prescription drugs. The Federal Food, Drug and Cosmetics Act (``FDC
Act'') provides that prescription drugs may be dispensed only with a
valid prescription under the professional supervision of a physician or
other practitioner licensed to administer the drug.\16\ A prescription
drug dispensed without a valid prescription is ``misbranded.'' \17\ The
introduction or distribution of misbranded drugs into interstate
commerce is prohibited under Section 301(a) of the FDA Act.\18\ The FDA
may seek injunctive relief to restrain violations of the Act or in
appropriate cases pursue criminal charges.\19\ FDA can also institute a
seizure action under Section 304 of the Act.\20\
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\16\ 21 U.S.C. Sec. 353. In many instances, online pharmacies do
not require that the patient have a prior prescription from their
treating physician. Patients without a prior prescription can often
obtain a prescription online through an ``online consultation.'' These
practices raise difficult issues involving physician practices that the
Commission traditionally has refrained from regulating.
\17\ 21 U.S.C. Sec. 353(b).
\18\ 21 U.S.C. Sec. 331(a).
\19\ 21 U.S.C. Sec. Sec. 332, 333.
\20\ 21 U.S.C. Sec. 334.
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______
Federal Trade Commission
Bureau of Competition
December 3, 2001
The Honorable Edward Markey
United States House of Representatives
2108 Rayburn House Office Building
Washington, DC 20515
Dear Representative Markey: During the recent hearing on
``Challenges Facing the Federal Trade Commission'' before the House
Subcommittee on Commerce, Trade, and Consumer Protection on November 7,
2001, you requested that FTC Chairman Timothy Muris submit a written
response detailing the status of compliance with each condition in the
America Online/Time Warner (AOL Time Warner) order. Because Chairman
Muris is recused from participating in activities associated with the
AOL Time Warner matter, he has asked me to respond to your request. As
you know, the FTC entered into a consent order with America Online,
Inc. and Time Warner, Inc. (Docket No. C-3989), under Section 7 of the
Clayton Act, as amended, and Section 5 of the Federal Trade Commission
Act, to remedy the likely anticompetitive effects of the merger between
the two companies. The consent order, which was finalized on April 18,
2001, sets forth a number of requirements designed to ensure access to
the broadband Internet market. The following paragraphs provide an
overview of the various requirements in the AOL Time Warner consent
order and a summary of the state of compliance by the merged company
with each relevant provision.
Paragraph II of the order sets out AOL Time Warner's obligations to
make non-affiliated broadband ISP service available throughout Time
Warner Cable's system. Subpart A of this paragraph sets out the
requirements as to cable broadband ISP service in each of Time Warner
Cable's twenty largest cable divisions. Paragraph II.A.1 of the order
requires AOL Time Warner to make Earthlink's ISP service available in
each of Time Warner's twenty largest cable divisions no later than AOL
Time Warner makes an affiliated ISP service (other than RoadRunner)
available in a particular cable division. As of November 30, 2001, AOL
Time Warner will have offered its affiliated ISP service in each of
Time Warner Cable's twenty largest cable divisions no earlier than it
offered Earthlink's broadband service, consistent with its obligations
under the order. According to Earthlink's web site, Earthlink is
offering its ISP service at a special introductory rate of $41.95 per
month. See http://www.earthlink.net/home/broadband/cable/tw/
availability/ (As of 11/28, service in New York is projected to be
available, but not yet available.)
Paragraph II.A.2 of the order requires AOL Time Warner, within
ninety days after the affiliated ISP service is made available in each
of Time Warner Cable's twenty largest cable divisions, to have entered
into agreements approved by the Commission with at least two
nonaffiliated ISPs approved by the Commission to make ISP service
available in those cable divisions. As of November 30, 2001, AOL Time
Warner has entered into such agreements with the following ISPs for the
indicated cable divisions (covering all of the twenty largest
divisions) and has requested Commission approval of each ISP and each
agreement: (1) Juno Online Services Inc. (now merged with NetZero and
called United Online) for all cable divisions; (2) High Speed Access
Corp. for all cable divisions (application withdrawn); (3) New York
Connect for New York City Division; (4) Internet Junction for Tampa Bay
and Central Florida Divisions; (5) Inter.net for all cable divisions;
(6) STIK for all Texas divisions (San Antonio and Houston); (7)
Local.net for upstate New York divisions (Syracuse, Albany, and
Rochester); (8) West Central Ohio Internet Link for all Ohio divisions
(Columbus, Cincinnati, Western Ohio, and Northeastern Ohio), and (9)
Digital Communications Networks (Los Angeles).
Commission staff is currently reviewing AOL Time Warner's requests
for approval of the ISPs and the submitted agreements. As part of a
review of this kind, staff evaluates the financial and competitive
viability of the ISP to determine whether the ISP has the financial
capability to implement the agreement and whether it has the experience
and expertise necessary to compete in the market. Commission staff
reviews financial information concerning the ISP and evaluates its
current and proposed business and marketing plans. Commission staff
also carefully examines the terms of the proposed agreements to
determine whether they are consistent with AOL Time Warner's
obligations under the order and whether the agreement enables the ISP
to compete effectively in the market or whether any term in the
agreement would interfere with the ability of the ISP to compete
effectively.
Paragraph II.A.3 of the order gives the Commission the right to
appoint a trustee to enter into the required agreements if AOL Time
Warner fails to do so within the time limits required. Paragraph III.B
of the order sets out the requirements as to the remainder of Time
Warner's cable system (its smaller cable divisions). Paragraph II.B.1
of the order requires AOL Time Warner, within ninety days after
affiliated broadband ISP service is made available in each of the
remaining divisions of Time Warner Cable's system, to have entered into
agreements approved by the Commission with at least three non-
affiliated ISPs approved by the Commission to make cable broadband ISP
service available in those cable divisions. It is our understanding
that AOL Time Warner has not yet launched its cable broadband ISP
service in any of these smaller cable divisions, so that the ninety day
time period during which it is obligated to make additional ISPs
available in these cable divisions has not yet begun. Several of the
applications noted above include some of these smaller cable divisions.
For example, Inter.net covers all cable divisions; STIK covers Austin;
and Local.net covers Binghamton.
Paragraphs II.A.3 and II.B.2 of the order give the Commission the
right to appoint a trustee to enter into the required agreements if AOL
Time Warner fails to do so within the required time limits. AOL Time
Warner is required to have executed agreements with two additional non-
affiliated ISPs in the twenty largest cable divisions (and three in the
remaining cable divisions) within ninety days after making its own ISP
available in a particular cable division. We understand that Earthlink
and AOL launched their first cable broadband ISP services in Columbus,
Ohio, on September 17, 2001, with launches following in the remaining
19 cable divisions throughout the fall of 2001. AOL Time Warner is thus
required to have approved agreements with two additional non-affiliated
ISPs in the first cable division by December 16, 2001. If it does not
satisfy that obligation, the Commission may at that time determine to
appoint a trustee to enter into an agreement, comparable to the
Earthlink agreement, with a non-affiliated ISP approved by the
Commission.
Subpart C of this section describes specific provisions that must
be included in the agreements to be approved by the Commission. The
agreements submitted to the Commission for its approval include the
specific provisions required by this paragraph of the order. Subpart D
of this paragraph describes AOL Time Warner's obligations in the event
that an approved ISP ceases providing the service pursuant to the
agreement approved by the Commission. No ISP has ceased providing
service as of this date. Subpart E of this section requires AOL Time
Warner to negotiate and enter into agreements with ISPs to provide
cable broadband service on Time Warner's cable system unless certain
requirements are satisfied. AOL Time Warner has hired an individual
whose primary responsibility includes negotiating with ISPs to provide
cable broadband service on Time Warner's cable system in compliance
with AOL Time Warner's obligations under the order. Staff of the
Compliance Division of the Commission's Bureau of Competition is
available to discuss any of the concerns that ISPs might have in
connection with this requirement, and members of the staff have had
some discussions with ISPs. There is no indication at this point that
AOL Time Warner is not complying with its obligation under this
provision of the order.
Paragraph III of the order places specific prohibitions on AOL Time
Warner in connection with cable broadband service. Subpart A of
paragraph HI prohibits AOL Time Warner from interfering with the
content of non-affiliated ISPs. Subpart B of paragraph III requires AOL
Time Warner to provide connections for the non-affiliated ISPs, at
their request, wherever it is providing connections for its affiliated
ISP. Subpart C of paragraph III prohibits AOL Time Warner from
interfering with the provision of ITV services by non-affiliated ISPs.
Subpart D of paragraph III prohibits AOL Time Warner from
discriminating against nonaffiliated ISPs in the transmission or
modification of the content of the non-affiliated ISPs. Subpart E of
paragraph III prohibits AOL Time Warner from entering into exclusive
agreements for the provision of ISP services with any other cable
company.
Paragraph IV prohibits AOL Time Warner from offering different
prices and promotional activities for its cable broadband service based
on whether AOL offers broadband DSL service in a particular geographic
area. Staff of the Bureau of Competition's Compliance Division monitors
AOL Time Warner's compliance with its obligations under these
provisions of the order. As part of its monitoring activities, staff
talks periodically with non-affiliated ISPs and with representatives of
AOL Time Warner, particularly of Time Warner Cable. In addition, staff
has made it clear to non-affiliated ISPs that it is available to
discuss any concerns the nonaffiliated ISPs may have. Staff also
consults regularly with Dale Hatfield, the Monitor Trustee in this
matter, and he is also available to discuss with any ISPs concerns that
they may have and has had on-going discussions with representatives of
Time Warner Cable. Staff will continue its normal monitoring
procedures, particularly as additional non-affiliated ISP service is
made available on Time Warner's cable system.
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