U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

19–010

" SENATE ! 107th Congress 

2d Session 

REPORT

2002

107–348

Calendar No. 769

FEDERAL TRADE COMMISSION 

REAUTHORIZATION ACT OF 2002

R E P O R T

OF THE

COMMITTEE ON COMMERCE, SCIENCE, AND 

TRANSPORTATION

ON

S. 2946

NOVEMBER 19, 2002.—Ordered to be printed 


E:\Seals\Congress.#13
(II)

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ERNEST F. HOLLINGS, South Carolina, Chairman 

DANIEL K. INOUYE, Hawaii 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

JOHN B. BREAUX, Louisiana 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

MAX CLELAND, Georgia 

BARBARA BOXER, California 

JOHN EDWARDS, North Carolina 

JEAN CARNAHAN, Missouri 

BILL NELSON, Florida 

JOHN MCCAIN, Arizona 

TED STEVENS, Alaska 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

SAM BROWNBACK, Kansas 

GORDON SMITH, Oregon 

PETER G. FITZGERALD, Illinois 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

KEVIN D. KAYES, Staff Director 

MOSES BOYD, Chief Counsel 

GREGG ELIAS, General Counsel 

JEANNE BUMPUS, Republican Staff Director and General Counsel 

ANN BEGEMAN, Republican Deputy Staff Director 

ROBERT W. CHAMBERLIN, Republican Chief Counsel 

Calendar No. 769

107TH CONGRESS REPORT " SENATE ! 2d Session 107–348

FEDERAL TRADE COMMISSION REAUTHORIZATION ACT OF 

2002

NOVEMBER 19, 2002.—Ordered to be printed 

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

Transportation, submitted the following 

R E P O R T 

[To accompany S. 2946]

The Committee on Commerce, Science, and Transportation, to 

which was referred the bill (S. 2946) to reauthorize the Federal 

Trade Commission for fiscal years 2003, 2004, and 2005, and for 

other purposes, having considered the same, reports favorably 

thereon without amendment and recommends that the bill do pass. 

PURPOSE OF THE BILL

The purpose of the legislation is to reauthorize the Federal Trade 

Commission (FTC or Commission) for the next three fiscal years, 

to amend the FTC Act (15 U.S.C. 41 et seq) to include telecommunications common carriers within the jurisdiction of the 

FTC, to authorize the Commission to receive donations of books 

and volunteer services, and to authorize reimbursement for law enforcement expenses. 

BACKGROUND AND NEEDS

The FTC is an independent Federal agency, established by statute (Federal Trade Commission Act, 15 U.S.C. Sec. 41) in 1914 to 

protect American consumers. The Commission’s mandate has two 

distinct components: first, to protect consumers from unfair or deceptive acts or practices in or affecting commerce; and second, to 

protect consumers from unfair methods of competition. As part of 

this authority, the agency enforces some 46 statutes and is the only 

Federal agency with both consumer protection and competition jurisdiction in broad sectors of the economy. 

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The Commission’s consumer protection authority is provided 

under the FTC Act (15 U.S.C. Section 41 et seq). The Commission 

is charged with preventing a broad range of consumer abuses, including deceptive or misleading advertising practices, telemarketing fraud, credit report errors, labeling regulations, and 

telemarketing services. The Act also grants the FTC jurisdiction 

over unfair methods of competition and unfair or deceptive acts or 

practices that unreasonably impede a consumer’s ability to make 

an informed choice or create fraudulent contractual inducements. 

The Commission’s antitrust authority is derived from the Sherman Act (prohibiting unlawful restraints and monopolization), the 

Clayton Act (prohibiting arrangements, mergers, and acquisitions 

that threaten competition—the Hart-Scott-Rodino Act (requiring 

merger review) is derived from this Act), and the Robinson-Patman 

Act, (barring price discrimination). Each of the Federal antitrust 

statues is administered concurrently by the FTC and the Department of Justice. 

The FTC is not currently authorized. The last reauthorization 

statute was passed in 1996 (P.L. 104-216), which authorized funding for fiscal years 1997 and 1998. The FTC’s current budget for FY 2002 is $156 million with approximately 1065 full-time staff. 

The Commission requested an increase for the next three fiscal 

years, in both dollars and staff, due in part to the planned implementation of a national registry for consumers to remove their 

names from telemarketing sales-call lists and the proposed expansion of its jurisdiction to include telecommunications common carriers. The FTC’s budget request is as follows:

FTC-REQUESTED BUDGET AND STAFF FOR FISCAL YEARS 2003, 2004, 

AND 2005

Fiscal Year Budget

(in millions) Full-time Staff 

2003 ................................................................................................... $179 1,087

2004 ................................................................................................... $207 1,158

2005 ................................................................................................... $224 1,208

Throughout the 1980s, the Commission’s staffing levels decreased each year, falling from 1,719 in FY 1980 to 894 in FY 1989. 

In the 1990s, the Commission’s staffing levels increased from 903 

in 1990 to 964 in 1999. S. 2946 would authorize staffing levels of 

1,087 in FY 2003, 1,158 in FY 2004, and 1,208 in FY 2005. 

Currently, the FTC is unable to prosecute actions against telecommunications common carriers. The FTC does not have jurisdiction over these entities; therefore, telecommunications consumers 

do not benefit from established FTC protections against deceptive 

and unfair marketing, advertising, and billing practices. Staff at 

the FTC and the Federal Communications Commission (FCC) have 

worked together to identify and address consumer protection concerns arising in the telecommunications industry. However, it has 

been observed that the common carrier exemption frustrates effective consumer protection both with respect to common carrier and 

non-common carrier activities in the telecommunications industry. 

Ultimately, some believe that the existing distinction leads to inefficient use of both FTC and FCC staff consumer-protection resources. 

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For example, there have been instances where consumers have 

received exorbitant phone bills for international audiotext and 

videotext services received on their phone lines without their informed authorization. The FTC has sued bill aggregators and vendors, as in the action against Verity International LTD. In that 

case, the FTC fought a motion to dismiss raised by Verity based 

on the common carrier exemption. The FCC filed an amicus brief 

in support of the FTC’s position. Although the FTC was successful 

at the Federal district court level, the resolution of the issue had 

consumed FTC and FCC resources that may otherwise have been 

used to protect consumers. 

The common carrier exemption also has affected enforcement actions against cramming. Cramming is the placement of unauthorized charges on consumers’ telephone bills. The FTC has successfully filed over a dozen cases to stop the cramming of unauthorized 

non-telecommunications charges onto consumers’ phone bills. In 

similar cases where the potential defendant was or claimed to be 

a common carrier, the FTC did not bring charges against those 

companies due to the jurisdictional prohibition. 

It also has been found that some businesses, in an attempt to 

avoid FTC prosecution, will assert that they are common carriers 

when there is a question as to whether their core businesses would 

qualify for that designation. For example, in one investigation of an 

entity that charged consumers and institutional customers such as 

schools and hospitals for unauthorized audiotext services, a joint 

investigation with the FCC was necessary because the entity under 

investigation claimed that it was a common carrier. The entity’s alleged common carrier activities significantly complicated an investigation that otherwise would have been a routine prosecution. In 

another instance, the FTC considered bringing an action against a 

company that the staff believed may have made misrepresentations 

regarding the online security it provided its customers. However, 

the entity also provided common carriage to its customers. The security representations it made in its business were dependent on 

the representations it made as a common carrier. Because the two 

issues were so intertwined, the FTC faced a substantial litigation 

risk of being denied jurisdiction. 

The difficulty the FTC faces when it decides whether to bring an 

action against a defendant with connections to telecommunication 

common carriage is delineating between what is, and what is not, 

a common carrier activity. The removal of the exemption in part or 

in full could reduce the potential for gamesmanship. 

The Commission also has received numerous complaints alleging 

deceptive advertising and marketing of pre-paid phone cards, particularly to the immigrant community. The FTC has brought a 

small number of cases involving the marketing of pre-paid phone 

cards. However, because of the common carrier exemption, the FTC 

does not have jurisdiction over all of the entities involved in the 

marketing of these phone cards, and in some instances may not 

have jurisdiction over the entities primarily responsible for the 

misrepresentations at issue. 

Consumers are inundated with marketing and advertising by the 

telecommunications industry every day. The industry spent $3.9 

billion in 1999 on long-distance advertising alone. The volume of 

advertising and marketing calls for additional resources to protect 

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consumers in light of known fraudulent and deceptive acts occurring within the telecommunications marketplace. FTC jurisdiction 

over telecommunications common carriers may provide the additional resources and expertise that would protect consumers and 

serve the public interest. 

The FTC, in carrying out its consumer protection mission, often 

works cooperatively with State and foreign agencies. An additional 

change in authority would grant the FTC the ability to accept reimbursement for these joint enforcement actions, thereby better utilizing Commission funds. However, current statutory authority 

does not authorize the FTC to accept reimbursement for expenses 

when it works cooperatively with a State or foreign agency. Commission staff has been working closely with domestic and foreign 

law enforcement authorities to combat the dramatic rise in consumer protection violations and unfair methods of competition both 

domestically and abroad. These partnerships have resulted in enhanced law enforcement efforts and sharing of information. In certain matters, the FTC occasionally provides investigative or other 

services to a requesting law enforcement authority with no expectation of the Commission’s participation in any enforcement proceeding. In other instances, particularly involving State actions, the 

Commission partners with the State to both investigate and prosecute the matter. In some of these situations, the foreign or domestic partner may be interested in reimbursing the Commission for 

the services it has provided or in sharing some of the investigation 

and prosecution costs. 

Unless authorized by law, a Federal agency may not keep money 

it receives from sources other than Congressional appropriations, 

but must deposit such funds in the Treasury. The Securities and 

Exchange Commission currently has authority to accept payment 

and reimbursement for investigative or other assistance that it provides to a foreign securities authority. The FTC would like to be 

able to accept reimbursement if offered, but it would not seek reimbursement for routine or statutorily required services that it already provides. 

Another change in statutory authority that would enhance the 

ability of the FTC to carry out its duties is gift-acceptance authority. Under Federal appropriations law, agencies have authority to 

spend only what the Congress appropriates. Thus, the Comptroller 

General has determined that, unless specifically authorized by law, 

agencies may not accept gifts, including volunteer services, because 

to do so would constitute an improper augmentation of appropriated funds. 

The FTC points out that this broad restriction on acceptance of 

gifts occasionally limits its ability to fulfill its mission in the most 

cost-effective manner, such as using volunteer services in the consumer complaint and information center. As a result of these restrictions, the Commission sometimes receives gifts of items that it 

is not in a position to accept. For example, the acceptance of a 

trade regulation publication that might be useful in the Commission library is barred. In order to accept such publications, the 

Commission needs statutory authority as proposed by S. 2946. Numerous agencies, including the Office of Government Ethics, the 

FCC and the Consumer Product Safety Commission, have this authority. The FTC is mindful of the need to employ any gift acceptVerDate 0ct 31 2002 19:56 Nov 22, 2002 Jkt 019010 PO 00000 Frm 00006 Fmt 6659 Sfmt 6601 E:\HR\OC\SR348.XXX SR348
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ance authority that it may receive in a manner that avoids the appearance of impropriety. 

LEGISLATIVE HISTORY

The Subcommittee on Consumer Affairs, Foreign Commerce and 

Tourism held an oversight hearing on the FTC on July 17, 2002, 

where the full Commission testified, and asked Congress to amend 

its statute to include the provisions in S. 2946. The Subcommittee 

also heard from consumer and industry representatives. Senator 

Dorgan, Chairman of the Subcommittee, along with Senator Hollings, Chairman of the Committee on Commerce, Science, and 

Transportation, introduced S. 2946, the Federal Trade Commission 

Reauthorization Act of 2002, on September 17, 2002. The full Committee considered S. 2946 during an executive session on September 19, 2002, and reported the measure by a vote of sixteen to 

seven. 

ESTIMATED COSTS

In compliance with subsection (a)(3) of paragraph 11 of rule 

XXVI of the Standing Rules of the Senate, the Committee states 

that, in its opinion, it is necessary to dispense with the requirements of paragraphs (1) and (2) of that subsection in order to expedite the business of the Senate. 

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: 

NUMBER OF PERSONS COVERED

S. 2946 would re-authorize the Commission to continue its dual 

missions of protecting American consumers and preventing unfair 

methods of competition. Additionally, the legislation would expand 

the Commission’s jurisdiction to include telecommunications common carriers. Therefore, S. 2946 would affect all persons who are 

currently subject to FTC protections and enforcement, as well as 

persons who are providers and consumers of telecommunication 

common carriage. 

ECONOMIC IMPACT

S. 2946 would authorize funds for the Commission to continue its 

current responsibilities. Telecommunication common carriers may 

experience new costs due to the need to maintain compliance with 

FTC regulations they were not subject to because of the common 

carrier exemption. 

PRIVACY

S. 2946 would be expected to help increase the personal privacy 

of American consumers, since it is part of the FTC’s mission to protect the public from illegal intrusions into personal privacy and to 

prosecute identity theft. S. 2946 would reauthorize the Commission 

to continue its duties concerning the protection of consumer privacy. 

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PAPERWORK

S. 2946 would change the jurisdictional responsibilities of the 

FTC to include telecommunication common carriers, creating concurrent jurisdiction with the FCC and the Department of Justice. 

The legislation should generate similar amounts of administrative 

paperwork as other legislation requiring multiple agency enforcement. 

SECTION-BY-SECTION ANALYSIS

Section 1. Short title 

This section provides that the Act be cited as the ‘‘Federal Trade 

Commission Reauthorization Act of 2002.’’

Section 2. Reauthorization 

This section would authorize the appropriation of funds for the Commission at $179 million for fiscal year (FY) 2003, $208 million 

for FY 2004, and $224 million for FY 2005. 

Section 3. Common carriers regulated by the Communication Act of 

1934 

This section would provide the FTC jurisdiction over telecommunications common-carriers by rescinding the current telephone common carrier exemption in the FTC Act (see sections 45 

and 46 of title 15 U.S.C.). The removal of this part of the exemption would create concurrent jurisdiction with the FCC for matters 

concerning fraudulent advertising, deceptive business practices, 

and other consumer protection issues involving telecommunications 

companies where both agencies have enforcement authority. 

It is intended that S. 2946 would establish concurrent jurisdiction to better protect consumers who face questionable marketing 

and business practices by telecommunications common carriers and 

businesses that claim to be common carriers, although their core 

businesses are not common carriage. The FTC shares jurisdiction 

with several other Federal agencies in accomplishing its dual mission of consumer protection and the prevention of unfair methods 

of competition. Currently, the FTC shares jurisdiction and has two 

cooperative enforcement agreements with the FCC, therefore the 

expansion of FTC’s jurisdiction in regard to telecommunications 

common carriers would not create a new venture between the agencies. The FTC also shares enforcement and investigatory responsibilities with the Department of Justice, the United States Department of Agriculture, the Food and Drug Administration, the Small 

Business Administration, the Federal Power Commission, the Department of Housing and Urban Development, the Office of the 

Comptroller of Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of Thrift 

Supervision, and the Board of Governors of the Federal Reserve 

System. In light of the new jurisdictional regime that would be created by the legislation, it is intended that the FTC and the FCC, 

per normal agency practice, would prepare a cooperative enforcement agreement to avoid duplicative enforcement and the inefficient use of resources. 

Another effect of including telecommunications common carriers 

within the FTC’s jurisdiction is the ability for the FTC to underVerDate 0ct 31 2002 19:56 Nov 22, 2002 Jkt 019010 PO 00000 Frm 00008 Fmt 6659 Sfmt 6601 E:\HR\OC\SR348.XXX SR348
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take a merger review involving a telecommunications common carrier. When the common carrier exception was placed in the FTC 

Act, there was only one telephone common carrier, the AT&T monopoly. Since the breakup of AT&T in 1984, there have been numerous mergers involving telecommunications common carriers, 

and these same common carriers are increasingly involved in noncommon carriage activities, such as billing and collection services 

for membership clubs and merchandise vendors, Internet services 

and electronic data, and entertainment services. In the context of 

the growth of the telecommunications industry and the need to protect the marketplace from harmful concentrations of market power, 

the creation of concurrent jurisdiction over telecommunication common carrier mergers may better serve the public interest. It is recognized that as a policy matter, the 1993 Clearance Procedures for 

Investigations between the Antitrust Division of the Department of 

Justice and the Bureau of Competition of the FTC assign merger 

review authority to the agency with the greater expertise in a particular area. This Act is not intended to supercede the current 

agreement between the agencies in any fashion. 

Section 4. Authority to accept reimbursements, gifts and voluntary 

and uncompensated services 

This section would allow the FTC to accept reimbursements from 

domestic and international law enforcement agencies for services 

rendered by the FTC in support of an activity or statute administered by the agency. Those payments would be considered as reimbursement to the appropriated funds of the Commission. This section also would authorize the FTC to accept gifts, donations, and 

volunteer services, provide that no conflict of interest, or appearance of such conflict, occurs.

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ROLLCALL VOTES IN COMMITTEE

In accordance with paragraph 7(c) of rule XXVI of the Standing 

Rules of the Senate, the Committee provides the following description of the record votes during its consideration of S. 2946: 

The Committee ordered S. 2946 reported without amendment by 

a rollcall vote of 16 yeas and 7 nays as follows: 

YEAS—16 NAYS—7

Mr. Hollings Mr. Burns 

Mr. Inouye Mr. Lott1

Mr. Rockefeller1 Mr. Brownback 

Mr. Kerry1 Mr. Fitzgerald 

Mr. Breaux Mr. Ensign 

Mr. Dorgan Mr. Allen 

Mr. Wyden Mrs. Hutchison 

Mr. Cleland 

Mrs. Boxer1

Mr. Edwards1

Mrs. Carnahan 

Mr. Nelson 

Mr. McCain 

Mr. Stevens 

Ms. Snowe 

Mr. Smith

1By proxy

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 

DEFINITIONS

[15 U.S.C. 44] 

SEC. 4. The words defined in this section shall have the following 

meaning when found in this Act, to wit: 

‘‘Commerce’’ means commerce among the several States or with 

foreign nations, or in any Territory of the United States or in the 

District of Columbia, or between any such Territory and another, 

or between any such Territory and any State or foreign nation, or 

between the District of Columbia and any State or Territory or foreign nation. 

‘‘Corporation’’ shall be deemed to include any company, trust, socalled Massachusetts trust, or association, incorporated or unincorporated, which is organized to carry on business for its own profit 

or that of its members, and has shares of capital or capital stock 

or certificates of interest, and any company, trust, so-called Massachusetts trust, or association, incorporated or unincorporated, without shares of capital or capital stock or certificates of interest, exVerDate 0ct 31 2002 20:57 Nov 22, 2002 Jkt 019010 PO 00000 Frm 00010 Fmt 6659 Sfmt 6601 E:\HR\OC\SR348.XXX SR348
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cept partnerships, which is organized to carry on business for its 

own profit or that of its members. 

‘‘Documentary evidence’’ includes all documents, papers, correspondence, books of account, and financial and corporate records. 

ø‘‘Acts to regulate commerce’’ means the Act entitled ‘‘An Act to 

regulate commerce,’’ approved February 14, 1887, and all Acts 

amendatory thereof and supplementary thereto and the Communications Act of 1934 and all Acts amendatory thereof and supplementary thereto.¿

‘‘Acts to regulate commerce’’ means subtitle IV of title 49, United 

States Code, and all Acts amendatory thereof and supplementary 

thereto.

‘‘Antitrust Acts’’ means the Act entitled ‘‘An Act to protect trade 

and commerce against unlawful restraints and monopolies,’’ approved July 2, 1890; also sections 73 to 77 inclusive, of an Act entitled ‘‘An Act to reduce taxation, to provide revenue for the Government, and for other purposes,’’ approved August 27, 1894; also the 

Act entitled ‘‘An Act to amend sections 73 and 76, of the Act of August 27, 1894, entitled ‘An Act to reduce taxation, to provide revenue for the Government, and for other purposes,’ ’’ approved February 12, 1913; and also the Act entitled ‘‘An Act to supplement existing laws against unlawful restraints and monopolies, and for 

other purposes,’’ approved October 15, 1914. 

‘‘Banks’’ means the types of banks and other financial institutions referred to in section 18(f)(2). 

* * * * * * *

AUTHORIZATION OF APPROPRIATIONS

[15 U.S.C. 57c] 

SEC. 25. øThere 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; and not to exceed 

$111,000,000 for fiscal year 1998.¿ There are authorized to be appropriated to carry out the functions, powers, and duties of the 

Commission not to exceed $179,271,000 for fiscal year 2003, 

$207,691,000 for fiscal year 2004, and $224,493,000 for fiscal year 

2005. 

* * * * * * *

SEC. 26. REIMBURSEMENT OF EXPENSES. 

The Commission may accept payment or reimbursement, in cash 

or in kind, from a domestic or foreign law enforcement authority, 

or payment or reimbursement made on behalf of such authority, for 

expenses incurred by the Commission, its members, or employees in 

carrying out any activity pursuant to a statute administered by the 

Commission without regard to any other provision of law. Any such 

payments or reimbursements shall be considered a reimbursement 

to the appropriated funds of the Commission. 

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SEC. 27. GIFTS AND VOLUNTARY AND UNCOMPENSATED SERVICES. 

(a) IN GENERAL.—In furtherance of its functions the Commission 

may accept, hold, administer, and use unconditional gifts, donations, and bequests of real, personal, and other property and, notwithstanding section 1342 of title 31, United States Code, accept 

voluntary and uncompensated services. 

(b) LIMITATIONS.—

(1) CONFLICTS OF INTEREST.—Notwithstanding subsection (a), 

the Commission may not accept, hold, administer, or use a gift, 

donation, or bequest if the acceptance, holding, administration, 

or use would create a conflict of interest or the appearance of 

a conflict of interest. 

(2) VOLUNTARY SERVICES.—A person who provides voluntary 

and uncompensated service under subsection (a) shall not be 

considered a Federal employee for any purpose other than for 

purposes of chapter 81 of title 5, United States Code, (relating 

to compensation for injury) and section 2671 through 2680 of 

title 28, United States Code, (relating to tort claims).

SHORT TITLE

[15 U.S.C. 58] 

SEC. ø26.¿ 28. This Act may be cited as the ‘‘Federal Trade Commission Act’’.

Æ