The FTC in 2005: Standing Up for 

Consumers and Competition

Federal Trade Commission

Deborah Platt Majoras, Chairman

Orson Swindle, Commissioner

Thomas B. Leary, Commissioner

Pamela Jones Harbour, Commissioner

Jon Leibowitz, Commissioner
Federal Trade Commission

Table of Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Chapter 1 – Competition Law Enforcement And Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

A. Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1. Merger Review Process – Improvements and Greater Transparency . . . . . . . . . . . . 6

2. Administrative Adjudication of Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

3. Energy Industry Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

4. Health Care and Pharmaceutical Industry Merger Enforcement . . . . . . . . . . . . . . . 10

5. Other Merger Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

6. Ensuring Compliance with Rules and Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

B. Nonmerger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

1. Continued Emphasis on Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

2. Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3. Other Nonmerger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Chapter 2 – Consumer Protection Law Enforcement and Rulemaking . . . . . . . . . . . . . . . . 17

A. Fraud and Deception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

1. Law Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

2. Tools to Identify Fraud and Deception. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

B. Consumer Privacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

1. Law Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

2. Rulemaking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Chapter 3 – Policy Tools to Complement Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . 27

A. Competition Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

1. Research and Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

2. Hearings and Workshops. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

3. Advocacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

4. Amicus Briefs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

B. Consumer Protection Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

1. Reports and Research. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

2. Hearings and Workshops. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

3. Advocacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

4. Amicus Briefs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

5. Consumer and Business Education and Outreach. . . . . . . . . . . . . . . . . . . . . . . . . . 35
Federal Trade Commission

Chapter 4 – International Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

A. Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

1. Cooperation in Enforcement and Policy Development. . . . . . . . . . . . . . . . . . . . . . 38

2. Multilateral Competition Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

3. Trade/Competition Fora. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

B. Consumer Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

1. Cross-Border Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

2. Promoting Market-Oriented Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

C. International Technical Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Federal Trade Commission

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Introduction

The Federal Trade Commission’s (FTC) vital mission is to stand up for America’s free 

market process and for its consumers, who benefi t from competitive markets in which truthful 

information fl ows. Accordingly, the agency strives to develop and implement policies that 

recognize the remarkable consumer benefi ts inherent in our largely decentralized economic 

organization. Emphasizing the mutuality inherent in the relationship between consumers and 

business, the FTC’s central aim is to make discriminating judgments that permit the agency 

to channel its resources toward preventing and halting private and public measures that injure 

consumers.

In September 2004, the FTC celebrated its 90th anniversary with a symposium, dinner, 

and other events. While the anniversary offered the opportunity to celebrate achievements and 

refl ect on past work, its aim was emphatically forward-looking. New challenges to our economy 

abound: spam, spyware, and threats to information security; mergers that combine intellectual 

property; rising energy and health care costs; valuable innovations that present new consumer 

issues; and the proliferation of new laws overseas, to name a handful. While these challenges 

could not have been contemplated 90 years ago, the wealth of experience gained since that time 

teaches lessons that are valuable today.

One lesson is that the FTC functions at its highest level when it promotes both symmetry 

and synergy between its competition and consumer protection missions. Two parts of a greater 

whole, these missions complement each other in maximizing benefi ts for consumers – accurate 

information and consumer trust in the marketplace facilitate free and healthy competition. 

Emphasizing one to the exclusion of the other would produce a less effi cient or robust market 

than consumers expect and deserve.

A second lesson is that a strong institution takes nothing for granted, save the need to 

improve. It works best when it continually evaluates its existing programs and enhances its 

capacity to perform effectively. Some examples of these efforts during the past year include the 

commitment to examine and improve the agency’s process for reviewing mergers and its efforts 

to improve the international framework for implementing competition and consumer protection 

policy. Additional examples include public conferences to explore economic or legal issues 

or mechanisms that signifi cantly affect consumers and businesses, such as the methodologies 

for assessing the accuracy of credit reports and possible ways to reform our patent system, and 

workshops to assess the impact of emerging technologies, such as peer-to-peer fi le-sharing 

software, email authentication, spyware, and radio frequency identifi cation.

A third lesson is that institutions improve by explaining more fully the foundations for 

their policy and law enforcement choices. Providing a window on how the agency makes and 

implements its decisions is the mark of good public policy, and it also provides the basis for 

better-informed enforcement decisions. During the past year, for example, the FTC released 

a signifi cant amount of merger enforcement data; developed a report on mergers, structural 

change, and antitrust enforcement in the petroleum industry; convened a conference to consider 

the effects of petroleum industry mergers on gasoline prices; and issued closing statements 

explaining the reasons why it had declined to take enforcement action in some merger 

investigations. 
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A fourth lesson is that the Commission functions best when it works cooperatively 

with organizations whose missions overlap and complement the FTC’s. The FTC and the 

Department of Justice (DOJ) confer on an ongoing basis on competition enforcement questions, 

and the two agencies issued a report this past year on competition in the health care sector. In 

addition, the FTC has collaborated with a number of federal, state, and local law enforcement 

agencies in enforcement sweeps to address serious fraud, particularly scams involving business 

opportunities. One key dimension of this effort has been to engage criminal law enforcement 

agencies in prosecuting serious fraud as a crime. Using its Criminal Liaison Unit, the FTC has 

provided practical assistance to criminal law enforcers in developing criminal prosecutions. The 

agency also continues to work cooperatively with the Food and Drug Administration (FDA) in 

investigating false and deceptive claims for dietary supplements, and has worked closely with 

the federal bank regulators to develop rules and studies under the Fair and Accurate Credit 

Transactions Act. 

This annual report reviews the latest chapter in the FTC’s work, covering its activities and 

accomplishments during the last 12 months. More than a mere list of cases, conferences, and 

studies, the report aims to explain the basis for the FTC’s choice of initiatives and to describe the 

policies and priorities that motivate the use of its resources. Many activities are ongoing and set 

forth much of the agenda that the FTC will pursue in the coming years.

Highlights of Recent Accomplishments

As in past years, the FTC has continued to apply its array of law enforcement and policy 

tools to address critical consumer concerns. Among the many accomplishments in the past 12 

months, the FTC has concentrated on:

• Increasing the Focus on Mergers. The FTC received 40 percent more merger fi lings 

compared to the previous year, with a commensurate increase in the number of mergers 

requiring investigation. As part of this increased attention on mergers, the FTC and the 

DOJ are currently working on a Commentary on the Horizontal Merger Guidelines. A 

three-day workshop, jointly sponsored with the DOJ, designed to assess the practical 

effi cacy of the 1992 Merger Guidelines in light of 12 years of experience, revealed a 

strong consensus that the Guidelines work well and require no signifi cant revision, but 

that further explanation of how the agencies apply the Guidelines would be helpful. 

The Commentary should bring greater transparency to the agencies’ merger analysis.

• Improving the Merger Review Process. FTC Chairman Majoras has established a 

task force to recommend further improvements to the merger review process. While the 

FTC has implemented some improvements in the merger review process in recent years, 

the agency expects to adopt further improvements to ease the burden on affected parties 

and increase internal effi ciency. The further improvements include seeking methods 

to identify relevant materials stored electronically, improving the agency’s ability to 

receive electronic productions, developing instructions and specifi cations for electronic 

productions, and taking further steps to improve the timeliness and effi ciency of the 

review process.
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• Addressing Signifi cant Issues in Part 3 Commission Opinions. The Commission has 

issued three adjudicative opinions during the past year that address diffi cult competition 

policy issues. These opinions, Union Oil of California (Unocal), South Carolina Board 

of Dentistry, and Chicago Bridge & Iron/Pitt-Des Moines, contain detailed antitrust 

analyses and provide guidance to businesses and the public on how the Commission 

reviews mergers, potentially anticompetitive conduct, and antitrust defenses.

• Enforcing the Do Not Call Program. As of March 2005, consumers had registered 

more than 85 million phone numbers with the FTC. The national Do Not Call 

(DNC) Registry continues to be one of the government’s most popular and effective 

consumer protection programs. The Registry protects consumer privacy by prohibiting 

commercial telemarketing to consumers who have listed their telephone numbers. Thus 

far, the FTC has fi led fi ve enforcement actions alleging calls to telephone numbers 

listed on the Registry, and the DOJ has fi led two additional cases on the FTC’s behalf. 

Although compliance with the program has been high, the FTC actively investigates and 

prosecutes violators. 

• Targeting Credit Reporting Problems and Identity Theft. Identity theft was the 

number one topic of complaints to the FTC in 2004. The FTC completed 10 rules under 

The Fair and Accurate Credit Transactions Act of 2003 (FACT Act), proposed two 

additional rules, and published fi ve studies during the year to combat identity theft and 

improve the accuracy of consumers’ credit records. The FTC also oversaw the rollout 

of the free credit report program under the FACT Act.

• Fostering Global Competition and Protection of Consumers. The FTC has worked 

with competition agencies worldwide to promote best practices and minimize policy 

divergences to ease burdens on fi rms that operate across the globe. Two key venues 

for competition offi cials to work toward greater consensus are the Organization for 

Economic Coordination and Development (OECD) and the International Competition 

Network (ICN), a group launched two years ago by the FTC, the DOJ, and 13 other 

competition agencies that now numbers almost 90 member agencies. The FTC 

also promotes market-oriented policies. The FTC’s goal is to ensure that consumer 

protection rules outside the U.S. focus on practices that distort consumer choice and 

raise a serious threat to the proper functioning of markets. The FTC also advocates 

discussion of linkages between competition and consumer policy around the world 

and has participated in two such discussions last year – a joint meeting of the OECD’s 

competition and consumer policy committees and an academic roundtable that included 

heads of agencies with responsibilities for both competition and consumer protection 

issues.

• Implementing the Hispanic Initiative. In 2004, after releasing a consumer fraud 

survey that found that Hispanic consumers are disproportionately victimized by fraud, 

the FTC launched an Hispanic Law Enforcement and Outreach Initiative that has 

had immediate results. In May 2004, the FTC’s national Hispanic Outreach and Law 

Enforcement Workshop brought together law enforcers, educators, and communitybased organizations to develop strategies for effective consumer education and law 

enforcement collaborations to combat fraud against Hispanics. One outcome was a 
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4

Spanish-language fraud awareness campaign of print, online, and radio communications 

aimed at the Hispanic community in 11 media markets. The FTC also has brought 21 

enforcement matters targeting Spanish-language fraud and has produced nearly 100 

consumer and business education pieces in Spanish.

• Promoting Competition in the Petroleum Industry. In Fiscal Year (FY) 2004, 

the Commission reversed an Administrative Law Judge’s (ALJ) dismissal of charges 

against Union Oil of California (Unocal) for actions that allegedly could cost California 

consumers hundreds of millions of dollars in higher gasoline prices. The Commission 

also took enforcement action in three petroleum industry mergers. In addition, the 

FTC released a landmark staff report on the petroleum industry, which studied 20 

years of FTC investigations and industry structural changes, and concluded that FTC 

enforcement actions have helped to avoid potential anticompetitive harm.

• Attacking Spam and Spyware. To date, the FTC has fi led 68 spam-related cases 

against 198 individuals and companies including cases against two spammers charged 

with clogging the Internet with millions of deceptive messages and generating nearly 

one million consumer complaints to the FTC. In FY 2004, the FTC issued two rules 

aimed at attacking spam. The fi rst required spammers to identify sexually explicit 

content in the subject line of email, and the second established criteria to determine 

whether the email’s primary purpose is commercial and therefore covered by the 

Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 

(CAN-SPAM Act). Pursuant to the CAN-SPAM Act, the FTC also issued two reports 

to Congress in FY 2004: the National Do Not Email Report to Congress and A CANSPAM Informant Reward System Report to Congress. More recently the Commission 

has fi led two cases attacking alleged spyware. In April 2004, the FTC held a public 

workshop to learn more about spyware and on March 7, 2005, the agency released a 

staff workshop report, Monitoring Software on Your PC: Spyware, Adware, and Other 

Software.

The chapters below describe these and other accomplishments more fully. With fewer than 

1100 staff members, the FTC has reason to be proud of these extensive achievements. Each is a 

tribute to the vision of the agency’s fi ve Commissioners and the hard work of its dedicated and 

talented staff.
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Chapter 1 – Competition Law Enforcement And Guidance

Competition is the ultimate consumer protection. The work of the FTC’s competition 

mission protects and strengthens the free and open markets that are the cornerstones of a vibrant 

economy. Robust competition promotes lower prices, higher quality products and services, and 

greater innovation – all of which benefi t consumers. The FTC operates within a broad consensus 

about the proper role of antitrust. The three primary principles are that antitrust enforcement 

should protect consumers, be guided by economic analysis, and focus particularly on possible 

problems arising from horizontal arrangements.

In addition to these core principles, the FTC has adopted fundamental strategies to maximize 

the impact of its competition enforcement activities. Elements of that strategy include:

• Make full use of the broad range of tools available to the agency, including law 

enforcement, hearings, conferences, workshops, research and reporting, and advocacy.

• Use a systematic approach to identify and address serious misconduct, providing special 

attention to harmful behavior in key economic sectors.

• Increase transparency by clarifying policies and enforcement standards; recognizing 

that it is a small agency with a large mission, the FTC encourages the cooperation of 

business to comply with legal standards.

• Facilitate cooperation among competition authorities worldwide to improve the quality 

and consistency of multilateral enforcement efforts. 

• Improve the processes and institutions through which competition policy is developed 

and applied.

A. Merger 

Enforcement 

The FTC’s merger 

enforcement program 

benefi ts consumers by 

preventing anticompetitive 

mergers that result in 

higher prices, while not 

stopping procompetitive 

mergers that might produce 

lower prices and other 

market improvements. 

Determining the likely 

effects of a proposed 

merger is a complex 

and demanding task to 

which the agency devotes 

Mergers on the Increase

0

500

1000

1500

2000

2500

3000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

(proj)

Number of Filings

Adjusted Filings* Average

* Based on the number of transactions that would have been subject to the filing requirement under the thresholds 

established in 2001.

Figure 1
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signifi cant resources. Increases in the number of Hart-Scott-Rodino Act (HSR) merger fi lings 

submitted during FY 2004, and in economic activity generally, foreshadow the beginning of a 

trend toward a higher volume of FTC merger enforcement work. During FY 2004, the number 

of merger fi lings required under HSR increased by more than 40 percent over the previous year, 

with a commensurate increase in the number of mergers requiring investigation by the FTC 

or the DOJ. The total dollar value of merger transactions reported under HSR also increased 

substantially over the FY 2003 level, rising by about 54 percent. 

1. Merger Review Process – Improvements and Greater 

Transparency

The FTC has implemented a number of improvements in the merger review process in 

recent years to increase the effectiveness of the agency’s law enforcement efforts to promote 

competition. To make further improvements, the agency is pursuing several initiatives both 

to ease the burden on affected parties and to increase internal effi ciency. In addition, the 

Commission has continued its ongoing efforts to provide greater transparency in what it does in 

antitrust enforcement. Transparency serves the FTC’s objectives because a full understanding 

of the kinds of transactions or conduct the FTC is likely to challenge, and why, enables the 

business and legal communities to make more informed and better judgments about the legal 

consequences of proposed business decisions. The FTC’s initiative to promote transparency has 

proceeded on several fronts:

Data on Merger Investigations and Challenges. This past year, the FTC released two 

reports designed to give the public a clearer picture of its enforcement policies and standards. 

With the DOJ, the FTC released a report that summarized market concentration data sorted by 

market for both agencies’ merger challenges over a fi ve-year period (1999-2003). In February 

2004, the FTC released a report that provided data on consumer complaints or “hot” documents 

(i.e., those revealing a party’s expectation of decreased competition following the merger) for a 

total of 151 FTC merger investigations over eight years. In August 2004, the FTC supplemented 

that information with data on ease of entry. In February 2005, the FTC released an econometric 

analysis of the merger investigations data that showed, inter alia, that no structural shift in 

enforcement patterns had occurred over the eight years covered by the study. 

Merger Enforcement Workshop Follow-Up. The FTC and the DOJ held a three-day 

workshop in February 2004, to assess the practical effi cacy of the 1992 Horizontal Merger 

Guidelines in light of 12 years of experience. The workshop provided a forum for two-way 

information exchange – from the agencies to the public on application of the Guidelines, and 

from the public to the agencies on the strengths and weaknesses in the Guidelines and areas for 

clarifi cation. Participants analyzed and discussed all sections of the Guidelines with a focus on 

whether their analytical framework (1) leads to accurate assessments about the likely effects of 

proposed mergers, and (2) provides adequate guidance to the business and legal communities. 

Following the workshop, the FTC analyzed the testimony and public comments and published 

these fi ndings on its website. What emerged from this review was a consensus among antitrust 

practitioners that the analytical framework underlying the Guidelines was functioning effectively, 

but that some further explanation of the agencies’ practical application of the Guidelines would 

be benefi cial.
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Commentary on the Merger Guidelines. Based on the results of the Merger Enforcement 

Workshop, FTC Chairman Majoras announced in November 2004 that the FTC, along with the 

DOJ, would develop a Commentary on the Merger Guidelines to bring greater transparency to 

the agencies’ application of the Guidelines to merger analysis. The Commentary would clarify 

how the agencies apply the Guidelines in practice and would enhance the dialogue between the 

agencies, businesses, legal advisers, and the public. 

Explanations of Merger Investigation Outcomes. In some cases, the FTC conducts 

an extensive investigation of a proposed merger before declining to take enforcement action. 

Explaining why the FTC decides not to take action in a particular case can provide useful 

information and guidance to the public.

• RJR/Brown & Williamson. In June 2004, the Commission outlined three reasons for 

its conclusions that the merger of these two fi rms was unlikely to harm competition 

in the U.S. cigarette market. It explained, fi rst, that Brown & Williamson plays an 

increasingly minor role in the market, with that trend expected to continue. Second, 

the investigation found no markets in which the two fi rms are each other’s closest 

competitors. Third, a majority of the Commissioners had reason to believe that the 

evidence indicated that the transaction was unlikely to facilitate or enhance coordination 

among the major U.S. cigarette manufacturers.

• Victory/St. Therese. In July 2004, FTC Commissioners issued two statements 

explaining their differing assessments of evidence obtained in an investigation of a 

consummated merger of Victory and St. Therese hospitals in the Waukegan, Illinois 

area, leading to a 3-2 vote to close the matter. The majority emphasized that the merged 

hospital had not had success in renegotiating contracts with payors, indicating a lack 

of market power, that post-merger price increases were no greater than those found at 

similar hospitals, and that the two hospitals had been steadily losing market share before 

the merger. Commissioners Thompson and Harbour dissented, stating that the empirical 

evidence on post-merger price increases was inconclusive, and that the totality of the 

evidence, including documents and testimony, supported an enforcement challenge.

Model Second Request for Retail Industries. This past year, the FTC continued to refi ne 

and improve the HSR investigation process. The agency, for example, published a Model 

Second Request specifi cally adapted for transactions involving retail industries. 

Electronic Discovery. The FTC is working to improve its ability to receive and review 

Second Request and other discovery materials in electronic format, which it views as benefi cial 

both for itself and for those producing documents to the agency. The agency also is adapting 

Model Second Request language to provide for electronic production, and is working internally 

and with the DOJ to determine the most effective methods for identifying responsive materials 

stored in various types of electronic formats.

Additional Merger Procedure Reforms. Further improvements to merger review are 

under consideration. FTC Chairman Majoras has established a task force to recommend 

improvements to the merger review process. The task force is currently assessing the FTC 

merger process in detail, examining such issues as the data requested on HSR Notifi cation and 

report forms, the contents of the analysis to aid public comment issued when consent agreements 
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are accepted, and the second request compliance process and its impact on both the agency and 

practitioners. The task force is reviewing prior best practices and merger process initiatives to 

determine what has been implemented and whether those initiatives have worked. In addition 

to the task force, current initiatives include a possible release of an annotated Model Second 

Request to explain the rationale underlying certain information requests, and additional efforts to 

improve timeliness and effi ciency.

2. Administrative Adjudication of Mergers

During the past year, the FTC had four merger cases in adjudicative status under Part 3 of its 

Rules of Practice (Part 3). Of those four, the Commission issued a fi nal decision in one (Chicago 

Bridge), settled another (Aspen Technology), and a third is pending before an ALJ (Evanston/

Highland Park). The Commission withdrew the fourth case from adjudication following an 

unsuccessful action in federal court for preliminary injunction and the subsequent consummation 

of the transaction, and will consider whether to return the matter to Part 3 adjudication following 

its review of staff’s recommendation (Arch Coal).

• Chicago Bridge. In its fi rst merger decision in administrative adjudication since 

1995, the Commission ruled in January 2005 that Chicago Bridge illegally acquired 

its closest competitor in the design and construction of various types of fi eld-erected 

specialty industrial storage tanks. The complaint alleged that the acquisition resulted 

in either a monopoly or a dominant fi rm in four U.S. markets, including markets for 

fi eld-erected thermal vacuum chambers and storage tanks for various liquifi ed gases. 

The Commission’s order requires Chicago Bridge to create two new divisions that could 

compete independently in the relevant markets, and to divest one of those divisions 

within six months. Notably, the Commission’s unanimous opinion, authored by 

Commissioner Swindle, includes an extensive discussion of the Commission’s treatment 

of entry conditions.

• Evanston/Highland Park. Last year, as a product of its hospital merger retrospective 

project, the Commission issued an administrative complaint challenging a hospital 

acquisition in Chicago’s northern suburbs by Evanston Northwestern Healthcare 

Corporation. The complaint alleges that the merger resulted in large hospital price 

increases compared to a control group at comparable hospitals. In addition to 

addressing the competitive implications of the transaction in question, this case likely 

will advance the economic learning regarding hospital mergers more generally. In a 

separate count, the Commission also alleged price fi xing by some doctors associated 

with the hospitals. That count was recently removed from the ongoing litigation for the 

Commission to consider a settlement proposal.

• Arch Coal. Last spring, the Commission approved a preliminary injunction action to 

block Arch Coal’s planned acquisition of Triton Coal Company, based on concerns that 

the merger would harm competition in the market for coal production from Wyoming’s 

Southern Powder River Basin. That area supplies one-third of U.S. coal production 

and fuels electrical power generation in 26 states. The Commission also issued a 

Part 3 complaint against this transaction in April 2004. The district court denied 

the injunction, stating that the agency’s concern over the likelihood of coordinated 
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9

interaction was based 

on a “novel theory” of 

output coordination 

and that the customer 

testimony had little 

or no probative 

value. In response 

to the Commission’s 

emergency motion, 

the U.S. Court of 

Appeals for the 

District of Columbia 

Circuit denied an 

injunction pending 

appeal. Although 

the court granted an 

expedited appeal, the 

parties consummated 

the transaction shortly 

after the court ruled. 

The appellate court’s 

per curiam order 

noted, however, that 

there was “nothing 

novel about the theory 

[the Commission] 

has advanced in this 

case.” Subsequently, 

the Commission withdrew the case from Part 3, in August 2004, to facilitate 

consideration of next steps.

• Aspen Technology/Hyprotech. In another case refl ecting an emphasis on hightechnology matters, the parties resolved the challenge to the acquisition of the 

Hyprotech software assets by Aspen Technology just weeks before an administrative 

trial was set to begin last summer. The transaction was exempt from the HSR reporting 

requirements and thus the FTC challenged it administratively after consummation. 

The consent order, issued in July 2004, which fully remedies the concerns outlined 

in the Commission’s complaint, requires Aspen Technology to divest the overlapping 

Hyprotech assets and to take several other measures to ensure restoration of competition 

to premerger levels.

3. Energy Industry Merger Enforcement

Probably no sector of the economy touches consumers’ lives more than energy. Demand for 

petroleum products continues to increase, and consumers are acutely aware of price fl uctuations. 

Consequently, the agency’s work to maintain competition in energy markets is critical. The 

Adjudicative Merger Decisions

Fiscal Years 1984 - 2005

0123

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984 Champion Spark Plug, Dkt. 9141 (6/10/84); American Medical International., Dkt. 9158 (11/9/84); B.A.T. Industries, Dkt. 9135 (12/17/84).

Echlin Manufacturing, Dkt. 9157 (6/28/85); Weyerhaeuser, Dkt. 9150 (9/26/85).

B.F. Goodrich, Dkt. 9159 (3/15/88).

Midcon, Dkt. 9198 (7/18/89).

Olin, Dkt. 9196 (6/13/90).

Owens-Illinois, Dkt. 9212 (2/26/92); Occidental Petroleum, Dkt. 9205 (12/22/92).

Adventist Health System/West, Dkt. 9234 (4/1/94); Coca Cola, Dkt. 9207 (6/13/94); Coca Cola Bottling Southwest, Dkt. 9215 (8/31/94).

R.R. Donnelley & Sons, Dkt. 9243 (7/21/95).

Chicago Bridge & Iron, Dkt. 9300 (1/6/05).

Figure 2
Federal Trade Commission

10

Commission approved consent orders requiring divestitures in three transactions in the petroleum 

industry in the past year:

• Enterprise Products/GulfTerra Energy. In September 2004, the Commission 

required several divestitures to protect competition in markets for propane and natural 

gas before allowing the $13 billion merger of Enterprise Products Partners L.P. and 

GulfTerra Energy Partners L.P. to go forward. The Commission’s consent order 

required divestiture of interests in one of two pipeline systems and interests in one of 

two propane storage facilities. In addition, the consent order includes a hold-separate 

provision to preserve the viability and marketability of the assets pending divestiture.

• Magellan/Shell. In September 2004, the Commission approved a consent agreement 

that will prevent anticompetitive price increases for gasoline in the Oklahoma City 

area by requiring Magellan Midstream Partners to divest a refi ned petroleum products 

terminal in that city within six months of the merger.

• Buckeye Partners/Shell. Like Magellan/Shell, this matter involves a purchase of 

selected petroleum pipeline and terminal assets. The September 2004 settlement 

preserves the agency’s ability to intervene in the event of a future transaction raising 

concerns about petroleum terminals in the Niles, Michigan area (assets that were 

excluded from this transaction) even if the future transaction is not subject to HSR 

reporting requirements.

4. Health Care and Pharmaceutical Industry Merger Enforcement

American consumers paid nearly $1.8 trillion for health care in 2004 – about 15 percent of 

gross domestic product – through tax dollars, insurance premiums, or out-of-pocket payments. 

Thus, health care is another industry in which it is critical for the FTC to maintain competition. 

In the past year, the FTC reviewed a number of important pharmaceutical industry mergers and 

examined some completed hospital mergers, including the Evanston/Highland Park merger 

that is currently under challenge in administrative litigation. The FTC reviewed the following 

mergers in this important sector: 

• Sanofi -Synthélabo/Aventis. In July 2004, the FTC acted to preserve competition by 

ordering divestiture of certain pharmaceuticals used to treat colon cancer and insomnia, 

and also used as anticoagulants to ensure the viable ongoing competition for these 

medications. The FTC conducted an extensive investigation of a complex $64 billion 

combination of two of the world’s largest pharmaceutical fi rms before allowing the 

acquisition to proceed. The Commission’s order required divestitures of manufacturing 

assets, patents, and other intellectual property, and also required assistance with clinical 

trials and provisions to help ensure the availability of key employees to the acquiring 

fi rms to ensure viable ongoing competition for these medications.

• Cephalon/Cima Labs. In August 2004, the Commission obtained a novel consent 

agreement requiring the creation of a generic competitor to ensure competition for a 

breakthrough cancer pain medication. The Commission required Cephalon, Inc. to 

grant a no-cost, irrevocable license to manufacture and sell a generic version of its 

patented drug Actiq as a condition to allowing Cephalon to proceed with its acquisition 
Federal Trade Commission

11

of Cima Labs, Inc. This provided consumers with a substantially lower-priced 

alternative and lowered the average price of the medication. This case refl ects the 

FTC’s continuing emphasis on the importance of generic prescription medications to 

limit the rapid escalation of pharmaceutical costs. 

• Genzyme/Ilex. In December 2004, to preserve competition in the market for solid 

organ transplant (SOT) acute therapy drugs, the Commission required Genzyme, in its 

acquisition of Ilex, to divest to Schering the revenue stream in solid organ transplant 

therapy for one of its drugs, while allowing Genzyme to keep the revenues for other 

applications. To preserve competition, the Commission’s order requires Genzyme to 

divest to Schering all contractual rights to Ilex’s product, Campath for use in SOT acute 

therapy. Because Campath is used for other purposes, the order requires divestiture of 

all of the rights involved in the drug’s use for SOT acute therapy only, while allowing 

Genzyme to market the product for other applications.

• Victory/St. Therese. As discussed above, the FTC took steps to ensure that hospital 

competition in Waukegan, Illinois was not weakened by investigating the 2000 merger 

of Victory 

Memorial Hospital 

and Provena St. 

Therese Medical 

Center as part 

of its systematic 

review of several 

consummated 

hospital mergers. 

After reviewing 

extensive 

evidence obtained 

from numerous 

sources to 

determine whether 

anticompetitive 

effects resulted 

from this 

transaction, the 

Commission did not fi nd suffi cient evidence to support a likelihood of consumer harm 

from the transaction.

5. Other Merger Enforcement.

Over the past 12 months, the agency continued to scrutinize and challenge proposed mergers 

across the economy when they threatened competition:

• L’Air Liquide. The Commission obtained a consent order in April 2004 with two 

leading industrial gas producers, under which L’Air Liquide was permitted to proceed 

with its $3.5 billion acquisition of Messer Griesheim GmbH, but was required to divest 

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

Motor Vehicles Food Clothing and

shoes

Energy Transportation Medical Care Recreation

Focusing on What’s Important to Consumers

U.S. Annual Personal Consumption Expenditures

by Selected Categories - 2004

Medical care and energy costs represent a large part of family budgets. Note that in addition to direct expenditures for 

energy, the cost of energy is a component of the price of nearly every other good or service that consumers purchase.

Source: Bureau of Economic Analysis, Gross Domestic Product: 4th Quarter 2004 (Preliminary) (Feb. 25, 2005), available 

at www.bea.gov/bea/newsrel/gdpnewsrelease.htm.

Figure 3
Federal Trade Commission

12

signifi cant assets to maintain competition in markets for liquid oxygen, liquid nitrogen, 

and liquid argon.

• Itron/Schlumberger Electricity: In June of last year, the Commission prevented a 

near monopoly in the U.S. market for mobile radio frequency (RF) automatic meter 

reading (AMR) technologies for electric utilities by requiring Itron to grant a royaltyfree, perpetual, and irrevocable license to Hunt Technologies for Itron’s mobile RF 

AMR technology. This remedy allowed Hunt to become a signifi cant competitor to 

Itron for these systems that allow utility companies to gather electric consumption data 

automatically and remotely from electricity meters.

• GE/InVision. The Commission permitted General Electric Company to acquire 

InVision Technologies, Inc. while requiring GE to divest an InVision subsidiary to 

preserve competition in the specialized market for X-ray nondestructive testing. This 

equipment is used for inspection of aircraft and automobile components and for 

other purposes. The order, dated September 2004, includes hold separate and asset 

maintenance requirements to preserve the viability of the business to be divested.

• Cytec/UCB. In March 2005, the Commission acted to preserve competition in a market 

affecting the manufacture of many consumer products by requiring Cytec Industries 

to divest UCB’s amino resins business, before allowing Cytec’s acquisition of UCB’s 

Surface Specialties Business to proceed. The two fi rms were substantial competitors in 

the market for amino resins, which are used as industrial coatings in the manufacture of 

automobiles, appliances, and other products, and also to promote adhesion of rubber to 

other materials, such as in the manufacture of tires.

6. Ensuring Compliance with Rules and Orders.

The Commission relies on fi rms to comply with the HSR reporting obligations and to fulfi ll 

obligations imposed under FTC orders. To preserve the integrity of the reporting process and 

the FTC’s authority to order relief, it is important to prosecute violations vigorously. In the past 

year, the Commission obtained civil penalties for failures to fi le under HSR and for failure to 

comply with a Commission divestiture order.

HSR Enforcement – William H. Gates, III. In May 2004, the Commission announced 

the settlement of a federal court action against Bill Gates providing for payment of $800,000 in 

civil penalties for violations of the HSR reporting requirements. Although Mr. Gates’ failure 

to fi le apparently did not stem from any intent to violate, he was on notice of the HSR reporting 

obligations, due to a warning issued following a previous inadvertent failure to fi le in 2001. 

Thus, the Commission sought civil penalties for this second violation.

Order Compliance – RHI AG. In February 2004, the Commission fi nalized a settlement 

with RHI AG, based on its failure to comply with the various provisions of a Commission order 

issued in 2001, to resolve concerns surrounding RHI’s acquisition of a competitor in the market 

for refractory bricks used in steel production. Under the settlement, RHI agreed to pay a civil 

penalty of at least $650,000 for the violations and to conduct asbestos remediation at a divested 

plant, substantially beyond the remediation required in the original order.
Federal Trade Commission

13

B. Nonmerger Enforcement

Consistent with its strategic focus, the FTC has identifi ed priorities and sought 

systematically to develop nonmerger cases in key areas. As with mergers, the agency focuses 

on industries, including health care and energy, that matter most to consumers. The areas of 

emphasis include health care, prescription drugs, standards setting, professional associations, 

and immunities from, and 

exceptions to, the antitrust 

laws.

In the nonmerger 

area, continuing litigation 

of Part 3 cases that had 

been initiated in previous 

years has kept both the 

staff and the Commission 

very busy this year. The 

Commission issued two 

interim administrative 

decisions, one involving the 

State Action Doctrine and 

another involving NoerrPennington issues (South 

Carolina Board of Dentistry

and Unocal, respectively); 

accepted a settlement in a 

physicians case (Piedmont Health Alliance); and is considering appeals from Initial Decisions in 

three additional cases (Rambus, Kentucky Movers, and North Texas Specialty Physicians).

In a horizontal collusion case, the Commission applied its 2003 policy statement on remedial 

use of disgorgement in accepting a multi-million dollar settlement of an alleged antitrust 

violation involving pharmaceuticals (Perrigo/Alpharma).

1. Continued Emphasis on Health Care

As noted above, healthcare is a major issue for consumers. Thus, in addition to its activity 

involving pharmaceutical and hospital mergers, the FTC has been active in prosecuting unlawful 

conduct in the health care and pharmaceutical industries. The FTC has continued to take action 

against groups of physicians and other health providers for agreements relating to prices. The 

agency obtained four settlements, including one in a case in Part 3 litigation (Southeastern 

New Mexico Physicians, White Sands Health Care System, Preferred Health Services and 

Piedmont Health Alliance). In a fi fth physician matter, the Commission is now considering the 

appeal of an Initial Decision upholding the complaint (North Texas Specialty Physicians). The 

Commission also required two pharmaceutical fi rms to disgorge $6.25 million in alleged illegal 

overcharges for children’s pain medicine (Perrigo/Alpharma), and issued an order denying a 

motion to dismiss the FTC’s challenge to alleged restrictions on competition for dental services 

in South Carolina (South Carolina Board of Dentistry).

Consumer Harm Involved in a Single 

Antitrust Case Can Exceed the Cost of All

FTC Competition-Related Activity

$20

$120

$220

$89

$0

$50

$100

$150

$200

$250

Platinol BuSpar Taxol Competition Mission

In Millions

NOTE: In Bristol-Myers Squibb, Docket No. C-4076 (April 14, 2003) the Commission accepted a consent order settling charges 

that Bristol-Myers Squibb acted unlawfully to delay generic competition for two anti-cancer drugs, Taxol and Platinol, and the 

anti-anxiety agent BuSpar. The impact of delays in generic entry is discussed in the Federal Trade Commission, Generic Drug 

Entry Prior to Patent Expiration: An FTC Study (July 2002), available at www.ftc.gov/os/2002/07/genericdrugstudy.pdf.

Estimated Cost to Consumers of a One-Year Delay 

in Generic Competition in Markets

Affected by One Case, Compared to One-Year 

Cost of FTC Antitrust Enforcement

Figure 4
Federal Trade Commission

14

• Southeastern New Mexico Physicians. In June 2004, a consent agreement resolved 

FTC charges that 73 percent of the physicians independently practicing in Roswell, 

New Mexico, collectively negotiated their fees with payers, resulting in prices above 

those prevailing elsewhere in the state. The consent order bars similar future conduct.

• White Sands Health Care System. In September 2004, a physician-hospital 

organization in New Mexico settled the Commission’s allegations that it fi xed prices 

charged to health plans for physician and nurse anesthetist services, agreeing to cease 

and desist such conduct.

• Piedmont Health Alliance. In August 2004, a 450 member group of North Carolina 

physicians agreed to settle price-fi xing charges made by the Commission in a 2003 

administrative complaint, just before the scheduled beginning of trial. The settlement 

included the full relief contemplated in the Commission’s complaint.

• Preferred Health Services. Most recently, in March 2005, the Commission ordered 

another physician-hospital organization to stop collectively negotiating the prices its 

independent physician members charge health plans. In this matter, the group consisted 

of more than 100 physicians and the Oconee Memorial Hospital in northwestern South 

Carolina. The group’s physicians allegedly make up approximately 70 percent of the 

independently practicing physicians in and around Seneca, South Carolina.

• North Texas Specialty Physicians. In November, an ALJ’s Initial Decision upheld 

charges that this physician group negotiated agreements among participating physicians 

on price and other terms, refused to negotiate with payers except on terms agreed to 

among its members, and refused to submit payor offers to members if the terms did 

not satisfy the group’s demands. The respondent’s appeal, and complaint counsel’s 

cross appeal on market defi nition and certain remedial issues, are pending before the 

Commission.

• Perrigo/Alpharma. The Commission required the disgorgement of $6.25 million in 

allegedly illegal overcharges for an over-the-counter, store-brand of children’s liquid 

Ibuprofen. Alpharma, Inc. and Perrigo Company signed an agreement under which 

Alpharma allegedly agreed not to compete in selling children’s liquid Ibuprofen for 

seven years in exchange for an up-front payment and a royalty on Perrigo’s sales of 

the product. The complaint further alleges that Perrigo raised its prices following 

the agreement. The Commission will use the $6.25 million payment to reimburse 

consumers harmed by the alleged illegal conduct.

• South Carolina Board of Dentistry. The FTC fought restrictions against dental 

hygienists providing basic dental care to South Carolina school children – particularly 

those economically disadvantaged. In July 2004, the Commission denied the South 

Carolina Board of Dentistry’s motion to dismiss the FTC’s Part 3 complaint, rejecting 

the Board’s contention that the State Action doctrine protected its actions against 

antitrust challenge. The Commission noted that the Board’s actions were not pursuant 

to a clearly articulated policy of the state and appeared to have been contravened by the 

legislature. The Commission has agreed to stay the administrative proceedings pending 

the resolution of the Board’s appeal to the Fourth Circuit of the Commission’s decision.
Federal Trade Commission

15

2. Energy

The Commission’s efforts to protect competition in the petroleum industry include a 

signifi cant adjudicative matter involving the alleged acquisition of monopoly power in the 

technology market for producing a formulation of gasoline in California:

• Unocal. In an Opinion issued in July 2004, the Commission reversed an ALJ’s initial 

decision that the Noerr-Pennington doctrine protected Union Oil of California from 

charges of monopolization, thus sending the matter back before an ALJ for a full trial on 

the merits. The Commission held that, in some circumstances, false petitioning does not 

enjoy Noerr-Pennington protection. According to the Commission, these circumstances 

include “when the petitioning occurs outside the political arena; the misrepresentation is 

deliberate, factually verifi able, and central to the outcome of the proceeding or case; and 

it is possible to demonstrate and remedy this effect without undermining the integrity of 

the deceived governmental entity.” The Commission’s complaint alleges that Unocal 

made misrepresentations to the California Air Resources Board (CARB) and to industry 

participants concerning its research relating to low-emissions reformulated gasoline 

(RFG). Unocal’s actions allegedly led to a regulatory standard that overlapped with 

Unocal patents, giving Unocal a monopoly over the technology used to produce and 

supply California “summertime” RFG and costing California consumers hundreds of 

millions of dollars in higher gasoline prices. The case is awaiting the ALJ’s decision 

following the completion of the administrative trial.

3. Other Nonmerger Enforcement

In the past year, the Commission accepted consents in two other nonmerger cases raising 

important conduct issues:

• Clark County, Washington, Attorneys. In June 2004, the Commission charged an 

attorneys’ group in Clark County, Washington with price fi xing. The group consisted 

of 43 independently practicing attorneys who represented criminal indigent defendants. 

According to the FTC’s complaint, the attorneys formed a consortium through which 

they collectively demanded higher fees from the county for defending certain types of 

criminal cases and threatened to refuse to take additional cases of these types unless the 

county agreed to the higher fees. The Commission settled with the group and issued an 

order barring the attorneys from engaging in similar conduct in the future.

• Virginia Board of Funeral Directors and Embalmers. The Commission, in August 

2004, charged the Virginia Board of Funeral Directors and Embalmers with violating 

the antitrust laws and restraining competition by prohibiting funeral directors from 

advertising discounts for “preneed” funeral planning and services. The parties agreed 

to a settlement, and an order bars the Board from prohibiting or restricting truthful 

price advertising, including enforcing any regulation that might prevent Board licensees 

from using truthful advertising to notify consumers of prices and discounts for funeral 

products and services.
Federal Trade Commission

16

Two additional nonmerger adjudicative matters are pending before the Commission 

following appeals from ALJ initial decisions:

• Kentucky Movers. In 2003, the Commission fi led a complaint against several 

associations of household goods movers, charging that the associations, consisting 

of competing fi rms, each violated the FTC Act by jointly fi ling tariffs containing 

collective rates on behalf of their members. All but one of the matters have settled. 

In June 2004, the ALJ’s Initial Decision upheld the complaint’s allegations that the 

Kentucky association had engaged in horizontal price-fi xing and that its conduct was 

not protected by the State Action Doctrine because the state had not actively supervised 

the association’s rate-making activities. The Commission heard oral arguments on the 

matter in January 2005, and the matter is now awaiting a Commission decision.

• Rambus. The Commission also is considering an appeal from an ALJ’s dismissal 

of the complaint in a Part 3 proceeding against Rambus, Inc. The complaint charged 

that Rambus violated the antitrust laws by knowingly failing to disclose its relevant 

intellectual property holdings to a standards setting organization in which it was a 

participant. In dismissing the complaint, the ALJ concluded that Rambus’ conduct did 

not amount to deception or a violation of Rambus’ duties and that complaint counsel did 

not prove that Rambus’ conduct violated the antitrust laws. The Commission heard oral 

argument in December 2004, and a decision is forthcoming. 
Federal Trade Commission

17

Chapter 2 – Consumer Protection Law Enforcement and 

Rulemaking

The FTC protects consumers throughout the nation against deceptive and unfair practices 

in the marketplace. The cornerstone of this mission is aggressive law enforcement. During 

the past 12 months, the agency focused its enforcement efforts on issues of critical importance 

to American consumers, including telemarketing fraud, business opportunity schemes, creditrelated scams, deceptive health claims, spam, spyware, and consumer privacy. Additionally, the 

FTC has established a special unit that works closely with our criminal law enforcement partners 

to build cases and prosecute the most recalcitrant offenders.

The FTC’s law enforcement efforts are complemented and informed by sophisticated 

information gathering tools that help the agency stay at the forefront of emerging technologies 

and rapidly evolving fraudulent schemes. The FTC’s tool box includes databases, surveys, 

workshops, reports, and civil investigative demands. Using these tools, the FTC enforces the 

law, identifi es developing trends, and educates itself, industry, and consumers to promote a 

marketplace in which fraud and deception cannot easily fl ourish.

A. Fraud and Deception

1. Law Enforcement.

The FTC targets the 

most pervasive types of 

fraud for law enforcement 

actions. From April 2004 

through February 2005, 

the FTC fi led 83 actions in 

federal district court and 

obtained 75 judgments 

ordering the return of more 

than $474 million in redress 

to consumers. In many 

of these cases, the FTC 

worked with local, state, 

federal, and international 

law enforcement partners.

Law Enforcement 

Sweeps. Sweeps continue 

to play an important role in 

the FTC’s law enforcement 

strategy. In addition to the direct impact of bringing cases against wrongdoers, sweeps create 

public awareness about particular types of fraud, and provide a means to combine forces with 

other law enforcement agencies. This year, the FTC announced sweeps targeting two types of 

Significant Redress Orders - $474 Million

April 2004 - March 2005

Assail, Inc.

(Kyle Kimoto)

$105.7m - 22%

World Media Brokers 

/ Express Marketing

$19.0m - 4%

Bay Area

Business Council

$12.6m - 3%

Other Matters

$74.6m - 16%

Slim Down Solution

$30.1m - 6%

Capital Choice

Consumer Credit, Inc.

$36.6m - 8%

Fairbanks

Capital Corp.

$40.0m - 8%

Mark Nutritionals

(Harry Siskind)

$155.0m - 33%

Figure 5
Federal Trade Commission

18

fraud that have been of particular concern to the agency because of their impact on consumers: 

weight-loss products and business opportunity scams.

• Project “Biz Opp Flop.” Announced in February 2005, this sweep included law 

enforcement actions against more than 200 operations by federal agencies and 

enforcement agencies from 14 states. The sweep targeted promoters of fraudulent 

business opportunities (“biz opps”), including franchises and work-at-home plans. 

The FTC, together with the U.S. Attorney’s Offi ce for the Southern District of Florida, 

the DOJ, the U.S. Postal Inspection Service (USPIS), and law enforcement agencies 

from 14 states, stepped up the attack on biz opp scams by applying more criminal law 

enforcement resources to this type of fraud than ever before. The U.S. Attorney’s Offi ce 

announced criminal charges against 14 individuals and the USPIS arrested 28 suspects. 

This unprecedented cooperation between the FTC and criminal authorities sends a clear 

message to biz opp scammers that jail time may await them.

• Operation “Big Fat Lie.” In November 2004, the FTC announced federal court 

actions against six companies charged with making false weight-loss claims for various 

products, including pills, powders, green tea, topical gels, and diet patches. The sweep 

continued the FTC’s efforts to stop deceptive advertising and to redress consumers 

harmed by unscrupulous weight-loss advertisers; encourage media outlets to reject 

advertisements containing bogus weight-loss claims; and educate consumers about false 

claims promising miraculous weight-loss without diet or exercise. 

Criminal Liaison Unit. Working with criminal law enforcers remains a priority for 

the FTC. The Criminal Liaison Unit (CLU), created in December 2003, has stepped up 

cooperation with criminal authorities. From April 2004 to March 2005, the FTC assisted in 

38 matters involving criminal prosecutions of FTC defendants or their associates. This year, 

CLU initiated a new program to familiarize criminal law enforcement agencies with the FTC’s 

work and to provide hands-on assistance in selecting criminal prosecutions. As a result of 

greater cooperation, in February 2005, the FTC, the DOJ, the USPIS, and the U.S. Attorney for 

the Southern District of Florida jointly announced “Project Biz Opp Flop,” a sweep targeting 

business opportunity fraud. Other CLU accomplishments this year include: 

• A joint consumer fraud training forum with the USPIS attended by more than 150 FTC 

and Postal Inspection Service staff from around the country;

• The appointment of two FTC staff attorneys as Special Assistant U.S. Attorneys for the 

Southern District of Florida to assist that offi ce in consumer fraud prosecutions; and

• The creation of a criminal liaison fact book summarizing FTC jurisdiction and 

background on FTC enforcement matters for criminal enforcers, including prosecutors, 

FBI agents, Postal Inspectors, and local law enforcement, to facilitate inter-agency 

cooperation, information sharing, and joint enforcement efforts. 

Deceptive Lending Practices and Other Credit Schemes. For most consumers, access 

to credit is essential for full participation in the nation’s economy. Some entities, however, take 

advantage of consumers’ need for credit. Bogus organizations target consumers with bad credit 

or signifi cant consumer debt, promising to help obtain credit or manage their debt. As a result, 
Federal Trade Commission

19

consumers may pay high fees for these services, only to receive nothing in return, or worse, 

to see their credit damaged even further. Unscrupulous lenders deceive consumers about loan 

terms, rates, and fees. The results can be severe, from damaged credit ratings to foreclosure.

• Advance-Fee Credit Scams. Many advance-fee schemes, which take fees for 

nonexistent loans or credit cards, now originate in Canada. The FTC works closely 

with the Toronto Strategic Partnership – a group of law enforcement agencies in the 

U.S. and Canada that collaborates to combat cross-border fraud – to identify, locate, and 

shut down these schemes. Over the past 12 months, the FTC has brought seven cases 

targeting this area of fraud. For example, in November 2004, the FTC, working with 

the Partnership, fi led a complaint against Prime One Benefi ts, a Canadian company that 

allegedly promised consumers a “guaranteed” advance-fee credit card. The defendants 

stipulated to a preliminary injunction.

• Deceptive Credit Counseling Services. The FTC won two major victories this year 

in the AmeriDebt litigation. In November 2003, the FTC charged AmeriDebt with 

falsely promoting itself as a non-profi t credit counseling organization. In September 

2004, the district court rejected AmeriDebt’s argument that it was exempt from liability 

under the FTC Act because of its nominal status as a non-profi t entity, fi nding that the 

FTC properly stated a claim against AmeriDebt as a de facto for-profi t organization. 

Also, the judge presiding over AmeriDebt’s bankruptcy case allowed the transfer of 

AmeriDebt’s client accounts to a legitimate third-party credit counselor, protecting 

consumers who otherwise might be stranded if AmeriDebt goes out of business. 

• Deceptive Debt Negotiation Services. In May 2004, the Commission charged a large 

network of debt negotiation companies, fronted by the National Consumer Council 

(NCC), with falsely claiming that they could stop creditors’ collection efforts and 

signifi cantly reduce consumers’ debts with little or no consequences to consumers. The 

complaint also alleged that NCC called consumers whose telephone numbers were on 

the DNC Registry and failed to provide privacy notices as required by the GrammLeach-Bliley Act. The defendants stipulated to a preliminary injunction.

• Deceptive Mortgage Lending. In June 2004, the Commission charged PWR 

Processing with violating the FTC Act, the Truth in Lending Act, and Regulation Z. 

Defendants deceptively claimed that they could broker no-cost, low-rate refi nances 

of consumers’ mortgages. In fact, the defendants left consumers stranded with highinterest loans, and in many cases, damaged credit. In January 2005, the court granted 

partial summary judgment for the FTC and entered a permanent injunction.

• Capital City Mortgage. In February 2005, Capital City Mortgage, a mortgage 

lender and servicer, settled FTC charges that it deceptively induced consumers 

into taking loans secured by their homes, overcharged borrowers, and, in some 

instances, caused consumers to lose their homes. Among other things, the 

settlement prohibits defendants from engaging in certain deceptive and unfair loan 

practices, permanently bans the defendants from making or servicing any loans 

secured by homes, and requires them to pay consumer redress and other monetary 

relief totaling at least $750,000.
Federal Trade Commission

20

Health, Safety, and Weight-Loss Claims. Truthful and substantiated health benefi t 

claims in advertising can be an important source of information for consumers. For that reason, 

the FTC’s enforcement program continues to focus on combating deceptive health claims, 

particularly weight-loss and serious disease-prevention claims. From March 2004 through 

February 2005, the FTC brought 42 law enforcement actions in this area. In addition to the 

“Operation Big Fat Lie” sweep, the agency targeted food and dietary supplement marketers 

making deceptive health claims. 

• Cortisol Control Products. The “miracle pills” of 2004 were dietary supplements 

that supposedly caused signifi cant weight-loss and prevented disease by reducing 

levels of the stress hormone cortisol. In September 2004, the Commission alleged that 

the marketers of CortiSlim and CortiStress made deceptive weight-loss and diseaseprevention claims and used a deceptive infomercial format. An interim agreement fi led 

with the complaint stopped all of the conduct alleged in the complaint. Staff also sent 

more than 40 warning letters to marketers of other similar products. 

• Kentucky Fried Chicken. In June 2004, KFC Corporation settled charges that it made 

false health-related claims about its fried chicken in a national television advertising 

campaign. The FTC alleged that the company falsely implied that eating two KFC 

Original Recipe fried chicken breasts is better for a consumer’s health than eating 

a Burger King Whopper, and that eating KFC fried chicken is compatible with low 

carbohydrate diets. The settlement prohibits the company from making these or similar 

false or unsubstantiated claims about the nutritional value, weight-loss benefi ts, or other 

health benefi ts of its chicken. 

Effective Remedies Through Avalanche Clauses. The FTC’s “avalanche clauses” are 

yielding results. These order provisions condition the Commission’s agreement to suspended 

judgments upon defendants’ truthful disclosures of their fi nancial status. If defendants lie, 

the court can reopen the case and reinstate a judgment for the full amount of consumer injury. 

Over the last year, the Commission successfully obtained over a quarter of a billion dollars in 

avalanche clause judgments. In September 2004, the FTC won a $106 million judgment against 

Assail, Inc. after the court found that Kyle Kimoto, its president, concealed more than $3 million 

in assets he failed to disclose as part of his settlement with the FTC resolving allegations that 

defendants ran an advance-fee credit card scam. Also in September 2004, the FTC secured 

a new settlement reinstating a $155 million judgment against Harry Siskind, who allegedly 

misrepresented $600,000 in assets and failed to report $300,000 in additional assets when he 

settled with the agency after allegedly selling worthless weight-loss supplements.

Project Scoffl aw. Project Scoffl aw 

seeks criminal and civil contempt sanctions 

against individuals who violate FTC 

orders. For example, the FTC settled 

two civil contempt actions against dietary 

supplement marketers, enjoining one 

set of defendants in Enforma Natural 

Products from selling any weight-loss 

products, and enjoining another defendant, 

Project Scoffl aw - 2004 Criminal Prosecutions:

• 6 defendants sentenced;

• 278 months confi nement;

• $40 million in criminal restitution; 

• 9 individuals indicted in federal court, 

 1 in state court;

• 2 guilty pleas.

Figure 6
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21

Kevin Trudeau, from appearing in, producing, or disseminating infomercials that advertise any 

product or service, except for truthful infomercials for informational publications. In addition, 

after referral for prosecution as part of the FTC’s Busted Opportunity law enforcement sweep, 

Jeffrey and Terri Salley in January 2005 were sentenced, respectively, to 70 months incarceration 

and four years of probation. The Salleys, who pled guilty to criminal contempt of court, were 

indicted on 20 counts of criminal contempt for violating an order issued in United States v. World 

Wide Coffee, Inc. The order prohibited them from making false earnings claims in connection 

with business opportunities and from violating the FTC’s Franchise Rule. 

Hispanic Law Enforcement Initiative. The Hispanic Law Enforcement and Outreach 

Initiative, announced in April 2004, targets consumer fraud against Spanish-speaking consumers 

through law enforcement, media outreach, consumer education, and inter-agency cooperation. 

The Initiative monitors Spanish-language media and tracks Spanish-language complaints from 

the Consumer Sentinel database. The FTC has announced 21 cases involving alleged frauds 

using the Spanish-language, including scams involving green card lotteries, weight-loss products, 

international driving permits, work-at-home schemes, and junk computers.

2. Tools to Identify Fraud and Deception.

Over the past year, the FTC continued to improve its methods for identifying fraud and 

deception. These methods, which involve the collection and analysis of information about 

consumer experiences in the marketplace, assist the agency in advancing its consumer protection 

agenda.

Consumer Fraud Survey. In August 2004, FTC staff released a survey of consumer fraud 

in the United States. Notably, the survey found that nearly 25 million adults – 11.2 percent of 

the adult population – were 

victims of one or more 

of the frauds covered by 

the survey during the year 

studied (2002-2003). In 

addition, the survey found 

that Hispanics, African 

Americans, and American 

Indian consumers were 

much more likely to be 

victims of fraud than 

non-Hispanic whites. 

By identifying the most 

prevalent frauds and the 

groups most affected by 

them, this survey is helping 

the FTC better serve 

fraud victims through law 

enforcement and education.

Specific Types of Fraud

By Millions of Incidents

6.55

4.80 4.60

2.55 2.45 2.40

1.90

0.85 0.65 0.55

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Advance Fee

Loans

Buyers' Clubs Credit Card

Insurance

Credit Repair Prize

Promotions

Unauthorized

Billing for

Internet

Services

Pyramid

Schemes

Unauthorized

Billing for

Information

Services

Government

Job Offers

Business

Opportunities

In Millions

Source: Consumer Fraud in the United States: An FTC Survey, August 2004, available at 

www.ftc.gov/reports/consumerfraud/040805confraudrpt.pdf. Survey conducted May 20 – June 3, 2003.

Figure 7
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Consumer Response Center. The Consumer Response Center (CRC) remains a vital 

resource for both consumers and law enforcement by providing a forum for consumers to submit 

complaints on a variety of issues. Each week, the CRC handles more than 25,000 contacts from 

consumers and businesses. These contacts come via the FTC’s toll-free numbers (1-877-FTCHELP and 1-877-ID-THEFT), the FTC’s website, and the U.S. mail. The CRC also supports the 

efforts of other law enforcement agencies. For example, the CRC acted as the primary response 

center for the USPIS’s recent “Dialing for Dollars” anti-telemarketing fraud consumer education 

campaign. 

Consumer Sentinel. 

Consumer Sentinel is 

the FTC’s primary fraud 

database. Created in 

1997, Consumer Sentinel 

maintains more than 2.2 

million consumer fraud and 

identity theft complaints. 

This data is available online 

to more than 1,200 law 

enforcement agencies in 

the United States, Canada, 

and Australia – an increase 

of over 200 participating 

agencies over last year. 

Do Not Call Registry. 

In addition to enabling 

consumers to limit 

telemarketing calls they receive, the Do Not Call Registry has collected more than 800,000 

consumer complaints. The FTC shares these complaints with other federal and state law 

enforcers through Consumer Sentinel. Most companies identifi ed have a very small number of 

complaints lodged against them, which indicates widespread compliance.

Spam Database. “Spam,” the popular name for unsolicited commercial email, is 

still a top concern for consumers and businesses. Since 1998, the FTC has maintained an 

electronic mailbox to which the agency encourages consumers and businesses to forward spam 

(spam@uce.gov). This mailbox currently receives more than 300,000 pieces of spam daily. The 

total number of spam received by the FTC has grown from 94 million in March 2004, to more 

than 200 million in March 2005. In 2004, the FTC provided several law enforcement partners 

with direct access to its spam database. The database has been instrumental in the development 

of state and federal enforcement actions against major spamming operations such as the FTC’s 

case against Phoenix Avatar and the Texas Attorney General’s case Texas v. PayPerAction, LLC.

Identity Theft Tools. Identity theft is the top consumer fraud complaint received by the 

FTC. The agency leads the fi ght against identity theft by providing a toll-free hotline and 

website where consumers can fi le complaints and receive helpful information concerning their 

rights as victims of identity theft. More than 1,100 law enforcement agencies have access to 

Consumer Sentinel Complaints

by Fiscal Year

616,665

518,814

356,072

200,953

123,162

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2000 2001 2002 2003 2004

Fraud ID Theft

Figures do not include complaints about non-fraud matters or National Do Not Call Registry complaints.

Figure 8
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23

these complaints. The FTC also develops preliminary investigative reports for other federal law 

enforcement agencies and sponsors ID theft law enforcement training for state and local law 

enforcers. To date, the FTC, in cooperation with the DOJ, the U.S. Secret Service, the USPIS, 

and the International Association of the Chiefs of Police, has conducted 16 one-day Identity 

Theft Law Enforcement Training Seminars attended by more than 2,200 offi cers from more than 

800 agencies.

Cross-Border Fraud Website. The FTC also uses information collected at “econsumer.

gov” to identify fraud. Consumers from around the world can fi le complaints at the econsumer.

gov website, which has received over 15,000 consumer complaints to date. These complaints are 

now accessible to consumer protection agencies in 20 countries. Participating agencies recently 

added a link to a directory of global online alternative dispute resolution providers, so that 

consumers from around the world have a potential avenue to resolve their consumer protection 

complaints without going to court.

B. Consumer Privacy

Protecting consumer privacy remains a top priority in the FTC’s consumer protection 

agenda. Through the vigorous enforcement of existing laws, rulemaking efforts, and ongoing 

consumer and business education, FTC initiatives address the serious consequences that result 

from the misuse of personal information.

1. Law Enforcement. 

 The FTC continued its aggressive enforcement of existing laws to protect consumer privacy 

during the past year. Law enforcement actions ranged from cases involving violations of the Do 

Not Call provisions of the Telemarketing Sales Rule, to cases attacking illegal spam or spyware 

that tracks consumers’ online behavior. Highlights include:

National Do Not Call 

Registry. As of March 

2005, consumers had 

registered more than 85 

million phone numbers 

with the FTC. The 

Registry protects consumer 

privacy by prohibiting 

commercial telemarketing 

calls to consumers who 

register their telephone 

numbers. The FTC has 

made enforcement of the 

Registry a top priority. 

Since October 2003, the 

Commission has fi led 

fi ve enforcement actions 

alleging that the defendants 

National Do Not Call Registry

June 27, 2003 – December 31, 2004

82,981,197 Registrations

Registrations 

Transferred

from States

12%

9,971,742

Phone

Registrations

22%

Web 18,295,990

Registrations

66%

54,713,465

Figure 9
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24

had called consumers whose numbers were on the Registry, and has forwarded two additional 

cases to the DOJ for fi ling: 

• Flagship Resort and Braglia Marketing Group. In February 2005, the Commission 

announced settlements in several Do Not Call enforcement actions. This was the fi rst 

time the agency had sought civil penalties for violations of the Registry. Under the fi nal 

orders, two timeshare sellers agreed to pay $500,000 in civil penalties and abide by a 

federal court injunction – the telemarketers they retained were banned from owning 

or operating a telemarketing operation and agreed to a civil penalty of over $526,000. 

According to the complaints, these defendants repeatedly violated the Registry 

provisions of the FTC’s Telemarketing Sales Rule; failed to pay the fees required to 

access the Registry; and unlawfully abandoned calls to consumers.

Spam and Spyware. Over the past year, the FTC’s spam program emphasized enforcement 

of the CAN-SPAM Act, which became effective on January 1, 2004. More recently, spyware is 

becoming one of the most serious consumer problems on the Internet. Spyware installs itself on 

an individual’s computer without that person’s consent and then monitors or controls computer 

use. It may be used to send pop-up ads, redirect the computer to websites, monitor Internet 

surfi ng, or record keystrokes, which, in turn, can lead to identity theft. To address the adverse 

effects of this digital menace, the FTC is investigating and aggressively prosecuting spyware 

distributors.

• Phoenix Avatar. In April 2004, 

the FTC fi led its fi rst CAN-SPAM 

cases against two sellers who hired 

spammers to promote their products. 

The defendants’ activities generated 

nearly one million consumer 

complaints. The FTC alleged that 

the defendants clogged the Internet 

with millions of deceptive messages. 

In August 2004, the court issued 

the fi rst decision enforcing CANSPAM – granting the FTC’s motion 

for a preliminary injunction. The 

important message sent by that 

court’s decision: if you profi t from 

illegal spam, you may be liable for 

violations of the CAN-SPAM Act, even if you did not push the “send” button.

• Global Net Solutions. In January 2005, the FTC fi led suit against a network of 

individuals and corporations that used spam to sell access to online pornography. The 

Commission alleged that the defendants barraged consumers with sexually explicit 

email that violated virtually every provision of the CAN-SPAM Act, including the Adult 

Labeling Rule. The court immediately issued a temporary restraining order and has 

since entered a preliminary injunction. 

Protecting Consumers Online

Commissioner Jon Leibowitz is particularly 

interested in competition and technology issues, 

including online commerce and privacy. On the 

technology side, he has spoken about the consumer 

harm caused by growing problems like spyware, 

phishing scams, and spam, and how the actions of 

some bad actors threaten to undermine the promise 

of the Internet. Most recently, Commissioner 

Leibowitz addressed the Congressional Internet 

Caucus State of the Net Conference, where he 

emphasized the ongoing role the Commission plays 

in protecting consumers online by the aggressive 

use of law enforcement tools like the CAN-SPAM 

Act and the Commission’s existing Section 5 

authority.

Box 1
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25

• Seismic Entertainment. In October 2004, the Commission fi led its fi rst spyware case, 

alleging that the defendants unfairly downloaded adware and other software programs 

to consumers’ computers without authorization and then advertised “anti-spyware” 

products to these same consumers. The court issued a temporary injunction stopping 

the defendants’ unfair practices and the defendants are now subject to a preliminary 

injunction. 

• MaxTheater, Inc. In March 2005, the Commission fi led another case involving 

spyware. The FTC alleged that MaxTheater offered consumers free spyware scans that 

“detected” spyware on their computers even if there was none, to market anti-spyware 

software that does not work as represented.

Information Security and Enforcing Privacy Promises. The Commission continued its 

efforts to protect privacy by ensuring that companies do not misrepresent their privacy policies. 

The agency gives special emphasis to representations concerning the security provided for 

customer information and the disclosure of information to third parties. 

• Petco. In November 2004, the FTC 

announced its fi fth case targeting 

companies that misrepresent the 

security provided to consumers’ 

personal information. The FTC 

alleged that Petco Animal Supplies, 

Inc., although promising to keep its 

customers’ information secure, did 

not take reasonable or appropriate 

measures to prevent commonly 

known attacks to its website by 

hackers. The FTC charged that 

the fl aws allowed a hacker to 

access consumer records, including 

credit card numbers. Like the 

FTC’s prior information security 

cases, the settlement requires that 

Petco implement a comprehensive 

information security program for its 

website.

• GLB Safeguards Cases. In 

November 2004, the Commission 

announced its fi rst cases enforcing 

the Gramm-Leach-Bliley 

Safeguards Rule, which requires 

fi nancial institutions to have reasonable procedures to ensure the security of customer 

information. As part of a nationwide compliance sweep, the FTC charged two 

mortgage companies with violating the Rule. The FTC alleged that the brokers failed 

to implement required safeguards to protect customer names, Social Security numbers, 

Promoting Information Security

The Commission works to protect the 

privacy and security of consumer information. 

Commissioner Orson Swindle continues to play 

an active role in promoting the importance of 

information security. Commissioner Swindle has 

emphasized the continuing need for consumer 

education, noting that good information security 

practices must become just another part of our 

daily lives. Commissioner Swindle also has urged 

corporate leaders to make good information 

security practices an essential part of their business 

operations – literally, a part of their corporate 

culture. Addressing the Subcommittee on 

Technology, Information Policy, Intergovernmental 

Relations, and the Census, of the House Committee 

on Government Reform, Commissioner Swindle 

stated that “the FTC is working to ensure that all 

companies entrusted with personal information 

take reasonable steps to secure that information 

and minimize the risk that it may be misused. The 

agency has been and will continue to be vigilant in 

promoting a culture of security.” Earlier this year, 

the Cyber Security Industry Alliance presented 

Commissioner Swindle with the RSA Conference 

Award for Public Policy for his work on information 

security. 

Box 2
Federal Trade Commission

26

bank account numbers, and other sensitive fi nancial information. The settlements bar 

future violations of the Rule and require independent audits of the companies’ security 

programs.

• Gateway Learning. In September 2004, FTC announced its fi rst case challenging 

deceptive and unfair practices in connection with a company’s material changes to its 

privacy policy. The FTC alleged that Gateway rented consumers’ personal information 

to marketers, contrary to explicit promises made in its privacy policy at the time it 

collected the data. According to the complaint, after collecting consumers’ information, 

Gateway changed its privacy policy to allow sharing the information with third parties, 

but failed to notify customers or obtain their consent. 

2. Rulemaking. 

 Congress directed the FTC to issue rules to implement a number of statutes critical to 

protecting the privacy of consumers. Pursuant to this Congressional directive, over the last 12 

months, the agency promulgated new rules addressing issues like telemarketing, spam, consumer 

credit, and identity theft.

The FACT Act. The FACT Act provides important tools to protect consumer privacy, 

enhance the accuracy of credit report information, increase consumer access to such information, 

help prevent identity theft, and help assist identity theft victims. It requires the FTC to engage 

in 18 rulemakings. Within the past year, the FTC issued 10 of these rules and proposed two 

others. One of the completed rulemaking efforts is the “Free Annual File Disclosures” Rule, 

which requires the three national credit bureaus to establish a central website, phone number, and 

mail address for consumers to order a free copy of their credit report once every 12 months. The 

national rollout of this free credit report system began on the West Coast on December 1, 2004, 

and will be completed by September 1, 2005.

CAN-SPAM Act. As mentioned above, the FTC issued two rules pursuant to the CANSPAM Act in FY 2004. The fi rst required spammers to identify sexually explicit content in 

the subject line of email. The rule implements the objective of the CAN-SPAM Act to protect 

email recipients from unwitting exposure to unwanted sexual images in spam. The second 

rule established criteria to determine whether the email’s primary purpose is commercial, and 

therefore, covered by the Act.

Telemarketing Sales Rule. Congress instructed the FTC to amend the Do Not Call Rule 

to require telemarketers to purge newly-registered numbers from their call lists monthly instead 

of quarterly. The Rule became effective on January 1, 2005. The FTC also sought comment on 

a proposal to modify the call abandonment provision of the Rule to allow telemarketers to use 

prerecorded messages when they call consumers with whom they have an established business 

relationship. The FTC’s request for comments emphasized that consumers will be able to assert 

an entity-specifi c Do Not Call request to stop prerecorded message telemarketing, just as they 

can with telemarketing that uses live sales representatives.
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27

Chapter 3 – Policy Tools to Complement Law Enforcement

A. Competition Policy

As a complement to its enforcement mission, the FTC also promotes competition principles 

through a wide variety of activities, such as research and reports, workshops, advocacy fi lings, 

and amicus briefs. Through these activities, the FTC educates itself about emerging issues 

and shares information with other policymakers, business leaders, and consumers, providing 

intellectual leadership on competition issues.

1. Research and Reports.

The FTC continues its historic role of performing research and issuing reports on a range of 

topics relevant to competition and the marketplace. These include topics of perennial interest, 

such as energy and healthcare, as well as emerging issues, such as concerns about the promise 

and impact of new technologies and certain kinds of distribution policies.

Petroleum Merger Report. In August 2004, the staff of the FTC’s Bureau of Economics 

released a report, The Petroleum Industry: Mergers, Structural Change, and Antitrust 

Enforcement, which presented a detailed review of structural changes and the FTC’s antitrust law 

enforcement efforts in the petroleum industry over the past 20 years. Consistent with the purpose 

of enhancing public understanding and policy making concerning competition in this industry, 

the report also elaborated on the analytical process the Commission uses when reviewing 

petroleum-related mergers. The report concluded that thorough FTC oversight of the industry, 

including both investigations and enforcement actions, has helped preserve industry competition 

and prevented gasoline price increases beyond those already dictated by market conditions.

Health Care Report. In July 2004, the FTC and the DOJ released a joint report, Improving 

Health Care: A Dose of Competition, which distilled a wealth of information gained from 27 

days of public hearings and other data collected over a two-year period. To promote policies that 

ensure access to quality health care and enhance informed consumer choice, the report provided 

signifi cant observations and recommendations about the availability of information regarding the 

price and quality of health-care services; physician collective bargaining; insurance mandates; 

hospital merger analysis; managed care organizations’ bargaining power; and hospital group 

purchasing organizations. 

Contact Lens Competition. The agency has been active in ensuring competition in the 

contact lens industry. Under the Fairness to Contact Lens Consumers Act, in July 2004, the 

FTC issued the Contact Lens Rule which requires, inter alia, that prescribers provide patients 

with a copy of their prescriptions after a fi tting and verify those prescriptions to any third party 

designated by a patient. In February 2005, the FTC issued a report on competition in the contact 

lens industry that focused on the effects of manufacturer marketing strategies, such as private 

labeling and limited distribution, and found neither likely to raise competitive or consumer 

protection concerns. The report also studied the pricing of contact lenses through various nontraditional contact lens sellers, and found that wholesale clubs and online retailers typically 

offered the lowest prices for the lenses sampled. The report found that requirements that 
Federal Trade Commission

28

unnecessarily burden e-commerce, such as licensing requirements to dispense contact lenses and 

advertising restrictions, have the potential to cause consumers to pay higher prices for contact 

lenses without offsetting consumer protection benefi ts.

2. Hearings and Workshops. 

Hearings and workshops represent one of the FTC’s most powerful policy “research 

and development” tools. They allow the agency to bring together experts from the business, 

The FTC’s Integrated Approach to Competition Policy

The FTC uses a variety of competition policy tools in a coordinated fashion to achieve its

policy goals, such as removing impediments to competition in the petroleum industry.*

TOOL: Law Enforcement

• Merger enforcement actions in Shell/

Buckeye Partners, Shell/Magellan, and 

Enterprise/GulfTerra Energy, requiring 

divestitures to protect competition.

• Administrative litigation in Union Oil 

Company of California, challenging 

alleged misuse of regulatory 

process to monopolize the sale of 

“summertime” gasoline in California.

TOOL: Market Monitoring

• Daily tracking of gasoline and diesel fuel 

prices in 360 U.S. cities and use of an 

econometric model to assess whether 

price changes are deviating from historical 

patterns, suggesting possible anticompetitive 

activity.

GOAL: Prevent anticompetitive 

increases in the price of 

petroleum products.

TOOL: Conferences and Workshops

• January 2005 Conference on Estimating the 

Price Effects of Mergers and Concentration in 

the Petroleum Industry: An Evaluation of Recent 

Learning.

TOOL: Competition Advocacy

• Letters showing that bills in Michigan and 

Kansas would likely deter pro-competitive 

pricing of gasoline.

* The examples provided are from the period April 1, 2004 though March 31, 2005.

TOOL: Research and Reporting

• Staff report on The Petroleum Industry: 

Mergers, Structural Change, And Antitrust 

Enforcement.

• Bureau of Economics Working Papers on 

The Economics of Price Zones and Territorial 

Restrictions in Gasoline Marketing and The 

Economic Effects of the Marathon - Ashland 

Joint Venture: The Importance of Industry 

Supply Shocks and Vertical Market Structure.

TOOL: Congressional Testimony

• Testimony before House and Senate 

committees on “Market Forces, 

Anticompetitive Activity, and Gasoline 

Prices,” describing FTC’s initiatives to protect 

competition in the petroleum industry.

Figure 10
Federal Trade Commission

29

government, legal, and academic communities to engage in an in-depth analysis of important, 

and often contentious, issues. Often, FTC hearings and workshops lead to signifi cant advances 

in cutting edge knowledge of competition policy issues. In the past 12 months, the following 

hearings and workshops have been of particular interest. 

Price Effects of Mergers and Concentration in the Petroleum Industry. To ensure 

that its work is most effective in maintaining competition and protecting consumers, the FTC 

periodically assesses its performance in fulfi lling its signifi cant responsibilities and welcomes 

constructive critiques. In this context, the Commission assembled a panel of fi ve outside expert 

econometricians in January 2005 for a conference on the effects of mergers in the petroleum 

industry from an econometric perspective. The panelists addressed the question broadly as well 

as with specifi c reference to two recent reports – a March 2004 FTC Bureau of Economics case 

study of the effects of the Marathon-Ashland joint venture and a report released in May 2004 by 

the Government Accountability Offi ce.

Patent Reform. In April 2004, the FTC co-sponsored a conference, “Ideas into Action: 

Implementing Reform of the Patent System,” with the National Academy of Sciences (NAS) 

and the Berkeley Center for Law and Technology to address patent reform and possible 

implementation. The event provided a forum for government offi cials, business representatives, 

scholars, lawyers, and others to evaluate and discuss recommendations from recent reports on 

patent reform released by the FTC and the NAS. In addition, the FTC recently co-sponsored, 

with the National Academies’ Board on Science, Technology and Policy, and the American 

Intellectual Property Law Association, several patent reform workshops, structured in a town 

meeting format. That format facilitated commentary from a wide range of participants, including 

small inventors, representatives of small and large businesses, and lawyers involved in patent 

prosecution and litigation. Among other issues, the workshops have highlighted the FTC patent 

reform recommendations for a post-grant opposition system and modifi cation of the doctrine of 

willful infringement. The fi nal workshop will take place in Washington, D.C., on June 9, 2005 

and will address draft patent reform legislation.

3. Advocacy.

An important complement to the FTC’s efforts to forestall or eliminate private restrictions 

on competition are efforts to eliminate public impediments to competition that may reduce 

consumer welfare. Thus, in response to requests, the FTC advises state and federal entities, as 

well as the courts, on the potential competitive impact of pending governmental actions focusing 

on the same critical economic sectors that receive emphasis in law enforcement: health care, 

energy, and others with a major impact on consumers’ wallets.

Pharmacy Benefi t Manager Comments. Concerned with likely price increases in 

pharmaceutical markets, the FTC staff submitted comments on proposed California legislation 

that would have required pharmacy benefi t managers (PBMs) to disclose certain information to 

health plans and consumers regarding their arrangements with pharmaceutical companies. The 

FTC pointed out that these provisions likely would reduce competition between pharmaceutical 

companies and thus decrease the incidence of cost-reducing drug substitutions. Governor 

Schwarzenegger vetoed the legislation and cited the FTC letter in his veto message as a basis for 

his decision. 
Federal Trade Commission

30

“Any Willing Provider” and “Freedom of Choice” Bills. Also concerned about 

rising pharmaceutical costs and other harms to consumers, FTC staff responded to requests 

for comments on seven proposed bills in Rhode Island that contain so-called “freedom of 

choice” and “any willing provider” provisions for pharmaceutical sales. All seven bills require 

health plans to ensure “freedom of choice” for consumers to choose among all sources of 

pharmaceutical services and to include in their networks any pharmacy willing to accept the 

contractual terms offered to other pharmacies. Although the bills are designed to increase 

competition by letting consumers choose their pharmacy provider, staff concluded that the 

bills likely would increase the cost of pharmaceutical services as well as limit competition and 

undermine consumer choice. 

Below Cost Gasoline Sales Bills. In 2004, FTC staff responded to requests from Michigan 

and Kansas legislators for comments on bills to ban below-cost gasoline sales. FTC staff 

concluded that, if enacted, the bills likely would restrict competition, deter pro-competitive price 

cutting, and lead to higher prices for the states’ consumers. Moreover, staff concluded that such 

bills are unnecessary because federal antitrust laws already cover below-cost pricing that has the 

potential to harm competition.

Electricity. The FTC fi led two comments with the Federal Energy Regulatory Commission 

(FERC) in July 2004 about how to assess and safeguard against the exercise of market power 

and accompanying price hikes. The fi rst comment recommended that FERC’s assessments of 

when to permit electric utilities to sell wholesale power at market rates be based on the principles 

and framework outlined in the DOJ/FTC Horizontal Merger Guidelines. FERC has not yet 

ruled on these issues. The second comment concerned FERC’s policies governing electric 

utility procurement. FERC cited this comment to support new policies to prevent rate regulation 

evasion and anticompetitive cross-subsidization that have the effect of raising consumer prices. 

Corporate Ownership of Funeral Homes. In April 2004, FTC staff commented on a bill 

to permit corporate ownership of funeral homes in Maryland in response to a legislator’s request. 

Staff concluded that the bill would permit easier entry into the funeral home business, thereby 

increasing competition and potentially offering consumers lower prices and better quality for 

funeral home services.

Professional Services. The FTC has been active in advocating for maintaining and 

increasing competition between attorneys and lay providers for a variety of services in an 

effort to give consumers choices. The FTC and the DOJ submitted a comment urging the 

Massachusetts Bar Association not to adopt an overly broad defi nition of the practice of law, 

which staff argued was likely to eliminate many forms of lawyer-nonlawyer competition 

and lead to higher costs for consumers. The FTC and the DOJ also commented in support 

of a Massachusetts bill that would allow nonattorneys to provide many real estate settlement 

activities, which will likely reduce real estate settlement costs for consumers. 

4. Amicus Briefs.

This year, the FTC has continued to be active in providing amicus briefs to help courts 

resolve competition policy questions. During the past 12 months, the FTC fi led amicus briefs on 

issues concerning competition in the pharmaceutical industry, the proper application of antitrust 
Federal Trade Commission

31

defenses, and maintaining and increasing competition between attorneys and lay providers to 

enhance consumer choice.

• Teva Pharmaceuticals USA v. Pfi zer. The FTC’s brief in the Federal Circuit supported 

allowing generic drug fi rms to seek a declaratory judgment that a generic drug does 

not violate an existing patent. The FTC argued that disallowing such an action would 

enable brand-name drug manufacturers to use provisions of the Hatch Waxman Act 

to delay any generic applicant from entering the market, thus harming consumers by 

depriving them of access to lower priced generic alternatives.

• Andrx Pharmaceuticals, Inc. v. Kroger Company. With the DOJ, the FTC fi led an 

amicus brief responding to a petition for a writ of certiorari in a matter in which an 

alleged pharmaceutical patent infringer agreed not to market its product while patent 

infringement litigation was pending. Although the Sixth Circuit’s fi nding of a per se 

antitrust violation arguably confl icts with an Eleventh Circuit precedent, the agencies 

concluded that the issue is insuffi ciently developed to warrant the Supreme Court’s 

attention at this time.

• Jackson Tennessee Hospital Co. The agency’s brief challenged the district court’s 

holding that certain conduct by a public hospital district was shielded from antitrust 

enforcement by the State Action Doctrine, arguing that the court erred in holding that a 

series of anticompetitive agreements were the foreseeable result of the hospital district’s 

broad statutory authority, comparable to that of private fi rms, to operate and manage 

health care facilities. As the brief explained, the State Action Doctrine only shields the 

conduct of subordinate state entities when they act pursuant to a state policy to displace 

competition with an alternative means of advancing the public interest.

• Cleveland Bar Association vs. Compmanagement, Inc. The FTC’s brief argued that 

the court should be guided by the public interest when considering whether lay practice 

in workers’ compensation matters before the Ohio Industrial Commission constitutes 

the unauthorized practice of law. The brief argued that prohibiting lay practice is 

likely to cause consumers of these services to have less choice and pay higher prices, 

without providing any additional protections. It also noted that lay representation had 

been permitted for 30 years and with no evidence that it harmed consumers. The court 

ultimately ruled that such lay representation was not the practice of law.

• McMahon v. Advance Title. The FTC and the DOJ fi led an amicus brief in the West 

Virginia Supreme Court of Appeals, urging the court to reject a bar opinion that lay 

real estate settlement services are the unauthorized practice of law. The brief argued 

that there is no evidence of consumer harm from lay settlements and that such a ban 

would likely increase the price of both lay and attorney settlements for West Virginia 

consumers. The West Virginia court reversed the lower court’s decision to uphold the 

bar opinion on the ground that there was an insuffi cient factual record to determine 

that these services are the practice of law. The court stated that such a determination 

requires weighing considerations such as accountability, due care, and public safety. 
Federal Trade Commission

32

B. Consumer Protection Policy

In similar fashion, the FTC applied its various policy tools to complement its consumer 

protection enforcement. Working with other law enforcement agencies, industry, the media, and 

the public, the FTC heightened media awareness of false advertising, provided important data 

and analysis on a variety of consumer protection issues, and developed even greater expertise in 

technological and legal issues related to spam.

1. Reports and Research.

In addition to using electronic databases and websites to track consumer fraud, the FTC 

conducts numerous studies of marketplace issues affecting consumers and publishes its fi ndings 

in reports.

National Do Not Email Registry Report to Congress. The CAN-SPAM Act called for 

the FTC to report to Congress on a plan and timetable for establishing a National Do Not Email 

Registry, modeled on the Do Not Call Registry. The FTC issued the Do Not Email Registry 

Report on June 14, 2004, explaining that after signifi cant fact fi nding such a program likely 

would fail to reduce spam and might instead have the opposite effect. Rather than a National 

Do Not Email Registry, the report advocated for the private development of a robust email 

authentication system to prevent spammers from hiding their tracks and thereby evading Internet 

service providers’ anti-spam fi lters and law enforcement. To explore the issues surrounding 

email authentication and to facilitate the development of such a rule, the FTC held an Email 

Authentication Summit last fall.

A CAN-SPAM Informant Reward System Report to Congress. The CAN-SPAM Act 

also required the FTC to issue a report assessing whether, and how, a system to reward members 

of the public for tracking down spammers could help improve enforcement of the CAN-SPAM 

Act. Relying on the FTC’s law enforcement experience, the September 2004 report identifi ed 

three anti-spam enforcement hurdles: (1) identifying and locating the spammer; (2) developing 

suffi cient evidence to prove the spammer is legally responsible for sending the spam; and (3) 

obtaining a monetary award. The report examined how to overcome these hurdles and analyzed 

the issues the FTC believed Congress should consider in determining whether to go forward with 

a reward system, and if so, the features such a system might include.

FACT Act Studies. The FACT Act requires the FTC to conduct eight studies. The 

agency completed fi ve of these studies in 2004 and reported on, respectively, (1) the accuracy 

of information contained in credit reports; (2) data matching tools used by credit bureaus to 

insert information into consumers’ credit fi les and provide credit reports to businesses; (3) the 

costs and benefi ts of notifying consumers when negative information is added to their credit 

fi les; (4) the effects of providing consumers with the same credit report used by a creditor 

following an adverse credit decision; and (5) common fi nancial transactions that are not included 

in consumers’ credit fi les but that might bear on creditworthiness. The completed studies 

examined the various methods used by the national credit bureaus to build and maintain their 

complex databases of consumer information, and the costs and benefi ts of a variety of proposals 

to improve the quality of the data in those databases. The studies ultimately concluded that 

legislative or administrative changes to the credit reporting laws would be premature, given that 
Federal Trade Commission

33

we are just beginning to develop experience with the provisions of the FACT Act that address 

these issues.

2. Hearings and Workshops.

As new developments arise in the marketplace, the FTC holds hearings and workshops to 

study emerging issues and to learn from the experiences of consumers, businesses, academia, 

other government agency representatives, and a host of other experts in various fi elds.

The FTC’s Integrated Approach to Consumer Protection Policy

The FTC uses a variety of tools to achieve its policy goals, such as 

promoting protection for consumers from unwanted commercial email.

GOAL: Promote protection

of consumers from 

unwanted commercial email.

TOOL: Law Enforcement

• 68 spam-related cases 

against 198 individuals and 

companies since 1997. 

• 6 CAN-SPAM cases, including 

Global Net Solutions, Inc. and 

Phoenix Avatar.

TOOL: International Cooperation

• MOU on spam enforcement cooperation 

with agencies in Australia and the United 

Kingdom (July 2004).

• MOU with the FTC’s counterpart agency in 

Spain (February 2005).

• London Action Plan on International Spam 

Enforcement Cooperation, endorsed by 26 

agencies from 20 countries, and 7 private 

sector organizations from 4 continents 

(October 2004). 

TOOL: Reports and Studies

• National Do Not Email Registry 

Report (June 2004). 

• Informant Reward System Report

(September 2004). 

TOOL: Consumer and Business Education

• www.ftc.gov/spam contains information about recent 

law enforcement actions, FTC reports and studies, and 

tips for businesses and consumers on how to reduce 

spam.

TOOL: Congressional Regulation and FTC 

Rulemaking

• Primary Purpose Rule (March 2005).

• Sexually Explicit Labeling Rule (April 2004).

• Advance Notice of Proposed Rulemaking on several CAN-SPAM 

defi nitions and provisions (March 2004).

TOOL: Promoting Technological Solutions

• Email Authentication Summit examining current 

authentication technology (November 2004).

TOOL: Congressional Testimony

• Testimony on Law Enforcement Targeting 

Spam (May 2004).

Figure 11
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34

Evaluating the Impact of New Technology on Consumers. The FTC continues to invest 

signifi cant resources to explore the impact of new technology on consumers, hosting workshops 

on spyware (April 2004), radio frequency 

identifi cation technology (June 2004), email 

authentication (November 2004), and peer-topeer fi le sharing software (December 2004). 

Each of these workshops addressed current 

applications as well as emerging technologies. 

The workshops provided the opportunities to 

discuss the benefi ts and risks posed by new 

technologies and to examine various selfregulatory and technological efforts to address 

consumer concerns.

Class Action Workshop. In September 

2004, the FTC and the Georgetown Journal 

of Legal Ethics cosponsored a workshop 

on “Protecting Consumer Interests in Class 

Actions.” The seven panels debated policy 

issues related to consumer class actions – all 

with an eye to determining how class actions 

can be improved to protect the interests 

of consumers and ensure value to class 

members. The workshop addressed a wide 

variety of issues, including the use of coupon 

compensation and other non-pecuniary forms 

of redress, the role of third-party objectors and 

amicus fi lers, drafting plain language notices 

and ensuring they reach class members, compensating class counsel, special ethics concerns 

in class action litigation, the current state of empirical analysis of key class action issues and 

proposals for future research, and the use of class actions as an alternative to regulation.

3. Advocacy. 

Advocacy continues to be an important way to enhance consumer welfare. A key element 

in promoting competition and preserving consumer choice is fostering the free fl ow of truthful 

and non-misleading information and avoiding unduly burdensome restrictions that might keep 

useful information from consumers. Through its enforcement against deceptive health-related 

advertising, the FTC has developed substantial experience in policy issues related to food and 

drug advertising and labeling, and staff has fi led comments with the FDA on these topics.

Nutrient Health Claims. In July 2004, the FTC fi led a comment on the FDA’s proposed 

rules concerning certain nutrient content and health claims in food labeling. It encouraged the 

FDA to consider alternatives to potentially overly restrictive requirements for making health 

claims on food labels. It also supported revising the FDA’s regulations to allow food marketers 

to provide a broader universe of accurate health-related information to assist consumers in 

Privacy and P2P Technology

In December 2004, Commissioner Pamela 

Jones Harbour presented opening remarks on the 

second day of the FTC’s workshop on peer-to-peer 

fi le-sharing technology. P2P technology enables 

individuals to share fi les stored on their local hard 

drives (including music, video, or software), which 

allows for faster fi le transfer and conservation of 

bandwidth, but may raise security, privacy, and 

copyright concerns. In her remarks, Commissioner 

Harbour stated, “As part of our consumer protection 

mission, the FTC must remain vigilant in protecting 

consumers against unfair trade practices, deception, 

and anticompetitive conduct. But in order to 

remain true to our competition mission, we also 

must take care not to pursue, create, or condone 

policies that inadvertently impede the evolution and 

adoption of useful new technologies, to the longrun detriment of consumers and businesses. Our 

goal in sponsoring this workshop is to bring together 

the individuals and groups who develop and use 

P2P technology – as well as those whose existing 

business models are affected by it – to ensure that 

policy-makers and the public are as well-informed 

as possible.”

Box 3
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35

selecting more healthful food and to promote competition among manufacturers to develop and 

market healthier food products.

Disclosure of Trans Fat. In April 2004, staff fi led a comment supporting the FDA’s 

proposal to provide on food labels information about trans fats, which recent studies showed 

increase cholesterol levels much like saturated fats. The comment favored the development of a 

Daily Value for trans fat to help consumers understand the signifi cance of these fats in their diets 

and to permit the FDA eventually to allow trans fat nutrient content claims and health claims.

Direct to Consumers Drug and Devices Advertisements. In May 2004, FTC staff 

provided comments to the FDA on proposed new options for prescription drug and device 

advertising. The comments observed that the FDA’s proposals represent substantial progress 

toward the goal of fi nding the appropriate means to convey relevant risk information to 

consumers in a manner that they can understand.

4. Amicus Briefs.

The FTC also seeks to advance consumer interests by fi ling amicus briefs in private 

litigation. The FTC champions the interests of consumers by providing the courts with the 

benefi t of its experience in implementing consumer protection statutes and in affording redress 

to injured consumers. For example, the Commission fi led briefs in Spano v. Safeco Insurance 

Co. and Ashby v. Farmers Group, Inc., two cases posing the question of whether the offering 

of insurance at less favorable rates on the basis of information obtained in a consumer report 

constitutes “adverse action” triggering consumer rights under the Fair Credit Reporting Act 

(FCRA).

The Commission addressed another FCRA issue in Cole v. U.S. Capital, Inc., involving the 

circumstances under which consumer report information can be provided for marketing purposes. 

Also, in conjunction with several other federal agencies, the Commission fi led an amicus brief in 

American Bankers Ass’n v. Lockyer, addressing the preemptive effect of the FCRA on state laws.

Drawing on its own experience with the fashioning of effective consumer redress programs, 

the Commission also intervened in a class action case to ensure that any settlement would afford 

fair and effective remedies to consumers harmed by unlawful practices. In Cass v. AmeriDebt, 

Inc., a case involving defendants in an FTC action challenging the allegedly deceptive marketing 

of fi nancial and debt management services, the FTC intervened to ask the Court to reconsider its 

preliminary approval of a class action settlement and to stay the sending of notices to the class 

regarding the settlement. The brief argued that the settlement was inadequate for a number of 

reasons, including the size of the recovery and the failure of the notice to disclose adequately the 

material terms of the settlement.

5. Consumer and Business Education and Outreach.

Information empowers consumers to recognize, avoid, and report fraudulent or deceptive 

practices in the marketplace. As a result, the FTC mounts education campaigns in conjunction 

with its consumer protection law enforcement and policy initiatives. Since April 2004, the FTC 

has produced more than 49 new publications, 33 revised publications, designed 10 micro-sites on 

ftc.gov, distributed more than 5 million publications, and logged almost 20 million accesses to its 

websites.
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36

Hispanic Outreach. One of the hallmarks of last year’s information efforts was the FTC’s 

Spanish-language fraud awareness campaign, ¡Ojo! Mantente alerta contra el fraude: Infórmate 

con la FTC. The campaign includes radio public service announcements (sent to nearly 220 

radio stations), a website (www.ftc.gov/ojo), and outreach to more than 200 community-based 

organizations in cities with large or growing Hispanic populations. The FTC continued to 

increase outreach to Spanish-language media on dozens of consumer protection topics, including 

identity theft, telemarketing fraud, bogus weight-loss and health care claims, and work-at-home 

scams. Since April 2004, the FTC has distributed nearly 200,000 publications in Spanish; and 

the agency’s website has logged almost 500,000 accesses to its Spanish language publications.

Consumer Education Publications. As new scams arise or take different twists, and as 

newly enacted laws offer consumers additional protections, the FTC produces and disseminates 

“news consumers can use” in a variety of formats, including brochures, columns, postcards, 

radio public service announcements, and posters. Since April 2004, the FTC has produced 

new publications on subjects as varied as phishing, telemarketing, mortgage servicing, gassaving gadgets, marketing violent entertainment to children, the National Do Not Call Registry, 

shopping online, advance-fee loans, and spyware. The agency posts education pieces to its 

website, distributes them through the media, and also disseminates them through intermediaries, 

conferences, and conventions.

Outreach to Business. Along with empowering consumers with information about their 

rights under the various consumer protection statutes, the FTC works with industry associations 

and professional organizations to boost compliance with – and raise awareness of – trade 

rules and regulations. Where appropriate, the agency encourages self-regulation. To persuade 

the media to be more vigilant in scrutinizing the advertisements for weight-loss products, 

the FTC disseminated Red Flags: A Guide to Bogus Weight-Loss Claims. The booklet and 

website illustrate seven claims for weight-loss products that are facially false, and should never 

be accepted for airing or publication. In addition, the FTC continued its focus on business 

education by sponsoring the seventh Green Lights and Red Flags: FTC Rules of the Road for 

Advertisers, a seminar for attorneys and advertisers. This one-day workshop offered a practical 

overview on complying with federal consumer protection laws, attracted 135 attendees, and 

covered advertising substantiation, special issues for online marketers, consumer privacy and 

information security, and telemarketing. These and other business education materials are 

also available to businesses on the FTC’s website and accessible through the Small Business 

Administration.

Teaser Websites. With a nod to the ubiquity of the Web, the FTC continued its use of 

“teaser” websites to spread consumer protection messages in effi cient and creative ways. For 

example, the “FatFoe” teaser site (www.wemarket4u.net/fatfoe) hawks the “benefi ts” of eggplant 

extract for weight-loss, mimicking sites that make facially false claims for weight-loss products. 

Consumers who clicked for more information about the “miracle pill” are redirected to an FTC 

page with tips on how to spot bogus claims for diet products. This fake product site was widely 

promoted through the media, and generated consumer interest through web logs (blogs). As part 

of the Project Biz Opp Flop sweep, in February 2005, the FTC launched another teaser website 

that looks like a pitch for a “can’t miss” business opportunity for “Sundae Station,” an icecream sundae vending machine. Once consumers click on any of the links, they learn the ad is 
Federal Trade Commission

37

really an education piece 

about business opportunity 

scams.

Financial Literacy. 

The passage of the 

FACT Act spurred an 

extensive revision of FTC 

publications related to 

credit, free credit reports, 

and identity theft. As a 

member of the inter-agency Financial Literacy and Education Commission created under the 

FACT Act, the FTC also promotes federal resources on fi nancial literacy for all segments of the 

population through a new website (www.mymoney.gov) and a toll-free telephone number.

National Consumer Protection Week. The FTC coordinated the seventh annual National 

Consumer Protection Week (NCPW) campaign, partnering with local, state, and federal 

agencies, as well as national consumer advocacy groups, to highlight consumer protection and 

education efforts around the country. This year, NCPW focused on identity theft and the steps 

consumers should take to minimize the risk of identity theft. As part of these efforts, the FTC 

built a website, www.consumer.gov/ncpw, created campaign materials, and organized an exhibit 

at Union Station in Washington, D.C.
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38

Chapter 4 – International Activities

The FTC works to promote cooperation and convergence toward best practices with 

competition and consumer protection agencies around the world. The FTC has built a strong 

network of cooperative relationships with its counterparts abroad, and plays a lead role in key 

multilateral fora. The growth of communication media and electronic commerce presents new 

challenges to law enforcement – fraud and deception now know no borders. The FTC works 

with other nations to protect American consumers who can be harmed by anticompetitive 

conduct and frauds perpetrated outside the U.S. The FTC also actively assists new democracies 

in their transition to market-based economies in developing competition and consumer protection 

agencies.

A. Competition

1. Cooperation in Enforcement and Policy Development. 

 The FTC continues to strengthen relationships with competition agencies around the world. 

These relationships have become a key component of an effective enforcement program, and 

facilitate the agency’s efforts to promote 

convergence toward sound consumer welfarebased competition enforcement and policy. 

The FTC continues to work closely with the 

European Union, Canada, and many other 

jurisdictions on cases of mutual interest, 

including the following matters during the past 

year: 

• Sanofi /Aventis: Sanofi -Synthélabo’s 

2004 acquisition of Aventis, S.A. 

raised competitive issues in several 

pharmaceutical markets including 

the markets for cytotoxic drugs for 

the treatment of colorectal cancer. 

Close consultation and cooperation 

between the FTC and the European 

Commission (EC) staff were 

necessary to achieve non-confl icting 

remedies in the separate European 

and U.S. markets. Because this was 

a tender offer subject to France’s 

takeover code, the FTC also consulted with France’s fi nancial regulator, the Autorité des 

Marchés Financiers.

• GE/InVision: The FTC worked closely with Germany’s Bundeskartellamt and the 

parties in developing an effective divestiture remedy to preserve competition in the 

Rendering International Assistance

The Federal Trade Commission continues to 

work with foreign nations that seek to benefi t from 

the FTC’s years of experience with the sound 

application of competition law to enhance consumer 

welfare. This is a particular challenge for those 

nations making the transition from pervasive 

government control to a free market economy. 

During the past year, Commissioner Thomas B. 

Leary traveled to both China and to Russia to 

meet with government offi cials responsible for 

the development of competition policy in these 

important nations. He has stressed that these 

countries have the opportunity to learn from both the 

successes and the mistakes that the United States 

has made during the relatively long evolution of its 

own competition law, and that the objective should 

be to seek consensus on the basic principles that 

competition law seeks to protect before focusing on 

the subtleties of specifi c legislative language that 

will implement the principles. 

Box 4
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39

specialized market for X-ray nondestructive testing in conformance with the laws of 

Germany, where most of the remedial obligations were to be implemented.

• Sony/BMG: The FTC worked with the EC in their investigations of several 

issues raised by this proposed merger of the parties’ music businesses. Both 

agencies ultimately closed their investigations without taking enforcement actions, 

acknowledging in their press releases their close communication during the 

investigations. 

The FTC’s bilateral relationships are important vehicles to minimize divergences in 

competition policy and enforcement. Foreign agencies often seek the input of the U.S. agencies 

in the development of new policy initiatives. During the past year, the FTC consulted with the 

EC regarding several aspects of merger policy, including its review of remedies, with the United 

Kingdom regarding the Competition Commission’s divestiture guidance, with the Canadian 

Competition Bureau on the treatment of merger effi ciencies, and with the Japan Fair Trade 

Commission on the revision of its merger guidelines. The U.S. agencies also have benefi tted 

from the input from our foreign counterparts on policy reviews in the U.S.

2. Multilateral Competition Cooperation.

Multilateral competition fora provide important opportunities for agencies to enhance 

mutual understanding and promote cooperation and convergence. The FTC participates actively 

in, among others, the ICN, the OECD, APEC, and UNCTAD. 

ICN. The ICN, which 

now includes 86 member 

competition agencies from 

77 jurisdictions, provides 

an important venue for 

antitrust offi cials worldwide 

to achieve procedural and 

substantive convergence on 

best practices in antitrust 

enforcement and policy. In 

April 2004, the ICN hosted 

its third annual conference. 

Based on recommendations 

of the subgroup the FTC 

chairs, the ICN adopted four 

new Recommended Practices 

on Merger Notifi cation 

Procedures, which complement 

the seven Recommended Practices and eight Guiding Principles for Merger Notifi cation and 

Review adopted the previous year. The ICN will consider new practices dealing with merger 

remedies and agency enforcement powers at this year’s annual conference. In addition, the 

Merger Working Group held a successful conference on merger investigation techniques, 

and is engaged in projects on merger remedies and merger guidelines. The FTC also 

International Competition Network

Member Jurisdictions

Albania 

Andean Community

Argentina

Armenia

Australia

Austria 

Azerbaijan

Barbados

Belarus

Belgium

Brazil

Bulgaria

Canada

Chile 

Colombia

Costa Rica

Croatia

Cyprus

Czech Republic

Denmark 

EFTA

Estonia

European Union

Finland

France

Germany

Greece

Hungary

Iceland

India

Indonesia 

Ireland

Israel

Italy

Jamaica

Japan

Jordan

Kazakhstan

Kenya

Korea

Kyrgyzstan

Latvia

Lithuania

Macedonia

Malta

Mexico

Morocco

Netherlands

New Zealand

Norway

Pakistan

Panama

Peru

Philippines

Poland

Portugal

Romania

Russia

Senegal

Slovak Republic

Slovenia

South Africa

Spain

Sri Lanka

Sweden

Switzerland

Taiwan

Tajikistan

Thailand

Tunisia

Turkey

Ukraine

United Kingdom

United States 

Uzbekistan

Venezuela

Yugoslavia

Zambia

Figure 12
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40

participates actively in the ICN’s other working groups, including those on Competition Policy 

Implementation, which works to help new agencies strengthen their institutional capacity and 

performance, Antitrust Enforcement in Regulated Sectors, which deals with the practical and 

procedural aspects of the relationship between antitrust enforcers and regulators, and Cartels, 

which addresses the challenges of anti-cartel enforcement.

OECD. The OECD Competition Committee is an important forum for competition offi cials 

from developed countries to share experiences and promote best practices. During the past year, 

the FTC has participated actively in the OECD’s continuing work on, inter alia, merger process 

convergence, regulatory reform, and the interface between trade and competition policy. The 

FTC has helped lead OECD initiatives exploring synergies between competition and consumer 

protection policy through joint roundtables, and the FTC participates in the Global Forum on 

Competition in which competition issues are discussed with approximately forty OECD nonmembers from developing countries.

3. Trade/Competition Fora.

Trade agreements increasingly involve competition issues. The FTC participates in 

U.S. delegations that negotiate competition chapters of Free Trade Agreements, including 

the agreement with Australia and the ongoing negotiations with the Andean Community and 

Thailand. The agency has been working with other U.S. agencies and the other nations of the 

hemisphere, to develop competition provisions for a Free Trade Agreement of the Americas. The 

FTC has co-chaired the U.S. delegation to the World Trade Organization (WTO) Working Group 

on the Interaction Between Trade and Competition Policy, and is involved in WTO initiatives 

involving competition issues.

B. Consumer Protection 

Globalization is one of the central consumer protection developments of the 21st century, 

commanding the attention of businesses, consumers, law enforcers, and policymakers around 

the world. The FTC is leading the development of an international market-based consumer 

protection model that focuses on protecting consumers from signifi cant harm, and maximizing 

economic benefi t and consumer choice. The FTC is working toward these goals by building 

an international network of cooperation to combat cross-border fraud and promoting marketoriented consumer protection and privacy policies. 

1. Cross-Border Fraud.

With advances in technology, scammers can victimize thousands of consumers across the 

globe in a short time and disappear nearly without a trace – along with their ill-gotten gains. The 

FTC continues to receive more complaints involving international transactions and undertakes 

more law enforcement investigations with international components. In the past few years, the 

Commission launched a comprehensive program to combat cross-border fraud. 

Legislative Proposals. The FTC testifi ed in support of passage of the International 

Consumer Protection Act to improve its ability to combat cross-border fraud. This legislation 

would allow the FTC to share key information with foreign partners enabling them to pursue 

fraudulent enterprises in their countries that target U.S. consumers. The proposed legislation 
Federal Trade Commission

41

would help the FTC fi ght deceptive spam and spyware by allowing the agency to investigate 

more fully email and other communications originating from outside the United States.

Cross-Border Fraud Cooperation. In January 2005, the FTC entered into a new consumer 

protection enforcement memorandum of understanding (MOU) with its counterpart agency in 

Mexico – the fi rst consumer protection MOU with a non-English speaking country. The FTC 

also continues to work closely with Canadian agencies on cross-border telemarketing issues. 

Through its partnerships with Canadian agencies, the FTC fi led several law enforcement actions 

against Canadian telemarketers targeting U.S. consumers. 

International Cooperation on Spam. The FTC co-hosted a meeting in London of 

international agencies responsible for spam enforcement. The “London Action Plan on 

International Spam Enforcement Cooperation,” announced at the meeting, was endorsed by 26 

agencies from 20 countries and seven 

private sector organizations from four 

continents. Pursuant to the Action Plan, 

participants will share information, 

investigative techniques, and enforcement 

strategies. The FTC also announced a 

trilateral MOU on spam enforcement 

cooperation in July 2004 with agencies in 

Australia and the United Kingdom, and 

an MOU with the Spanish data protection 

agency in February 2005. 

2. Promoting Market-Oriented Policies.

Given the growth of the global marketplace, greater consistency among consumer protection 

rules will reduce compliance burdens for businesses selling internationally and, in turn, promote 

consumer choice. Because clearer, more consistent rules will increase competition, consumers 

should benefi t from lower prices. The development of international market-driven consumer 

protection policies is, therefore, a priority for the FTC. 

Asia-Pacifi c Economic Cooperation (APEC) Privacy Framework. FTC staff participated 

in the development of a privacy framework endorsed by Ministers attending a summit of the 

APEC forum. The APEC Privacy Framework promotes a consistent approach to information 

privacy protection across APEC member economies, while avoiding the creation of unnecessary 

barriers to information fl ows.

Integration of Competition and Consumer Protection Policies. FTC staff led several 

international initiatives promoting the integration of competition and consumer protection 

policies. One of the goals of these initiatives was to encourage consumer protection agencies 

worldwide to avoid overly-regulatory approaches that could deter competition and increase costs 

for consumers. In October 2004, FTC Chairman Majoras led an academic roundtable to discuss 

these linkages that was attended by the heads of both competition and consumer protection 

agencies. FTC staff also participated in a joint meeting of the OECD Competition and Consumer 

Policy Committees, and is now participating in an OECD Consumer Policy Committee working 

group on this subject. 

Australia

Belgium

Canada

Chile

Denmark

Finland

Hungary

Ireland

Japan

Korea

Lithuania

Mexico

Norway

Spain

Sweden

Switzerland

The Netherlands

United Kingdom

United States

Location of London Action Plan Participants

Figure 13
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42

C. International Technical Assistance

The FTC provides technical assistance to countries in the developing world, both in 

competition and consumer protection, using funds provided by the U. S. Agency for International 

Development and the U. S. Trade and Development Agency. In 2004, the FTC conducted 25 

missions to 16 countries, employing 33 different FTC employees. The program promotes U.S. 

interests by encouraging economic growth and development through trade capacity building 

and commercial law reform. The FTC program is currently active in the Andean Community, 

Central America, Mexico, South Africa, India, and the Association of South East Asian Nations 

(ASEAN). Last year, the FTC concluded successful programs in Southeast Europe and 

Indonesia. 

In alliance with the DOJ Antitrust Division, experienced antitrust lawyers and economists 

engage primarily in short-term training missions to develop investigational skills. Resident 

advisors are also stationed in Pretoria, South Africa and with the Secretary General of the 

ASEAN in Jakarta, Indonesia. Experienced FTC consumer protection lawyers and economists 

are a growing presence internationally, through short term missions with a special focus on ecommerce. These missions stress that consumer welfare and freedom of choice is advanced by 

competitive marketing that conveys accurate rather that fraudulent or deceptive information.
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43

Conclusion

Continuity in a Time of Transition: Looking Ahead to the Future

The past twelve months at the FTC have been marked by a unique opportunity to refl ect 

on and celebrate the agency’s achievements throughout the past 90 years. In 1914, the year the 

agency was created, the United States manufactured almost twice as many horse-drawn vehicles 

as cars; less than a quarter of all U.S. households had electricity; and only 1 in 10 Americans had 

a telephone. The fi rst transcontinental phone call was still a year away and, when it was made, it 

cost $20.70 for three minutes, nearly $371 in today’s currency. The issues the Commission faces 

today would have been the stuff of science fi ction when the FTC was created, if they could have 

been imagined at all. 

Throughout the many changes in our economy, the FTC’s greatest achievements have 

emerged far less from efforts marked by sharp, recurring discontinuities in philosophy than by 

the cumulative, progressive search for better policies and practices. Continuity in philosophy 

about the proper role of the FTC in protecting markets and consumers, even through times of 

transition, has been a hallmark of recent agency history. The agency has experienced signifi cant 

personnel transition in the previous year, with the departures of former Chairman Timothy J. 

Muris and Commissioner Mozelle Thompson, as well as some senior agency staff members, and 

the arrival of Chairman Deborah Platt Majoras and Commissioner Jon Leibowitz and some new 

key staff members. This natural transition enhances the FTC’s process of deliberate institutional 

self-assessment, renewal, and development to permit it to meet the challenges that it is sure to 

face. 

The next twelve months will fi nd an agency continuing its investment in activities that 

strengthen the institution over the long term, which will, in turn, enhance the FTC’s special 

charter – to stand up for both consumers and competition. 
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Principal Contributors to Report

Shira Pavis Minton, Chair

James M. Giffi n, Competition

Marc M. Groman, Consumer Protection

Dawne E. Holz, Graphics and Design

Jon Morgan, Cover Design

Contributing FTC staff also include Asheesh Agarwal, Jeanine Balbach, Marian Bruno, 

Jean-Marie S. Burke, Maria Coppola, Jeanne M. Crouse, John F. Daly, Russell W. Damtoft, 

Rachel Miller Dawson, Laura DeMartino, Susan S. DeSanti, Reilly Dolan, Mark Eichorn, 

James C. Hamill, Allen W. Hile, Alice Saker Hrdy, Brian Huseman, Laura Koss, 

Tara Isa Koslov, Carol A. Kando-Pineda, Laura Mazzarella, Maneesha Mithal, Robin Moore, 

Richard A. Quaresima, John H. Seesel, Andrew Smith, David M. Torok, Randolph W. Tritell, 

Holly L. Vedova, Beth Arvan Wiggins, and Michael Wroblewski.
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45

Senior Staff of the Federal Trade Commission

Chief of Staff Maryanne S. Kane

Executive Director Judith Bailey (Acting)

Director, Bureau of Competition Susan A. Creighton

 Deputy Directors Bernard A. Nigro

 Jeffrey Schmidt

Director, Bureau of Consumer Protection Lydia Parnes (Acting)

 Deputy Director C. Lee Peeler

Director, Bureau of Economics Luke Froeb

 Deputy Directors Mark Frankena

 Paul A. Pautler

General Counsel William Blumethal

 Principal Deputy General Counsel John D. Graubert

Director, Offi ce of Congressional Relations Anna H. Davis

Director, Offi ce of Public Affairs Nancy Ness Judy

Director, Offi ce of Policy Planning Marureen K. Ohlhausen (Acting)

Secretary of the Commission Donald S. Clark
Federal Trade Commission

46

Federal Trade Commission Annual Awards

October 2004

Chairman’s Award Louis Silvia

Louis D. Brandeis Award Heather Hippsley

Janet D. Steiger Outstanding Team Award Three Tenors Team

 Health Care, Hearing & Report Team

 Rulemaking Team

Leon Higginbotham, Jr. Award BCP Diversity Council

Otis B. Johnson Award Hiram Andrews

 Carole Danielson

 Arlene Palmer

 Ann Stahl

Eleanor F. Greasley Award Lorraine Bazile

Paul Rand Dixon Award William Cohen

 Reilly Dolan

 Renee Henning

 James Lacko

 Laura Mazzarella

 Janis Pappalardo

Mary Gardiner Jones Award Michael Liggins

 Lisa Rosenthal

Stephen Nye Award Matthew Bye

 Lisa Fialco

 Michael Goodman

 Sarah Schroeder

Outstanding Scholarship Award Daniel Hosken

Francis Walker Award Daniel O’Brien

Award for Excellence in Supervision H. Gabriel Dagen

 Yolanda Gruendel

 Allen Hile

 Markus Meier

 Patrick Roach

Richard C. Foster Award Beverly Dodson

 Laureen France

 Keith Golden

James M. Mead Award Donna Blades

 LaJuan Jeter

 Jack Gabriel

 Beth Wiggins