The FTC in 2006: Committed to 


Consumers and Competition


Federal Trade Commission 

Deborah Platt Majoras, Chairman


Pamela Jones Harbour, Commissioner


Jon Leibowitz, Commissioner


William E. Kovacic, Commissioner


J. Thomas Rosch, Commissioner

About the Cover 

The cover depicts stonework located over each entrance door to the historic Federal Trade 

Commission Building at 600 Pennsylvania Avenue, NW, Washington, D.C. 20580. The bas relief works 

represent agriculture, foreign trade, industry, and shipping. Photos and cover design by Jonathan 

Morgan. 
Federal Trade Commission


Table of Contents


Letter from the Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i


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


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


A. Guidance, Transparency, and Process Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . 5


1. Guidance/Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6


2. Process Improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8


B. Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9


1. Energy Industry Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9


2. Health Care Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11


3. Other Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13


4. Enforcing Compliance with the HSR Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13


C. Nonmerger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14


1. Appellate Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14


2. Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15


3. Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16


4. Other Nonmerger Enforcement Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17


Chapter 2 – Consumer Protection Law Enforcement and Rulemaking . . . . . . . . . . . . . . . . 19


A. Fraud and Deception. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19


1. Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19


2. Tools to Identify Fraud and Deception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22


B. Consumer Privacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24


1. Data Security Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24


2. Do Not Call Registry Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25


C. High Tech Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26


D. Consumer Privacy and High Tech Rulemaking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28


Chapter 3 – Policy Tools to Complement Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . 31


A. Competition Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31


1. Research and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31


2. Hearings and Workshops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32


3. Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33


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


5. Testimony to Antitrust Modernization Commission . . . . . . . . . . . . . . . . . . . . . . . . 38


B. Consumer Protection Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38


1. Reports and Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38


2. Hearings and Workshops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40


3. Advocacy and Amicus Briefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41


4. Consumer and Business Education and Outreach . . . . . . . . . . . . . . . . . . . . . . . . . 42

Federal Trade Commission


Chapter 4 – International Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45


A. Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45


1. Promoting Cooperation and Convergence Through Bilateral Relationships . . . . . 45


2. Promoting Convergence Through Multilateral Competition Fora . . . . . . . . . . . . 46


3. Promoting Competition Policy Through Trade Fora . . . . . . . . . . . . . . . . . . . . . . . 47


B. Consumer Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47


1. Cross-Border Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47


2. Promoting Market-Oriented Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49


C. International Technical Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49


Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Federal Trade Commission


Letter from the Chairman 

The Federal Trade Commission is committed to working for consumers 

and championing competition in a world characterized by dynamic change. I 

am pleased to present an account of the agency’s achievements and projects 

in this Annual Report. As the report shows, we have continued to use all 

of our available resources, creativity, talent, and determination to protect 

consumers and preserve competition. 

The past twelve months have seen the departure from the Commission 

of two distinguished and respected colleagues, former Commissioners 

Thomas B. Leary and Orson G. Swindle, III. Both of these outstanding 

individuals left a lasting imprint on the agency. Commissioners Harbour and Leibowitz and I, along 

with FTC staff, were delighted, however, to welcome back to the agency our two newest Commissioners, 

Commissioner William E. Kovacic and Commissioner J. Thomas Rosch. 

With a full complement of Commissioners this year, the FTC remains steady towards its goal – to 

enhance consumer welfare. Competition is the ultimate consumer protection. Yet, through its work, 

the FTC has learned that there are always those who oppose competition and view it as an inappropriate 

means of “organizing” the production and distribution of goods and services. More dangerous are 

those who profess to favor competition but want to chip away at it when it does not produce a particular 

result. While it would be optimal if the agency could convert all skeptics and opportunists, the agency 

must, regardless of its success, continue its commitment to consumer interests and to market-based 

competition, both at home and abroad. Although the outcomes of competition may sometimes seem harsh 

on incumbent firms, as stated so aptly in a recent opinion piece, “Living with competition is hard. Living 

without it would be harder.” (Robert J. Samuelson, Competition’s Anxious Victory, The Washington Post, 

Feb. 2, 2005, at A-23.) Thus, we strive to foster a culture that embraces the benefits of the competition 

marketplace – a culture in which federal and state policymakers, the courts, and the public understand and 

support competition as the best way to protect consumers and promote economic growth. 

When competition alone cannot deter those who would use deception or unfair practices, we 

remain steadfast in our commitment to protect consumers. Our challenge is to protect them in a time of 

tremendous technological change, which is fast bringing the global marketplace to the doorstep of each 

and every consumer. 

While technology is bringing vast benefits to consumers, it likewise is presenting new privacy and 

fraud issues that range from identity theft to spyware. And even as we use law enforcement, consumer 

research, and education to attack these new problems, we still must actively battle “low tech” frauds, like 

deceptive lending practices, business opportunity scams, and deceptive health and weight loss claims. In 

addition to prosecuting these “fraudsters” aggressively and returning millions of dollars to consumers, 

we are seeking new ways to educate consumers about the dangers of unscrupulous marketers and privacy 

invaders. An educated consumer is an empowered consumer, and thus a “self-protected” consumer. 

Confronting these challenges, the FTC remains committed to consumers and competition. We 

remain dedicated to maintaining excellence and improving our effectiveness for another year of 

achievement on behalf of American consumers.

 Deborah Platt Majoras

 Chairman


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Federal Trade Commission


Introduction 

To be effective in service to the public, a government agency must constantly take stock of 

its activities and goals: What is its core mission? What must it do to adapt – and readapt – to 

make sure it is performing that mission effectively in a constantly changing world? 

The Federal Trade Commission (FTC) is committed to a process of continuous reassessment 

in performing its mission to enhance consumer welfare. It is well aware of the need to be alert 

and nimble as it deflects and combats the new schemes and arrangements that distort the fair and 

efficient operation of the global market. During the past year and in the years ahead, the FTC 

has made specific commitments in the performance of its mission to ensure that the agency is 

working at the highest level for the consumers it serves. The FTC is committed to: 

• 	Enforcement. The primary job of the FTC is to enforce competition and consumer 

protection laws to promote a free and vigorous marketplace. The Commission 

continued an active enforcement agenda in 2005, including issuing opinions in three 

adjudicative matters. In Kentucky Movers and in North Texas Specialty Physicians, 

the Commission found that the parties had engaged in anticompetitive conduct, and in 

Telebrands, the Commission found that advertising claims were false and deceptive. 

During the year, the Commission had as many as nine different competition cases 

pending at some stage of administrative litigation. In addition, the FTC took action 

to protect competition and consumers in close to a dozen proposed mergers in a wide 

range of economic sectors; filed one complaint in federal court and approved consent 

orders in seven anticompetitive conduct cases; and pursued two cases to enforce 

compliance with the Hart-Scott-Rodino Premerger Notifi cation Act’s (HSR) regulations. 

On the consumer protection side, the FTC scored major victories for consumer privacy. 

It reached one settlement for more than $5 million in civil penalties for alleged 

violations of the Do Not Call Rule, and another for a total of $15 million in redress 

and penalties for alleged failures to take reasonable steps to protect sensitive consumer 

information. The agency also brought 60 actions in federal district court to protect 

consumers against unfair and deceptive trade practices, with allegations ranging from 

bogus weight loss claims to advance fee credit card scams. 

• 	Education. Another essential mission of the FTC is to educate consumers, businesses, 

and its staff on rights, responsibilities, and the changing marketplace. The past year’s 

major consumer education initiatives included protection against identity theft (reaching 

over 7 million consumers), safe Internet surfing (launching the “OnGuard Online” 

campaign), and an ambitious outreach program to the nation’s Hispanic population. The 

FTC also has continued its efforts to advance knowledge of challenging legal issues. 

Critical areas examined in reports or workshops included competition in the real estate 

brokerage industry, the interface between antitrust and patent law and possible patent 

reforms, and the factors affecting retail gasoline prices. Upcoming projects include 

hearings with the Department of Justice (DOJ) to examine anticompetitive conduct 

under Section 2 of the Sherman Act, and hearings to explore the impact of technology 

and globalization on consumer protection issues. 

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• 	Effi ciency. The FTC currently is actively examining its administrative procedures 

to ensure it is working efficiently in the public interest, always asking the question: 

Do these processes benefit consumers without unduly burdening legitimate business 

activity? One major focus during the past year has been on mergers. In February 

2006, the FTC announced reforms to the merger review process, intended to streamline 

“second requests” under the HSR Act by instituting best practices. These reforms 

should allow the FTC to serve consumers and taxpayers better by reducing waste and 

inefficiency in the process. In addition, focusing on merger analysis, an FTC task force 

has been working with DOJ to bring greater transparency to the competitive analysis 

of proposed mergers and thus greater certainty to businesses and their legal advisors. 

In March 2006, the Agencies jointly published a Commentary on the Horizontal 

Merger Guidelines to explain their analytical approach and enhance the quality of 

communications between the government and merging parties during the merger review 

process. 

• 	 Evolving Technology and Markets. In these first years of the 21st Century, 

technological and market changes are occurring rapidly, and the FTC is committed 

to keeping pace. Competition investigations increasingly focus on high technology 

sectors of the economy. In pharmaceuticals, for example, the FTC has initiated a study 

on the circumstances in which innovator companies launch authorized generic drugs. 

High tech consumer spying in the form of spyware and other computer “badware” 

also continue to be a major focus and concern at the agency – during the past year, the 

FTC issued a major report on spyware and brought law enforcement actions to stop 

marketers who loaded unwanted and risky software onto consumers’ computers without 

their knowledge or consent. 

• 	Engagement Worldwide. The FTC has stepped up its work with both competition and 

consumer protection agencies around the world. International cooperation not only can 

lead to more effective law enforcement against global scam artists but also can ease 

burdens on legitimate businesses that operate on a global basis. On the competition 

side, the FTC is working with international bodies, such as the Organisation for 

Economic Co-operation and Development and the International Competition Network, 

to strengthen and increase areas of policy agreement. The FTC continues to develop 

new enforcement partnerships and to strengthen existing ones. On the consumer 

protection side, the FTC continues its global focus, keenly aware that online fraud is not 

subject to national boundaries and can injure consumers on a global scale. Among other 

activities, the FTC co-chairs the London Action Plan, which includes representatives 

from approximately two dozen countries around the world, to promote international 

cooperation on spam enforcement. 

• 	 Electronic Government. The FTC continues to be a leader in the use of technology 

and the Internet to inform and interact with consumers and businesses. Starting in the 

mid-1990s, the FTC began building interlinked public consumer protection websites, 

many in connection with other domestic or foreign law enforcement agencies, to 

educate consumers and to collect and analyze data on a broad range of consumer 

protection issues, including high tech fraud and identity theft. During the past few 

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years, the agency has relied on electronic means for more efficient communication with 

its stakeholders, adding electronic filing for administrative litigation and for public 

comments on proposed rulemakings. The next electronic addition will be E-Premerger, 

expected in Spring 2006, which will permit electronic filing of all information about 

proposed mergers required under the HSR Act. 

• 	Excellence. The FTC is proud of its reputation as both a premier federal government 

agency and a leader in the world community of competition and consumer protection 

agencies. Only by continuing to elicit excellence from its staff can the FTC do the 

best for the consumers it serves. During the past year, the agency invested signifi cant 

resources in staff training and development. For example, the FTC held its fi rst 

agency-wide new attorney and economist training program with skills workshops and 

substantive presentations on competition, consumer protection, and economics, as well 

as government ethics and professionalism. 

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Chapter 1 – Competition Law Enforcement 

Competition provides the foundation for a thriving economy. When rival businesses vie 

with one another to win consumer patronage, they seek out efficiencies to lower their costs and 

innovations to improve or expand their product offerings. This creative process – driven by 

competition – serves consumers by resulting in lower prices, goods and services of superior 

quality, and a broad array of choices. 

The goal of the FTC’s competition mission is to remove the obstacles that impede 

competition and prevent its benefi ts from flowing to consumers. The FTC has adopted 

fundamental strategies to maximize the impact of its competition mission. Elements of that 

strategy include: 

• 	 Focusing efforts on sectors of the economy that have the greatest impact on consumers, 

such as energy and health care. 

• 	 Facilitating cooperation and voluntary compliance with the law by promoting 

transparency in enforcement standards, policies, and decision-making processes. 

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

and applied. 

• 	 Emphasizing education and outreach and making full use of the broad range of policy 

instruments that Congress has provided to the agency. 

• 	 Working cooperatively with international colleagues to promote cohesive and sound 

competition policies worldwide. 

The competition mission continues to be highly productive. In addition to pursuing a broad 

range of merger and nonmerger enforcement actions, the agency made a signifi cant contribution 

to providing guidance and improving its processes. 

A. Guidance, Transparency, and Process Improvements 

The FTC seeks to be efficient as well as effective in its law enforcement activities. 

Efficiency includes both using agency resources effectively and minimizing the burdens that law 

enforcement necessarily imposes on businesses. While the FTC has implemented a number of 

procedural improvements in recent years, it has made a concerted effort during the past year to 

do even more to streamline its processes. 

Uncertainty is perhaps the primary enemy of efficiency in law enforcement. Ambiguous 

legal standards increase the likelihood that businesses either will forego activities that are 

both legal and procompetitive, or engage in questionable activities that lead to investigations 

or litigation, imposing substantial costs on both the business community and the government. 

Consequently, the FTC has worked to increase the clarity of the legal standards it enforces by 

providing explicit guidance to the business community and the bar and by explaining its policies 

and decisions as fully as possible. 

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In the past year, the FTC’s ongoing efforts to enhance the guidance it provides and the 

transparency of its policies and decisions, and also to streamline its processes, have resulted in 

several noteworthy achievements. 

1. Guidance/Transparency 

Commentary on the Merger Guidelines. In March 2006, the FTC, jointly with DOJ, 

issued a Commentary on the Horizontal Merger Guidelines. The Agencies first issued the 

Horizontal Merger Guidelines in 1992, and then revised them in 1997 to add a section on 

the treatment of efficiencies in merger 

analysis. The new Commentary provides Box 1 

further guidance to the antitrust bar and Guidance / Transparency / Effi ciency 

business community by explaining how 

the government actually has applied the In the past year, FTC competition 

particular provisions of the Guidelines 	 enforcement has added greater guidance and 

transparency to decisionmaking and streamlined concerning market defi nition and processes, including:

concentration, competitive effects (including 

coordinated interaction and unilateral 	 • Commentary on the Horizontal Merger Guidelines 

• Reforms to the merger review process

effects), entry conditions, and effi ciencies. • Explanations of investigation outcomes 

The Commentary includes short summaries 	 • Testimony before the Antitrust Modernization Commission 

• More electronic HSR process

of actual past investigations that enhance • Improved litigation capability 

understanding of particular points under 	 • Post-hurricane expedited review of business collaborations 

discussion in the narrative. A major point 

made by the Commentary is that Guidelines analysis is not invariably a linear, step-by-step 

progression that commences with market definition and concludes with efficiencies, but rather is 

an integrated process centered on determining a transaction’s likely competitive effects. 

Expedited Antitrust Review Procedure and Guidance for Post-Hurricane Relief 

Efforts. The FTC and DOJ immediately recognized the urgency of relief efforts for 

communities affected by Hurricanes Katrina and Rita, and took action to help. In September 

2005, the agencies announced an expedited procedure for providing antitrust guidance on the 

legality of collaborations of businesses working to rebuild those communities. Under these 

special procedures, the Agencies review proposed joint business activities relating to the relief 

effort, and decide whether the planned collaboration would warrant an antitrust challenge. The 

expedited procedure allows affected businesses to proceed promptly to aid those in need without 

the distraction of uncertain antitrust implications. The Agencies also emphasized their resolve 

to prevent unscrupulous competitors from preying on hurricane victims by fixing prices or 

allocating markets. 

Explanations of Investigation Outcomes. The FTC has sought over the past several 

years to make its decisions not to challenge a particular merger or type of business conduct as 

transparent as its decisions to proceed with enforcement action by issuing statements explaining 

why it declined to act: 

• 	Omnicare/NeighborCare. In June 2005, the Commission issued a unanimous 

statement explaining its decision not to challenge a merger of the largest and likely 

second-largest institutional pharmacies (IPs), which provide pharmacy and related 

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products and consulting services to skilled nursing facilities (SNFs). The Commission 

concluded that the merger was unlikely to harm consumers for several reasons. First, 

even though in some areas Omnicare had or would have had 50 percent or more of 

SNFs under contract, most of the remaining SNFs have three or more independent 

IPs within 100 miles that do compete for their business. Second, entry into the IP 

marketplace is relatively easy. Third, the Medicare Modernization Act would change 

payment structures for prescription drugs and related products, making it unlikely that 

the merged firm could extract above-market rates. 

• 	 Federated/May Department Stores. In August 2005, the Commission issued a 

statement explaining why it determined not to oppose the creation of the largest chain 

of traditional department stores in the United States. The Commission explained that its 

extensive, six-month investigation showed that Federated Department Stores, Inc.’s $17 

billion acquisition of the May Department Stores Company would not adversely affect 

consumers because of the breadth of the relevant product and geographic markets. The 

Commission noted that American retail markets have evolved to a point where other 

retailers’ price and product selection decisions regularly affect those of the department 

stores. Conventional department stores are not a distinct market because these stores 

face competition from multiple retail formats for the merchandise they sell. Moreover, 

Federated, May, and other department stores set uniform prices for their stores 

throughout broad geographic areas, unlike the differing prices from one city to another 

that helped to establish the “office superstore” market in the FTC’s Staples/Offi ce Depot 

case. In concluding that the transaction posed no threat to consumers generally, the 

Commission noted that the ongoing separate investigations by several state antitrust 

agencies, together with the parties’ announced plans to divest 75 stores, provided an 

appropriate vehicle for addressing any unique consequences based on local conditions. 

• 	Comcast/Time Warner/Adelphia. In January 2006, the FTC closed its investigation 

into the acquisition by Comcast Corporation and Time Warner Cable Inc. (TWC) of the 

cable assets of Adelphia Communications Corporation, and into related transactions 

in which Comcast and TWC swapped various cable systems. Chairman Majoras and 

Commissioners Kovacic and Rosch issued a statement that explained that they agreed 

with the staff’s decision to close the investigation because the evidence did not suggest 

that the proposed transactions were likely to lessen competition substantially in any 

geographic region in the United States. Commissioners Leibowitz and Harbour issued 

a separate statement explaining that they would have preferred for the Commission to 

have sought to require the parties’ agreement to conditions concerning other cable and 

satellite companies’ access to regional sports networks before allowing the transactions 

to proceed. 

• 	Shell Refinery Closure. Because of the strong public interest in petroleum-related 

matters, the Commission issued a statement in May 2005, explaining the results of 

its comprehensive investigation into the decision by Shell Oil Products US to close 

its oil refinery in Bakersfield, California. The investigation focused on whether the 

stated rationale for the closure, declining profitability, was a pretext intended to mask 

an anticompetitive arrangement to reduce refining capacity and raise gasoline prices in 

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California. The staff reviewed confidential Shell documents, obtained sworn testimony 

from representatives of Shell and other refiners, interviewed crude oil suppliers and 

firms that had considered acquiring the refinery, and analyzed voluminous fi nancial 

data. Based on the investigation, the Commission unanimously concluded that the 

evidence supported Shell’s explanation for the closure, and that no evidence supported 

a conclusion either that Shell had obtained or exercised market power or that it had 

colluded with any other firm to close the facility. Shell has since sold the refinery to a 

subsidiary of Flying J, Inc., which intends to keep it operational. 

Box 2 

2. Process Improvements Recent Reforms to the 

Merger Process Task Force. In February Merger Review Process 

2006, the Chairman announced a series of The goal is to streamline the process by substantial reforms to the merger review process. instituting well-defined best practices to 

A central goal of the reforms is to lower the costs reduce costs for both the FTC and the 

of merger investigations for both the FTC and the parties by reducing the volume of materials 

parties by reducing the volume of materials that produced in response to a second request. 

the parties must produce to respond to a second The reforms establish presumptions that: 

request. The reforms also are designed to permit • Limit search to files of 35 emloyees, providing the 

staff and the parties to identify more rapidly party complies with specified timing requirements; 

the relevant substantive issues and focus more • Reduce time period for responsive documents from 

three to two years;

quickly and effectively on the relevant documents • Require preservation of backup tapes for only 

and data. In recent years, the costs of complying two days when documents have other accessible 

sources; and

with second requests have grown substantially, • Allow for signficantly reduced information to be 

due in large part to the increase in the volume of supplied on privilege logs. 

electronic documents generated by companies 

and requested by the FTC and DOJ and the reduced reliance by the Agencies on structural 

presumptions in favor of direct analyses of competitive effects. The reforms provide that the 

FTC will establish presumptions that it will (1) require a party to search the files of no more than 

35 of its employees when responding to a second request, provided that the party complies with 

specified timing conditions; (2) reduce the time period for which a party is required to search 

for documents from three to two years; (3) require a party to preserve backup tapes for only two 

calendar days, when responsive documents are available through more accessible sources; and 

(4) allow parties to provide significantly reduced amounts of information on their privilege logs. 

Electronic HSR Filings. The FTC is adapting the HSR filing process to the era of egovernment. Final amendments to the HSR Rules, announced in December 2005, will allow 

filers to provide an Internet address linking to electronic copies of certain documents required 

as part of the HSR reporting form, in lieu of providing paper copies. The agency also has 

developed instructions and specifications tailored to electronic productions. Furthermore, as 

part of the overall movement to make government more accessible electronically, the FTC 

will announce this spring the implementation of a sophisticated electronic system for fi ling 

HSR premerger notifications. The agency has made substantial investments in software and 

other resources to enable it to handle electronic data submitted by merger parties in a variety 

of different formats. E-filing should reduce substantially the burdens for both businesses and 

government involved in premerger notifi cation. 

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Improved Litigation Capability. The FTC recently established a task force composed of 

talented antitrust litigators, whose mission is twofold: (1) to provide an experienced, guiding 

hand on those matters that go to litigation, and (2) more broadly, to provide training to improve 

the agency’s capacity to litigate competition matters when necessary. This investment paid 

dividends in the past year, contributing meaningfully to litigation successes and settlements. 

Enhanced Communication with DOJ. In April 2005, the FTC’s Chairman and her 

competition advisors, the Director of the Bureau of Competition, the Deputy Directors, and the 

Assistant Directors joined their counterparts from DOJ’s Antitrust Division at an off-site retreat. 

The event provided an opportunity for enhanced communication and sharing of best practices 

between the two agencies, which join in the common goal of enforcing the antitrust laws where 

necessary to protect competition. Together, the agencies are taking concrete steps to improve 

effectiveness and responsiveness to the needs of the public, and to minimize variance in the 

treatment of parties whose matters are subject to antitrust review. 

B. Merger Enforcement 

Reviewing proposed merger transactions, investigating those that may threaten consumer 

interests, and taking action to prevent competitive harms comprise the largest segment of the 

FTC’s competition mission. The agency’s merger enforcement workload continued to expand 

in the past year, with the value of merger transactions reported under HSR jumping from $630 

billion in FY 2004 to $1.1 trillion in FY 2005, accompanied by a greater than 25 percent increase 

in the number of mergers requiring investigation. The agency anticipates that the merger review 

workload in FYs 2006 and 2007 also will be demanding. 

1. Energy Industry Merger Enforcement 

The petroleum industry occupies a crucial and highly visible role in the U.S. economy, 

affecting consumers both directly and indirectly. Consumers feel the impact directly when they 

pay their monthly fuel oil bills or fill their gasoline tanks. They are well aware of the price of 

gasoline – reports on gas prices fill the media almost daily, and gas prices loom in giant numerals 

on seemingly every street corner. Consumers also feel the impact indirectly in the prices they 

pay for travel or shipping when companies pass their higher fuel costs along to their customers. 

Transportation costs are not the whole story: natural gas fuels a major portion of electricity 

generation and residential heating. And when businesses incur higher utility costs, these 

costs are likely to ripple through the economy in the form of higher consumer prices. Finally, 

petroleum price increases also can have an impact beyond the energy sphere, because petroleum 

is a feedstock in the production of many products, such as plastics. 

Given this central place in consumers’ lives, the petroleum industry receives the highest 

level of scrutiny from the FTC. Since 1981, the FTC has taken action in 20 large petroleum 

industry mergers, curing antitrust concerns in hundreds of individual markets, mostly through 

divestitures, including the divestitures in Exxon/Mobil of over 2,000 retail stations and a refi nery, 

the largest single divestiture order in FTC history. The agency has sought relief in petroleum 

mergers at significantly lower levels of concentration than have existed in other industries with 

mergers under review. Despite some increases over time, concentration for most markets of 

9

Federal Trade Commission


the U.S. petroleum industry has remained low to moderate. During the past year, the FTC took 

enforcement action in three matters. 

• 	Chevron/Unocal. In June Box 3 

2005, the Commission Consumers Feel the Impact of Higher 

acted to save California Heating Oil and Gasoline Prices 

consumers hundreds $3.00 

of millions of dollars $2.50 

in higher gasoline 


prices by accepting 


two consent orders to 


resolve the Commission’s


Price Per Gallon$2.00 

$1.50 

$1.00 

administrative 

monopolization complaint $0.50 

$0.00 against Union Oil 

Company of California 

Gasoline Heating Oil 

Heating Oil data is available for 

October to March of each year. 

Jan-01

Mar-01

May-01

Jul-01

Sep-01

Nov-01

Jan-02

Mar-02

May-02

Jul-02

Sep-02

Nov-02

Jan-03

Mar-03

May-03

Jul-03

Sep-03

Nov-03

Jan-04

Mar-04

May-04

Jul-04

Sep-04

Nov-04

Jan-05

Mar-05

May-05

Jul-05

Sep-05

Nov-05 

Source: Energy Information Administration, U.S. Dept of Energy, U.S. Gasoline Midgrade Retail Sales by All Sellers (Cents (Unocal) and antitrust per Gallon) available at http://tonto.eia.doe.gov/dnav/pet/hist/d140600002M.htm; U.S. No. 2 Heating Oil Residential Price 

concerns arising from (Cents per Gallon Excluding Taxes) available at http://tonto.eia.doe.gov/dnav/pet/hist/mhoreus4m.htm. 

Chevron’s proposed $18 

billion acquisition of Unocal. While the settlements focused primarily on resolving 

allegations of monopolization through anticompetitive abuses of the regulatory process 

related to California reformulated gasoline in connection with certain Unocal patents, 

the merger also raised concerns that Chevron could use information obtained through 

patent licenses to facilitate coordinated interaction among itself and other refi ners and 

marketers leading to higher prices for reformulated gasoline. By the terms of the order, 

the combined firm agreed not to enforce its relevant patents or collect royalties on those 

patents. 

• 	 Valero/Kaneb Services and Pipe Line Partners. In July 2005, the Commission 

approved a final settlement requiring, among other terms, that Valero divest several oil 

terminals and a pipeline system to preserve competition in petroleum transportation and 

terminaling in Northern California, Pennsylvania, and Colorado. The settlement should 

protect consumers from anticompetitive price increases for gasoline and diesel fuel. 

• 	Aloha Petroleum/Trustreet Properties. Also in July 2005, the Commission 

authorized its staff to seek a preliminary injunction to block Aloha Petroleum’s 

proposed acquisition of Trustreet Properties’ half interest in import-capable terminal 

and retail gasoline assets in Hawaii. The FTC, in conjunction with the Hawaii Attorney 

General, filed the complaint in federal court in Hawaii. The proposed acquisition 

allegedly would have reduced from five to four the overall number of island gasoline 

marketers that had guaranteed access to supply, and from three to two the number 

of suppliers selling to unintegrated retailers. After Aloha subsequently announced a 

long-term agreement with a third party, Mid Pac Petroleum, that would give Mid Pac 

substantial rights to use the terminal to import gasoline into Hawaii, the court dismissed 

the FTC’s complaint in response to the agency’s request. 

10

Federal Trade Commission


2. Health Care Merger Enforcement 

Health care is a perennial FTC priority because of its huge impact on the American 

economy. Annual health care expenditures are approaching $2 trillion, and now represent about 

one of every six dollars of GDP. Health care costs have been growing faster than the rate of 

inflation for decades: health care expenditures as a share of GDP have nearly doubled in the past 

30 years. During the past year, the FTC devoted resources to seven significant proposed merger 

matters in the health care sector. 

• 	 Evanston/Highland Park. In an Initial Decision issued in October 2005, an 

Administrative Law Judge (ALJ) found that Evanston Northwestern Healthcare 

Corporation’s completed acquisition of an important competitor, Highland Park 

Hospital, resulted in higher prices and substantially lessened competition for acute 

care inpatient services in parts of Chicago’s northern suburbs. The hospital’s appeal 

of the ALJ’s decision and order requiring divestiture of Highland Park Hospital is now 

pending before the Commission. 

• 	 Novartis/Eon Labs. Competition from generic pharmaceuticals is a key factor in 

controlling escalating health care costs. The Commission acted to preserve competition 

for three pharmaceutical products by requiring the parties to divest three generic drugs 

that competed with Novartis’ branded products before permitting a proposed $1.72 

billion acquisition of Eon Labs, Inc. to go forward in July 2005. The medications 

involved in the settlement include a tricyclic antidepressant, a muscle relaxant, and a 

drug used to treat tuberculosis, the branded versions of which account for $30 million in 

annual sales. The selling price of the generic equivalents of these drugs – less than half 

that of the branded products – reflects the importance to consumers of preserving this 

competitive factor. 

• 	Teva/IVAX. In a consent order finalized in March 2006, the Commission ordered Teva 

Pharmaceutical Industries and IVAX Corporation to divest 15 generic pharmaceutical 

products before allowing Teva’s $7.4 billion acquisition of IVAX to proceed. Among 

the drugs to be divested were forms of generic amoxicillin. The divestitures should 

protect consumers from higher prices that allegedly would have resulted from this 

merger by restoring competition in these markets. 

• 	 Johnson & Johnson/Guidant Corp. The Commission intervened on behalf of 

coronary artery disease patients in December 2005, by ordering divestitures to preserve 

competition for three life-saving medical devices used in coronary bypass surgery and 

implantation of medicated stents to open clogged arteries. The remedial provisions 

of the Commission’s final consent order, approved in December 2005, would have 

alleviated the threats to competition posed by Johnson & Johnson’s proposed $25.4 

billion acquisition of Guidant Corporation. (Johnson & Johnson later abandoned 

its bid for Guidant after being outbid by Boston Scientific.) This case, in which the 

FTC worked closely with its counterparts in the European Commission, Canada, and 

other countries, illustrates the valuable international collaboration that serves both the 

immediate and long-term public interest. 

11

Federal Trade Commission


Box 4 

Annual health 

care expenditures are 

approaching $2 trillion: 

representing about onesixth of every dollar of the 

Gross Domestic Product. 

• 	DaVita/Gambro Healthcare. In November 2005, the Commission ordered divestitures 

to protect patients who require regular outpatient dialysis services from higher prices 

and reduced quality or service. Under the consent order, DaVita, Inc. will divest 69 

dialysis clinics in 35 markets across the United States as a condition to proceeding with 

its $3.1 billion acquisition of Gambro Healthcare Inc. The two firms were the second 

and third largest providers of dialysis services in the nation, and the divestitures would 

restore competition to localized markets that allegedly otherwise would have been lost 

in the merger. 

• 	Medicis/Inamed. In 

March 2005, Medicis 

and Inamed announced a 

planned merger of these 

two marketers of dermal 

products used to treat facial 

wrinkles. As announced by 

the parties, the Commission 

issued a second request to 

investigate the potential 

overlapping products. In 

December 2005, Medicis 

and Inamed terminated 

their merger agreement, 

and Inamed entered into 

a merger agreement with 

Allergan, Inc. At the time, 

Inamed’s board said that 

Allergan’s offer was superior to Medicis’ offer, and Allergan’s Chairman and CEO told 

Inamed’s board members and shareholders that he expected easier FTC approval of the 

Allergan/Inamed deal because Allergan would agree immediately to give up Inamed’s 

license to an overlapping wrinkle treatment product. Following Allergan’s bid, Medicis 

announced that it would not raise its offer for Inamed, and the Medicis/Inamed deal was 

terminated. 

• 	Allergan/Inamed. The Commission announced, in March 2006, a settlement requiring 

the return of development and distribution rights to a botulinum toxin product to its 

manufacturer before allowing Allergan’s $3.2 billion acquisition of Inamed. Allergan 

markets Botox, a botulinum toxin used by many consumers as a non-surgical treatment 

for wrinkles and lines that appear on a person’s forehead. Inamed held the rights to 

Reloxin, a product in Phase III Clinical Trials with the Food and Drug Administration 

and the expected first competitor to Botox. Under the terms of the order, Inamed will 

return its development and marketing rights to Ipsen, the manufacturer of Reloxin. 

12 
Federal Trade Commission


3. Other Merger Enforcement 

The FTC also investigated and took enforcement action, where necessary, in three other 

proposed mergers in a range of economic sectors during the past year. 

• 	 Procter & Gamble/Gillette. In September 2005, the Commission acted to ensure 

continued competition for a number of consumer personal care products by conditioning 

The Procter & Gamble Company’s $57 billion acquisition of rival consumer products 

manufacturer, The Gillette Company, on divestitures to cure allegedly anticompetitive 

overlaps. The affected product markets included at-home teeth whitening products, 

adult battery-powered toothbrushes, rechargeable toothbrushes, and men’s 

antiperspirant/deodorant products. 

• 	 Occidental Chemical/Vulcan Chemical. In July 2005, the Commission approved 

a final consent order to preserve competition in markets for three chemical products 

used to make potassium inputs for food additives and nutritional supplements, and 

in the manufacture of televisions and computer monitors. The Commission allowed 

Occidental Chemical Company to purchase the chemical assets of Vulcan Materials 

Company, provided that it promptly divest a Vulcan facility to cure the antitrust 

concern. 

• 	 Penn National Gaming/Argosy Gaming. The Commission challenged an allegedly 

anticompetitive acquisition in the market for casino services in Baton Rouge, Louisiana. 

The consent order required Penn National to divest Argosy Gaming’s river boat casino 

in Baton Rouge before proceeding with its $2.2 billion acquisition of Argosy Gaming. 

Penn and Argosy operated the only two casinos in the Baton Rouge market. 

4. 	Enforcing Compliance with the HSR Rules 

The HSR merger investigation process involves mutual obligations for the FTC and the 

merging parties. While the agency seeks to be flexible in order to minimize burdens on the 

parties and facilitate resolution of any issues, it will stand firm when necessary to obtain the 

information needed to review mergers and to protect the integrity of the HSR process. 

• 	Hollywood/Blockbuster. In Spring 2005, the Commission authorized its staff to fi le 

an action under Section 7A(g)(2) of the Clayton Act, requesting the court to enjoin the 

Hollywood/Blockbuster merger because the parties allegedly had not “substantially 

complied” with the second request. This is only the second time in the FTC’s history 

that it filed such an action. According to the complaint, Blockbuster, which sought 

to acquire Hollywood Entertainment, had failed to respond fully to the agency’s 

request for pricing data. Because the missing material was important to the FTC’s 

investigation, the agency filed suit to block consummation of the transaction. The 

parties resolved the issues before the court ruled on the merits, with Blockbuster 

agreeing to an extension of the HSR waiting period. Subsequently, the merging parties 

abandoned their proposed transaction before the FTC completed its investigation. 

13

Federal Trade Commission


• 	 Durus Life Sciences Fund. In September 2005, DOJ, at the request of the FTC, 

sued a hedge fund manager for allegedly failing to report under HSR several large 

stock purchases before they were made. Scott Sacane, the manager of the Durus Life 

Sciences Master Fund, agreed to pay a $350,000 civil penalty to settle the government’s 

charges. 

C. Nonmerger Enforcement 

The past year has seen significant developments in agency nonmerger enforcement in the 

form of consent agreements, Commission administrative adjudications, and appellate court 

actions. 

1. Appellate Decisions 

Federal courts reviewed two of the agency’s recent adjudicative decisions in the past year, 

with one resolved favorably for the agency, and the other still pending in the appellate process. 

• 	Three Tenors. In July 2005, the U.S. Court of Appeals for the District of Columbia 

Circuit affirmed the Commission’s decision in Polygram Holding Inc. (known as “the 

Three Tenors” case), validating the Commission’s approach in analyzing horizontal 

conduct among competitors. The D.C. Circuit agreed with the Commission that 

although not a per se violation of antitrust law, the agreement among these horizontal 

competitors was presumptively unlawful and Polygram failed to rebut that presumption. 

• 	Schering-Plough. Pending before the U.S. Supreme Court is a petition for certiorari 

filed by the Commission in August 2005, asking for review of the Eleventh Circuit’s 

decision in Schering-Plough. The case arose out of 1995 applications by Upsher-Smith 

Laboratories, Inc. and ESI Lederle, Inc. for approval of generic versions of a potassium 

supplement product, along with their certifications that the products they intended 

to market were non-infringing generic substitutes. Schering brought patent actions 

against ESI and Upsher, but later entered into settlement agreements with both. The 

Commission issued an administrative complaint charging that, under these agreements, 

Schering made monetary payments to both firms in exchange for their agreement to 

delay generic entry, in violation of Section 5 of the FTC Act. ESI entered into a consent 

agreement with the Commission in April 2002, but Schering and Upsher proceeded 

to trial. In December 2003, the Commission ruled that Schering’s agreements with 

Upsher and ESI were unlawful, concluding that the agreements amounted to payments 

to exclude generic competition to a greater extent than could have been done simply 

by relying upon the strength of the patent claims, and that Schering had shown no 

competitive justification for the resulting harm to consumers. The Eleventh Circuit 

reversed the Commission’s decision, holding (incorrectly, in the Commission’s view) 

that Schering’s patent provided it with the legal right to exclude Upsher and ESI from 

the market until they proved either that the patent was invalid or that their products did 

not infringe upon the patent. The full Eleventh Circuit denied the FTC’s petition for 

rehearing en banc. 

14

Federal Trade Commission


2. Health Care 

The FTC pursued several nonmerger matters involving health care to complement its merger 

enforcement work in this important industry. Notably, during the past year, the Commission 

filed a complaint against pharmaceutical manufacturers for allegedly delaying generic drug entry, 

approved consent orders in six cases requiring physician groups to stop fixing prices, and issued 

a decision in a seventh physician case, finding that the activity at issue amounted to unlawful 

price fi xing. 

• 	 Warner Chilcott/Barr Laboratories. In November 2005, the FTC filed a complaint 

in federal district court seeking a permanent injunction to end an agreement between 

Warner Chilcott and Barr Laboratories that allegedly would eliminate benefi cial 

generic competition for Warner Chilcott’s oral contraceptive drug, Ovcon. The FTC’s 

complaint alleges that the two firms agreed that, after Barr received fi nal FDA approval 

for its generic version of Ovcon, Warner Chilcott would have the option of paying Barr 

$20 million in return for Barr’s agreement not to compete in the United States for fi ve 

years. Also filing complaints in federal court challenging the Warner Chilcott-Barr 

agreement were 21 states and the District of Columbia. 

• 	Evanston Northwestern Healthcare. The FTC announced a partial settlement of this 

administrative proceeding in April 2005, resolving Count III of the complaint, which 

alleged illegal collusion among approximately 900 doctors in Cook and Lake Counties, 

Illinois. The doctors agreed to cease and desist from any illegal collective conduct. 

• 	 Partners Health Network, Inc. In September 2005, the FTC approved a fi nal 

settlement with this physician-hospital group, including about 225 physicians practicing 

in the Pickens County, South Carolina area. 

• 	 Preferred Health Services. In another matter involving a South Carolina physicianhospital group, the Commission, in April 2005, approved a final consent order with a 

group of about 100 doctors, comprising approximately 70 percent of the independently 

practicing physicians in the vicinity of Seneca, South Carolina. 

• 	 San Juan IPA. This final consent order, approved in May 2005, involves 120 

physicians who make up about 80 percent of the doctors practicing independently in the 

area of Farmington, New Mexico. 

• 	 New Millennium Orthopaedics. In May 2005, the FTC settled charges with two 

small groups of orthopaedic physicians (with 22 and 10 members, respectively) in the 

Cincinnati area that had formed an independent practice association (IPA). In addition 

to prohibitions on joint negotiations, the Commission’s order disbanded the IPA. 

• 	 Health Care Alliance of Laredo. In the sixth physician consent agreement of the 

past year, the Commission approved an agreement with a group of about 80 physicians 

practicing in a multi-specialty group in the Laredo, Texas area in February 2006. 

• 	 North Texas Specialty Physicians. In a seventh physician case, the Commission 

issued a unanimous decision in December 2005, upholding the allegations that a 

physician group, known as North Texas Specialty Physicians (NTSP), had negotiated 

15

Federal Trade Commission


agreements among participating physicians on price and other terms, refused to 

negotiate with payors 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 

Commission concluded that the group’s contracting activities with payors “amount 

to unlawful horizontal price fixing.” Following the methodology of the Polygram 

Holdings, Inc. case, as recently upheld by the D.C. Circuit Court of Appeals, the 

Commission considered the respondents’ proffered justifications, but found that they 

were neither legitimate nor supported by evidence to justify NTSP’s inherently suspect 

conduct. The physicians have appealed the decision to the U.S. Court of Appeals for 

the Fifth Circuit. 

3. Energy 

The FTC considers the energy industry to be among its highest priority targets for antitrust 

law enforcement. To protect consumers from anticompetitive practices, the agency devotes 

substantial resources to policing the petroleum and natural gas industries, including investigating 

potentially anticompetitive conduct and, when warranted, bringing law enforcement actions 

against such conduct. In addition to the panoply of investigative tools that the Commission 

would apply to any industry, the FTC’s law enforcement arsenal in the energy industry 

includes the continuous monitoring of wholesale and retail gasoline and diesel fuel prices 

around the country. Thus, the FTC and its staff are in a state of high alert for any evidence of 

anticompetitive behavior among energy companies. 

• 	Chevron/Unocal. As previously discussed, in June 2005, the Commission announced 

two consent orders to resolve an administrative proceeding alleging monopolization 

by Unocal, as well as any antitrust concerns arising from Chevron Corporation’s thenproposed $18 billion acquisition of Unocal. In both orders, the combined fi rm agreed 

not to enforce certain Unocal patents that could have raised the price of gasoline for 

California consumers by over $500 million per year. 

• 	 Gasoline and Diesel Price Monitoring. In a project launched in 2002, the FTC 

continues to monitor retail gasoline and diesel prices in 360 cities and wholesale 

prices in 20 major metropolitan areas to identify unusual price movements that might 

indicate illegal activity. If the staff detects unusual price movements in an area, it 

researches the possible causes, including, where appropriate, through consultation with 

the state attorneys general, state energy agencies, and the Federal Energy Information 

Administration. The staff has not uncovered any evidence of antitrust violations 

through this project to date. 

• 	 Gasoline Pricing Investigations. In two separate laws, Congress directed the FTC 

to conduct an investigation to examine gasoline pricing. Section 1809 of the Energy 

Policy Act of 2005 directs the agency to investigate whether the price of gasoline is 

being artificially manipulated through refinery capacity reductions, price gouging, or 

“any other form of market manipulation.” Section 632 of the Science, State, Justice, 

Commerce, and Related Agencies Appropriations Act directs the agency to investigate 

gasoline prices in the wake of Hurricane Katrina, and specifically requires the FTC to: 

(1) look for evidence of gasoline price gouging by any wholesaler or retailer of certain 

16

Federal Trade Commission


sizes; (2) compare these companies’ profits in pre- and post-hurricane time periods; (3) 

provide a summary of the “tax expenditures” to which the oil companies are entitled; 

(4) assess the impact of increased gasoline prices or price gouging on economic activity 

in the United States; and (5) gauge the overall cost of increased gasoline prices and 

price gouging on the economy, including the impact on consumers’ purchasing power. 

The Commission has informed the Congress that it will take swift and decisive law 

enforcement action against any firm or individual shown by the investigation to have 

violated any law the agency enforces. 

4. Other Nonmerger Enforcement Activity 

During the year, the Commission took action against alleged anticompetitive conduct in 

other sectors of the economy. Two cases proceeded through administrative litigation; a third is 

being resolved through a consent order. 

• 	 Kentucky Household Movers. In June 2005, the Commission upheld an Initial 

Decision that found that the Kentucky Household Goods Carriers Association, Inc., 

consisting of competing firms, engaged in illegal price-fi xing by jointly fi ling tariffs 

containing collective rates on behalf of its members, and that the association was not 

entitled to the state action defense against antitrust liability. The Commission ruled the 

state’s role fell “far short of the active supervision required by [Supreme Court cases],” 

and thus the state action doctrine did not apply. Although the Kentucky Transportation 

Cabinet (KTC) is responsible for ensuring that carriers’ rates are just and reasonable, 

the Commission found that there was no formula or methodology for making that 

determination, the KTC did not obtain basic data that would permit an assessment, 

and procedural elements consistent with active supervision were absent. In addressing 

whether the Kentucky Association’s rate-making conduct, if not shielded by the state 

action doctrine, violated antitrust laws, the FTC concluded that the association’s 

members had engaged voluntarily in collective tariff fi lings. 

• 	Rambus. FTC staff’s appeal of an ALJ’s dismissal of the complaint in an 

administrative proceeding against Rambus, Inc. remains pending before the 

Commission. The June 2002 complaint charged that Rambus violated the antitrust laws 

by violating a requirement that it disclose its relevant intellectual property holdings 

to a standards-setting organization in which Rambus was a participant. In dismissing 

the complaint, the ALJ concluded that complaint counsel did not prove that Rambus 

violated the antitrust laws because its conduct did not violate Rambus’ duties and was 

not exclusionary. Following issuance of the Initial Decision, the Commission reopened 

the record to admit relevant materials from two related court proceedings. Complaint 

counsel’s appeal remains under consideration by the Commission. 

• 	 Valassis Communications. In March 2006, the Commission announced a consent 

order against Valassis Communications, Inc., settling charges that Valassis had invited 

its competitor to collude and eliminate price competition in violation of the FTC Act. 

According to the Commission’s complaint, Valassis and News America Marketing are 

competitors in the American market for free-standing newspaper inserts, the multi-page 

booklets found in newspapers containing discount coupons for various products. The 

17

Federal Trade Commission


Commission alleged that in a July 2004 public call with security analysts, Valassis 

invited News America Marketing to join a scheme to allocate customers and fi x prices, 

thereby ending an ongoing price war between the two competitors and raising prices 

for the inserts. News America Marketing did not accept the offer. The Commission’s 

consent order prohibits Valassis from inviting collusion and from actually entering into 

or implementing a collusive scheme. 

18

Federal Trade Commission


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 on issues of critical importance to American consumers, 

including telemarketing fraud, business opportunity schemes, credit-related scams, deceptive 

health claims, data security, spam, 

and spyware. Additionally, the FTC’s Box 5 

Criminal Liaison Unit works closely 

with criminal law enforcement partners “Visible Presence” to Promote Compliance 

with the Law in Critical Sectors to build cases and prosecute the worst 

offenders. During his nomination hearing before the Senate 

Committee on Commerce, Science and Transportation, The FTC’s law enforcement Commissioner Tom Rosch discussed his perspective efforts are complemented and informed on the Commission’s likely priorities over the next few 

by sophisticated information gathering years. In identifying energy, health care, and high 

tools that help the agency stay at the tech (including biotech) as possible priority areas, 

forefront of emerging technologies and he observed, “[t]o begin with, those three sectors 

collectively account for a huge share of this nation’s rapidly evolving fraudulent schemes. economy. Second, there are unique challenges to The FTC’s tools include domestic and effective law enforcement in those sectors. That said, 

international databases, workshops, there is a unifying principle, and that principle is visible 

reports, and civil investigative presence.” By way of example, Commissioner Rosch 

demands. Using these tools, the mentioned the important role played by the highway 

patrol in monitoring the roadways and encouraging FTC enforces the law, explores motorists to drive cautiously. He went on to note that 

developing trends, and educates itself, “it’s equally critical to effective law enforcement for the 

industry, and consumers to promote Commission to have a visible presence in these (as well 

a marketplace in which fraud and as other) sectors.” 

deception cannot easily fl ourish. 

A. Fraud and Deception 

Fighting fraud and deception is one of the FTC’s highest priorities because these practices 

bilk consumers out of billions of dollars each year. The FTC wages this battle through targeted 

law enforcement and the careful monitoring and analysis of trends. The FTC focuses on 

deceptive and unfair practices in which consumer economic losses are greatest and its actions 

can have the greatest impact. 

1. Law Enforcement 

The FTC pursues a vigorous law enforcement program that combats a wide range of 

fraudulent and deceptive practices. From April 2005, through February 2006, the FTC fi led 

60 actions in federal district court and obtained 66 judgments ordering defendants to pay $590 

million in redress to consumers. In many of these cases, the FTC worked with local, state, 

federal, and international law enforcement partners. 

19

Federal Trade Commission


Criminal Liaison Unit. 

Working with criminal law 

enforcers remains a priority 

for the FTC, and the FTC’s 

Criminal Liaison Unit facilitates 

prosecution of consumer fraud by 

coordinating with law enforcement 

authorities. From April 2005 to 

March 2006, the FTC assisted in 

criminal prosecutions of 117 FTC 

defendants or their associates. 

Significant criminal referrals arose 

from these FTC matters: 

• 	 Project “Biz Opp Flop.” 

Significant Redress Orders – $590 Million 

April 2005 – February 2006 

$0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 

(in millions) 

NorVergence, Inc., 

$181.7m 

AmeriDebt, Inc., 

$170.0m 

Electronic Products Distribution, L.L.C., 

$43.5m 

National Consumer Council, Inc., 

$84.3m 

Stewart Finance Co., 

$10.5m 

Call Center Express Corp., 

$13.9m 

Box 6 

The DOJ’s Office of Consumer Litigation and two FTC attorneys designated as Special 

Assistant U.S. Attorneys charged 32 business opportunity scam artists with felonies, 

including mail and wire fraud. Thus far, 18 defendants have pled guilty, and 13 of these 

have been sentenced to prison for terms ranging from 24 to 135 months. 

• 	Phoenix Avatar. As a result of a criminal referral from this FTC case, the fi rst 

defendant prosecuted under the criminal provisions of the CAN-SPAM Act pled guilty 

to three felony counts. 

• 	 The Crescent Publishing Group. In another referral, six defendants in an organized 

crime prosecution arising from this fraudulent credit card billing case pled guilty and 

received sentences ranging from 15 to 108 months. 

Deceptive Lending Practices and Other 

Box 7 Credit Schemes. The FTC pursues unscrupulous 

Significant Civil Penalty Cases lenders who deceive consumers about loan terms, 

April 2005 - March 2006 rates, and fees. The FTC also takes action against 

bogus organizations that target consumers with bad 

ChoicePoint $10.0 million credit or significant debt, promising to help them 

DirecTV, Inc. $5.3 million obtain credit or manage their debt. These deceptive 

K B Home $2.0 million transactions can have a fi nancially devastating 

NBTY, Inc. $2.0 million impact on consumers who often face high-cost 

mortgage loans, ruined credit histories, foreclosure, 

or bankruptcy as a result. 

• 	 Deceptive Credit Counseling Services. In January 2006, the FTC settled its action 

against Andris Pukke, the founder of defendants AmeriDebt and DebtWorks, and the 

other remaining defendants. The FTC settlements shut down the corporate defendants, 

permanently banned Pukke from the credit counseling business, and imposed a $172 

million suspended judgment. In addition, Pukke agreed to relinquish virtually all of his 

assets for consumer redress, a fund that could ultimately total $35 million. 

20

Federal Trade Commission


• 	 Deceptive Mortgage Lending. In November 2005, the FTC announced a settlement 

with the Stewart Finance Company and seven related companies. The defendants 

allegedly deceived tens of thousands of consumers by packing optional products, such 

as accidental death and dismemberment insurance, into the small consumer loans 

they financed. The settlement shut down the companies and imposed a $10.5 million 

judgment. 

• 	 Mortgages Para Hispanos.Com. In January 2006, the FTC filed a complaint in federal 

district court against defendant Mortgages Para Hispanos.Com and its principal, Daniel 

Moises Goldberg, for allegedly making oral misrepresentations of key loan terms in 

Spanish while providing mortgage loans written in English to borrowers with little or no 

English proficiency. Borrowers were unable to read English-language loan documents 

that contained loan terms substantially different from what was promised. 

• 	 Debt Collection. In July 2005, the FTC won a $10.2 million summary judgment 

against National Check Control and its principals, the largest award obtained by the 

FTC for violations of the Fair Debt Collection Practices Act. The FTC alleged that the 

defendants illegally harassed and falsely threatened consumers with criminal charges 

if they did not pay the debts. The judgment is currently on appeal to the U.S. Third 

Circuit Court of Appeals. 

• 	 Deceptive Credit Repair Services. In February 2006, the FTC announced Project 

Credit Despair, a sweep of cases against 20 different credit repair operations by the 

FTC, DOJ, U.S. Postal Inspection Service (USPIS), and eight state regulators. These 

actions targeted companies allegedly charging consumers in advance for credit repair 

services in violation of the Credit Repair Organizations Act and misrepresenting their 

services by, for example, claiming the companies could remove any and all bad items 

from consumers’ credit histories, regardless of accuracy or timeliness. 

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 focuses on combating deceptive health claims, particularly weightloss and serious disease-prevention claims. From March 2005 through February 2006, the FTC 

brought or settled 31 law enforcement actions in this area, including the following: 

• 	Tropicana. In June 2005, Tropicana Products, Inc. settled charges that it made 

unsubstantiated claims about the health benefits of its “Healthy Heart” orange juice. 

The FTC challenged claims that drinking two to three glasses of juice a day would 

produce specific and dramatic effects on blood pressure, cholesterol, and homocysteine 

levels, thereby reducing the risk of heart disease and stroke. The settlement prohibits 

the company from making these or other false or unsubstantiated claims. 

• 	Myfreemedicine.com. Many prescription drug companies offer free or low-cost 

drugs to people who do not have prescription drug coverage, cannot afford to pay for 

medication out of pocket, or have exhausted their insurance plan’s annual allowance. 

In September 2005, the FTC alleged that Myfreemedicine.com, LLC and its principal 

lured low-income consumers with no insurance into spending $199 each by falsely 

claiming that they would receive free prescription medication. 

21

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• 	Gero Vita Health Products. The FTC settled a federal district court case alleging that 

A. Glenn Braswell, Chase Revel, seven affiliated companies, two expert endorsers, 

and one additional individual sold dietary supplements to elderly consumers through 

deceptive ads masquerading as scientific journals. The FTC alleged that these 

defendants made false claims that their Gero Vita products could cure, prevent, or treat 

a number of serious conditions such as emphysema, diabetes, and Alzheimer’s disease. 

The settlement with Braswell bans him from direct response marketing of any foods, 

unapproved drugs, or dietary supplements, and requires him to turn over $4.5 million in 

cash and other assets. 

Project Scoffl aw. As part of its law enforcement tools, the FTC secures orders against 

companies that allegedly have violated various consumer protection laws to protect consumers 

from any further fraud and deception. If these orders are violated, the FTC deploys the full range 

of powers available to stop repeat offenders and to deter other defendants from ignoring order 

provisions. 

• 	Prochnow. A federal district court entered findings that awarded the government 

$5.45 million in civil penalties and $1.68 million in disgorgement against Richard 

Prochnow for his alleged violations of a 1996 FTC order and the Telemarketing Sales 

Rule (TSR) in connection with 

deceptive marketing of magazine Project Scofflaw - 2005 Box 8 

subscriptions and buying club Criminal Prosecutions 

memberships. 

• 7 defendants sentenced 

• 	 NBTY, Inc. A leading • 47 years total confinement 

manufacturer and distributor of • $1.1 million total criminal restitution ordered 

dietary supplements agreed to a 

$2 million civil penalty to settle 

charges that it violated the terms of a 1995 FTC order by making false and misleading 

health claims about two products. 

Hispanic Law Enforcement Initiative. The FTC’s 2004 Consumer Fraud Survey 

found that Hispanic consumers are victimized disproportionately by fraud. In response, the 

FTC launched an Hispanic Law Enforcement and Outreach Initiative and announced 34 law 

enforcement actions involving Spanish-language frauds. Eleven new cases were filed in the past 

year that include alleged scams involving disease cures, weight loss products, discount health 

cards, advance-fee credit cards, mortgage lending, business opportunity schemes, and prize 

promotions. 

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 global marketplace, assist the agency in formulating and advancing 

its consumer protection agenda. 

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

resource for both consumers and law enforcement. Each week, the CRC handles more than 

22

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30,000 contacts from consumers and businesses. Box 9 

These contacts come via the FTC’s toll-free FTC Call Center Ranked #1 

numbers (1-877-FTC-HELP and 1-877-ID- Annually, the American Customer 

THEFT), the FTC’s website, and the U.S. mail. Satisfaction Index ranks U.S. Federal 

The CRC also supports the efforts of other law Government call center services based 

enforcement agencies. For example, the CRC acts upon the results of consumer satisfaction 

as the primary response center for USPIS’s recent surveys gathered during the year. This 

year, the FTC’s call center services on the Internet fraud and cross-border fraud consumer FTC Help and ID Theft lines were ranked 

education campaigns and for the Hurricane #1 among all federal call centers providing 

Katrina Fraud Taskforce. similar services. 

Consumer Sentinel. Consumer Sentinel, 

the FTC’s fraud and identity theft complaint database, now houses nearly 3 million complaint 

records. Sentinel provides about 1,500 law enforcement agencies across the globe with 

immediate access to these complaints. Sentinel also provides law enforcers worldwide with 

cybertools to share information, coordinate investigations, and pursue leads. 

Identity Theft Tools. Identity theft continues to be the top consumer fraud complaint 

received by the FTC. Consumers file complaints and receive helpful information concerning 

identity theft from the FTC’s toll-free hotline and website. In 2005, the FTC entered into an 

agreement with The Identity 

Box 10 Theft Assistance Center (ITAC), 

Top Consumer Fraud Complaints a cooperative initiative of the

Calendar Year 2005 financial services industry, under 

which ITAC provides its identity Telephone Services Other 

Advance-Fee Loans 2% 17% 

and Credit Protection
 theft complaint data to the FTC. 2%
 Nearly 1,400 law enforcement Business Opportunities


and Work-at-Home


Plans
 agencies have access to this 2% 

Internet Services and
 searchable database of complaints. Computers


5%
 Identity Theft The FTC also coordinates ID theft 37% 

Prizes, Sweepstakes law enforcement training for state and Lotteries


7%
 and local law enforcers. To date, 

the FTC, in cooperation with its Shop-at-Home and 


Catalog Sales


8%
 partners, has conducted 20 training 

seminars attended by more than Internet Auctions 

8% 12% 2,880 officers from more than 

1,000 agencies. 

Foreign Money Offers 

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

concern for all Internet users. 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 now receives more than 300,000 pieces of spam daily. The total number of spam 

received by the FTC has grown by more than 100 million in the past year to more than 300 

million. The database is instrumental in the development of the FTC’s CAN-SPAM enforcement 

actions as well as cases brought by other state and federal agencies. For example, the DOJ’s 

Child Exploitation and Obscenity Section used evidence from the spam database to obtain 

23

Federal Trade Commission


federal grand jury indictments against three individuals on charges of violating the CAN-SPAM 

Act, along with federal obscenity, money laundering, and conspiracy charges. 

Cross-Border Fraud Website. The FTC hosts www.econsumer.gov – a joint project of 

consumer protection enforcement agencies from 20 countries. Through this site, consumers 

around the world can file cross-border complaints 

that can be accessed by the participating Box 11 

government agencies. The FTC and its Privacy Is a Global Consumer Concern 

international partners use the complaint data to 

identify cross-border consumer fraud trends. “Durante más de una década, una 

de nuestras prioridades fundamentales 

ha sido la de proteger la privacidad de 

B. Consumer Privacy	 los consumidores estadounidenses. La 

privacidad, que continúa siendo un tema 

Consumers’ privacy and data security importante, se ha convertido en un asunto 

continue to be important national and international de significativa preocupación para los 

consumidores en la era informática.” consumer concerns, and protecting them is a key 

part of the FTC’s consumer protection mission. Chairman Deborah Platt Majoras 

In 2006, the FTC established a new Division addressing the issue of consumer privacy 

of Privacy and Identity Protection. The new and security on February 1, 2006, in Mexico 

City, Mexico. division – which consists of over 30 staff with 

expertise in privacy, data security, and identity [“For more than a decade, one of our top 

priorities has been protecting the privacy of theft – addresses cutting-edge consumer privacy American consumers. Privacy, while always 

matters through aggressive enforcement, as well important, has become an issue of significant 

as rulemaking, policy development, and outreach concern to consumers in an information age.”] 

to consumers and businesses. 

1. 	Data Security Law Enforcement 

Concerns about data security have spiked with recent press reports about breaches of 

data security. The FTC has an active law enforcement program to address such breaches and 

encourage appropriate security. Over the past 12 months, the FTC expanded this program, 

deploying the agency’s full arsenal of statutory tools to bring cases against companies that failed 

to implement reasonable measures to protect sensitive consumer information. The FTC has 

challenged security practices as unfair and deceptive in violation of the FTC Act. The agency 

has also challenged these practices as violations of the Fair Credit Reporting Act (FCRA) and the 

Gramm-Leach-Bliley Act (GLBA). 

• 	ChoicePoint. In January 2006, the FTC announced a settlement with consumer data 

broker ChoicePoint, Inc., resolving allegations related to a security breach a year 

earlier. According to the complaint, the data of over 160,000 consumers had been 

compromised, including Social Security numbers and nearly 10,000 consumer reports. 

The FTC alleged that ChoicePoint’s failure to employ reasonable procedures to protect 

sensitive consumer information was an unfair practice. The FTC further alleged 

that ChoicePoint violated the FCRA by not taking reasonable steps to ensure that the 

customers to whom they were selling consumer report information had a permissible 

purpose for obtaining it. The settlement includes a $10 million civil penalty for the 

24

Federal Trade Commission


alleged FCRA violations – the largest civil penalty in FTC history – and $5 million in 

redress for consumers who suffered identity theft as a result of the breach. 

• 	 BJ’s Wholesale Club. In June 2005, retailer BJ’s Wholesale Club settled charges that 

it engaged in an unfair practice by failing to employ reasonable measures to secure 

sensitive consumer information. According to the FTC’s complaint, credit and debit 

card information stored on BJ’s computers was used by an unauthorized person to make 

millions of dollars of fraudulent purchases. The FTC charged that BJ’s engaged in a 

number of practices which, taken together, failed to provide reasonable security for this 

sensitive data. The settlement requires BJ’s to implement a comprehensive information 

security program and obtain third party audits of the program for 20 years. 

• 	DSW. In December 2005, shoe discounter DSW Inc. settled FTC charges that it 

failed to take reasonable security measures to protect sensitive customer data. The 

complaint alleged that DSW’s data-security failure allowed hackers to gain access to 

the sensitive credit card, debit card, and checking account information of more than 1.4 

million customers. The consent order provides for strong injunctive relief similar to the 

requirements in the BJ’s settlement. 

• 	 CardSystems Solutions, Inc. In February 2006, the FTC announced its first case to 

address alleged security failures by a credit and debit card processor. According to 

the complaint, CardSystems’ breach involved up to 40 million credit and debit cards. 

Like the previous settlements in this area, CardSystems is required to implement a 

comprehensive information security program and obtain audits to show compliance. 

• 	 Superior Mortgage Corp. In September 2005, the FTC settled allegations that 

Superior Mortgage Corp. violated the GLBA Safeguards Rule. The FTC alleged that 

the broker failed to establish an information security program, as required by the Rule, 

and misrepresented that sensitive mortgage application information was encrypted 

before being sent by email. The order prohibits future violations and requires an 

information security program and third party audits. This is the third case to enforce the 

requirements of the Safeguards Rule and is part of the FTC’s ongoing efforts to ensure 

compliance with the Rule. 

2. 	Do Not Call Registry Law Enforcement 

The FTC’s National Do Not Call (DNC) Registry protects consumer privacy by prohibiting 

commercial telemarketing calls to consumers who register their telephone numbers. Since 

2003, more than 122 million telephone numbers have been registered with the National Do Not 

Call Registry. Compliance with this law has been high and the Registry has been a signifi cant 

success. Yahoo! ranked the launch of the FTC’s Do Not Call website as one of the top 100 

moments on the web over the last 10 years. The success of the DNC Registry has also caught the 

attention of the international community. Encouraged by the success of the Registry, Canadian 

and Mexican agencies have consulted with the FTC in developing their own do not call registry 

frameworks. 

The FTC collects and aggressively monitors Registry-related complaints, which are shared 

with other federal and state law enforcers through Consumer Sentinel. Since October 2003, 

25

����

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the agency has fi led 19 Box 12 

enforcement actions National Impact of the Do Not Call Registry 

against 102 individual Harris Interactive® Survey, released Jan. 12, 2006 

and corporate defendants, 

alleging that they had 

called consumers whose 

numbers were on the DNC 

Registry. In 12 of those 

cases, the FTC obtained Three-quarters of all U.S. adults have signed up for the registry. 

settlements with orders 

requiring payment in the Findings:

aggregate of more than $6 

million in civil penalties • 94% of all adults have heard of the Registry.


and more than $5 million • 76% of adults say that they have signed up for the Registry. 


in consumer redress. • 91% of those who have registered report receiving fewer telemarketing 


calls, including — 

• 	DirecTV. In • 18% who report they have received none, 

December • 61% who report they have received some but far less than before, and 

2005, the FTC • 12% who report they have received some, but a little less than before. 

announced the 

largest civil Source: http://www.harrisinteractive.com/harris_poll/index.asp?PID=627 

penalty to date in 

a Do Not Call matter when it filed a complaint and stipulated order against DirecTV and 

several telemarketing firms. The complaint alleged that the telemarketers, calling on 

behalf of DirecTV, contacted consumers on the Registry. The complaint further alleged 

that DirecTV provided substantial support to one of the telemarketers, even though it 

knew (or consciously avoided knowing) that the company was violating the TSR. The 

settlement with DirecTV called for $5.3 million in civil penalties. The orders against 

two of the telemarketers required them to pay civil penalties of $25,000 and $50,000. 

• 	 The Broadcast Team. The DOJ filed a civil penalty action, on the FTC’s behalf, 

against The Broadcast Team (TBT), a Florida telemarketer. The complaint alleges 

that TBT called telephone numbers on the Registry to deliver prerecorded charitable 

solicitations, and also violated the “call abandonment” provisions of the TSR, which 

limit telemarketers’ use of recorded messages by requiring that calls answered by a 

person be connected to a live representative within two seconds. The complaint alleges 

that TBT called more than one million Registry-protected numbers and caused more 

than 64 million abandoned calls. 

C. High Tech Law Enforcement 

Increasingly sophisticated cyberscammers continue to wreak havoc over the Internet, using 

a range of technological tools to defraud consumers, steal their information, and invade their 

privacy. The FTC has taken the lead to protect consumers from technology-driven threats to the 

security of their personal data and information, personal computers, and email inboxes. 

26

Federal Trade Commission


Spam. Spam, a frequent source of fraudulent and deceptive sales pitches, now increasingly 

is used to deliver “spyware” and download viruses onto consumers’ computers, and often 

represents an unwanted intrusion into their privacy. To date, the FTC has filed 85 law 

enforcement actions targeting spam, including 22 cases since the enactment of the CAN-SPAM 

Act. These 85 cases targeted 237 defendants, and resulted in final orders requiring payment of an 

aggregate of nearly $17 million in redress or disgorgement and $1.1 million in civil penalties. 

• 	Button Pusher Sweep. In 2005, the FTC spearheaded a cross-border law enforcement 

initiative targeting spammers – “button pushers” – who allegedly hijacked consumers’ 

computers and turned them into spamming machines that relayed the illegal spam while 

concealing the real sender. This CAN-SPAM sweep involved eight law enforcement 

actions: the FTC filed three actions halting alleged spam operations; the Canadian 

Competition Bureau settled two cases; and state agencies filed complaints seeking to 

block the alleged illegal spamming of three more operations. 

• 	Net Everyone. In January Box 13 

2006, the FTC sued three Fulfilling the Promise of the Internet 

individuals doing business as Commissioner Jon Leibowitz continues to play an Net Everyone – a company active role in promoting initiatives to ensure the promise using so-called “botnets” to of the Internet and to safeguard online consumer

send pornographic spam, in commerce and privacy. Commissioner Leibowitz is 

violation of the CAN-SPAM particularly concerned about the substantial harm to 

Act and the FTC’s Adult consumers caused by spyware and nuisance adware 

that is downloaded onto Internet users’ computers Labeling Rule under the without their knowledge or consent. In October 2005, Act. A “botnet” consists of a Commissioner Leibowitz spoke about spyware and

multitude of spam zombies, adware at a Direct Marketing Association Conference 

often used to conceal the and pressed marketers to adopt “best practices” to 

source of spam. A federal promote responsible and ethical electronic marketing. 

court issued an ex parte Similarly, on competition issues, Commissioner 

Leibowitz has expressed strong interest in promoting temporary restraining order and ensuring fair competition in markets affecting 

halting the unlawful activities consumer access to the Internet. He has spoken out 

and freezing the defendants’ against efforts by incumbent cable and phone providers 

assets. to enact state laws that prevent municipalities from 

providing broadband service to their residents. 

• 	 Adult Labeling Rule 

Crackdown. In summer 2005, the FTC charged seven companies in a sweep enforcing 

the Adult Labeling Rule and the CAN-SPAM requirements to include warning labels on 

email that contains sexually-explicit content. Settlements in four of the cases require 

payment of an aggregate of $1.1 million in civil penalties and impose strong injunctions 

that prohibit future law violations and require the defendants to monitor closely the 

activities of so-called “affiliates,” who send spam on their behalf to draw visitors to the 

defendants’ websites. The other three cases are still in litigation. 

Spyware. Over the past 12 months, the FTC expanded its enforcement against “spyware” 

and “adware” programs that are installed on consumers’ computers without their knowledge or 

consent and are used to monitor their computer use, take control of or damage their computer, 

or send them a blizzard of advertising. Since April 2005, the FTC filed four new cases focused 

27

Federal Trade Commission


on preserving consumers’ rights to decide which software programs to install and retain on 

their computers and preventing substantial harm from software programs installed or remaining 

against their wishes. On February 9, 2005, Chairman Majoras delivered the keynote address 

to the Anti-Spyware Coalition’s first public workshop: Defi ning the Problem, Developing 

Solutions. During her remarks, the Chairman explained that the FTC’s law enforcement actions 

reaffirm three key principles about spyware: (1) a consumer’s computer belongs to him or 

her, not to the software distributor; (2) buried disclosures do not work, just as they have never 

worked in more traditional areas of commerce; and (3) if a distributor puts a program on a 

consumer’s computer that the consumer does not want, the consumer must be able to uninstall or 

disable it. 

• 	Enternet Media. In November 2005, the FTC filed a complaint alleging that the 

defendants, including Enternet Media, Inc., duped consumers into downloading and 

installing their exploitive software code by disguising it as innocuous, free software. 

The FTC obtained a preliminary injunction prohibiting the defendants from continuing 

their illegal spyware distribution and freezing over $2 million in personal and corporate 

assets. 

• 	Trustsoft. In June 2005, the FTC filed a complaint challenging allegedly bogus claims 

that the defendants’ anti-spyware products removed all spyware from consumers’ 

computers. Under a final settlement reached in January 2006, the defendants agreed to 

pay approximately $1.9 million and to abide by a permanent injunction. 

• 	Advertising.com. In September 2005, Advertising.com, Inc., settled FTC charges 

that it failed to disclose adequately that its Spyblast Internet security program included 

adware in violation of the FTC Act. The complaint alleged that the respondents 

offered consumers a free security software program, but disclosed only in the End User 

License Agreement (EULA) that the program was bundled with software that tracked 

consumers’ Internet browsing and delivered pop-up advertising. The settlement requires 

that the company clearly and prominently disclose adware bundled with software 

advertised to enhance security or privacy. 

• 	 Odysseus Marketing. In September 2005, the FTC filed a complaint alleging that the 

defendants failed to disclose adequately to consumers that their anonymizer program 

also installed other, harmful programs. The complaint alleges that the existence of those 

additional programs was disclosed only in the middle of the EULA. The complaint also 

alleges that consumers could not remove the harmful software through any reasonable 

means. The defendants currently are subject to a preliminary injunction. 

D. Consumer Privacy and High Tech Rulemaking 

In addition to aggressive law enforcement efforts, the FTC has an active rulemaking 

program to implement provisions of the Fair and Accurate Credit Transactions Act of 2003 

(the FACT Act) and enhance compliance with the CAN-SPAM Act. The FTC’s objective is 

to promulgate rules that carry out the intent of Congress – protect consumers’ data and reduce 

unwanted intrusions in consumers’ personal lives. 

28

Federal Trade Commission


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. The Act required the FTC 

to promulgate 18 rules, in some cases alone and in others in consultation or jointly with other 

federal agencies. In 2005, the FTC issued a final rule requiring businesses that make fi rm offers 

of credit or insurance to consumers (often called “prescreened offers”) to provide enhanced 

disclosures of consumers’ right to opt out of receiving such offers. In addition, the FTC’s 

Disposal Rule, which requires entities to take reasonable steps to protect against unauthorized 

access to or use of consumer report information in connection with its disposal, became effective 

in June 2005. 

The FACT Act also gave consumers the right to a free 

annual credit report from each of the three national consumer 

reporting agencies. After the completion of the program’s 

rollout in September 2005, the FTC launched an initiative 

against “imposter” websites that mimic the free annual report 

website. This initiative included warning letters to about 130 

such sites, a new consumer education campaign, and the fi ling of 

a complaint and settlement with Consumerinfo.com, a company that offered “free” credit reports 

in conjunction with a credit monitoring service. The settlement requires Consumerinfo.com to 

make prominent disclosures about the terms of the offer and the fact that it is not associated with 

the FACT Act free report program. The company also agreed to pay refunds to consumers who 

may have been deceived by the offer. 

CAN-SPAM Discretionary Rulemaking. In May 2005, the FTC issued a Notice of 

Proposed Rulemaking (NPRM) on a number of issues designed to enhance compliance with the 

CAN-SPAM Act of 2003. The NPRM contained proposals and clarifications affecting certain 

definitions under the Act, including those of “sender” and “valid physical postal address.” 

Among other things, the NPRM proposed shortening the deadline for senders to effectuate a 

recipient’s opt-out request, and clarifying that a recipient may not be required to do more than 

send a reply email message or visit a single Internet web page to submit a valid opt-out request. 

29

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30 
Federal Trade Commission


Chapter 3 – Policy Tools to Complement Law Enforcement 

As a complement to its law enforcement actions, the FTC promotes competition and 

advocates on behalf of consumer interests through a wide variety of activities, such as research 

and reports, workshops, advocacy fi lings, amicus briefs, and educational outreach to consumers 

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

shares information with other policymakers, business leaders, the bar, and the general public, 

providing intellectual leadership on important issues within its jurisdiction. These activities also 

provide the FTC with unique opportunities to communicate the essential role of competition in 

the marketplace and to provide analysis on a wide variety of consumer protection issues. 

A. Competition Policy 

A vigorous policy agenda in the competition mission is especially critical to enable the FTC 

to monitor and often lead new developments in antitrust and economics scholarship and stay 

abreast of marketplace trends. 

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 topics are of ongoing interest and 

importance to the economy, such as energy and health care. 

• 	 Report on Ethanol Market Concentration. This year, in response to a mandate of 

Congress, the FTC performed a market concentration analysis of the ethanol industry. 

The agency’s analysis, which was submitted to Congress and the Environmental 

Protection Agency in accordance with the Energy Policy Act of 2005, concluded that 

national ethanol production is not currently concentrated to a level that would raise 

antitrust concerns. The analysis also concluded that the likelihood of anticompetitive 

conduct in the future is low because barriers to entry are low and signifi cant new 

entry in ethanol production and marketing is expected in the next year and is likely to 

continue for several more years. 

• 	 Electricity Task Force. Also in response to a directive of Congress, the Chairman 

appointed a staff member to the five-member interagency Electric Energy Market 

Competition Task Force. The Energy Policy Act of 2005 requires the task force to 

“conduct a study and analysis of competition within the wholesale and retail market 

for electric energy in the United States.” The task force has sought public comment on 

the critical elements for effective wholesale and retail competition, the status of each 

element, any impediments, and suggestions for overcoming such impediments. 

• 	 Gasoline Price Changes Report. In July 2005, the agency issued a report examining 

the wide range of factors that cause fluctuations in the prices that American consumers 

pay for gasoline. The report concluded that over the past 20 years, changes in the price 

of crude oil have led to the vast majority of the changes in the retail price of gasoline 

in the United States. Other important factors include increasing demand at both the 

31

Figure ??

Federal Trade Commission


national and international 


levels; supply 


restrictions resulting 


from circumstances such 


as political instability, 


refi nery fi res, or 


hurricanes; federal, state, 


and local regulations, 


such as “clean fuel” 


requirements; and taxes. 


The report provides 


real-world examples of 


how short supplies can 


increase prices, which in 


turn moderate demand 


and prompt the infl ux of 


additional supplies, which then act to ease prices.


• PBM Conflicts of Interest Study. At the direction of Congress, the FTC considered 

whether ownership of mail-order pharmacies by pharmacy benefi t managers (PBMs) 

creates a conflict of interest. The FTC 

Box 15 

Comparison of the National Average Price of Gasoline 

and the Price of West Texas Intermediate Crude (1984-2005) 

$0.00 

$0.20 

$0.40 

$0.60 

$0.80 

$1.00 

$1.20 

$1.40 

$1.60 

$1.80 

$2.00 

Jan-84 

Jan-85 

Jan-86 

Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 

Jan-92 Jan-93 Jan-94 Jan-95 

Jan-96 Jan-97 

Jan-98 Jan-99 

Jan-00 

Jan-01 

Jan-02 

Jan-03 Jan-04 

Jan-05 

Price Per Gallon 

$0 

$10 

$20 

$30 

$40 

$50 

$60 

Price per Barrel 

National Gasoline Average (Excluding Taxes) 

West Texas Intermediate Crude 

Source: Energy Information Administration, U.S. Dept. of Energy 

Box 14 

Improving the Institutional Foundations for 

Competition Policy and Consumer Protection 

Competition and consumer protection laws 

are only as effective as the institutions entrusted 

with implementing them. Since joining the FTC, 

Commissioner William E. Kovacic has emphasized 

the need to strengthen the institutional arrangements 

through which the FTC carries out its duties, 

especially if it is to continue to enjoy standing and 

influence in the global community. Current efforts 

include: 

• 	 Ex Post Evaluations. The FTC is continuing 

efforts to assess the impact of FTC merger policy 

in the petroleum industry and to refine techniques 

for conducting ex post review. 

• 	 Process Improvements. The FTC recently 

announced reforms to curb the cost and time to 

review proposed mergers. 

• 	 Better Cooperation in Enforcement. The FTC 

is striving to enhance its cooperation with law 

enforcement agencies at home and abroad, such 

as by supporting enactment of the US SAFE WEB 

Act. 

• 	 Investing in Knowledge. The FTC and DOJ have 

announced joint hearings to consider issues 

dealing with dominant firm behavior. 

used its compulsory process authority 

under Section 6(b) of the FTC Act to 

gather detailed information and data. 

In September 2005, the Commission 

issued its report entitled, “Pharmacy 

Benefi t Managers: Ownership of MailOrder Pharmacies: A Federal Trade 

Commission Report,” concluding that, 

in 2002 and 2003, prescription drug plan 

sponsors generally paid lower prices for 

drugs purchased through PBM-owned 

mail-order pharmacies than for drugs 

purchased through mail-order or retail 

pharmacies not owned by PBMs. 

2. Hearings and Workshops 

Hearings and workshops are 

among the FTC’s most powerful policy 

“research and development” tools. They 

allow the agency to assemble experts 

from the business, government, legal, 

and academic communities to engage 

in an in-depth analysis of important and 

often contentious issues. These hearings 

32

Federal Trade Commission


and workshops can lead to significant advances in cutting-edge knowledge of competition policy 

issues. 

• 	 Workshop on Competition Policy and the Real Estate Industry. Prompted by the 

substantial changes taking place in the real estate industry, as well as by consumers’ 

interest in a competitive real estate marketplace, the FTC and DOJ co-hosted a public 

workshop in October 2005. The workshop provided an opportunity to hear from all 

sides on the many issues facing the industry, including, among others, the effect of 

various state regulations and private actions on emerging, nontraditional business 

models, such as Internet sales; the use of the Internet as an effi ciency-enhancing 

tool; and empirical evidence on the state of competition in the real estate industry. In 

attendance were representatives from several real estate trade associations, real estate 

commissions from across the United States and Canada, and several different types of 

brokerage firms, including traditional, discount, and fee-for-service brokerage fi rms. 

• 	 Workshop on Patent Reform. Together with the National Academies’ Board on 

Science, Technology, and Economic Policy, and the American Intellectual Property 

Law Association, the FTC co-sponsored several patent reform workshops, structured in 

a town meeting format. The final workshop addressed draft patent reform legislation, 

still under consideration in the House of Representatives, that would direct the 

implementation of a post-grant opposition system and modify the doctrine of willful 

infringement, as recommended in the FTC’s 2003 report, “To Promote Innovation: The 

Proper Balance of Competition and Patent Law and Policy.” 

• 	 Looking Ahead – Hearings on Conduct Under Section 2 of the Sherman Act. In 

November 2005, the FTC and DOJ announced that they will hold a series of public 

hearings designed to examine the antitrust implications of certain exclusionary conduct 

under the antitrust laws. The primary goal of the hearings is to examine whether and 

when specific types of single-firm conduct are pro-competitive or benign, and whether 

and when they may harm consumers. The hearings will examine and analyze a wide 

range of legal and economic issues to help define the boundaries between legal and 

illegal conduct under Section 2. 

3. Advocacy 

An important complement to the FTC’s efforts to prevent or eliminate private restrictions 

on competition are efforts to prevent or eliminate public impediments to competition that 

may reduce consumer welfare. Government-imposed impediments can be among the most 

durable and effective restraints on competition. 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 

FTC law enforcement: energy, health care, and others that have a major impact on consumers’ 

wallets. 

• 	Electricity. The FTC filed two comments with the Federal Energy Regulatory 

Commission (FERC) in August 2005, concerning electricity transmission. In the fi rst 

comment, FTC staff emphasized the importance of FERC’s initiatives to reduce entry 

33

Federal Trade Commission


impediments that stem from risks in obtaining transmission services in wholesale 

electricity markets. In the second comment, the FTC staff focused on methods 

of calculating the amount of available capacity and ways to prevent transmission 

discrimination within the electricity industry. The FTC staff filed an additional 

comment with FERC in January 2006, regarding economically sound ways to assess 

market power at the generation level in wholesale electricity markets. 

• 	Pharmacy Benefi t Managers. Concerned about likely cost increases in pharmaceutical 

markets, the FTC staff submitted a comment regarding the potential effects of 

legislation in North Dakota that would regulate PBM contracts with pharmacies. The 

comment explained that such regulation would prevent health plans from designing 

benefit plans to encourage participants to use network pharmacies that provide 

drugs at a lower cost than other network pharmacies, and also explained that the 

drug-substitution provisions of the bill likely would make safe and price-reducing 

substitutions less common, thereby likely increasing the price of drugs and health 

insurance premiums and reducing the availability of drug insurance coverage for 

consumers. 

• 	Pharmaceuticals. Concerned that a proposed interpretation of FDA regulations would 

have significant negative implications for competition in the pharmaceutical industry 

to the detriment of consumers, the FTC submitted a response to a citizen petition fi led 

with the FDA by IVAX Pharmaceuticals in connection with its attempt to gain approval 

for a generic version of the cholesterol drug, Zocor. The FTC argued against an 

interpretation of relevant FDA regulations relating to the approval of generic drugs that 

would restrict choices for consumers. 

• 	 Optometrist Services. In March 2005, the FTC staff submitted comments regarding 

the potential effects of three different eye care bills under consideration in the Virginia 

Assembly. Two of the bills would prohibit an optometrist from working in any 

location that provides direct access to a commercial establishment. The comments 

argued that such a prohibition would impair competition between commercial and 

independent optometrists, and likely would cause consumers to pay higher prices for 

eye examinations and optical goods without providing any countervailing benefi ts 

in the form of higher quality eye care. The third bill, conversely, would ease current 

restrictions in this area by eliminating prohibitions on optometrists working in a 

commercial establishment, likely benefitting consumers with lower prices without 

reducing the quality of eye care. 

• 	 Real Estate Minimum-Service Requirements. In 2005, the FTC and DOJ jointly 

advocated against the passage of laws and regulations in Michigan, Missouri, Alabama, 

and Texas that would have imposed minimum-service requirements on real estate 

brokers in those states. Under the proposed legislation, real estate brokers would have 

to provide certain services – including negotiation, assistance in closing, and advice on 

pricing – to consumers, regardless of whether consumers actually wanted such services. 

The agencies argued that the proposed legislation would restrict consumer choice and 

reduce competition between limited-service brokers, who typically offer consumers the 

option of purchasing only those services that they want for fixed fees, and traditional, 

34

Federal Trade Commission


full-service brokers, who typically provide consumers with a full range of services in 

exchange for a commission on the sale price of the home. 

• 	Franchising. During 2005, the FTC continued to analyze restrictions on the vertical 

relationships between alcoholic beverage producers and distributors. FTC staff 

provided a comment on proposed legislation regarding wine sales in Ohio. The 

proposed legislation, the staff noted, likely would increase wholesalers’ incentives to 

lower prices and to undertake efforts to increase demand for wine suppliers’ brands, 

thereby likely decreasing the costs of wine distribution and increasing competition 

among both suppliers and wholesalers of wine in Ohio. The staff also commented on 

proposed legislation that would prohibit California brewers from terminating, refusing 

to renew, or refusing to enter into agreements with wholesalers “except for good 

cause and good faith.” The comments stated that the legislation likely would reduce 

wholesalers’ incentives to provide important demand-enhancing services and to reduce 

competition among wholesalers to carry brewers’ brands, to the ultimate detriment of 

California 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 year, the FTC fi led amicus briefs on issues 

concerning competition in the pharmaceutical industry, the proper antitrust analysis of joint 

ventures, the relationship between patents and market power, the analysis of alleged secondary 

line price discrimination in a commercial context where dealers are not in head-to-head 

competition for the same sales, and the applicability of American antitrust laws to transactions in 

foreign countries. 

• 	 In re Tamoxifen Citrate Antitrust Litigation. In this brief, the FTC supported 

plaintiffs’ petition for a panel rehearing and rehearing en banc, in a case in which a 

divided panel of the U.S. Court of Appeals for the Second Circuit upheld the dismissal 

of an antitrust challenge to a patent settlement between the manufacturer of a branded 

drug and an FDA applicant for a generic counterpart. The FTC argued that the panel 

did not properly consider the Hatch-Waxman Act, which encourages challenges to 

pharmaceutical patents to facilitate the early entry of generic drugs, and that, if not 

corrected, the panel decision would permit the holder of a challenged drug patent 

substantially to harm competition, and thus consumers, by impermissibly paying 

a would-be generic rival to stay off the market. The court of appeals subsequently 

took the unusual step of directing the defendants to respond not only to the rehearing 

petition, but to the arguments of amici, including the FTC. 

• 	 Texaco, Inc. v. Dagher. After the U.S. Court of Appeals for the Ninth Circuit ruled that 

an agreement between the parents of a joint venture regarding the pricing of products 

sold by the venture could amount to a per se violation of the antitrust laws, the FTC and 

DOJ fi led an amicus brief in support of the petition for certiorari, and later an amicus 

brief on the merits in support of reversal. The briefs argued that the pricing agreement 

did not qualify for per se condemnation because it did not eliminate any competition 

between petitioners in the sale of their respective brands of gasoline. The briefs 

35

Federal Trade Commission


explained that the Ninth Circuit’s ruling failed to recognize that the formation of the 

joint venture had effectively merged the affected operations and terminated petitioners’ 

prior competition. Accordingly, the briefs argued, petitioners’ agreement was not “price 

fixing” in the antitrust sense, because it did not eliminate any competition that otherwise 

would have existed. On February 28, 2006, the Supreme Court unanimously reversed, 

in keeping with the position taken in the agencies’ brief. 

• 	 Illinois Tool Works v. Independent Ink. In this case involving the alleged tying of a 

non-patented product (printer ink) to a patented product (printhead system), the U.S. 

Court of Appeals for the Federal Circuit ruled that, under its reading of two older 

Supreme Court cases, a patent is presumed to confer the necessary market power to 

establish a violation of Section 1 of the Sherman Act. The FTC and DOJ fi led an 

amicus brief urging the Supreme Court to reverse, arguing that there is no economic 

basis for inferring any amount of market power from the mere fact that the defendant 

holds a valid patent, copyright, trademark, or other intellectual property right. The 

brief explained that a patented product, no matter how novel or unique for purposes of 

patent law, may – and often does – face competition from other products that consumers 

would substitute for the patented invention. The brief urged the Court to resolve any 

remaining doubt on the issue by squarely rejecting the presumption. On March 1, 2006, 

the Court unanimously reversed, in keeping with the position taken in the Agencies’ 

brief. 

• 	 Volvo Trucks North America v. Reeder-Simco GMC, Inc. The FTC and DOJ fi led an 

amicus brief in this case, in which plaintiff alleged that Volvo violated Section 2(a) of 

the Robinson-Patman Act by failing to sell trucks to plaintiff on the same terms as it 

sold such trucks to other Volvo dealers. The record failed to show any episode in which 

Volvo discriminated against the dealer when it was competing for a sale against another 

Volvo dealer, and it failed to show any instance in which both plaintiff and a competing 

Volvo dealer actually purchased trucks at different prices for resale in direct competition 

with each other. The Supreme Court agreed with the government’s brief, and held that 

a manufacturer may not be held liable for secondary-line price discrimination in the 

absence of a showing that the manufacturer discriminated between dealers competing to 

resell its product to the same retail customer. 

• 	 Empagran v. F. Hoffmann-Laroche. The FTC and DOJ have fi led several amicus 

briefs in this case, in which foreign purchasers of vitamins alleged to have been the 

subject of a worldwide price-fixing conspiracy sought damages under American 

antitrust laws. In 2004, the Supreme Court, in agreement with the government’s 

position, ruled that the Foreign Trade Antitrust Improvements Act of 1982 does not 

permit a plaintiff to maintain an American antitrust action based on an “independent 

foreign effect” of alleged unlawful actions, even if those same actions also had domestic 

effects. The Supreme Court remanded to the court of appeals, however, to address 

plaintiffs’ alternative theory that its injuries were in fact inextricably linked to the 

domestic effects of the conspiracy. On remand, the agencies again fi led an amicus brief 

in the court of appeals, disputing plaintiffs’ alternative theory. As the brief pointed 

out, acceptance of that theory – based on the notion that vitamins are fungible and 

36

Federal Trade Commission


easily transported, so that maintenance of high cartel prices in the United States was an 

essential prerequisite to maintaining the high foreign prices they paid – would vastly 

expand application of U.S. law to wholly foreign transactions, contrary to the reasoning 

of the Supreme Court. On June 28, 2005, the U.S. Court of Appeals for the D.C. Circuit 

agreed with the government’s position and dismissed the action. 

Box 16 The FTC’s Integrated Approach to Competition Policy 

The FTC uses a variety of tools to achieve its policy goals, 

such as promoting competition in the health care industry to lower prices and increase options. 

GOAL: 

Promoting competition for 

lower prices and increased 

options for better health care. 

TOOL: Advocacy 

• Use of pharmacy benefit managers 

(North Dakota) 

• Competition for optometrist services 

(Virginia) 

• Interpretation of regulations affecting 

approval of generic drugs (FDA) 

TOOL: Congressional Testimony 

• Effects on competition of entry by singlespecialty hospitals 

TOOL: Amicus Briefs 

• In re Tamoxifen Citrate Antitrust Litigation 

• Empagran v. F. Hoffmann-Laroche 

TOOL: Reports 

• PBM Conflicts of Interest Study 

TOOL: Law Enforcement 

• Novartis/Eon (merger involving generic drugs) 

• Johnson & Johnson/Guidant (merger involving 

medical devices) 

• DaVita/Gambro (merger involving dialysis 

services) 

• Physician price fixing cases (6 cases) 

• Warner Chilcott/Barr (nonmerger case involving 

oral contraceptives) 

TOOL: Administrative Litigation 

• In the Matter of North Texas Specialty Physicians, 

Docket No. 9312 (Nov. 29, 2005) 

• Schering-Plough Corp. v. FTC, 402 F.3d 1056 

(11th Cir. 2005), petition for cert. filed, 

(Aug. 29, 2005) (No. 05-273) 

TOOL: Staff Advisory Opinions 

• Stevens Hospital (cost of pharmaceuticals under 

Non-Profi t Institutions Act (NPIA)) 

• North Mississippi Health Services (proposed 

pricing of pharmaceuticals under NPIA) 

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Federal Trade Commission


5. 	 Testimony to Antitrust Modernization Commission 

During the past year, the Chairman and FTC senior staff members have testified on a wide 

range of subjects before the Antitrust Modernization Commission (AMC), which is charged with 

examining how the antitrust laws can or should be modernized to benefi t the American economy. 

Among the diverse topics addressed were: (1) civil remedies available to the FTC in antitrust 

cases; (2) federal merger enforcement, including the merger review process generally, the role of 

efficiencies in merger review, and the standards for preliminary injunctions in merger cases; (3) 

patent law reform and the relationship between competition and patent law; (4) the state action 

doctrine; (5) statutory immunities and exemptions; and (6) international issues, including the 

enhanced use of international antitrust comity, possible amendments to international antitrust 

statutes, and the authority of both the FTC and DOJ to fund technical assistance programs 

abroad. 

B. Consumer Protection Policy 

In similar fashion, the FTC applied its distinctive mix of policy tools to complement its 

consumer protection enforcement. Working with other law enforcement agencies, industry, the 

media, and the public, the FTC distributed extensive information on preventing and remedying 

identity theft, developed even greater expertise in technological and legal issues related to spam, 

and provided important data and analysis on a variety of consumer protection issues. 

1. 	Reports and Research 

In addition to using electronic databases and websites to track consumer fraud, the FTC 

conducts research of marketplace issues affecting consumers and publishes its findings in reports. 

During the past year, the FTC continued to analyze compliance and other issues relating to the 

CAN-SPAM Act, as well as issues raised by the use of peer-to-peer fi le-sharing technology. 

• 	 CAN-SPAM Act Reports to Congress. The CAN-SPAM Act required the FTC to 

submit four reports to Congress. In 2005, the FTC completed the third and fourth 

reports. The Report on Subject Line Labeling as a Weapon against Spam concluded 

that such labeling would not be an effective way to curb spam. The Report on the 

Effectiveness and Enforcement of the CAN-SPAM Act concluded that, while the Act has 

helped to deliver some improvements, passage of the US SAFE WEB Act to improve 

the FTC’s ability to trace spammers and sellers who operate outside the United States, 

as well as continued education efforts and improvements in anti-spam technology, are 

also needed to provide more effective protection for consumers. 

• 	 Spam Studies. The FTC staff conducted two spam studies in 2005. The Top Etailers’ 

Compliance With CAN-SPAM’s Opt-Out Provisions report assessed the opt-out practices 

of 100 top e-tailers – those who make significant use of the Internet to market their 

goods or services. This group demonstrated a high rate of compliance with CANSPAM’s opt-out provisions. The Email Address Harvesting and the Effectiveness of 

Anti-Spam Filters study explored address harvesting – the automated collection of 

email addresses from public areas of the Internet, the effectiveness of spam fi ltering by 

38

Federal Trade Commission


Internet Service Providers, and the effectiveness of using “masked” email addresses 

as a technique to prevent the harvesting of email addresses. The study concluded that 

spammers continue to harvest email addresses posted on websites, but email addresses 

posted elsewhere (e.g., in chat rooms or on message boards), were unlikely to be 

harvested. 

• 	 Peer-to-Peer (P2P) File-Sharing Report. In June 2005, FTC staff issued a report 

on Peer-to-Peer File-Sharing Technology: Consumer Protection and Competition 

Issues, which analyzes the consumer protection, competition, and intellectual property 

issues inherent in the use of P2P technology. The report urges industry to decrease the 

consumer protection risks associated with P2P use through technological innovation 

and self-regulation. The report also recommends that government continue to bring law 

enforcement actions where appropriate, and to work with industry on self-regulatory 

and consumer education 

initiatives. Finally, the report Box 17 

generally concludes that Encouraging Effective Industry Self-Regulation 

policymakers should balance 

the protection of intellectual 	 In presentations during 2005, Commissioner 

Pamela Jones Harbour emphasized that self-regulation property and the freedom to – when done properly and effectively – benefits both 

advance new technologies, consumers and businesses, because consumers 

thereby encouraging the are more likely to buy products from firms they trust. 

creation of new artistic Companies should adopt “best practices” wherever 

works, as well as economic possible, such as: 


growth and enhanced business 
 • marketing healthier food choices to children; effi ciency.	 • ensuring that recommended high adult audience 

standards are met or even exceeded when 

• 	Weight-Loss Advertising advertising or showing alcohol in media; Survey. In April 2005, FTC • providing nationwide notification to victims of data 

staff issued the results of the security breaches when identity theft is a risk, even 

2004 Weight-Loss Advertising without a Congressional mandate; and 

Survey, comparing certain • maximizing the accuracy of consumer data collected 

weight-loss claims found 	 for any purpose. 

in advertisements in major Commissioner Harbour warned that, where industry

media outlets from January self-regulation does not go far enough, consumers may 

to May 2004, with ads lose faith in the marketplace, and/or Congress may 

appearing during the same decide to legislate. 

period in 2001. The report 

evaluated the effect of the FTC’s “Red Flag” initiative, which encouraged the media 

to stop accepting advertisements that contained any of seven facially false weightloss advertising claims. In general, the survey suggested that the incidence of the 

Red Flag false weight-loss claims declined significantly in television, radio, and print 

advertisements. Specifically, while nearly half of the comparable ads reviewed from the 

2001 survey contained at least one Red Flag claim, only 15 percent of the 2004 weightloss ads made one or more Red Flag claims. 

39

Federal Trade Commission


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. 

• 	 Food Marketing to Children. In July 2005, the FTC hosted a two-day public 

workshop with the Department of Health and Human Services (HHS) on Perspectives 

on Marketing, Self-Regulation, and Childhood Obesity. The workshop brought together 

stakeholders from government, academia, consumer groups, the food industry, and 

the media to explore the private sector’s role in addressing the public health crisis of 

Box 18 

The FTC’s Integrated Approach to Consumer Protection Policy 

The FTC uses a variety of tools to achieve its policy goals, 

such as combating rising obesity rates, especially among children 

GOAL: Combat rising 

obesity rates, 

especially among children. 

TOOL: Law Enforcement 

(weight-loss related cases since April 2005) 

• 10 new cases filed 

• Civil penalties ordered for $2 million 

• Consumer redress ordered for $31 million 

TOOL: International Cooperation 

• Staff speeches to the TransAtlantic 

Consumer Dialog on FTC aproach to selfregulation (May and December 2005). 

TOOL: Consumer and 

Business Education 

• Eight brochures on weight 

loss programs, diet, and 

fitness, as well as public 

service announcements, 

and Internet “micro” sites 

and “teaser” sites. 

• “Red Flag: Bogus Weight 

Loss Claims” guide for 

media screening of false 

weight loss advertising 

claims. 

TOOL: Reports and 

Studies 

• Weight Loss Advertising 

Survey (April 2005). 

• Bureau of Economics 

Study on children’s 

exposure to television food 

advertising (Preliminary 

results released July 

2005). 

• Food Industry Marketing 

Practices to Children 

and Adolescents Study 

(Federal Register Notice, 

February 2006). 

TOOL: Consumer Protection Advocacy 

• Comments to FDA on information for better 

nutrition. 

• Chairman’s speeches to industry 

- Obesity Liability Conference (May 2005) 

- Council of Better Business Bureaus (April 2005) 

- Consumer Federation of America (March 2005). 

TOOL: Conferences and Workshop 

• FTC/HHS Marketing, Self-Regulation and 

Childhood Obesity Workshop (July 2005). 

40

Federal Trade Commission


childhood obesity. Discussion focused on industry self-regulatory efforts to ensure that 

foods are marketed responsibly to children, with an emphasis on the self-regulatory 

program of the Children’s Advertising Review Unit of the Council of Better Business 

Bureaus. The workshop also examined efforts that individual companies are making, 

through product and packaging changes, advertising, and other marketing and outreach 

initiatives, to improve the diets and health of children. 

• 	 Dispute Resolution and Redress. The FTC has often provided redress to foreign 

victims of fraud perpetrated by U.S. businesses. Few other government agencies, 

however, can obtain redress for victims of fraud, much less obtain redress on behalf of 

foreign consumers. American consumers are often victimized by scammers abroad, 

and the FTC has encouraged other countries to provide redress mechanisms for these 

consumers. To this end, in April 2005, the FTC hosted a workshop sponsored by the 

OECD on Dispute Resolution and Redress for Consumers. Industry, government, 

consumer groups, and academics from all over the world participated. Panelists 

discussed various mechanisms through which consumers could obtain compensation 

for economic losses arising from transactions with businesses, particularly cross-border 

transactions. 

• 	 Looking Ahead – Hearings on Global Marketing and Technology. In 1995, the FTC 

held hearings for government policymakers to consider the risks presented by rapidly 

evolving technologies, such as the Internet, and to formulate policies to address these 

risks. In February 2006, the agency announced that in November 2006, the FTC will 

bring together experts from the business, government, and technology sectors, as well as 

consumer advocates, academicians, and law enforcement officials to explore the ways 

in which convergence and the globalization of commerce impact consumer protection. 

The upcoming hearings will examine changes that have occurred in marketing and 

technology, and garner experts’ views on emerging challenges and opportunities for 

consumers, businesses, and government. 

3. 	Advocacy and Amicus Briefs 

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 flow 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 filed comments with the FDA on these topics. The 

FTC also has intervened in court proceedings when important issues affecting consumers are at 

stake. 

• 	Qualified Health Claims. In January 2006, FTC staff filed a comment with the 

FDA regarding consumer perceptions of health claims made for foods and dietary 

supplements. The comment analyzed the available research on consumer perceptions 

of health claims supported by limited scientific evidence and concluded that the FDA’s 

current approach of using a series of pre-determined, “language only” qualifi ers does 

not effectively differentiate among varying levels of scientific certainty. The comment 

41

Federal Trade Commission


suggests that it may be possible to craft more effective “language only” qualifi ers, and 

that other visual scoring formats (such as a report card format) should be explored. The 

comment encourages additional consumer research in this area. 

• 	 Alcohol Labeling. In September 2005, FTC staff filed a comment on the proposal by 

the Alcohol and Tobacco, Tax, and Trade Bureau (TTB) of the Treasury Department, to 

modify its labeling rules for alcoholic beverage products. The comment recommended 

that the TTB require that alcohol labels disclose alcohol and nutrient content per 

serving, because such information would help consumers select beverages consistent 

with their preferences and public health recommendations, and would encourage 

manufacturers to compete based on the nutritional attributes of their beverages. The 

comment also recommended that the TTB consult with public health agencies to resolve 

uncertainty about the quantity of alcohol in a standard “drink,” as described in public 

health guidelines, and allow marketers the option of making truthful, non-misleading 

representations comparing the amount of alcohol in a serving of their beverage to a 

standard drink or to dietary guideline recommendations. 

• 	 Illinois Bill Establishing a Child Protection Registry. In October 2005, FTC staff 

filed a comment regarding Illinois HB 0572, a bill designed to protect minors from 

unwanted commercial e-mails (spam) that advertise products or services they are 

prohibited from buying or that contain adult advertising or links to adult content. 

The bill would establish a Child Protection Registry and make it illegal to send such 

messages to registrants. The FTC staff’s comment noted that the registry could easily 

be abused by online child predators; that publishing a list of verified email addresses 

could unintentionally increase the amount of spam received by registrants; and that 

the bill’s substantial compliance costs could hamper Internet competition and prevent 

consumers from receiving legitimate and wanted information. 

• 	 Chavez v. Netfl ix. The FTC fi led an amicus brief recommending that the court reject a 

proposed class action settlement in Chavez v. Netfl ix. The proposed settlement offered 

current customers one month of upgraded service and former members one free month 

of service. Class members who accept the settlement, however, would be obligated 

to pay for the expanded or new service on a monthly basis after the conclusion of the 

free month, unless or until they cancel the service. The FTC’s objection focused on 

this “negative option” feature, arguing that it would be disclosed inadequately and 

would serve more as a marketing vehicle than as a redress mechanism. The parties 

subsequently restructured their settlement agreement, eliminating this negative option 

feature. 

4. 	Consumer and Business Education and Outreach 

Education enhances law enforcement efforts, empowers consumers, and ultimately, 

improves the quality and choice of goods and services in the marketplace. To promote consumer 

confidence, the FTC integrates its education and enforcement missions, delivering “news 

people can use” in conjunction with “news of the day” announcements about enforcement and 

policy issues. Since April 2005, consumers and businesses have ordered some 6 million print 

publications from the FTC, and have logged 35 million visits to www.ftc.gov. 

42

Federal Trade Commission


• 	 OnGuard Online. The Internet provides access 

to countless services, but it also can create 

vulnerabilities, if consumers are not careful with 

their information and their computers. The FTC, 

other law enforcement agencies, the technology 

industry, and nonprofit partners together launched 

OnGuard Online (onguardonline.gov), an 

interactive, multi-media resource for information, 

quizzes, and up-to-the minute tools on how to 

recognize Internet fraud, avoid hackers and viruses, 

shop securely online, and deal with identity theft, 

spam, phishing, and fi le-sharing. OnGuard Online 

modules are available in English and Spanish 

(AlertaenLinea.gov). The success of this initiative 

can be seen in the United States and beyond – a 

number of consumer protection agencies from 

other countries have adapted the OnGuard Online 

materials for their own use, even translating the 

materials for their own consumers. 

• 	 Hispanic Outreach. Ever since the FTC’s 

benchmark consumer fraud survey showed that 

Hispanics are twice as likely as non-Hispanic whites 

to be victims of consumer fraud, the agency has 

placed a priority on outreach to Spanish speakers. During 2005, the FTC held its fi rstever Spanish-only press conference for the launch of AlertaenLinea.gov. The FTC also 

launched ¡Ojo!, a bilingual newsletter for Hispanic community-based organizations, and 

co-hosted a series of outreach and enforcement workshops with the USPIS. These oneday workshops brought together federal and local law enforcers, community leaders, 

and local media to discuss new ways to work together. In addition, the FTC promoted 

widely Estableciendo Crédito (Getting Credit), the FTC’s credit website and booklet 

that is aimed at Spanish-speaking young adults. As of March 2006, the FTC’s library 

of Spanish-language publications for consumers and businesses includes more than 100 

publications. 

STOP. THINK. CLICK. 

Box 19 

PARE. PIENSE. HAGA CLIC. 

• 	 Hurricane Relief. The FTC’s consumer education program provided a quick response 

to protect consumers made vulnerable by Hurricanes Katrina and Rita. The agency 

offered consumer education in print, on its website, and through broadcast public 

service announcements to prevent victims from being injured by the frauds and scams 

that proliferate following such disasters. Beyond the immediate need to prevent fraud 

and deception, the FTC also offered materials to assist hurricane victims in rebuilding 

their financial lives. 

• 	Energy. Whether trying to save money at the pump or buy the most energy-effi cient 

appliances, consumers want guidance on how to lower their energy bills. A new 

website, www.ftc.gov/energysavings, and a booklet, Saving Starts @ Home: The Inside 

43

Federal Trade Commission


Story on Conserving Energy, compile the FTC’s most recent information on energy 

efficiency, making it easier for consumers to access the information. 

• 	Identity Theft. A new educational campaign on identity theft is showing consumers 

how to minimize their risk of falling victim to identity theft. The campaign encourages 

consumers to “Deter, Detect, and Defend” against identity theft by taking steps to 

reduce their risk, keep a close eye on their personal information, and move quickly to 

minimize the damage if identity theft occurs. Since 2000, the agency has distributed 

nearly 5 million paper copies of its two main identity theft publications, including its 

new and improved identity theft booklet, and recorded more than 3 million visits to the 

web versions of these publications. 

• 	 Outreach to Business. Through speeches, presentations, articles in industry 

newsletters and magazines, and the Business Briefcase, a handy new business cardsized CD with 67 of the agency’s most important compliance publications, the FTC 

is reaching business people – and their attorneys – in large numbers. For example, 

the very popular Green Lights/Red Flags symposia, held in cooperation with local 

Better Business Bureaus and bar associations, explain the “science of compliance” to 

attorneys, marketing executives, and business owners. 

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Federal Trade Commission


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 United States. The FTC also actively assists 

new democracies moving toward market-based economies with developing competition and 

consumer protection laws and policies. 

A. Competition 

1. 	Promoting Cooperation and Convergence Through Bilateral 

Relationships 

The FTC’s cooperation with competition agencies around the world is a vital component 

of its enforcement program, facilitating its ability to collaborate on cross-border cases and to 

promote convergence toward sound consumer welfare-based competition policies. During the 

past year, the FTC participated in consultations in Washington and in foreign capitals with top 

officials of, among others, the European Commission (EC), the Japan Fair Trade Commission 

(JFTC), and the Russian Federal Anti-Monopoly Service, and, for the first time, in November 

2005, held a joint consultation with the Canadian Competition Bureau and the Mexican Federal 

Competition Commission. 

FTC staff routinely coordinate with colleagues in foreign agencies, promoting effi cient and 

effective review of mutijurisdictional mergers and conduct. Recent illustrative matters include: 

• 	 Procter & Gamble/Gillette. Procter & Gamble’s $57 billion acquisition of Gillette 

raised competition concerns regarding many consumer products, including tooth 

whiteners and antiperspirants. FTC staff worked closely with several foreign 

competition authorities, including the EC, the Canadian Competition Bureau, and 

the Mexican Federal Competition Commission. The FTC and the EC coordinated 

compatible remedies in oral health care products. Their decisions also addressed 

whether the merger would increase the merged firm’s ability, when acting as a 

“category manager,” to obtain premium retailer shelf space and exclude or disadvantage 

competitors in several brand categories. Canada determined that the divestitures 

obtained by the FTC and the EC would resolve its competition concerns, while Mexico 

and other authorities authorized the transaction. 

• 	 Johnson & Johnson/Guidant. Johnson & Johnson’s proposed $25 billion bid to take 

over Guidant raised concerns in several medical device markets, particularly stents 

and other devices used to treat vascular diseases. The FTC coordinated its review with 

the EC, the Canadian Competition Bureau, and the JFTC. The competitive situation 

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Federal Trade Commission


– and likely effects of the proposed merger – varied among jurisdictions, requiring 

close cooperation in the investigation and the negotiation of remedies. Pursuant to 

confidentiality waivers from the parties, EC staff participated in joint meetings with 

FTC staff, the parties, and third parties. In light of subsequent developments, the 

FTC and other agencies are monitoring the potential acquisition of Guidant by Boston 

Scientifi c. 

The FTC promotes policy convergence through formal and informal working arrangements 

with other agencies, many of which seek the FTC’s views in connection with developing new 

policy initiatives. For example, during the past year, the FTC consulted with: 

• 	 the EC regarding several aspects of merger policy, including the EC’s review of its 

remedies policies and the EC’s discussion paper on its policies regarding abuse of 

dominance; 

• 	 several EU Member States on competition in health care markets; 

• 	 the United Kingdom regarding synergies between competition and consumer protection 

policy; 

• 	 the Canadian Competition Bureau on cross-border information sharing policies; and 

• 	 the JFTC on exclusionary conduct and administrative procedures and remedies, and 

submitted comments on proposed JFTC Guidelines on Standardization and Patent Pool 

Arrangements. 

The FTC had other productive contacts with foreign counterparts over the past year. It 

participated in working groups with the EC on mergers and the intellectual property issues 

related to competition policy, and with Japan, Korea, and Taiwan on intellectual property issues. 

The agency also places a high priority on maintaining a dialogue with officials involved in 

developing the first comprehensive competition law in China – FTC senior staff made several 

trips to China and, with the Antitrust Division, has been providing valuable input into the 

drafting process. Chairman Majoras met with members of the Mexican Senate responsible for 

considering revisions to that country’s competition law and spoke with Mexican judges about the 

American experience in applying its antitrust laws. Finally, the FTC benefits from the views of 

its foreign counterparts on U.S. policies. 

2. 	Promoting Convergence Through Multilateral Competition Fora 

Multilateral competition fora provide important opportunities for competition agencies to 

enhance mutual understanding and promote cooperation and convergence. The FTC participates 

actively in, among others, the International Competition Network (ICN) and the Organisation for 

Economic Cooperation and Development (OECD). 

ICN. The ICN, which includes 95 competition agencies from 84 jurisdictions, is an 

important venue for antitrust officials worldwide to work towards procedural and substantive 

convergence on best practices in antitrust enforcement and policy. In June 2005, the ICN hosted 

its fourth annual conference. Based on recommendations by the Merger Procedures Subgroup 

that the FTC chairs, the ICN adopted two new Recommended Practices for Merger Notifi cation 

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Federal Trade Commission


and Review Procedures, one dealing with remedies and one with competition agency powers. 

These complement the 11 Recommended Practices and eight Guiding Principles for Merger 

Notification and Review that the ICN had previously adopted. The ICN also adopted a model 

form for waivers of confidentiality. In March 2006, the FTC co-sponsored with DOJ a successful 

workshop for competition officials around the world to promote greater understanding and 

further implementation of the Recommended Practices. The FTC also plays a lead role in 

the ICN’s working group on Competition Policy Implementation, which helps new agencies 

strengthen their institutional capacity and performance. The agency looks forward to serving as 

a co-chair of a likely new working group on unilateral conduct. 

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 work on, among other topics, competition 

on the merits, barriers to entry, ex-post evaluation of competition initiatives, below-cost sales, 

regulatory reform, and the interface between trade and competition policy. The FTC has helped 

lead OECD initiatives exploring the synergies between competition and consumer protection 

policy through joint roundtables, and participates in the Global Forum on Competition, which 

includes representatives from many developing countries. 

3. Promoting Competition Policy Through Trade Fora 

Trade agreements increasingly involve competition issues. The FTC participates in U.S. 

delegations that negotiate competition chapters of free trade agreements, including during the last 

year in connection with negotiations with Peru and other Andean countries and with Thailand. 

The FTC also participates in the competition forum of the United Nations Conference on Trade 

and Development, which focuses on competition issues facing developing countries. 

B. Consumer Protection 

In an era of increased globalization, the FTC has developed an increasingly international 

market-based approach to consumer protection that focuses on protecting consumers while 

maximizing economic benefit and consumer choice. The FTC has built an international network 

for cooperation to combat cross-border fraud and has promoted market-oriented consumer 

protection and privacy policies. In doing so, FTC staff met with over 200 foreign visitors to 

Washington on consumer protection issues in 2005. In addition, staff met with hundreds more 

foreign government representatives during official visits to 20 countries over the past 12 months. 

1. Cross-Border Fraud 

Spammers, spyware operators, fraudulent telemarketers, and other scam artists know no 

national boundaries, and can strike quickly on a global scale. Not surprisingly, an increasing 

number of complaints the FTC receives involve cross-border transactions, and an increasing 

number of law enforcement investigations the FTC undertakes involve some cross-border 

component. As a result, over the last few years, the Commission has launched a comprehensive 

program to combat cross-border fraud. Some highlights of the FTC’s recent and ongoing efforts 

include the following. 

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Federal Trade Commission


Legislative Proposals. Last 

June, the FTC submitted a report 

to Congress recommending 

legislation called the US SAFE 

WEB Act – Undertaking Spam, 

Spyware, and Fraud Enforcement 

with Enforcers across Borders. 

The proposed legislation would 

enable the FTC to share key 

information with foreign partners, 

assisting international law 

enforcers in pursuing fraudulent 

conduct in their countries that 

impacts U.S. consumers. The 

legislation, among other things, 

would help the FTC fi ght deceptive 

Consumer Sentinel Fraud Complaints 

by Calendar Year 

16,339 32,751 46,692 64,797 86,390 

117,797 

208,723 

280,811 

341,412 

348,135 

0 

50,000 

100,000 

150,000 

200,000 

250,000 

300,000 

350,000 

400,000 

450,000 

500,000 

2001 2002 2003 2004 2005 

Cross-Border Non Cross-Border 

Percentages are based on the total number of Consumer Sentinel fraud complaints by calendar year. These figures exclude 

“Identity Theft” and “Do Not Call” registry complaints. 

86% 

84% 

80% 

14% 16% 20% 

327,503 

406,209 

434,525 

241,474 

134,136 

14% 

86% 

88% 

12% 

Box 20 

spam and spyware by allowing the agency to investigate more fully messages transmitted 

through facilities outside the United States. On March 16, 2006, the Senate passed the US SAFE 

WEB Act. 

International Law Enforcement Cooperation. The FTC continues to expand its 

partnerships with consumer protection law enforcers throughout the world. The FTC co-chairs 

the London Action Plan on international spam enforcement cooperation, which in 2005 added 

agencies and private sector representatives from India, China, Nigeria, Malaysia, Taiwan, 

Latvia, and Hungary as new members. In March 2006, the FTC signed a Memorandum of 

Understanding with the Costa Rican Ministry of Economy, Industry and Commerce (MEIC), 

which provides for enhanced cooperation and information-sharing between staff of the FTC 

and MEIC on consumer protection matters. The FTC also has invested signifi cant resources 

expanding partnerships with Canadian regional entities to fight telemarketing fraud by Canadians 

targeting U.S. and Canadian Consumers, e.g., it helped establish a new partnership based in the 

Atlantic provinces and joined a Montreal-based partnership to combat cross-border telemarketing 

fraud. These efforts add to the successful four cross-border regional partnerships in which the 

FTC already participates, such as the Vancouver-based Project Emptor and the Toronto Strategic 

Partnership. These partnerships have resulted in productive cross-border enforcement. For 

example, in 2005, the Toronto Strategic Partnership activities led to 131 arrests, 107 criminal 

charges, and 56 court orders. 

Cross-Border Cases. In 2005, the FTC’s Bureau of Consumer Protection filed 14 new 

cases with a significant international component in the federal courts and continued to litigate 

and investigate dozens of other matters involving foreign defendants, witnesses, and evidence. 

The FTC contacted and received assistance from agencies in approximately 20 countries in these 

cases and investigations. 

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Federal Trade Commission


2. Promoting Market-Oriented Policies 

The FTC promotes consumer protection policies abroad to help ensure that consumer 

protection rules focus on practices that distort consumer choice and threaten the proper 

functioning of markets. The American approach to consumer protection generally involves 

flexible, market-oriented standards backed by aggressive enforcement. This approach helps 

reduce compliance costs that would be passed on to consumers while at the same time provides 

a high level of consumer protection focused on preventing acts or practices that cause injury to 

consumers. Some examples of the FTC’s work in this area over the past year include: 

Privacy and Emerging Technologies. The FTC has undertaken a number of steps to 

strengthen international cooperation on privacy and security issues. For example, FTC staff is 

working with other U.S. agencies to implement a privacy framework endorsed by Ministers of 

the Asia-Pacific Economic Cooperation forum. FTC staff also is supporting work in the OECD 

to build international cooperation to enforce privacy laws. With respect to high tech scams, FTC 

staff is working on an OECD Toolkit to Combat Spam, a comprehensive report for developing 

countries that focuses on legislation, enforcement, education, technology, and public-private 

partnerships to combat spam. 

Economic Underpinnings of Consumer Protection. FTC staff has led efforts within the 

OECD Committee on Consumer Policy to encourage countries to adopt an economics-based 

approach to consumer protection. Through this work, FTC staff has advocated that policymakers 

should weigh the costs and benefits of any proposed consumer protection measure. Last fall, 

several FTC staff participated in an OECD roundtable on this subject. Closely related to this 

work is FTC staff advocacy concerning the critical intersection between competition and 

consumer protection policies. Last year, FTC staff provided advice on this subject in a variety 

of venues. For example, it advised German authorities concerning effective consumer protection 

policies, commented on a U.K. government proposal to split competition and consumer 

protection functions into two distinct agencies, and sent comments to the United Nations 

Commission on Trade and Development on a draft consumer protection manual for developing 

countries. 

C. International Technical Assistance 

Last year was a peak time in recent years for the FTC’s international technical assistance 

program, which provides training and other education to developing nations. These activities, 

funded mostly by the United States Agency for International Development, included 28 missions 

to 18 countries, involving 35 different FTC staff experts. In addition, FTC staff maintained a 

resident advisor in Jakarta, Indonesia, assisting the member states of the ten-nation ASEAN 

organization. The FTC works in close cooperation with DOJ’s Antitrust Division in conducting 

its antitrust activities in this program. 

Since its inception in the early 1990s, the program has conducted hundreds of training 

missions in developing nations, employing the diverse expertise of agency lawyers and 

economists. In more recent years, the program has extended into consumer protection, where 

the legal and economic standards employed by the Commission have been embraced by several 

aid recipients. From 2005 to the present, the Commission has been most active in the fi ve-nation 

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Federal Trade Commission


Andean Community, the ten-nation ASEAN community, India, Russia, Azerbaijan, South Africa, 

Egypt, Jordan, and Mexico. In a typical training mission, a lawyer and economist team conduct 

a three or four day interactive case simulation containing substantive and procedural issues 

likely to be encountered in a real investigation. Students are from the staffs of newly created 

enforcement entities unlikely to have real life experience investigating and building cases. 

Witnesses and documents are available for class participants to interview and examine, with 

students playing the roles of witnesses, interrogators, advocates, and analysts. Often the classes 

are divided into teams that ultimately argue for and against bringing an enforcement action, with 

the U.S. team playing the role of judges (or Commissioners). 

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Federal Trade Commission


Conclusion 

The FTC’s varied accomplishments over the past 12 months foreshadow some of the 

agency’s future undertakings and challenges in fulfilling its ongoing commitment to consumers 

and competition. The FTC will review thousands of proposed mergers to ensure they are not 

likely to harm competition and will continue to monitor, review, and investigate hundreds of 

arrangements, schemes, scams, and outright frauds to determine if they violate Section 5 of the 

FTC Act. In appropriate cases, these investigations will conclude in law enforcement actions 

with suitable remedies. But even when hours of investigative activity do not conclude in 

enforcement actions, the FTC still will be serving consumers by deterring possible fraud and 

anticompetitive behavior through its ever-watchful presence in the marketplace. 

In addition to law enforcement, the agency will continue to monitor marketplace changes 

to keep abreast of new products, services, and ways of doing business – both legitimate and 

illegitimate. Hearings, studies, and workshops on a wide range of topics are planned. As always, 

the FTC will remain alert to both the opportunities and the threats that abound in our increasingly 

electronic and global marketplace, as we work to protect consumers and promote competition. 

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Principal Contributors to Report 

Judith Bailey and Shira Pavis Minton, Chairs 

Dawne E. Holz, Graphics and Design 

Marc M. Groman, Consumer Protection 

James M. Giffin, Competition — In Special Remembrance (1951-2006) 

Contributing staff members also include Jeanine Balbach, Jeffrey Brennan, Marian Bruno, 

William Cohen, John Daly, Russell W. Damtoft, Rachel Miller Dawson, Elizabeth Delaney, 

Susan DeSanti, Mark Eichorn, James C. Hamill, Brian Huseman, Maryanne Kane, Daniel 

Kaufman, Gail Levine, Gregory Luib, Erin Malick, Sarah Mathias, Deborah Marrone, Jonathan 

Morgan, John Parisi, Sara Razi, Stefano Sciolli, John Seesel, Joshua Soven, Randy Tritell, and 

Beth Arvan Wiggins. 

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Federal Trade Commission


Senior Staff of the Federal Trade Commission 

Chief of Staff Maryanne S. Kane 

Executive Director Charles Schneider 

Deputy Executive Director Judith Bailey 

Director, Bureau of Competition Jeffrey Schmidt 

Director, Bureau of Consumer Protection Lydia B. Parnes 

Deputy Directors C. Lee Peeler 

Eileen Harrington 

Director, Bureau of Economics Michael Salinger

 Deputy Directors Paul A. Pautler 

Mark Frankena 

General Counsel William Blumethal 

Principal Deputy General Counsel John D. Graubert 

Director, Office of Congressional Relations Anna H. Davis 

Director, Office of Public Affairs Nancy Ness Judy 

Director, Office of Policy Planning Maureen K. Ohlhausen 

Secretary of the Commission Donald S. Clark 

Chief Administrative Law Judge Stephen J. McGuire 

Inspector General Howard L. Sribnick 

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Federal Trade Commission


Federal Trade Commission Annual Awards 

October 2005 

Chairman’s Award 	 Randolph Tritell 

Louis D. Brandeis Award 	 Michael Bloom 

Janet D. Steiger Outstanding Team Award 	 Hispanic Outreach Team 

Oil and Gas Studies Team 

 US SAFE WEB Team 

Richard C. Foster Award 	 Judy Burnam

 Mary Rushen

 Michael Verne 

James M. Mead Award 	 Charles Clayborne

 Ethel Fischman

 Jonathan Morgan 

Paul Rand Dixon Award 	 Sana Coleman

 Jeanne Crouse

 Philip Eisenstat

 Lisa Harrison

 Charles Pidano 

Mary Gardiner Jones Award 	 Wilhelmina Thorpe 

Award for Excellence in Supervision 	 C. Steven Baker

 Jeffrey Nakrin

 Geoffrey Oliver

 Thomas Pahl 

Otis B. Johnson Award 	 Mary Draper Connelly

 Regina Duarte

 Jeffrey Smith

 Nathaniel Wood 

Excellence in Economics Award 	 Joel Schrag 

Outstanding Scholarship Award 	 James Cooper 

Stephen Nye Award 	 Shibani Baksi

 Albert Kim

 Kathryn Ratte 

Leon Higginbotham, Jr. Award 	 BCP Hiring Team 

Eleanor F. Greasley Award 	 Duane Fink

 Virginia Smith 

54