|June 30, 1998
MEMORANDUM FOR Jodie Bernstein
Director, Bureau of Consumer Protection
U.S. Federal Trade Commission
FROM: David C. Bowie
Director, Office of Finance, SIF/TD/ITA
U.S. Department of Commerce
SUBJECT: Comments on the FTC's Electronic Media Proposal
We want to thank you for the opportunity to review the Federal Trade Commission's (FTC)
rules and guides to advertising commercial activities on the Internet and other new forms
of electronic media (E-com, E-media). We share the FTC's views that significant advances
in E-com are dramatically changing the global marketplace. In fact, with the rapid growth
of information technologies and digital communication, electronic commerce (e-commerce) is
rapidly becoming the heart and soul of the banking and financial services industries. Yet
there is no clear cut understanding between the private sector and government negotiators
on legislation, regulations, the industry and consumer needs, and the related policy
According to Business Week reports of June 22, 1998, U.S. businesses will
exchange an estimated $17 billion in goods and services this year over the Net, more than
double the amount in 1997. By 2002, that estimate is expected to explode to $327 billion. Business
Week states that by combining these estimates with further cost savings to businesses
and online consumers, doing business on the Internet could add an additional $10 to $20
billion annually to the nation's gross domestic product (GDP) in four years. Further,
according to market researcher International Data Corp. (IDC), by 2000, nearly 46
million people will be buying goods and services over the Net, up from four million today.
By 2010, IDC envisions one billion costumers worldwide will be shopping on the Net.
Therefore, we share the Commission's statement that consumers must have confidence that
the goods and services offered on the Internet are fairly represented -- that they will
get what they are being promised to -- and that recourse is available if they do not. As a
result, the enforcement of consumer protection laws is essential to ensure the vitality
and viability of the Internet as a new marketplace. In this context, we appreciate and
applaud the Commission's rules and guides to advertising and commercial activities on the
Internet as timely attempts at addressing these issues.
In response to your requests for comments on specific E-media issues, we have the
- 1. Regarding the FTC's proposed interpretation of the term "direct mail," we
think it adequately reflects the understanding of the term and appropriately encompasses
the "electronic" equivalents of "direct mail." As noted by the FTC,
most Internet advertisers track users' visits and/or interests through their click
patterns or the use of search terms. Because of the interactive nature of Net-surfing,
users reveal their preferences and many other personal information for an array of items.
As a result, these advertisers gain valuable marketing information about the users'
background and preferences. This information could be extremely useful in developing a
representative profile of potential consumers that Net advertisers may use in targeting
particular consumers. Therefore, targeted advertising on the Internet should be considered
as the "electronic" equivalent of "direct mailing."
- 2. For the use of E-media to comply with affirmative disclosure requirements, the most
fundamental issues are consumers' understanding, confidence, satisfaction, and protection.
We recognize that it might be easier, more efficient, and less costly for industry members
to comply with various requirements by simply using E-media. We also appreciate the FTC's
intention that its rules and guides should not discourage the use of electronic media.
However, it is ultimately the consumer who has to be fully content with the available
options. Consumers must have choices on how would they like to take the delivery of
information: electronically, written, or both. They must also be provided with clear and
comprehensible disclosures to prevent deception. Therefore, the Commission should guide
the industry to ensure that consumers are protected, and that they have the freedom to
choose the mode of information delivery they prefer.
- 3. Regarding the disclosures placed within a separate frame and their effectiveness, we
fully share the FTC's belief that for effective communication, disclosures should always
remain accessible during the communication. Although advertisers may use frames to
separate the screen, the disclosures containing frames must remain constant on the screen,
fully and distinctly visible (e.g., blink, spin, pop-up, etc.) to users. With the
development of advance 3-D and multicolor text, audio and moving video technologies,
products are increasingly advertized with computer-added special effects. Such techniques
are generally used to present products for marketing effectively, but not necessarily to
display product disclosures. We strongly believe, as a rule, the display of disclosures
should be as attractive and clear as the advertised products themselves.
- 4. For applying specific standards in rules and guides to electronic
- media marketing, the specific manner in which they effectively communicate the
disclosures is very significant. Especially for disclosing information using E-media, the
effectiveness depends on the mode and the manner -- the placement of certain disclosures
in a specific context -- in which disclosures are communicated. In this context, the
consent orders issued in America Online, Inc. (Docket No. C-3787), Prodigy Service
Corporation (Docket No. C-3788, and CompuServe, Inc. (Docket No. C-3789) are good
examples. But the nature and duration of services these firms provide might be different
from Web vendors whose identity, credibility and reputation may not be that
well-established. Consequently, there is a good likelihood that such disclosure provisions
may not translate precisely to all E-media ventures. Additional guidance, specific rules
or standards may be necessary. They should be thoroughly discussed and evaluated for their
suitability to E-media disclosure provisions.
We understand that the Commission's proposal does not contain a proposed policy
statement. It is intended to provide a discussion of the issues to eliminate or reduce any
uncertainty about the FTC's rules and guides applying to electronic media. However, the
terms, rules, guides, and standards used in the proposal are more commonly associated with
print media. Therefore, identifying the pitfalls of using the existing rules and guides
might be necessary for developing E-media specific standards to close the gaps left by the
Further, we have a couple of confidence building suggestions that should enhance
E-media commerce. They are as follows:
- A. First, for appropriate placement and effective communication of disclosures, the FTC
should work with browser-system providers. Since there are just a few browser systems, it
should be relatively easier to reach a consensus on common standards for both the
placement and the display of disclosures. Browser system providers can integrate frames
easily in their systems for effective communication of disclosures. Further, such
arrangements should effectively avoid Web vendors' attempts, if any, to add to or detract
attention from the prominence of disclosures.
- B. Second, the Internet is a medium developed to provide wide access to information.
However, it does not necessarily give consumers requisite confidence and protection. So,
they are vulnerable to deceptions. A referral service entity would greatly enhance the
causes of e-commerce. For example, the Better Business Bureau (BBB) does have databases
for listed firms' business practices and reputation. Inquiring consumers can access that
information on a particular business for its business practices, reputation and
complaints, if any. A similar service -- say Better Electronic Business Bureau (BeBB) --
should greatly enhance the effective communication of disclosures. Since such a service
would be institutionalized and viewed neutrally, consumers could access such information
for confidence building by simply using E-media. This service should also be more
efficient and less costly for industry members engaged in e-commerce.
Finally, although we will be unable to attend all your workshops, we would like to
attend the workshops relevant to our work here at the ITA. Therefore, please keep us
informed. Thank you again for allowing us the opportunity to review the FTC's proposal.
Drafted by Raghav Dwivedy, June 19, 1998
Cleared by David Bowie, June 30, 1998