FTC Testimony Portends Increase in Privacy Protection Efforts And Aggressive Antitrust Law Enforcement

The Chairman of the Federal Trade Commission, Timothy J. Muris, today testified on behalf of the Commission before the House Appropriation Committee's Subcommittee on Commerce, Justice, State, the Judiciary, and Related Agencies on the agency's fiscal year (FY) 2003 budget request. The testimony highlighted program priorities in the FTC's two missions, including a substantial increase in the agency's efforts dedicated to privacy protection and continued aggressive enforcement of the antitrust laws within the agency's jurisdiction. As the only federal agency with both consumer protection and competition jurisdiction in broad sectors of the economy, the FTC requested a budget increase of $20.53 million over FY 2002.

During FY 2003, Muris said, the FTC will 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. Consumer protection initiatives discussed were: privacy; Internet law enforcement; health, safety, and economic injury; media violence, gambling, and children; globalization; and consumer outreach. Competition mission initiatives included: merger enforcement; streamlining the merger review process; nonmerger enforcement; targeting resources for consumer impact; and outreach efforts.

To accomplish its mission in FY 2003, the FTC requested $176.5 million and 1,074 full- time equivalents (FTE). The $20.53 million increase over FY 2002 was justified by expenses related to pay raises, non-pay inflation, increased rental of space, and increased Consumer Response Center contract costs ($7.35 million); expenses related to generating a national do-not-call list to protect consumers' privacy should the proposed amendments to the Telemarketing Sales Rule (TSR) be implemented ($5 million); the cost for systems support and the increased physical security for staff ($3.27 million); and the costs associated with complying with proposed legislation (to require agencies to pay the full government share of accruing costs of retirement for current CSRS employees and post-retirement health benefits) ($4.9 million). The FTC's FY 2003 budget request is calculated using two sources of offsetting collections: an estimated $173.5 million from the Hart-Scott-Rodino (HSR) Act premerger filing fees and an estimated $3 million from a new do-not-call fee, assuming that the proposed TSR amendments are adopted.

Consumer Protection Initiatives

The testimony details that consumer privacy will be an area of particular FTC emphasis during FY 2003. Among the privacy areas Chairman Muris outlined as specific targets for law enforcement efforts were:

• 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.
• Enforcing the Children's Online Privacy Protection Act (COPPA), which prohibits the collection of personally identifiable information from young children without their parents' consent.
• Bringing actions against fraudulent or deceptive spammers.
• Challenging "pretexting," the practice of fraudulently obtaining personal financial information, often by calling banks under the pretense of being a customer.
• 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.

Noting the privacy-related rulemaking activities in which the Commission is currently engaged, Muris listed:

• Considering proposed amendments to the Telemarketing Sale Rule, which would create a national do-not-call list to allow consumers to make one call to remove their names from telemarketing lists. The proposed amendments also would address the misuse of "pre-acquired account information," lists of names and credit card account numbers of potential customers.
• Completing the current rulemaking on safeguarding consumers' financial information pursuant to the Gramm-Leach-Bliley Act.

Additionally, Muris noted that the agency will continue to conduct workshops and other educational activities on privacy issues such as:

• Training law enforcement officials about identity theft.
• Collecting information about identity theft with the FTC's new ID Theft Affidavit.
• Continuing to explore and monitor the privacy implications of new and emerging technologies through workshops, reports, and other public meetings.

Chairman Muris also discussed other important aspects of the FTC's consumer protection agenda, briefly highlighting accomplishments and priorities such as:

Internet law enforcement - The FTC will continue aggressively to monitor the Internet to ferret out frauds and schemes. Since 1994, the FTC has brought 222 Internet-related law enforcement actions against 688 defendants, stopping consumer injury estimated at more than $2.1 billion.

Health, safety, and economic injury - The Commission will continue to bring law enforcement actions in cases involving consumers' health and safety, and in cases resulting in significant economic injury to consumers. Recently, the FTC has announced one of its largest consumer protection settlements in a case challenging alleged "predatory lending." This settlement, which requires court approval, may compensate 18,000 borrowers who could receive as much as $60 million.

Media violence, gambling, and children - The FTC is continuing to monitor the marketing of violent media to children, and will release a third follow-up report in June 2002. The Commission's staff also is conducting research on appropriate consumer education messages for parents. The agency also has responded to the language in last year's appropriations conference report regarding the marketing of online gambling sites to children. The FTC, in conjunction with online gambling industry representatives, will launch a consumer and business education campaign warning about the dangers of underage online gambling. Online gambling industry representatives also have advised FTC staff that they will devise a Guide to Best Practices to disclose warnings and effective blocking methods regarding underage gambling.

Globalization - The FTC will continue to participate in international efforts to craft policies and self-regulatory programs to protect consumers, to build new international partnerships to tackle cross-border fraud, and to use its Consumer Information System, a consumer complaint database, to identify and target the most serious consumer problems. The FTC also will continue training enforcement officials on how to bring cases involving new technologies. Since FY 2001, the FTC has educated more than 1,750 law enforcement personnel from more than 20 countries, 38 states, 23 U.S. federal agencies, and 19 Canadian agencies on use of the fraud database.

Consumer outreach - The FTC places great emphasis on consumer outreach targeting fraud and deception. In FY 2001, the FTC issued 77 publications, distributed more than 5.4 million print publications, and logged more than 9.6 million accesses of its publications on the ftc.gov Web site. The FTC also will continue to host workshops to highlight activities and resources for congressional district office staff. By July of this year, the FTC will have held workshops in each of its regional offices for all congressional district offices.

Competition Mission Initiatives

Merger enforcement - The FTC will continue its focus on merger enforcement. As part of this focus, the FTC will search for mergers that are not subject to premerger reporting requirements under the HSR Act, but could harm consumers by substantially lessening competition.

Streamlining the merger review process - Working with the Antitrust Division at the Department of Justice (DOJ) to establish procedures to make the HSR merger review process more efficient and transparent, the FTC has focused on several areas for streamlining, including: electronic premerger filing, burden reduction in investigations, and an improved FTC/DOJ clearance process. In addition, agency staff will participate in a series of multi-city "brown bag" discussions with the bar and other interested parties to elicit suggestions on further improvements to the second request process.

Nonmerger enforcement - The FTC will continue the trend, begun last year, to devote more resources to nonmerger enforcement. Thus far in FY 2002, the agency has opened 15 nonmerger investigations. In particular, the FTC will be vigilant to ensure that anticompetitive practices do not delay market entry of generic drugs.

Targeting resources for consumer impact - In both its merger and nonmerger programs, the FTC will continue to focus competition resources in sectors of the economy that have a substantial impact on consumers' wallets, such as health care, energy, and the high-tech area.

Health-related products and services account for over 13 percent of gross domestic product, up from 10.9 percent in 1988. In addition to preserving opportunities for generic drugs to compete, the FTC will investigate and challenge agreements among doctors and other health professionals that restrict competition, codes of conduct containing anticompetitive provisions, and anticompetitive mergers of hospitals and suppliers of health care products.

To understand current issues involving energy markets, the agency has recently announced that it will hold a second public conference to examine factors that affect prices of refined petroleum products in the United States.

An increasing number of the FTC's competition matters in the high-tech industries require the application of antitrust law to conduct relating to intellectual property. The FTC and DOJ currently are holding a series of hearings on competition and intellectual property law and policy to help understand the interplay between antitrust and intellectual property law. Issues to be addressed in the hearings include standard-setting, cross-licensing and patent pools, unilateral refusals to deal, proliferation of patents, and the changing scope of patents.

On the subject of the FTC/DOJ clearance agreement signed by the agencies on March 5, Chairman Muris articulated the rationales for the agreement and stated that the new agreement will enhance the quality of antitrust enforcement and will benefit businesses, consumers, and taxpayers. Muris explained the difference from past agency agreements by stating, "We did do something different. We publicly announced in detail how the clearance process would work. For the first time, a secret process will become transparent. I believe this is a good government initiative that will avoid investing resources on fighting with the DOJ."

Concluding his remarks, Chairman Muris again emphasized the vital role of the FTC to protect consumers and requested full budget approval.

The Commission vote to approve the testimony was 5 - 0, with Commissioners Sheila Anthony and Mozelle W. Thompson issuing separate statements. Commissioner Anthony's statement supported the Commission's testimony, except for the discussion of the clearance procedures. "While streamlining the merger review process is a laudable goal that deserves our attention," she stated, "I am not convinced that the approach ... fully maximizes the unique makeup, experience, and institutional assets of the Commission." Commissioner Thompson's statement explains that although he concurs with most of the testimony, "I am compelled to dissent from the discussion of the recently executed agreement between the Assistant Attorney General for Antitrust Charles James and Chairman Timothy Muris." The full texts of both statements are attached to this document.

Copies of the Commission testimony are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.