U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

79–010

" ! SENATE 106th Congress

2d Session

REPORT

2000

106–385

Calendar No. 761

FEDERAL TRADE COMMISSION

REAUTHORIZATION ACT OF 1999

REPORT

OF THE

COMMITTEE ON COMMERCE, SCIENCE, AND

TRANSPORTATION

on

S. 1687

AUGUST 25, 2000.—Ordered to be printed

Filed, under authority of the order of the Senate of July 26, 2000

(II)

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

JOHN MCCAIN, Arizona, Chairman

TED STEVENS, Alaska

CONRAD BURNS, Montana

SLADE GORTON, Washington

TRENT LOTT, Mississippi

KAY BAILEY HUTCHISON, Texas

OLYMPIA SNOWE, Maine

JOHN ASHCROFT, Missouri

BILL FRIST, Tennessee

SPENCER ABRAHAM, Michigan

SAM BROWNBACK, Kansas

ERNEST F. HOLLINGS, South Carolina

DANIEL K. INOUYE, Hawaii

JOHN D. ROCKEFELLER IV, West Virginia

JOHN F. KERRY, Massachusetts

JOHN B. BREAUX, Louisiana

RICHARD H. BRYAN, Nevada

BYRON L. DORGAN, North Dakota

RON WYDEN, Oregon

MAX CLELAND, Georgia

MARK BUSE, Staff Director

ANN H. CHOINIERE, General Counsel

KEVIN D. KAYES, Democratic Staff Director

MOSES BOYD, Democratic Chief Counsel

GREGG ELIAS, Democratic General Counsel

Calendar No. 761

106TH CONGRESS REPORT

2d Session " ! SENATE 106–385

FEDERAL TRADE COMMISSION REAUTHORIZATION ACT OF

1999

AUGUST 25, 2000.—Ordered to be printed

Filed, under authority of the order of the Senate of July 26, 2000

Mr. MCCAIN, from the Committee on Commerce, Science, and

Transportation, submitted the following

REPORT

[To accompany S. 1687]

The Committee on Commerce, Science, and Transportation, to

which was referred the bill (S. 1687) ‘‘A Bill to amend the Federal

Trade Commission Act to authorize appropriations for the Federal

Trade Commission’’, having considered the same, reports favorably

thereon with amendments and recommends that the bill do pass.

PURPOSE OF THE BILL

The purpose of S. 1687 is to reauthorize the Federal Trade Commission (FTC) for fiscal years 2001 and 2002 and to make revisions

to the process for reviewing merger applications.

BACKGROUND AND NEEDS

The FTC was last reauthorized in 1996 by Public Law 104–216

which provided $107 million for fiscal year 1997 and $111 million

for fiscal year 1998. The Commission was not authorized for fiscal

years 1999 and 2000. It now seeks an authorization level of $164

million for fiscal year 2001 and $177 million for fiscal year 2002.

The FTC argues that the additional funding is necessary to address

a series of issues involving the Internet such as privacy and fraud.

The FTC would also use the additional funding to police an ever

increasing number of mergers and acquisitions.

During the hearing for S. 1687, the FTC discussed the types of

fraudulent activity that occur online and its efforts to prevent

fraud. The range of illegal activity includes bogus investments,

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1 Hearing on the Reauthorization of the Federal Trade Commission, S. 1687, before the Subcommittee on Consumer Affairs, Foreign Commerce and Tourism, Senate Commerce Committee,

106th Cong. (February 9, 2000) (Statement of Robert Pitofsky, Chairman of the Federal Trade

Commission). 2 Id.

3 Hearing, Supra note 1 (testimony of Albert Foer of the American Antitrust Institute).

4 Rep. of the Sec. Of the Antitrust Law on Proposed Hart-Scott-Rodino Antitrust Improvement

Act Amendments, A.B.A. Sec. Antitrust Law 11 (2000). 5 Id.

sure-fire cures and ‘‘guaranteed’’ money making opportunities. In

addition to those traditional scams, criminals have developed new

methods such as webcramming and hijacking modems to charge

consumers for services they have neither requested nor approved.

In response to these online scams, Chairman Pitofsky of the FTC

testified that it has brought more than 100 law enforcement actions on behalf of millions of online consumers, created a database

of consumer fraud complaints (Consumer Sentinel) for use by law

enforcement, and used ‘‘surf days’’ to identify more than 4,000 sites

with dubious claims or online scams.1

During the hearing, the FTC also discussed the growing number

of merger reviews conducted each year. Chairman Pitofsky testified

that there were three times as many merger filings in 1999 as in

1991 and that the total value of assets acquired through acquisition was 11 times as great as just 8 years ago.2

The Committee also heard testimony regarding the FTC’s

premerger review process. Under the Hart-Scott-Rodino Act (15

U.S.C. 18), merging companies of a certain size must file premerger

notifications with the Antitrust Division of the Department of Justice and the FTC. The purpose of the Act is to provide federal agencies with the opportunity to review mergers for anti-competitive effects before they become final. The Act also allows the agency to

request more detailed information through a second request process before approving a merger. During the hearing the Committee

heard testimony from several antitrust experts expressing their

concerns about the merger review process and the second request

process.

Attorneys representing the U.S. Chamber of Commerce and the

National Association of Manufacturers expressed their concerns

that the second request process is extremely burdensome and requires reform. In short, they believe that in many instances second

requests are overly broad requiring the costly production of documents that are not relevant to the review.

Albert Foer of the American Antitrust Institute testified that the

institute did not agree that the second request process was overly

burdensome. However, he stated that if reforms are necessary the

Committee should encourage the agencies to build upon internal

reforms perhaps creating a more formally defined route for appeal

within each agency structure.3

The Antitrust Section of the American Bar Association recently

reviewed the Hart-Scott-Rodino Act. In an April report, the Section

noted that while second requests are generally less than 3 percent

of all transactions, they are a significant step increasing the costs

to both the agency and the parties.4 The report encouraged the

agency to move forward with internal reforms to the process and

was supportive of Congressional action to ensure that reforms were

lasting and practical.5

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LEGISLATIVE HISTORY

On October 5, 1999, S. 1687 was introduced by Chairman

McCain. On February 9, 2000, Senator Ashcroft, Chairman of the

Subcommittee on Consumer Affairs, held a hearing on S. 1687. On

June 15, 2000, the bill was amended and reported from the Committee.

ESTIMATED COSTS

In accordance with paragraph 11(a) of rule XXVI of the Standing

Rules of the Senate and section 403 of the Congressional Budget

Act of 1974, the Committee provides the following cost estimate,

prepared by the Congressional Budget Office:

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, July 11, 2000.

Hon. JOHN MCCAIN,

Chairman, Committee on Commerce, Science, and Transportation,

U.S. Senate, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for S. 1687, the Federal Trade

Commission Reauthorization Act of 2000.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact is Mark Hadley.

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

S. 1687—Federal Trade Commission Reauthorization Act of 2000

Summary: S. 1687 would authorize appropriations for the Federal Trade Commission (FTC) for fiscal years 2001 and 2002. The

bill also would direct the FTC and the Department of Justice (DOJ)

to examine the process each agency uses to review merging businesses and to eliminate reporting burdens, duplication and delays

where possible. Finally, the bill would require the FTC and the

DOJ to report on the burden to private industry caused by the

agencies’ review of mergers.

Based on the historical spending patterns of the FTC, CBO estimates that implementing S. 1687 would cost $339 million over the

2001–2005 period. S. 1687 would not affect direct spending or receipts; therefore, pay-as-you-go procedures would not apply.

S. 1687 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA)

and would not affect the budgets of state, local, or tribal governments.

Estimated cost to the Federal Government: For this estimate

CBO assumes that the amounts authorized by the bill will be appropriated near the start of each year. The estimated budgetary

impact of S. 1687 is shown in the following table. The costs of this

legislation fall within budget function 370 (commerce and housing

credit).

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By fiscal year, in millions of dollars

2000 2001 2002 2003 2004 2005

SPENDING SUBJECT TO APPROPRIATION

Gross FTC spending under current law:

Estimated budget authority 1 .................................. 125 3 0 0 0 0

Estimated outlays .................................................... 123 13 0 0 0 0

Proposed changes:

Authorization level ................................................... 0 162 177 0 0 0

Estimated outlays .................................................... 0 149 176 14 0 0

Gross FTC Spending Under S. 1687:

Authorization level ................................................... 125 165 177 0 0 0

Estimated outlays .................................................... 123 162 176 14 0 0

1 The 2000 level is the gross amount appropriated for that year. Such spending is offset by collections of fees that cover most of the

agency’s costs. The 2001 amount is the CBO estimate of the funds provided as an advance appropriation for that year.

Basis of estimate: Companies considering merging with another

firm or acquiring another firm must file notice of their intentions

with the Federal Trade Commission (FTC). Companies pay fees of

$45,000 for each such filing. In 1999 and 2000, these collections

were recorded as an offset to the appropriated spending of the FTC

and the Antitrust Division of the Department of Justice, with onehalf of the collections credited to each agency. Each agency collected about $97 million in 1999. Because the FTC is authorized to

collect and spend these fees without further appropriation action,

they are not shown in the table.

S. 1687 would authorize appropriations for the FTC totaling about $165 million in 2001 and $177 million in 2002. Based on the

historical spending pattern of the FTC, CBO estimates S. 1687

would cost $339 over the 2001–2005 period. Based on information

from the FTC, CBO estimates that the other provisions would have

no significant budgetary impact.

Pay-as-you-go considerations: None.

Intergovernmental and private-sector impact: S. 1687 contains no

intergovernmental or private sector mandates as defined in UMRA

and would not affect the budgets of state, local, or tribal governments.

Estimate prepared by: Federal Costs: Mark Hadley; Impact on

State, Local, and Tribal Governments: Shelley Finlayson; and Impact on the Private Sector: Jean Wooster.

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis.

REGULATORY IMPACT STATEMENT

In accordance with paragraph 11(b) of rule XXVI of the Standing

Rules of the Senate, the Committee provides the following evaluation of the regulatory impact of the legislation, as reported:

While S. 1687 does not create any new programs, it does require

the FTC and the Department of Justice to review and reform the

merger review process. The purpose of the review is to eliminate

unnecessary burdens, costly duplication and undue delay, in order

to achieve a more effective and more efficient merger review process. Since the purpose of the Act is to streamline the process, the

Committee does not expect the legislation will have additional regulatory impact, or result in additional reporting requirements for

businesses regulated by both agencies. In fact, the legislation could

result in less paperwork for businesses complying with the merger

review process. The legislation will have no further effect on the

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number or types of individuals and businesses regulated, the economic impact of such regulation, or the personal privacy of affected

individuals.

SUMMARY OF MAJOR PROVISIONS

S. 1687 will authorize the FTC at $164 million for fiscal year 2001 and $177 million for fiscal year 2002. It would also direct the

FTC to work with the Attorney General to conduct an internal review of the merger review process and make changes to eliminate

unnecessary procedures and streamline the process. The FTC and

the Attorney General would be directed to appoint an official outside of the review process to review second requests by the FTC

and the Attorney General to ensure that the information is not

burdensome or duplicative. Finally, the bill would require the agency as part of an existing annual report to provide information

which would help Congress measure the effectiveness of the reforms.

SECTION-BY-SECTION ANALYSIS

Section 1. Short title

Section 1 provides that the bill may be cited as the ‘‘Federal

Trade Commission Reauthorization Act of 2000’’.

Section 2. Reauthorization

Section 2 authorizes expenditures by the FTC of $164.6 million in FY 2001 and $177.46 in FY 2002.

Section 3. Information and documentary requests

Subsection (a) requires the Attorney General and the FTC to designate a senior official not directly involved in the merger review

process to review second requests and hear petitions to determine

if the requested material is unreasonably burdensome or duplicative and if the request has been fulfilled.

Subsection (b) directs the Attorney General and the FTC to establish reasonable deadlines for expedited review of petitions.

Subsection (c) directs the Attorney General and the FTC to conduct an internal review of the merger review process and implement reforms to eliminate unnecessary burdens and achieve a more

effective and efficient merger review process.

Subsection (d) requires the Attorney General and the FTC to

amend their respective guidelines and agency rules where appropriate to implement the reforms developed from the review within

129 days of enactment.

Subsection (e) requires the Attorney General and the FTC to report to Congress on the reforms adopted, steps taken to implement

the reforms and the effect of the reforms within 180 days of enactment.

Section 4. Annual reports

Section 4 requires the Attorney General and the FTC to include

additional material to monitor the effectiveness of these reforms in

annual reports to Congress. The information includes: the number

of second request petitions filed; the time it takes for parties to

comply with a second request; the number of petitions for review

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filed; the amount of material submitted pursuant to second request;

and the number of second requests made but not complied with

prior to resolution of the case.

CHANGES IN EXISTING LAW

In compliance with paragraph 12 of rule XXVI of the Standing

Rules of the Senate, changes in existing law made by the bill, as

reported, are shown as follows (existing law proposed to be omitted

is enclosed in black brackets, new material is printed in italic, existing law in which no change is proposed is shown in roman):

FEDERAL TRADE COMMISSION ACT

[15 U.S.C. 57C]

AUTHORIZATION OF APPROPRIATIONS

SEC. 25. There are authorized to be appropriated to carry out the

functions, powers, and duties of the Commission not to exceed

$92,700,000 for fiscal year 1994; not to exceed $99,000,000 for fiscal year 1995; not to exceed $102,000,000 for fiscal year 1996; not

to exceed $107,000,000 for fiscal year 1997; øand¿ not to exceed

$111,000,000 for fiscal year ø1998.¿ 1998: not to exceed

$164,600,000 for fiscal year 2001; and not to exceed $177,460,000

for fiscal year 2002.

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