Federal Trade Commission

Fulfilling the Original Vision:

The FTC at 90

April 2004

Federal Trade Commission

Timothy J. Muris, Chairman

Mozelle W. Thompson, Commissioner

Orson Swindle, Commissioner

Thomas B. Leary, Commissioner

Pamela Jones Harbour, Commissioner
The FTC at 90

Federal Trade Commission

Cover graphics obtained under license from Microsoft Corporation and Dynamic Graphics, Inc.
Fulfilling the Original Vision

Federal Trade Commission

Contents

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

A. Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

B. Highlights of Accomplishments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Chapter 1: Competition Law Enforcement and Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

A. Administrative Adjudication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1. Commission Decisions and Pending Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2. New Part 3 Complaints. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

3. Other Pending Part 3 Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

B. Nonmerger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

1. Focus on Health Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2. Seeking to Remove Public Restraints on Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

C. Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1. Administrative Adjudication of Consummated Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2. Continued Emphasis on Key Market Segments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

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

D. Transparency and Policy Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Chapter 2: Consumer Protection Law Enforcement, Rulemaking, and Guidance. . . . . . . . . . . . . . . 16

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

1. Tools to Identify Fraud and Deception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

2. Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

B. Consumer Privacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

1. Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

2. Rulemaking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Chapter 3: Special Policy Instruments for Assisting and Complementing Law Enforcement . . . . . 27

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

1. Research and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

2. Hearings and Workshops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

3. Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

4. Amicus Briefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

B. Consumer Protection Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

1. Research and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

2. Hearings and Workshops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

3. Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

4. Amicus Briefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

5. Consumer and Business Education and Outreach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Chapter 4: International Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

A. Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

1. Cooperation in Enforcement and Policy Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

2. Multilateral Competition Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

3. Trade/Competition Fora . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

B. Consumer Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

1. Five-Point Plan to Fight Cross-Border Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

2. Cross-Border Telemarketing Fraud/Canadian Partnerships. . . . . . . . . . . . . . . . . . . . . . . . . 45

3. International Cooperation on Spam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

C. International Technical Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Reflecting on Past Achievements and Considering the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
The FTC at 90

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Fulfilling the Original Vision - 1

Federal Trade Commission

Introduction

On September 26, 1914, President Woodrow 

Wilson signed the Federal Trade Commission 

Act. In its substantive mandate and unique 

array of adjudication, advocacy, investigation, 

and enforcement powers, the statute embodied 

the vision of Congress that the new agency 

would be a singularly effective means for serving 

consumer interests. In the weeks before the 

bill’s enactment, Senator Albert Cummins, one 

of the legislation’s chief sponsors, predicted that 

the Federal Trade Commission “will be found to 

be the most efficient protection to the people of 

the United States that Congress has ever given 

the people by way of a regulation of commerce.”

This year marks the 90th anniversary of the 

legislation that gave life to the FTC and stirred 

hopes that the federal government would help 

consumers realize the benefits of a market 

economy. This milestone is an occasion 

to reflect on the agency’s past work and to 

consider how it can best fulfill the vision that 

inspired its creation. This report reviews the 

latest chapter in the agency’s work, covering its 

activities and accomplishments from April 2003 

through March 2004. More than a mere list 

of cases, conferences, and studies, the report 

aims to explain the basis for the FTC’s choice 

of initiatives and to describe the policies and 

priorities that motivate the use of its resources. 

Many activities are ongoing and constitute much 

of the agenda that the FTC will pursue in the 

coming years.

A. Goals

The FTC’s twin missions of competition 

and consumer protection serve a common 

aim: enhancing consumer welfare. The 

competition mission promotes free and open 

markets, bringing consumers lower prices, 

innovation, and choice among products and 

services. The consumer protection mission 

fosters the exchange of accurate, non-deceptive 

information, allowing consumers to make 

informed choices in their purchasing decisions. 

Thus, these missions complement each other 

and maximize benefits for consumers – accurate 

information in the marketplace facilitates free 

and robust competition.

Progress toward becoming the type of agency 

that Senator Cummins and his colleagues 

expected the FTC to be requires pursuing these 

overall objectives with an appreciation for and 

application of the distinctive institutional tools 

that Congress first gave the FTC in 1914 and 

supplemented in later legislation. Five principles 

guide the development of the agency’s agenda 

for consumers. In exercising its competition and 

consumer protection authority, the FTC should:

l Promote competition and the unfettered 

exchange of accurate, non-deceptive 

information through strong enforcement and 

focused advocacy; 

l Stop conduct that most threatens consumer 

welfare, such as anticompetitive horizontal 

agreements and fraudulent and deceptive 

practices;

l Employ a systematic approach for identifying 

and addressing serious misconduct, with 
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special attention to harmful behavior in key 

economic sectors;

l Apply all elements of the agency’s 

distinctive portfolio of policy instruments 

– prosecuting cases, conducting studies, 

performing research, holding hearings and 

workshops, engaging in advocacy before 

other government bodies, and educating 

businesses and consumers – to address 

competition and consumer protection issues; 

and

l Improve the institutions and processes by 

which competition and consumer protection 

policies are formulated and applied.

B. Highlights of Accomplishments

During the past 12 months, the FTC applied 

its array of law enforcement and policy tools to 

address critical consumer concerns. Highlights 

of the agency’s recent accomplishments include:

l Bringing More Part 3 Cases. Tackling a 

broad range of perceived competitive harms, 

the FTC has more competition cases in Part 

3 administrative adjudication than at any 

time in recent history. As of late March 2004, 

the FTC had 11 cases at some stage of 

adjudication. Cases currently on the docket 

involve, among other issues, price fixing in 

physician services, collective rate setting in 

the household moving industry and the role 

of the State Action defense, alleged abuse of 

the standard-setting process and the NoerrPennington doctrine, and consummated 

mergers involving hospitals and high-tech 

markets. If fully litigated, the cases will 

yield detailed antitrust analyses through the 

opinions of the Commission and the courts 

and provide guidance to businesses, the bar, 

and the public.

l Launching “Do Not Call.” At a Rose 

Garden ceremony on June 27, 2003, the 

President announced the opening of the 

FTC’s National Do Not Call Registry. Within 

the first 72 hours of the Registry’s operation, 

consumers had enrolled over ten million 

telephone numbers. By its effective date 

in October, the Registry contained over 53 

million telephone numbers and now tops 

58 million numbers. Although attacked in 

the courts, the Do Not Call Registry has 

withstood all legal challenges. A February 

2004 Harris Poll® found the Registry to 

be “remarkably successful,” with over 90 

percent of participating consumers reporting 

a reduction in telemarketing calls.

l Balancing Competition and Patent Policy. 

In October 2003, after extensive hearings, 

the agency released a report on the proper 

balance between competition and patent law 

and policy. Both competition in markets and 

patents for inventors can promote innovation, 

but each policy requires a proper balance 

with the other to achieve that goal. The 

report concluded that questionable patents 

are a significant competitive concern and 

can harm innovation. The report made ten 

recommendations for reducing the proportion 

of questionable patents that are issued and 

upheld. 

l Clarifying the State Action Doctrine. After 

a two-year study, the FTC in September 

2003 released a staff report on the reach 
Fulfilling the Original Vision - 3

Federal Trade Commission

and applicability of the State Action doctrine, 

first articulated by the Supreme Court 60 

years before. The report concluded that 

the doctrine has become unmoored from 

its original objectives and that overbroad 

interpretation has the potential to harm 

consumers by shielding major areas of 

commerce from the discipline of competition. 

The report makes detailed recommendations 

on clarifying application of this exemption 

to the antitrust laws. The agency also is 

pursuing enforcement matters to clarify the 

State Action defense. Recent matters include 

Part 3 proceedings against an intrastate 

mover association and the South Carolina 

Board of Dentistry.

l Assessing the Horizontal Merger 

Guidelines. To promote transparency in its 

decision-making processes and to assess 

the effectiveness of the Horizontal Merger 

Guidelines, the FTC, together with the 

Antitrust Division of the Department of Justice 

(DOJ), held a three-day workshop this past 

February. Before the workshop, the FTC 

released years of detailed merger data on 

proposed mergers, on both those that had 

been challenged by the agency and those 

that had not. Both efforts aim to promote 

a discussion among the agencies, the bar, 

the business community, and academia 

on existing merger policy and any need for 

clarification.

l Surveying Consumers on Identity Theft. 

Building upon the wealth of information 

obtained through databases of consumer 

complaints, the FTC this year undertook 

a comprehensive survey of consumers’ 

personal experiences with identity theft. The 

survey provided new data on the prevalence 

and types of identity theft in the marketplace, 

which will allow the agency to assess the 

effectiveness of its existing tools to identify 

and combat identity theft.

l Employing A Broad-Based Approach 

Against Deceptive Health Claims. Using 

a multi-pronged strategy, the FTC increased 

its attacks on deceptive health claims. The 

Commission brought 26 enforcement actions 

involving dietary supplements and other 

products – representing about $1 billion in 

sales – that were alleged to be deceptively 

marketed for their purported ability to treat or 

cure a wide variety of health conditions. The 

agency also continued to work with the Food 

and Drug Administration through enforcement 

against deceptive dietary supplement 

marketing; advocating continued truthful 

advertising to consumers of prescription 

drugs; and suggesting changes to food 

labeling requirements to address concerns 

about obesity and to permit qualified health 

claims on food and dietary supplement 

products. Finally, the FTC challenged the 

media to help in the fight against deceptive 

weight-loss advertisements by publishing a 

guide showing the media how to identify and 

screen out bogus weight-loss claims. 

The chapters below describe these and 

other accomplishments more fully. With only 

approximately 1,050 staff members, the FTC 

has reason to be proud of these extensive 

achievements. They are a tribute to the vision of 

the agency’s five Commissioners and the hard 

work and dedication of the its talented staff. 
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Chapter 1: 

Competition Law Enforcement and 

Guidance

The work of the FTC’s competition mission 

is critical to protect and strengthen the free 

and open markets that are the cornerstone of 

a vibrant economy. Aggressive competition 

promotes lower prices, higher quality products 

and services, and greater innovation. The FTC 

has adopted a strategic framework to maximize 

the impact of its competition mission. Elements 

of that strategy include:

l Concentrate on segments of the economy 

that most affect consumers, such as health 

care and energy;

l Take full advantage of the FTC’s uniquely 

broad set of powers and capabilities, 

including law enforcement, research and 

reporting, and advocacy;

l Seek appropriately comprehensive coverage 

of antitrust principles, such as by clarifying 

the boundaries of antitrust exemptions;

l Communicate FTC policies and enforcement 

standards to the public clearly to facilitate 

voluntary compliance; and

l Work with competition agencies throughout 

the world to improve the quality and 

consistency of multilateral enforcement 

efforts.

The competition mission continues to be 

highly productive. In the past 12 months, the 

Commission approved 36 antitrust enforcement 

actions, including 15 involving mergers and 

21 involving anticompetitive conduct. The 

Commission issued two administrative 

complaints and accepted six consent 

agreements in merger cases, and the parties 

abandoned an additional seven proposed 

mergers in light of the agency’s antitrust 

concerns. Nonmerger enforcement included 

seven administrative complaints and 14 consent 

agreements. In addition, the Commission issued 

two adjudicative opinions. As described in 

Chapter 3, the agency’s competition mission also 

pursued numerous non-enforcement initiatives, 

including conducting hearings, workshops, and 

research activities; issuing reports; submitting 

comments that urged other government entities 

to adopt competition-based policies; filing amicus 

briefs in significant private antitrust cases; and 

cooperating with and assisting competition 

authorities throughout the world.

A. Administrative Adjudication

The FTC has significantly expanded the use 

of the administrative process under Part 3 of its 

Rules to adjudicate competition cases. In fiscal 

year 2003, the Commission approved more Part 

3 complaints than in any year since 1985. (See 

Box 1.) Currently, nine competition cases are in 

adjudication before an FTC Administrative Law 

Judge (ALJ) (five cases) or the Commission 

(four cases). The agency also is defending 

final Commission adjudicative decisions in two 

additional cases before a U.S. Court of Appeals. 

Finally, during the past 12 months, the agency 

obtained relief in three cases after initiating Part 

3 proceedings. 

Mix of Cases. The increase in Part 3 

proceedings is due in part to the reduced level 

of merger activity in recent years. Resources 
Fulfilling the Original Vision - 5

Federal Trade Commission

previously diverted to merger 

review can now be focused 

on suspected anticompetitive 

conduct. While problematic 

mergers reported under the 

Hart Scott Rodino Act (HSR), 

when not resolved by a consent 

agreement, generally are litigated 

in federal court, conduct cases are 

usually litigated in administrative 

proceedings under Part 3. 

Moreover, the 2001 change in HSR 

filing thresholds has necessitated 

more focus on non-reportable (and 

often consummated) mergers, 

which normally are contested 

through administrative proceedings, instead of 

through injunctive actions in federal court.

Systematic Approach to Identifying Cases. 

The FTC’s expanded administrative docket 

is also a product of the agency’s systematic 

approach to identifying serious misconduct, 

especially in key economic sectors. The staff 

working on the FTC’s State Action, NoerrPennington, and Internet Task Forces have 

worked to identify problems, and the agency’s 

focus on critical industries such as health 

care has led to more litigated cases. Many of 

these Part 3 cases involve complicated policy 

questions and cutting-edge issues. 

Advantages of Part 3. Part 3 adjudicative 

opinions offer benefits that extend well 

beyond the relief obtained in a particular case. 

Consistent with congressional intent in passing 

the FTC Act, thoughtful and carefully written 

opinions issued by the Commission, a body 

with recognized expertise in competition law 

and policy, can provide guidance to the bar, 

the business community, and the public on 

applicable standards and enforcement policy. 

Commission opinions also can influence courts 

and thereby help shape the development of 

antitrust jurisprudence. 

1. Commission Decisions and Pending 

Appeals.

Under the FTC’s Rules of Practice, the 

Commission can conduct a full de novo review 

of the ALJ’s findings of fact and the legal 

conclusions in matters in which it hears an 

appeal. During the past year, the Commission 

issued Final Decisions in two Part 3 antitrust 

cases.

l Polygram Holding (The Three Tenors). 

The Commission issued a Final Decision in 

The Three Tenors, involving allegations that 

several music distribution companies entered 

into an illegal agreement not to advertise or 

discount earlier albums and video recordings 

of concerts featuring the Three Tenors in an 

Part 3 Competition Complaints Issued

by Fiscal Year (1983 – 2003)

0

2

4

6

8

10

12

14

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Complaints

Box 1
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effort to promote their most recent concert. 

The unanimous Commission opinion, 

upholding the ALJ’s finding of illegality, 

provided a blueprint of how the Commission 

will analyze “inherently suspect” horizontal 

restraints, based on established case law 

principles. The Commission found that 

Respondents’ agreements not to discount 

or advertise Three Tenors products were 

inherently suspect, and thus “presumptively 

anticompetitive” because restrictions of this 

sort generally pose significant competitive 

hazards. The Commission also rejected 

Respondents’ claim that the moratorium 

on advertising and discounting served to 

prevent free-riding, stating that it instead 

simply eliminated interbrand competition. 

Respondents have appealed, and the case 

is now pending before the U.S. Court of 

Appeals for the District of Columbia Circuit.

l Schering-Plough. The Commission 

issued a final decision overturning the 

ALJ’s dismissal of charges that ScheringPlough agreed to pay two generic drug 

manufacturers to delay a launch of generic 

versions of the Schering-Plough drug KDur. The delay harmed consumers because 

competition from generic equivalents of 

brand-name drugs helps to lower the rapidly 

rising cost of prescription drugs, saving 

consumers billions of dollars each year. KDur is a potassium chloride supplement used 

to treat high blood pressure. The opinion 

explained that the applicable substantive 

test of legality of horizontal restraints is not 

determined by bright lines of demarcation, 

but rather by a continuum “ranging from per 

se condemnation of particularly egregious 

conduct to a detailed examination of more 

ambiguous behavior, responsive to the 

facts of individual cases.” In this case, the 

Commission conducted a more detailed 

examination than was required in Three 

Tenors, but rejected the ALJ’s conclusion that 

it was necessary to define markets indirectly 

because the Commission found direct 

evidence of anticompetitive effects. Schering 

has appealed the case to the U.S. Court of 

Appeals for the Eleventh Circuit. 

2. New Part 3 Complaints.

The Commission issued nine Part 3 

complaints in the past 12 months:

l California Pacific Medical Group (Brown 

& Toland). The complaint charged this 

physicians’ organization in the San Francisco 

area with fixing the prices and terms under 

which its doctors would contract with payors 

to provide services for preferred provider 

organization enrollees. The Commission 

recently accepted a consent agreement that 

bars Brown and Toland from negotiating 

with payors on physicians’ behalf or taking 

other actions consistent with doctors’ joint 

bargaining with payors.

l Kentucky Household Goods Carriers 

Association, Movers Conference of 

Mississippi, and Alabama Trucking 

Association (Household Movers Cases). 

The Commission issued three Part 3 

complaints against associations of intrastate 

household movers in Alabama, Mississippi, 

and Kentucky. The complaints challenge 

the competing movers’ collective filing of 
Fulfilling the Original Vision - 7

Federal Trade Commission

rates for intrastate moving services, alleging 

violations of Section 5 of the FTC Act. The 

Alabama and Mississippi associations settled 

their respective cases, agreeing to stop filing 

tariffs containing collective intrastate rates, 

in accord with the relief requested in the 

Commission’s complaint.

l South Carolina Board of Dentistry. The 

pending complaint alleged that the Board 

imposed anticompetitive restrictions on 

the ability of dental hygienists to provide 

in-school preventive dental services, 

including cleanings, sealants, and fluoride 

treatments. The complaint charged that the 

consequences of the Board’s anticompetitive 

action fell particularly heavily on South 

Carolina’s economically disadvantaged 

children. In the January argument before 

the Commission on a motion to dismiss, the 

Board argued, among other things, that its 

actions were exempt from federal antitrust 

liability under the State Action doctrine.

l North Texas Specialty Physicians. The 

complaint alleged that this physician group 

violated the antitrust laws by negotiating 

agreements among its participating 

physicians on price and other terms, refusing 

to deal with payors except on collectively 

agreed-upon terms, and refusing to submit 

payor offers to participating physicians unless 

the terms complied with the group’s minimum 

fee standards.

l Piedmont Health Alliance. The complaint 

alleged that Piedmont Health Alliance violated 

the antitrust laws by collectively setting the 

prices it demanded from payors on behalf of 

its 450 member physicians in North Carolina.

l Aspen Technology. The Commission 

challenged the merger of two of the three 

leading providers of engineering process 

simulation software for process industries. 

The complaint charged that, because 

customers for this technology include leading 

petroleum and pharmaceutical companies, 

the loss of competition resulting from the 

merger ultimately could affect prices for a 

range of products, including those used in the 

production of gasoline and prescription drugs.

l Evanston Northwest Healthcare. The 

Commission challenged the January 2000 

acquisition of Highland Park Hospital by 

Evanston Northwest Healthcare (ENH), the 

owner of nearby hospitals in Cook and Lake 

Counties, Illinois. According to the complaint, 

the hospital’s prices increased significantly 

following the acquisition. In addition, the 

complaint alleged that the parties combined 

a group of independent physicians previously 

affiliated with Highland Park Hospital into a 

group of physicians employed by ENH and 

that joint negotiation by these physicians with 

insurers constituted illegal price fixing. 

3. Other Pending Part 3 Matters.

Three other cases also are pending decision 

after appeal to the Commission.

l Rambus. On March 1, 2004, Complaint 

Counsel filed an appeal with the Commission 

of an ALJ decision dismissing charges that 

Rambus monopolized a common form of 

computer memory. The complaint alleged 
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that, as a participant in an electronics 

industry standards-setting organization 

(SSO), Rambus intentionally subverted the 

SSO’s purposes and processes by failing 

to disclose that it had a patent and several 

pending patent applications on technologies 

that eventually were adopted as part of the 

industry standard for the memory. Once the 

standard was adopted, Rambus allegedly 

was in a position to reap millions in royalty 

fees each year, and potentially more than a 

billion dollars over the life of the patents.

l Unocal. On March 10, 2004, the 

Commission heard oral argument in 

an appeal of the ALJ’s dismissal of the 

complaint charging monopolization by the 

Union Oil Company of California (Unocal). 

The complaint alleged that Unocal made 

misrepresentations to the California Air 

Resources Board (CARB) and to industry 

participants concerning its research relating 

to low-emissions reformulated gasoline 

(RFG). Unocal’s actions allegedly led to a 

regulatory standard that overlapped Unocal 

patents, giving Unocal a monopoly over 

the technology used to produce and supply 

California “summertime” RFG and costing 

consumers hundreds of millions of dollars. 

Unocal has argued that such conduct is 

protected from antitrust scrutiny by the NoerrPennington doctrine.

l Chicago Bridge. The Commission also is 

considering an appeal from an ALJ Initial 

Decision requiring that this combination 

of two builders of field-erected, industrial 

storage tanks be unwound because it 

violated Section 7 of the Clayton Act.

B. Nonmerger Enforcement

The FTC began to restore its historic 

balance between merger and nonmerger 

enforcement beginning in 2001 when merger 

activity subsided substantially. In each of the 

last three years, the agency has opened at least 

twice as many new nonmerger investigations 

as it did in 2000. Consistent with its strategic 

focus, the agency identified priorities and 

sought systematically to develop cases in key 

areas. The areas of emphasis included health 

care, prescription drugs, standards setting, 

professional associations, and immunities from 

and exceptions to the antitrust laws.

The FTC’s record in fiscal year 2003 

revealed the success of its investment in these 

initiatives. During that year, the agency initiated 

21 nonmerger enforcement actions, including 

multiple cases in each of the areas targeted as 

a priority. (See Box 2.) Among these cases 

are 14 consent agreements and seven Part 3 

complaints. This record of enforcement exceeds 

that of any fiscal year in at least the past two 

decades.

1. Focus on Health Care.

Promoting competition in the health care 

sector has been among the FTC’s most 

prominent priorities since it brought its landmark 

American Medical Association case in the 1970s. 

The rapidly rising cost of health care is a matter 

of concern for consumers, employers, insurers, 

and the nation as a whole. Recently, the agency 

has redoubled its efforts to stop anticompetitive 

agreements among health care providers and 

other anticompetitive practices that raise the cost 

of health care.
Fulfilling the Original Vision - 9

Federal Trade Commission

Collusion Among Physicians. In the 

past year, the Commission has charged many 

groups of physicians with colluding to raise 

consumers’ costs. The Commission obtained 

consent agreements in nine matters and issued 

administrative complaints against another two 

groups. These cases involve significant numbers 

of doctors, including:

l A settlement with two San Diego County, 

California anesthesiologists groups whose 

members work on approximately 70 percent 

of a San Diego area hospital’s cases 

requiring anesthesiology services;

l A settlement with a Dallas/Fort Worth area 

physicians association with 1,000 members 

and a Part 3 complaint against a separate 

Dallas/Fort Worth physicians group of 600 

members;

l A settlement with 900 faculty physicians and 

600 community physicians serving St. Louis 

and surrounding areas; and

l An administrative complaint against an 

organization with more than 1,500 San 

Francisco physicians, and the subsequent 

settlement with that organization.

The FTC’s enforcement actions stop, or seek 

to stop, allegedly collusive conduct that harms 

employers, individual patients, and health plans 

by depriving them of the benefits of competition 

in the purchase of physician services.

Collusion Involving Hospitals. In addition 

to the cases involving physician organizations, 

the Commission has pursued similar actions 

against organizations that include hospital 

services. For example, the Commission 

accepted a consent agreement with Maine 

Health Alliance (MHA), a group of 325 physicians 

and 11 hospitals, to resolve charges that MHA 

engaged in collusion that raised health care 

prices in a five-county area in Maine. In a similar 

consent agreement, South Georgia Health 

Partners, a group consisting of 15 hospitals and 

500 physicians, settled charges that the group 

collectively fixed prices. These two 

cases represent the Commission’s 

first challenges to provider 

organizations allegedly engaged 

in collusive conduct in providing 

hospital services. In December, 

the Commission settled charges 

that Frye Regional Medical Center 

and its parent, Tenet Healthcare 

Corporation, were instrumental 

in facilitating price-fixing by 

local physicians in four North 

Carolina counties. This settlement 

represents the first case in which 

the Commission named a hospital 

Nonmerger Enforcement Actions Initiated

by Fiscal Year (1983 – 2003)

0

5

10

15

20

25

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Enforcement Actions

Box 2
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Federal Trade Commission

as a participant in an alleged provider price-fixing 

conspiracy. The case against the physicians 

group remains in Part 3.

South Carolina Board of Dentistry. As 

mentioned above, the Commission issued an 

administrative complaint challenging a board 

regulation that prohibited licensed dental 

hygienists from providing basic preventive dental 

care services in a school setting unless the 

patient first had been seen by a dentist and a 

treatment plan had been established. According 

to the complaint, the South Carolina state 

legislature passed a law in 2000 that eliminated 

a statutory requirement for a dentist to examine a 

child before a hygienist was permitted to provide 

preventive care in schools, and the Board 

responded by issuing an emergency regulation 

reinstating and expanding the restrictions. 

The administrative complaint alleges that the 

Board’s action artificially insulated dentists from 

competition that licensed and trained hygienists 

can provide, and thus deprived children –

particularly economically disadvantaged children 

– of important preventive dental health care.

2. Seeking to Remove Public 

Restraints on Competition.

Effective application of the antitrust laws 

involves not only fashioning and applying 

appropriate legal standards to govern 

marketplace conduct, but determining how 

widely the antitrust laws properly should 

apply. The State Action and Noerr-Pennington

doctrines shield substantial areas of commerce 

from competition’s beneficial discipline. 

Believing that some courts had expanded the 

protections afforded under State Action and 

Noerr-Pennington beyond the standards that the 

Supreme Court articulated, the Commission has 

brought cases that may provide opportunities to 

clarify the legal standards.

State Action - Clear Articulation. The 

State Action doctrine confers antitrust immunity 

upon certain private conduct taken pursuant 

to state policy. The Supreme Court has ruled 

that otherwise illegal conduct is shielded from 

the antitrust laws if it is pursuant to a “clearly 

articulated” state policy to supplant competition 

and is “actively supervised” by the state. 

Some courts have broadened the “clearly 

articulated” prong to the point that a broad state 

authorization of certain acts or implementation of 

a regulatory scheme is deemed the equivalent 

of a clear articulation of a policy to restrain 

competition. The South Carolina Board of 

Dentistry case raises issues regarding the scope 

of clear articulation.

State Action - Active Supervision. An 

FTC task force has concluded that courts 

have not provided sufficient guidance on what 

constitutes “active supervision” under the 

State Action doctrine. Although courts have 

considered a variety of factors, not all of those 

factors were well-tailored to the principles 

underlying the standard. Overbroad application 

of the standard sweeps a variety of activities 

under the doctrine’s protection to the detriment 

of consumers. A series of Commission 

enforcement actions aimed at associations 

of household goods movers have provided 

opportunities for clarification regarding the active 

supervision requirement. In the Analyses to Aid 

Public Comment accompanying the consent 

agreements in these actions, the Commission 
Fulfilling the Original Vision - 11

Federal Trade Commission

identified three factors, based on the original 

principles established in the Supreme Court’s 

jurisprudence, that are relevant to determining 

whether the state “actively supervised” the 

challenged conduct: (1) the development of an 

adequate factual record, including notice and 

opportunity to be heard; (2) a written decision 

on the merits that would provide analysis, 

reasoning, and supporting evidence that 

the private conduct furthers the legislature’s 

objectives; and (3) a specific assessment – both 

qualitative and quantitative – of how the private 

action comports with the substantive standards 

established by the state legislature, particularly 

when the standards include competition or 

consumer welfare. 

Noerr-Pennington - Unocal Part 3 

Litigation. The agency’s challenge to Unocal’s 

alleged misrepresentations to the California Air 

Resources Board and to Unocal’s competitors is 

on appeal before the Commission after the ALJ’s 

dismissal of the complaint. The ALJ based his 

decision in large part on his conclusion that the 

Noerr-Pennington doctrine insulates Unocal’s 

conduct from antitrust challenge and rejected 

various arguments why Noerr-Pennington should 

not apply to Unocal’s alleged misrepresentations. 

C. Merger Enforcement

1. Administrative Adjudication of 

Consummated Mergers.

Amendments to the HSR Premerger 

Notification Act, effective in February 2001, 

raised the thresholds governing which proposed 

mergers must be reported to the antitrust 

agencies in advance. While the vast majority 

of newly exempt transactions pose no antitrust 

concern, a small number do raise competition 

issues. Consequently, the FTC has placed more 

emphasis on identifying possibly anticompetitive 

mergers among those not reportable under 

HSR, relying on press accounts, industry 

knowledge, and other sources. In addition, 

while the agencies ordinarily identify possibly 

problematic combinations during the initial HSR 

review period, occasionally the agencies cannot 

identify significant competitive problems within 

that time period. In those cases, the agencies 

have a responsibility to challenge mergers that 

could harm competition even after the HSR 

review period has run. Finally, the FTC, as part 

of its ongoing “competition policy research and 

development,” conducts periodic reviews of 

completed mergers to assess how well it has 

identified possibly anticompetitive mergers in 

advance.

l Chicago Bridge. This merger already 

had been consummated when the FTC 

concluded that it likely violated the Clayton 

Act. Thus, the Commission challenged 

the merger under Part 3 instead of seeking 

an injunction in federal court. Last June, 

the ALJ ruled that the merger was illegal 

and ordered that the deal be undone. The 

matter is now before the Commission on 

appeal. In December, after learning that 

Chicago Bridge had notified employees of its 

intent to close a plant it acquired as part of 

the acquisition, Complaint Counsel filed an 

emergency motion seeking authorization for 

injunctive relief to prevent Chicago Bridge 

from dissipating assets that are the subject of 

proposed divestiture relief. Subsequently, the 
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Commission approved an “interim consent 

order” that requires preservation of the 

acquired assets in a form that will facilitate 

divestiture, should the ALJ’s order be upheld.

l Aspen Technology. The Commission 

issued a Part 3 complaint alleging that Aspen 

Technology’s $106.1 million acquisition 

of Hyprotech in 2002 was anticompetitive 

and led to the elimination of a significant 

competitor in the provision of process 

engineering simulation software for industry. 

l Evanston Northwest Healthcare. The 

Commission’s administrative action 

challenging a hospital acquisition by 

Evanston Northwest Healthcare illustrates 

another facet of consummated mergers. In 

challenging this merger, the Commission may 

be able to examine actual price evidence 

instead of relying on predictions of price 

effects resulting from a merger.

2. Continued Emphasis on Key Market 

Segments.

The FTC continued to devote substantial 

resources in its merger enforcement program to 

sectors of the economy, primarily health care and 

energy, that have significant impact on the daily 

lives of American consumers. 

Health Care. As in the nonmerger area, 

health care is a priority in merger enforcement. 

The FTC devotes special attention to mergers 

involving pharmaceuticals, hospitals, and other 

health-related markets. Two efforts stand out:

l Pfizer/Pharmacia. Rising prescription 

drug prices are a major concern for many 

consumers, and the FTC carefully monitors 

pharmaceutical company mergers. Last 

year, the Commission ordered Pfizer, Inc., the 

largest pharmaceutical company in the world, 

and Pharmacia Corporation to make certain 

divestitures to resolve concerns that their $60 

billion merger would harm competition in nine 

separate and wide-ranging product markets, 

including drugs to treat overactive bladder, 

symptoms of menopause, skin conditions, 

coughs, motion sickness, erectile dysfunction, 

and three different veterinary conditions. 

The order requires divestitures to protect 

consumers’ interests in those markets, while 

allowing the remainder of the transaction to 

go forward.

l Hospital Merger Retrospective. The FTC 

is reviewing the effects of consummated 

hospital mergers in several cities. The 

administrative complaint challenging 

Evanston Northwest Healthcare’s acquisition 

of Highland Park Hospital, discussed above, 

stems from that effort.

Energy. The cost of energy affects every 

consumer. The FTC carefully reviews mergers 

in energy-related markets for possible adverse 

effects on competition. In the past year, the 

FTC considered mergers involving natural gas 

transmission and petroleum refining.

l Southern Union (Panhandle Pipeline). 

In July 2003, the Commission approved a 

final consent order designed to preserve 

competition in the market for the delivery of 

natural gas to the Kansas City area. The 

order allowed Southern Union Company’s 

$1.8 billion purchase of the Panhandle 

pipeline from CMS Energy Corporation, after 
Fulfilling the Original Vision - 1

3

Federal Trade Commission

Southern Union terminated an agreement 

under which one of its subsidiaries managed 

the Central pipeline, which competes with 

Panhandle in the market for the delivery 

of natural gas to the Kansas City area. 

The complaint alleged that the transaction 

would have placed the two pipelines under 

common ownership or common management 

and control, eliminating direct competition 

between them, and likely resulting in 

consumers paying higher prices for natural 

gas in the Kansas City area.

l Sunoco/Eagle Point. After investigation, 

the FTC concluded that Sunoco’s proposed 

acquisition of Eagle Point Oil Company from 

El Paso Corporation would not threaten 

consumers’ interests. Although Sunoco 

owned three Philadelphia-area local 

refineries, and the acquisition would add 

a fourth, the FTC’s investigation identified 

significant sources of both reformulated 

and conventional gasoline that likely would 

prevent Sunoco and other area refiners from 

raising prices. In addition, according to the 

Commission’s statement, Sunoco presented 

credible evidence that the acquisition likely 

would produce substantial merger-specific 

efficiencies relating to refinery synergies and 

optimization.

3. Other Merger Enforcement.

The agency continued to scrutinize and 

challenge proposed mergers across the 

economy when they threatened competition.

l DSM/Roche. The Commission acted to 

protect competition in the market for phytase 

– an enzyme important to the nation’s food 

supply – by obtaining a settlement that allows 

DSM N.V. to proceed with its $1.89 billion 

acquisition of Roche Holding AG’s Vitamin 

and Fine Chemical Division, but requires that 

DSM divest its phytase business. Phytase is 

added to poultry and swine feed to promote 

digestibility of phosphorous and other 

nutrients that are vital to livestock production.

l GenCorp/ARC. A final consent order 

involving GenCorp, Inc.’s $133 million 

acquisition of Atlantic Research Corporation 

protects competition by requiring divestiture 

of ARC’s in-space liquid propulsion business. 

The remedy fully resolved the agency’s 

concerns about the transaction’s impact on 

competition in markets for four types of inspace propulsion thrusters, while allowing 

the parties to complete the otherwise benign 

transaction.

l GE/AGFA. The Commission reached a 

settlement to resolve antitrust concerns 

arising from General Electric Company’s 

$437 million acquisition of Agfa-Gevaert 

N.V.’s nondestructive testing (NDT) business. 

The consent agreement requires GE to 

divest its ultrasonic NDT business within 20 

days of its acquisition of Afga’s NDT assets. 

Ultrasonic NDT equipment is used for quality 

control and to inspect the tolerance of 

materials in manufacturing applications.

D. Transparency and Policy Guidance

The FTC increases the effectiveness of its 

law enforcement efforts by facilitating public 

understanding of its enforcement policies and 

standards. Transparency serves the FTC’s 

objectives because a full understanding of the 
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Federal Trade Commission

kinds of transactions or conduct the FTC is likely 

to challenge, and why, informs businesses, 

facilitates antitrust lawyers’ counseling of 

their clients, and prevents harmful mergers 

or anticompetitive practices without need for 

government intervention. Each successful 

enforcement action not only promotes 

competition in the specific market at issue, but 

also communicates to the business and legal 

communities that the FTC can and will move 

successfully to challenge the type of merger 

transaction or conduct at issue. The FTC 

has sought to expand public awareness and 

understanding of its actions in several additional 

ways.

Explaining Decisions Not to Take 

Enforcement Action. Explaining why the FTC 

decided not to take action in a particular case 

can provide as much useful information to the 

public as the documents released when the 

agency initiates litigation or accepts a settlement. 

For this reason, the Commission has issued 

statements explaining why it declined to take 

action.

l Sunoco/Eagle Point. The Commission 

issued a statement when it closed this 

investigation, explaining that multiple sources 

of gasoline supply to the Philadelphia area, 

including other local refineries as well as 

shipments via a major petroleum products 

pipeline from Gulf Coast refineries, likely 

would prevent any anticompetitive result 

from Sunoco’s acquisition of an additional 

Philadelphia-area refinery.

l Genzyme/Novazyme. In this investigation 

of a consummated merger of Novazyme 

Pharmaceuticals and Genzyme Corporation, 

the FTC focused on the transaction’s 

potential impact on the pace and scope 

of research into the development of a 

treatment for Pompe disease using enzyme 

replacement therapies (ERT). Pompe 

disease is a rare and often fatal disease 

affecting infants and children. There is 

currently no effective treatment for this 

affliction. Because Pompe disease affects 

few individuals, potential treatments fall 

under the Orphan Drug Act, which grants 

seven years of market exclusivity to the 

first treatment gaining FDA approval. In 

a statement presenting his views on the 

matter, closed by a 3-1 Commission vote, 

Chairman Muris noted that economic theory 

and research have not established a general 

causal relationship between innovation and 

competition, and that careful investigation of 

case-specific facts was therefore necessary. 

He explained that the agency’s investigation 

uncovered no evidence that the merger 

caused a reduction in R&D spending or 

progress on either of the two Pompe disease 

ERT programs, and that the merger may 

in fact benefit patients. Commissioner 

Thompson also issued a statement in which 

he argued in favor of a challenge on the 

grounds that the merger was presumptively 

anticompetitive under the Horizontal Merger 

Guidelines and that it eliminated one of 

two rivals seeking to develop Pompe 

disease ERT. Commissioner Harbour did 

not participate in this matter but issued a 

statement expressing her general views on 

the relationship between competition and 

innovation.
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Federal Trade Commission

l Caremark. The Commission issued a 

statement explaining the closing of its 

investigation into Caremark Rx, Inc.’s 

proposed acquisition of AdvancePCS. The 

firms are two of the largest providers of 

prescription benefit management (PBM) 

services in the United States. PBMs 

administer prescription benefits for most U.S. 

consumers under contracts with health plans 

or directly with employers. The Commission 

concluded that competition from the 

remaining national, independent, full-service 

PBMs, along with significant additional 

competition from several health plans and 

several retail pharmacy chains offering 

PBM services, and dozens of small, often 

regionally oriented PBMs, should prevent 

any adverse effect on consumers. The 

Commission also found no reason to expect 

PBM monopsony power over pharmaceutical 

manufacturers.

Data on Horizontal Merger Investigations 

and Challenges. Together with DOJ, the FTC 

released a report summarizing merger challenge 

data for the two agencies from 1999 through 

2003. The report indicated the number of 

merger enforcement actions by post-acquisition 

Herfindahl-Hirschman Index (HHI) and change 

in HHI. In addition, the FTC recently released a 

staff analysis of horizontal merger investigations 

for fiscal years 1996 to 2003. The data show 

tabulated post-acquisition HHIs and change in 

HHIs associated with the FTC’s investigations 

in 151 horizontal merger investigations involving 

more than 780 markets over the last eight years. 

(See Box 3.) For investigations involving three 

or fewer markets, the FTC staff also reported 

information on whether or not “hot documents” 

or “strong customer complaints” were identified 

during the investigation. This information should 

assist practitioners and businesses in evaluating 

Horizontal Merger Investigations Box 3

Post Merger HHI and Change in HHI (Delta)

All Markets by Fiscal Year (1996 - 2003)

Enforced/Closed

Change in HHI (Delta)

0-99 100 - 199 200 - 299 300 - 499 500 - 799 800 - 1,199 1,200 - 2,499 2,500 + Total

Post Merger HHI

0 - 1,799 0/14 17/20 18/8 17/4 3/2 0/1 0/0 0/0 55/49

1,800 - 1,999 0/4 5/4 5/3 12/1 12/2 0/0 0/0 0/0 34/14

2,000 - 2,399 1/1 1/5 7/4 22/11 31/8 1/1 0/0 0/0 63/30

2,400 - 2,999 1/1 4/1 4/3 13/4 41/11 25/3 0/0 0/0 88/23

3,000 - 3,999 0/2 2/2 3/1 6/1 15/6 49/11 28/7 0/0 103/30

4,000 - 4,999 0/0 0/2 1/1 3/0 8/1 6/0 42/2 0/0 60/6

5,000 - 6,999 0/0 2/0 3/2 3/1 6/0 7/1 63/12 20/2 104/18

7,000 + 0/0 0/0 0/0 1/0 2/0 5/0 11/1 81/2 100/3

Total 2/22 31/34 41/22 77/22 118/30 93/17 144/22 101/4 607/173
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Federal Trade Commission

the likelihood of an antitrust challenge to a 

proposed acquisition.

Disgorgement Policy Statement. The 

Commission unanimously issued a policy 

statement on the use of monetary equitable 

remedies, such as disgorgement and restitution, 

in antitrust cases. The statement explained that, 

in determining whether to seek disgorgement 

or restitution, the agency would consider: 

(1) whether the underlying violation is clear, 

(2) whether there is a reasonable basis for 

calculating the amount of the remedial payment, 

and (3) the value of equitable monetary relief in 

light of other likely remedies, including remedies 

in private actions and criminal proceedings. 

The agency stated that it remains sensitive 

to potential duplicative recoveries by injured 

persons or excessive multiple payments by 

defendants for the same injury.

Analyses to Aid Public Comment. 

Although the Commission routinely publishes 

Analyses to Aid Public Comment to explain a 

consent agreement, it recently has emphasized 

making them more informative. Besides 

assisting the public in interpreting and 

commenting on a proposed settlement, these 

documents can serve the more general purpose 

of outlining the agency’s analytical approach and 

the enforcement standards that apply to specific 

conduct. In the Household Movers cases, 

for example, the Commission issued lengthy 

statements identifying specific elements of an 

active supervision regime that it will consider 

in determining whether the active supervision 

prong of the State Action doctrine is met and 

evaluating the facts of each case in light of those 

elements.

Chapter 2: 

Consumer Protection Law Enforcement, Rulemaking, and Guidance

The FTC’s consumer protection mission 

protects against fraud, deception, and unfair 

practices in the marketplace. During the past 12 

months, the agency focused on issues of critical 

importance to consumers, including identity 

theft, telemarketing fraud, Internet fraud, credit 

reporting, and consumer privacy. The FTC 

targeted its law enforcement to combat the worst 

consumer harms and focused its consumer and 

business education to promote and provide 

accurate information to help consumers with 

their purchasing decisions. 

Achieving a Synthesis of 

Competition Policy and

Consumer Protection

The Federal Trade Commission has the dual 

role of advancing competition policy and promoting 

consumer protection. In various articles and 

speeches, Commissioner Thomas B. Leary has 

emphasized that the combination of responsibilities 

requires coherent principles for exercising these 

functions and creates opportunities for exploring how 

insights achieved in one mission might inform policy in 

the other.

In a presentation in January 2004, Commissioner 

Leary considered tensions that might arise between 

industry self-regulation measures to combat fraud 

and traditional antitrust limits on collaboration among 

competitors. Commissioner Leary described how 

industry groups can achieve legitimate pro-consumer 

objectives while minimizing antitrust risks – for 

example, by ensuring that industry ethical codes are 

well-tailored to the purpose of preventing fraud, are 

premised on objective criteria, and are implemented 

through reasonable dispute resolution mechanisms. 

As he outlined practical steps that businesses 

collectively can take to reduce fraud, Commissioner 

Leary underscored the need for the FTC to consider 

and improve the conceptual links between its 

competition and consumer protection programs.

Box 4
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Federal Trade Commission

The FTC uses various policy tools to 

set priorities for its consumer protection 

mission. The agency’s complaint databases 

provide valuable information about consumer 

experiences in the marketplace; Internet surfs 

help single out the most serious online fraud 

and deception; and workshops, hearings, and 

conferences advance FTC knowledge and the 

public policy debate. As the FTC tracks trends 

using state-of-the-art technology, its fundamental 

mission remains the same: to identify the most 

egregious fraud and deception; to enforce 

the law acting alone or with other government 

authorities; and to educate the agency about 

emerging issues, industry about complying with 

the law, and consumers about how to protect 

themselves from fraud and deception. 

A. Fraud and Deception

1. Tools to Identify Fraud and 

Deception.

Over the past year, the FTC continued to 

improve its methods for identifying fraud and 

deception. The agency added thousands of 

consumer complaints to its internal databases, 

recruited more law enforcement partners 

at home and abroad, and educated more 

businesses and consumers about how to avoid 

and fight fraud. The FTC continued to use 

electronic tools extensively to ferret out fraud, 

especially in the cyberworld. For example, the 

FTC identified and targeted the emergence of 

a new online technique for duping consumers 

into revealing personal information, known 

as “phishing.” Using sophisticated technical 

investigation, close coordination with criminal 

law enforcement, and a variety of legal tools, 

the FTC has begun to track down and stop the 

perpetrators of such schemes. 

Consumer Response Center. The CRC 

continues to be a vital resource for both 

consumers and law enforcers at the FTC. The 

Center responds to complaints and inquiries 

submitted by consumers using the FTC’s toll-free 

number (1-877-FTC-HELP), filing complaints 

online, and sending letters. In fiscal year 2003, 

the CRC added 944,000 complaints and inquiries 

to the FTC’s database. The total number of 

entries now exceeds 3.2 million.

Consumer Sentinel. Consumer Sentinel 

is the FTC’s primary fraud database. Created 

in 1997, Consumer Sentinel now contains 

over 1.5 million fraud complaints and is 

available online to over 990 enforcement 

agencies across the United States, Canada, 

and Australia – an increase of more than 400 

organizations since last year. Consumers also 

can access public sections of this Web site and 

find a wealth of statistics about fraud through 

www.consumer.gov. (See Box 5 for a list by 

category of the top complaints.)

Top 10 Consumer

Fraud Complaints

Calendar Year 2003

1. Identity Theft - 42%

2. Internet Auctions - 15%

3. Shop-at-Home/Catalog Sales - 9%

4. Internet Services & Computer Complaints - 6%

5. Prizes, Sweepstakes & Lotteries - 5%

6. Foreign Money Offers - 4%

7. Advance Fee Loans & Credit Protection - 4%

8. Telephone Services - 3%

9. Business Opportunities & Work-at-Home Plans - 2%

10. Magazine Buyers Clubs - 1%

Box 5
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Federal Trade Commission

develop preliminary investigative reports that 

are referred to regional Financial Crimes Task 

Forces for possible prosecution.

Spam Database. “Spam,” the popular name 

for unsolicited commercial e-mail, continues to 

be a problem for consumers and businesses 

alike. Since 1998, the FTC has maintained an 

electronic mailbox to which Internet customers 

are encouraged to forward spam (uce@ftc.gov). 

This database currently receives an average 

of 250,000 new pieces of spam daily. The 

total number of spam received has grown from 

700,000 in the first year to more than 94 million 

by mid-March 2004.

Identity Theft Survey. Concentrating on 

one of the most frequently reported consumer 

frauds, the FTC released the findings from this 

nationwide survey on identity theft, showing that 

27.3 million Americans have been victims of 

identity theft in the last five years, including 9.9 

million persons in the last year alone. (See Box 

7.) According to the survey, identity theft losses 

to businesses and financial institutions totaled 

nearly $48 billion, and consumer victims reported 

$5 billion in out-of-pocket expenses for the year 

preceding the survey. One promising finding, 

however, was that the most serious form of ID 

theft, the opening of new accounts, is rising at 

a much lower rate than the misuse of existing 

accounts, which is easier to detect and repair.

Cross-Border Fraud Web Site. Among 

its newest tools to identify fraud is the FTC’s 

“econsumer.gov” Web site, redesigned and 

launched in September 2002. Consumer 

complaints filed through econsumer.gov are 

now accessible to 18 member countries, with 

Providing Tools for Law 

Enforcement and Consumers

to Combat Identity Theft

Pamela Jones Harbour was sworn in as a 

Commissioner on August 4, 2003. In December 

2003, Commissioner Harbour spoke at the Inside ID 

Conference, addressing the dangers of identity theft 

and detailing the FTC’s ongoing ID Theft program. 

Emphasizing the Commission’s continued commitment 

to provide consumers and law enforcement with 

the tools necessary to combat this rapidly-growing 

area of fraud, Commissioner Harbour noted, “The 

Commission, through its education and enforcement 

capabilities, is committed to reducing identity theft as 

much as possible. The Commission will continue its 

efforts to assist criminal law enforcement with their 

investigations, maintain a robust identity theft program 

to assist victims, and work with the private sector 

on ways to both prevent ID theft from happening 

and facilitate the process for regaining victims’ good 

names.”

Box 6

Identity Theft Tools. The FTC employs 

two major tools in the fight against identity theft. 

First, the agency operates a toll-free number 

(1-877-ID-THEFT) and an online complaint 

form (at www.consumer.gov/idtheft) as portals 

to its complaint database. Complaints and 

inquiries to the FTC have increased from more 

than 185,000 in fiscal year 2002 to more than 

321,000 in fiscal year 2003. Second, the FTC 

maintains an ID theft database, which is the 

central clearinghouse for ID theft complaints and 

for the collection of consumer complaint data. 

The database now holds more than 500,000 

complaints. Building on its experience with 

Consumer Sentinel, the FTC began making 

the data available to law enforcement partners 

through an online database, and now more than 

890 law enforcement agencies access the data. 

Working with the Secret Service and the U.S. 

Postal Inspection Service, FTC investigators 
Fulfilling the Original Vision - 1

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Federal Trade Commission

Ireland as the newest addition. Through this 

site, the FTC also has established a six-month 

pilot program to link consumers with alternative 

dispute resolution providers to help resolve 

cross-border consumer disputes, especially ecommerce disputes. 

2. Law Enforcement.

Drawing on all the above sources of 

information, the FTC targets the most pervasive 

types of fraud for law enforcement actions. 

During the past 12 months, the FTC and over 

100 law enforcement partners brought more 

than 160 separate actions, including 20 filed 

by the FTC itself, through “sweeps” targeting 

work-at-home schemes, Internet scams, online 

auction fraud, and fundraising fraud. The FTC 

also has focused on the use of the Internet to 

disseminate fraudulent schemes, and brought 58 

cases involving the Internet. In the past year, the 

FTC obtained 110 judgments ordering more than 

$425 million in consumer redress.

In addition, the FTC is awaiting court 

approval of its settlement with Fairbanks Capital 

Corp., which would require the corporate 

defendants to provide $40 million in consumer 

redress for violations of the FTC Act related to 

the servicing of subprime loans. (See Box 8.)

Criminal Liaison Unit. Coordination with 

criminal law enforcement agencies has long 

been a part of the FTC’s consumer protection 

efforts, through both formal and informal 

cooperation. In 2003, the FTC created the 

Criminal Liaison Unit (CLU), a dedicated staff 

of attorneys and investigators, whose function 

is to act as the point of contact for criminal law 

enforcement agencies whose work would be 

enhanced through cooperation or consultation 

with the FTC on consumer fraud issues. 

Specifically, the CLU identifies appropriate and 

interested law enforcement agencies and case 

agents for specific types of consumer fraud 

cases, educates criminal law enforcement 

authorities about the FTC and its mission, offers 

them training in areas of FTC expertise, and 

coordinates training of FTC staff by 

criminal law enforcement to help 

the FTC prepare cases for referral 

and ensure the smooth progress of 

parallel prosecutions.

Deceptive Lending Practices 

and Other Credit Schemes. For 

most consumers, access to credit 

is essential to full participation 

in the nation’s economy, 

including home ownership. Some 

unscrupulous lenders, however, 

deceive consumers about loan 

terms, rates, or fees. The 

Incidence of Identity Theft

April 2002 – March 20031

3.2

(1.5% )

1.5

(0.7%)

5.2

(2.4%)

9.9

(4.6%)

0

2

4

6

8

10

12

New Accounts & Other

Frauds

Other Existing Accounts Existing Credit Card Only Total Victimization

Victims, In millions

1Source: Identity Theft Survey Report conducted by Synovate for the FTC (March-April 2003). 2Based on the U.S. population age 18 and over (215.47 million) as of July 1, 2002 

(Source: Population Division, U.S. Census Bureau; Table NA-EST2002-ASRO-01).

2

Box 7
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Federal Trade Commission

results can be severe, including the loss of 

the consumer’s home. Bogus organizations 

target consumers with bad credit or significant 

consumer debt, promising to help them manage 

their debt or obtain credit otherwise unavailable 

to them. Consumers may pay hundreds of 

dollars for these services, only to receive nothing 

in return, or worse, to see their credit damaged 

even further. 

Deceptive Subprime Lending. The FTC 

has paid special attention to the subprime 

lending market in recent years, last year 

obtaining one of the largest judgments for 

consumer redress in agency history. This year, 

the FTC has continued its vigilant monitoring of 

the subprime lending market, which is directed 

at borrowers whose credit ratings and history do 

not qualify them for prime loans. 

l Fairbanks Capital. In November 2003, the 

Commission announced settlements with 

Fairbanks Capital Holding Corp., its whollyowned subsidiary Fairbanks Capital Corp., 

and their founder and former 

CEO, Thomas D. Basmajian. In 

separate settlements, the corporate 

defendants will pay $40 million in 

redress to consumers (subject to 

final court approval), and defendant 

Basmajian will pay $400,000 in 

redress. The agency charged 

Fairbanks with engaging in a 

variety of unfair, deceptive, and 

illegal practices in the servicing 

of subprime mortgage loans. 

According to the complaint, filed 

jointly by the Commission and 

the U.S. Department of Housing 

and Urban Development, the 

defendants, among other things, failed to 

post consumers’ mortgage payments in a 

timely manner and charged consumers illegal 

late fees and other unauthorized fees. 

l Mark Diamond. In November 2003, 

Illinois-based mortgage broker Mark 

Diamond and his company, OSI Financial 

Services, Inc., settled charges by the 

Commission and the Illinois Attorney 

General that they misrepresented key loan 

terms to homeowners in the subprime 

market. Pursuant to the settlement, the 

defendants paid $270,000 in consumer 

redress, which was distributed to all qualified 

claimants at the end of January 2004. The 

settlement also enjoins the defendants from 

misrepresenting loan terms, requires them to 

tape record future loan closings, and imposes 

other restrictions on their business practices.

l Stewart Finance. In September 2003, 

the Commission charged subprime lender 

Significant Redress Orders - $425 Million Total

April 2003 - March 2004

The 

Associates/Citigroup

$215m, 45%

Rexall Sundown

$7.4m, 2%

First Capital 

Consumers Group

$8.5m, 2% Cyberspace.com

$17.7m, 4%

Mitchell Gold

$23.8m, 5%

Capital Choice 

Consumer Credit

$36.7m, 8%

Fairbanks Capital 

Corp., $40.4m*, 9%

Hudson Berkley

 $83.8m, 18%

Other Matters

$32.6m, 7%

*$40.0m is pending court approval.

Box 8
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Federal Trade Commission

Stewart Finance Company, its owner 

John Ben Stewart, Jr., and nine related 

companies with violating federal lending 

laws. According to the complaint, Stewart 

Finance provided small personal loans to 

consumers in the subprime market, typically 

in amounts less than $1,000 to be repaid 

in less than one year. The Commission 

alleged that Stewart Finance engaged in 

deception and other illegal practices to 

induce unwitting consumers to purchase 

add-on products, such as insurance and 

Car Club memberships, to obtain costly 

refinance loans, and to participate in a direct 

deposit program, which imposed additional 

fees. In October, the Commission obtained 

a preliminary injunction halting the allegedly 

abusive practices. This case also charted 

previously untested waters in a related 

bankruptcy reorganization case, where the 

FTC objected to the sale of Stewart Finance’s 

branch offices free of the district court’s 

injunction. As a result, the new (unrelated) 

purchasers agreed to honor the restrictions 

contained in the district court’s preliminary 

injunction.

Advance Fee Credit Scams. Other 

deceptive schemes involve collecting fees 

with the promise of a credit card, which the 

consumer never receives. In November 2003, 

the Commission charged Platinum Universal, 

LLC, its principals, and its successor, Pulsar 

Data, Inc., with violating the FTC Act and the 

Telemarketing Sales Rule in connection with 

the offer of credit cards to consumers for an 

advance fee. The complaint alleged that the 

Florida-based defendants falsely represented 

to English- and Spanish-speaking consumers 

that they would obtain a credit card after paying 

the defendants a fee, when, in fact, consumers 

did not receive a credit card. The defendants 

stipulated to a preliminary injunction entered by 

the court.

Deceptive Credit Counseling Services. 

Still other schemes that the FTC has fought 

involve deceptive credit counseling services. 

In November 2003, the Commission filed 

a complaint in federal court charging that 

AmeriDebt, a national organization that promotes 

itself as a non-profit credit counseling agency, is 

engaged in deceptive practices. According to the 

complaint, the defendants falsely represented 

that they charge no up-front fee, operate as a 

non-profit, and teach consumers how to handle 

their finances. Additionally, the complaint 

charged that AmeriDebt failed to provide privacy 

notices as required by the Gramm-Leach-Bliley 

Act. 

Law Enforcement Sweeps. Sweeps 

continue to be an essential part of the FTC’s 

law enforcement strategy. They provide a 

unique vehicle for partnering with other law 

enforcement agencies to make a greater impact 

on a particular type of fraud. By bringing 

multiple cases simultaneously against numerous 

scammers, law enforcement can provide 

greater relief to consumers. This year, the 

FTC announced four sweeps, each targeting a 

different kind of scam.

l Operation “Pushing the Envelope.” 

Targeting sellers of work-at-home schemes 

that take money out of consumers’ pockets 

with their deceptive pitches, the FTC 
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Federal Trade Commission

announced in December 2003 a joint federal 

and state law enforcement sweep to crack 

down on purveyors of allegedly fraudulent 

envelope-stuffing business opportunities.

l Southwest Netforce. The Southwest 

Netforce, announced in May 2003, included 

more than 40 law enforcement actions 

by more than 20 federal, state, and local 

law enforcement agencies. Using training 

provided by the FTC in Internet investigation 

techniques, these agencies targeted a variety 

of allegedly deceptive spam messages and 

fraudulent Internet scams.

l Operation “Phoney Philanthropy.” 

Also in May 2003, the FTC announced 

a law enforcement and public education 

campaign with regulators of state charities 

to stop fraudulent fundraising. Fraudulent 

solicitors prey on the good will of donors, 

misrepresenting who they are and what 

they do with the money they raise. The 

Commission filed five actions targeting 

companies and individuals that allegedly 

used deception to exploit well-intentioned 

individuals and businesses. In addition, 34 

states joined in the sweep by announcing law 

enforcement actions, consumer education, or 

new legislation.

l Operation “Bidder Beware.” This sweep 

targeted online auction fraud, consistently 

one of the top complaints the FTC receives. 

Cases challenged such scams as phony 

online escrow services designed to lull 

consumers into a false sense of security in 

high-dollar transactions, and schemes in 

which defendants used stolen identities to 

sell nonexistent goods in online auctions, 

making it appear that innocent third parties 

were guilty of fraud. The FTC, along with 33 

state and local law enforcers, announced 53 

law enforcement actions, including criminal 

prosecutions against individuals and entities 

engaged in allegedly fraudulent activity in 

online auctions.

Health, Safety, and Weight Loss Claims. 

Truthful and substantiated health benefit claims 

in advertising can be an important source of 

information for consumers. For that reason, 

combating deceptive health claims continues 

to be a major focus of the FTC’s enforcement 

program. In the past year, the agency sued 

marketers of dietary supplements, devices, and 

services, all of which purportedly improve the 

health or appearance of consumers. Highlights 

include:

l Mark Nutritionals. In October 2003, Mark 

Nutritionals, Inc., and two of its officers 

agreed to settle federal charges that they 

used false and unsubstantiated claims to sell 

their weight-loss product. The Commission 

sued the marketers of “Body Solutions 

Evening Weight Loss Formula” in December 

2002. Separate settlements require Edward 

D’Alessandro, Jr. and Harry Siskind to pay 

$140,000 and $1 million, respectively, and 

prohibit all of the defendants from making 

false or misleading representations about the 

product or any other weight-loss product.

l Ab Devices. In October 2003, the 

Commission charged the marketers of the 

Ab Force electronic muscle stimulation belt 

with making the same type of false claims 
Fulfilling the Original Vision - 2

3

Federal Trade Commission

in the marketing and sale of their product 

as those the FTC targeted in “Project 

Absurd” in 2002. The Commission alleged 

in a Part 3 administrative complaint that the 

respondents, through their advertisements 

and promotional materials, referenced the 

claims in infomercials previously targeted 

in Project Absurd, and thereby implied that 

their product would produce the same results 

expressly promised in those infomercials. 

The Commission alleged that the effect on 

consumers was the same, and thus that 

defendants had falsely claimed that the 

belt caused loss of weight, inches, and fat; 

caused well-defined abdominal muscles; 

and was an effective alternative to regular 

exercise.

l BodyFlex. The Commission sued the 

marketers of the BodyFlex+ System for 

falsely advertising that BodyFlex causes 

fast inch and fat loss. The November 2003 

complaint alleged that the defendants falsely 

claimed that BodyFlex causes users to lose 

from four to 14 inches across six body areas 

in the first seven days without reducing 

calories; that BodyFlex causes users to burn 

enough body fat to achieve the claimed inch 

loss in seven days; and that a “clinical study” 

proves that BodyFlex causes significant fat 

and inch loss in the first seven days. 

l Cell Phone Radiation Protection. During 

the past year, the Commission brought cases 

against firms marketing cell phone radiation 

protection devices, alleging that the firms 

falsely claimed that their products could 

reduce exposure to, or prevent penetration 

by, electromagnetic radiation emitted by 

cell or cordless phones, or by video display 

units. The settlement agreements require the 

firms to have adequate scientific evidence to 

substantiate claims about the performance, 

efficacy, or benefit of any good or service 

they offer. The combined settlements 

garnered almost $500,000 in redress for 

consumers. 

l Ephedra Weight Loss Products. The 

Commission announced in July 2003 three 

enforcement actions against direct marketers 

of weight-loss products containing ephedra. 

The two settlements and one complaint filed 

in federal court targeted allegedly deceptive 

claims about efficacy, safety, and lack of 

side effects for weight loss supplements 

containing ephedra. The actions challenged 

claims that the ephedra supplements cause 

rapid, substantial, and permanent weightloss without diet or exercise, and that “clinical 

studies” or “medical research” prove these 

claims. The agency also challenged claims 

that the ephedra weight-loss products are 

“100% safe,” “perfectly safe,” or have “no 

side effects.” An FDA rule banning the sale 

of weight loss and body building products that 

contain ephedra became effective in March 

2004. 

l Coral Calcium. Coral calcium was the diet 

supplement craze of 2003. In June 2003, the 

Commission charged the marketers of the 

Coral Calcium Supreme dietary supplement 

with making false and unsubstantiated claims 

about the product’s health benefits. The 

action is part of a series of initiatives that 

the FTC and the FDA are taking against 
The FTC at 90 - 2

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Federal Trade Commission

the purveyors of products with allegedly 

unsubstantiated health and medical claims. 

l Seasilver. In June 2003, the Commission 

and the FDA announced coordinated actions 

against two companies – both charged with 

promoting the dietary supplement “Seasilver” 

– with unsubstantiated medical claims. The 

Commission alleged that the defendants 

promoted Seasilver through false claims that 

it was clinically proven to treat or cure 650 

diseases, including cancer and AIDS. Under 

March 2004 settlements, the defendants 

will pay a total of $4.5 million in consumer 

redress, and are banned from making false 

or unsubstantiated claims for any dietary 

supplement, food, drug, or device. In its 

settlement with the FDA, Seasilver agreed to 

destroy misbranded Seasilver product worth 

$5.3 million and to discontinue manufacturing 

and distributing misbranded products in the 

future. 

l Q-Ray Bracelet. In June 2003, the 

Commission charged the marketers of 

the Q-Ray Ionized Bracelet, a purported 

pain-relief product, with making false and 

unsubstantiated claims in an infomercial. 

The complaint alleged that the defendants 

deceptively claimed that the bracelet is a fastacting effective treatment for various types of 

pain, as proven by tests, even though a study 

conducted at the Mayo Clinic showed that the 

Q-Ray Bracelet is no more effective than a 

placebo at relieving muscular and joint pain. 

Through a stipulated preliminary injunction, 

the court required the defendants to take 

the infomercial off the air and froze several 

million dollars of defendants’ assets. 

l Gero Vita. In May 2003, the Commission 

charged Glenn Braswell and others with 

making false and misleading advertising 

claims for five dietary supplements promoted 

to cure respiratory disease, diabetes, 

Alzheimers, obesity, and erectile dysfunction. 

Braswell, who already is under a 1983 federal 

court order for violations of the FTC Act, is 

one of the largest and most visible direct mail 

dietary supplement marketers in the U.S., 

with sales since 1998 totaling at least $800 

million. 

Electronic Payment Process Abuses. 

Advances in payment technology bring important 

efficiencies for industry and consumers, but 

they also pose new challenges for consumer 

protection. The Automated Clearinghouse 

Network (ACH) is a nationwide funds transfer 

system for clearing electronic payments among 

banks. The ACH payment mechanism replaces 

paper transactions with electronic payments. 

The volume of ACH payment transactions 

has grown substantially in recent years, in 

part because ACH offers a fast, inexpensive, 

and relatively safe payment mechanism for 

merchants and consumers. At the same time, 

the FTC is concerned that a number of ACH 

processors have failed to abide by the strict 

rules that govern this industry, and have agreed 

to process payments on behalf of fraudulent 

outbound telemarketers in violation of the ACH 

rules. 

The Commission has filed two actions 

against ACH processors that allegedly assist 

these fraudulent transactions by providing a 

gateway into the electronic banking system. In 

both FTC v. Electronic Financial Group and 
Fulfilling the Original Vision - 2

5

Federal Trade Commission

FTC v. First American Payment Processing, the 

Commission obtained temporary restraining 

orders against the defendants who, the agency 

alleged, knowingly processed electronic 

payments for telemarketers who deceptively sell 

advance-fee credit cards or who engage in other 

deceptive or abusive telemarketing practices. 

These processors allegedly harmed tens of 

thousands of consumers by processing charges 

on behalf of telemarketers engaged in abusive or 

deceptive practices, which ACH processing rules 

were designed specifically to prevent.

Project Scofflaw. Created in 1996, 

Project Scofflaw targets individuals who flout 

Commission orders and continue to prey upon 

consumers. Last August, the FTC issued its 

second report highlighting efforts to detect 

and prosecute violators of FTC-obtained court 

orders. Last year, courts ordered defendants to 

serve nearly 26 years of detention and pay $54 

million in restitution and other consumer redress.

B. Consumer Privacy

Consumer privacy has grown in importance 

in the FTC’s consumer protection agenda. In 

fact, the agency has dramatically increased 

the resources dedicated to this issue – from 

approximately $4.5 million in fiscal year 2001 

to $19.3 million in fiscal year 2003. FTC 

initiatives to reduce the serious consequences 

that can result from the misuse of personal 

information fall into three major categories: 

vigorous enforcement of existing laws, additional 

rulemaking, and ongoing consumer and 

business education.

1. Law Enforcement.

The FTC continued its aggressive 

enforcement of existing laws to protect consumer 

privacy during the past year. Law enforcement 

actions ranged from cases involving deceptions 

aimed at eliciting personal information from 

consumers, to cases attacking deceptive spam. 

Highlights include:

Internet and Spam. In a continuing series 

of law enforcement initiatives targeting Internet 

fraud, the FTC, Department of Justice, Secret 

Service, Federal Bureau of Investigation, and 

Postal Inspection Service have filed more than 

285 criminal and civil law enforcement actions 

targeting Internet scams and deceptive spam. 

In November 2003, the FTC announced federal 

court orders against ten individuals and five 

corporations. These matters represent an array 

of allegedly deceptive schemes and illegal 

scams, including Internet auction fraud, bogus 

business opportunities, deceptive money-making 

scams, and phony credit offers. 

Harris Poll Highlights Success

of National Do Not Call Registry

The effectiveness of the Do Not Call Registry was 

reinforced by a Harris Interactive® survey, released 

February 13, 2004, showing that more than half of all 

U.S. adults (57%) say that they have signed up for the 

registry. 

Of those registered, 92% report receiving fewer 

telemarketing calls, and 25% say they have received 

no telemarketing calls since signing up.

Humphrey Taylor, Chairman of The Harris Poll®, 

Harris Interactive stated, “In my experience these 

results are remarkable. It is rare to find so many 

people benefit so quickly from a relatively inexpensive 

government program.”

Box 9
The FTC at 90 - 2

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Federal Trade Commission

30 Minute Mortgage. Entered in December 

2003, a Commission settlement bars 30 Minute 

Mortgage, Inc., an Internet operation that 

advertised “3.95% 30 Year Mortgages” as a 

way to obtain sensitive financial information 

from consumers, from violating federal lending 

and privacy laws and from using or benefitting 

from personal information that was deceptively 

collected from consumers. The order further 

requires each of the operation’s principals to 

post $1 million bonds before sending unsolicited 

commercial e-mail in the future. 

“Pre-Registration” Scams for the National 

Do Not Call Registry. A December 2003 U.S. 

district court order permanently bars Ken Chase 

from claiming that, for a fee, he can register or 

pre-register consumers for the FTC’s National 

Do Not Call Registry or any other do not call 

list through his two Web sites. The order also 

requires the defendant to verify all refunds 

provided to the more than 250 consumers who 

signed up for his service.

Phishing. In July 2003, an identity thief 

who allegedly used hijacked corporate logos 

and deceptive spam to con consumers out of 

credit card numbers and other financial data 

settled Commission charges that his scam 

violated federal laws. The complaint alleged 

that the scam, called “phishing,” involved an 

individual posing as America Online and sending 

e-mail messages claiming that there had been 

a problem with the billing of consumers’ AOL 

accounts. The e-mail warned consumers that 

they risked losing their accounts and Internet 

access if they did not update their billing 

information. The message directed consumers 

to click on a hyperlink, and when they did so, 

they landed on a site that contained AOL’s logo, 

type style, colors, and real links to AOL web 

pages. While the site appeared to be AOL’s 

billing center, it was not. The complaint alleged 

that the defendant used AOL’s identity to spam 

consumers and to steal consumers’ identities as 

well.

Guess.com. The FTC announced in June 

2003 that in its third case targeting companies 

that misrepresent the security of consumers’ 

personal information, designer clothing and 

accessory marketer Guess?, Inc., agreed to 

settle Commission charges that it exposed 

consumers’ personal information, including credit 

card numbers, to commonly known attacks by 

hackers, contrary to the company’s claims. The 

settlement requires that Guess? implement a 

Protecting Privacy in an 

Automated and Globalized 

Marketplace

The International Association of Privacy 

Professionals (IAPP) presented the 2004 Privacy 

Leadership Award to Commissioner Orson 

Swindle. The IAPP cited the Commissioner’s deep 

understanding of the complexity of privacy and 

security in an increasingly automated and globalized 

marketplace as well his positive influence on the 

shaping of public policy issues. From issues of online 

privacy and information security, to international 

privacy concerns and the fight against spam, the 

IAPP noted that Commissioner Swindle has provided 

thoughtful leadership in seeking effective solutions that 

balance the interests of a changing marketplace with 

the concerns of consumers.

In accepting the award, Commissioner Swindle 

stated, “The path to more effective privacy protection 

is a journey, not a destination. We need to be vigilant 

in enforcing the privacy laws we have on the books. 

At the same time, we in government, industry, and 

civil society must continue working together to keep 

the dialogue going with sharp focus on improving 

protection of individual privacy and reaping the 

benefits of the free flow of information.” 

Box 10
Fulfilling the Original Vision - 2

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Federal Trade Commission

comprehensive information security program for 

Guess.com and its other Web sites.

2. Rulemaking.

Congress has directed the FTC to issue rules 

to implement statutes critical to protecting the 

privacy of consumers. In late 2003, Congress 

imposed new responsibilities on the FTC to 

address spam, consumer credit, and identity 

theft.

Telemarketing Sales Rule. The major 

rulemaking effort for 2003 was the creation of the 

National Do Not Call Registry. The Commission 

also adopted other significant changes to the 

TSR that give consumers added protection 

against deceptive telemarketing and unwanted 

intrusions. Among other things, the amendments 

require that telemarketers transmit information 

to consumers’ caller ID systems to ensure 

accountability in telemarketing. The amended 

rule also now restricts the use of preacquired 

account information, making it illegal to traffic in 

consumer account numbers, and requires the 

seller or telemarketer to obtain a consumer’s 

express and informed consent prior to a 

purchase. In instances involving preacquired 

account information, the amendments heighten 

the requirements for showing consent also.

CAN-SPAM Act. The Controlling the Assault 

of Non-Solicited Pornography and Marketing 

Act of 2003 (CAN-SPAM Act), signed into law 

in December 2003, addresses a wide range of 

practices relating to spam. The CAN-SPAM 

Act prohibits falsifying either the content or 

the source of e-mail; prohibits abusive means 

of obtaining e-mail addresses to send a high 

volume of unwanted messages; requires that 

commercial e-mail be so identified; requires 

senders of commercial e-mail to allow recipients 

to “opt out” of future e-mail messages; and 

requires a warning label for e-mail with sexually 

oriented material. The Act also directs the 

FTC to report to Congress on the feasibility 

of a Do Not E-Mail Registry and creates new 

enforcement approaches and penalties.

FACT Act. The Fair and Accurate Credit 

Transactions Act of 2003 (FACT Act), also 

signed into law in December 2003, makes 

sweeping changes and additions to the Fair 

Credit Reporting Act. The primary features 

of the FACT Act include making the existing 

preemption provisions permanent and adding 

several provisions to combat identity theft and 

enhance accuracy and consumer access to 

credit information. The FACT Act requires the 

FTC, among other things, to engage in several 

rulemakings. These rulemakings are underway 

and will proceed during 2004.

Chapter 3: 

Special Policy Instruments for 

Assisting and Complementing Law 

Enforcement

A. Competition Policy

Over the past year, the FTC continued to 

make full use of its array of policy instruments to 

complement its enforcement authority. Through 

the use of hearings, workshops, research 

projects, reports, studies, advocacy filings, 

and amicus briefs – all in coordination with its 

enforcement initiatives – the agency can provide 
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Federal Trade Commission

intellectual leadership on competition issues and 

make extraordinary contributions on behalf of 

consumers.

1. Research and Reports.

Over the past decade, the FTC has revived 

its long tradition of performing research and 

issuing reports on a range of topics relevant to 

competition and the marketplace. The agency’s 

investments in these activities inform the 

development of competition policy, both at the 

FTC and elsewhere. The FTC has concluded 

some key initiatives during the past 12 months.

State Action Report. Last fall, the FTC 

Task Force on State Action issued a report 

concluding that many courts have applied the 

doctrine too broadly and recommending several 

approaches the agency should take. The staff 

report concluded that courts have interpreted the 

“clear articulation” requirement too broadly, often 

focusing on the “foreseeability” test to find a 

general grant of authority to a local government 

entity to act in a specific area, while overlooking 

the substance of the state’s policy choice. The 

report recommended a return to the principle 

that the authorizing statute must also evince an 

intent to displace competition with respect to the 

particular conduct at issue. The report noted 

that more guidance is needed on the “active 

supervision” prong of the doctrine and advocates 

use of the three-part test adopted 

by the FTC in the Indiana Movers 

case. Finally, the report urged 

that courts consider “spillover” 

effects on citizens of other states 

in determining whether the State 

Action doctrine protects the alleged 

conduct, and that courts should 

impose an active supervision 

requirement on municipalities that 

participate in the marketplace in 

competition with private firms.

Internet Wine Sales Report. 

Last July, the FTC released a staff 

report, Possible Anticompetitive 

Barriers to E-Commerce: Wine, 

which concluded that e-commerce 

offers consumers lower prices and 

more choices in the wine market, 

and that states could expand 

e-commerce by permitting direct 

shipping of wine to consumers. 

Box 11

TOOL: Amicus Curiae Briefs

• Amicus brief in In re Buspirone

antitrust litigation, involving

allegedly fraudulent

representations to the FDA

concerning a patent; court agreed

with FTC analysis rejecting NoerrPennington defense.

TOOL: Research and Reporting

• Section 6(b) study, Generic Drug Entry Prior

to Patent Expiration, focused on

anticompetitive drug firm conduct and

recommended changes to the HatchWaxman Amendments.

GOAL: Remove impediments to

competition from generic versions

of prescription medicines.

TOOL: Law Enforcement

• Schering-Plough - litigation involving

alleged anticompetitive agreements.

• Pfizer/Pharmacia - merger consent

order protecting competition in nine

pharmaceutical product markets.

• Bristol-Myers Squibb (BMS) - consent

order resolving charges of abuse of

regulatory process and illegal

agreements.

• Biovail (Tiazac) - consent order

involving alleged illegal patent

acquisition and other anticompetitive

conduct.

• Biovail/Elan - consent order involving

alleged illegal agreement between

two generic firms.

TOOL: Competition

Advocacy

• Comments to FDA

supporting amending

regulations as

suggested by FTC

study.

TOOL: Congressional Testimony

• Testimony on Competition in the

Pharmaceutical Industry.

• Testimony supporting "Greater Access

to Affordable Pharmaceuticals Act"

provisions concerning generic drug

competition; final legislation adopted two

main FTC recommendations.

The FTC’s Integrated Approach to Competition Policy

The FTC uses a variety of tools to achieve its policy goals,

such as removing impediments to competition in the pharmaceutical industry.
Fulfilling the Original Vision - 2

9

Federal Trade Commission

The empirical study found that state bans on 

direct shipping prevent consumers from saving 

as much as 21 percent on some wines and 

from conveniently purchasing many popular 

wines from suppliers around the country. The 

report also concluded that states can limit sales 

to minors through less restrictive means than 

an outright ban on direct shipping, such as by 

requiring that a supplier verify the recipient’s age 

and obtain an adult’s signature before delivering 

the wine.

Contact Lenses Report. In March 2004, 

the FTC released a staff report, Possible 

Anticompetitive Barriers to E-Commerce: 

Contact Lenses, which concluded that ecommerce offers consumers greater choices and 

more convenience in the contact lens market 

and recommended that policymakers rescind, 

or refrain from adopting, requirements that 

unnecessarily burden e-commerce, such as state 

professional licensing for online lens sellers. 

The report found that non-traditional contact lens 

sellers, such as Internet providers, represent a 

unique alternative distribution channel and offer 

some consumers a combination of price and 

convenience that they value highly. It also stated 

that adherence by eye care practitioners and 

contact lens sellers to the Fairness to Contact 

Lens Consumers Act’s requirements should 

enhance consumer choice.

Generic Drug Report - Follow-Up 

Activities. This past year saw the 

implementation of specific recommendations 

made in the FTC’s July 2002 report on generic 

drugs, entitled Generic Drug Entry Prior to Patent 

Expiration: An FTC Study. The FDA approved 

a final rule in June 2003 that eliminates multiple 

30-month stays on FDA approval of generic 

drugs, which the FTC study had identified as 

harmful to consumers, and also limits the patents 

that can be listed in the FDA Orange Book, 

consistent with another FTC recommendation. 

Moreover, the Medicare Act passed in 2003 

implements key FTC recommendations to 

facilitate entry of generic drugs and requires 

that the FTC be notified of certain agreements 

between branded and generic drug firms. The 

FTC published a notice outlining procedures for 

filing such agreements, and clarifying the kinds 

of agreements requiring notification.

Retrospectives and Other Economic 

Studies. The FTC also studies current or 

emerging topics to develop policy positions and 

inform its enforcement activities. For example, 

the FTC staff has been conducting retrospective 

studies of mergers involving hospitals and the 

oil industry. In Experimental Gasoline Markets, 

the authors investigated the competitive effects 

of zone pricing on consumers, retail stations, 

and refiners. In another paper, The Economic 

Effects of the Marathon - Ashland Joint Venture: 

The Importance of Industry Supply Shocks 

and Vertical Market Structure, FTC economists 

analyzed whether there were anticompetitive 

price effects from a merger cleared by the 

FTC. The learning derived from these studies 

facilitates better case selection and provides 

important economic support that helps the 

agency succeed in its enforcement initiatives.

Gasoline Price Monitoring and 

Investigation Initiative. In 2002, the FTC 

initiated a project to monitor gasoline prices to 

identify unusual movements in prices and then 

examine whether any such movements might 
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result from anticompetitive activity. 

FTC economists developed a 

statistical model for the purpose of 

identifying such movements. This 

model uses standard statistical 

techniques and price data, updated 

daily, from the Oil Price Information 

Service (OPIS) for approximately 

360 cities at retail and 20 key 

urban areas at the wholesale 

level. (See Box 12.) The staff 

incorporates into their analysis 

customer complaint data received 

from the states and the Department 

of Energy and also examines 

movements in the level of gasoline 

prices and the spread between the price of 

crude oil and the price of gasoline. If the staff 

detects unusual price movements, they research 

the possible causes, including, if appropriate, 

consulting with the staff of various federal and 

state agencies. The FTC staff also contacts the 

appropriate State Attorney General’s Office to 

discuss the pricing anomaly and to discuss the 

appropriate course for further inquiry, including 

the possible opening of a law enforcement 

investigation. 

2. Hearings and Workshops.

Hearings and workshops represent one 

of the FTC’s most effective policy “research 

and development” tools. By bringing together 

experts from the business, legal, government, 

and academic communities, and devoting 

in-depth analysis to a carefully developed 

agenda, FTC hearings and workshops can 

lead to significant advances in state-of-the-art 

knowledge of competition policy issues. In the 

past year, the FTC completed two lengthy sets 

of hearings relating to intellectual property and 

health care, and also initiated a public dialogue 

on the application of the Horizontal Merger 

Guidelines.

Hearings on Health Care and Competition 

Policy. To explore developments in the dynamic 

health care market, the FTC, working with DOJ, 

commenced a series of hearings on Health Care 

and Competition Law and Policy on February 26, 

2003. Over a seven-month period, the agencies 

held 27 days of hearings in a comprehensive 

examination of a wide range of health care 

issues involving hospitals, physicians, insurers, 

pharmaceuticals, long-term care, Medicare, 

and consumer information, among others. The 

hearings focused on the specific challenges and 

complications involved in applying competition 

law and policy to health care; issues involved 

in hospital merger cases and other joint 

arrangements, including geographic and product 

market definition; horizontal hospital networks 

Gasoline Price Monitoring

Retail and Wholesale Monitoring

Retail Monitoring

Box 12
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Federal Trade Commission

and vertical arrangements with other health care 

providers; the competitive effects of mergers 

of health insurance providers; and consumer 

information and quality of care issues. The 

agency expects to issue a report on these issues 

later this year.

Horizontal Merger Guidelines Workshop. 

In February 2004, the FTC and DOJ held a 

three-day workshop to discuss the Horizontal 

Merger Guidelines. The workshop had two 

objectives: (1) to increase understanding of 

current merger policy, consistent with other 

efforts to promote transparency for consumers 

and the business community, and (2) to obtain 

feedback on the Guidelines – their strengths 

and weaknesses and areas for possible 

clarification – from those who have used them 

most extensively and have studied them most 

carefully. The workshop followed closely the 

release of data on merger investigations from the 

last eight years. 

3. Advocacy.

The FTC complements its efforts to remove 

private restrictions on competition by working to 

eliminate public impediments to a competitive 

marketplace by persuading other government 

policy makers to apply competition principles 

as they make decisions affecting consumer 

welfare. As part of its coordinated strategy, the 

agency focuses on the same areas that receive 

its emphasis in law enforcement: energy, health 

care, and other sectors of the economy that have 

the greatest impact on consumers’ pocketbooks.

Energy - Motor Fuel. The FTC staff 

submitted comments to the North Carolina 

Attorney General stating that amendments 

to the state’s Motor Fuel Marketing Act could 

have significant potential to harm consumers 

by causing higher gasoline prices at the pump. 

Under current North Carolina law, it is illegal to 

sell gasoline below cost as a regular business 

practice with the intent to injure competition. 

Proposed amendments to the statute would have 

eliminated the “intent” and “business practice” 

requirements and would have redefined “cost” 

in a way that would not always reflect discounts 

to retailers. Because the proposal could make 

dealers liable for procompetitive price-cutting, 

the staff was concerned that it would deter 

aggressive competition, to the detriment of 

consumers. The FTC staff filed comments on 

similar proposals pending in Alabama, New York, 

and Kansas, and an existing law in Wisconsin.

FTC REPORT:

To Promote Innovation:

The Proper Balance of Competition

and Patent Law and Policy

Competition and patents stand out among the 

federal policies that influence innovation. Both can 

foster innovation, but errors or systematic biases 

in one policy’s rules can harm the other policy’s 

effectiveness in promoting innovation. A failure to 

strike the proper balance between them can harm 

innovation.

The FTC and DOJ held 24 days of hearings on 

this topic, with more than 300 expert panelists and 

100 written submissions generating over 5,000 pages 

of transcripts. Many hearings participants reported 

that, although competition and patents often work well 

together, too many questionable patents are harming 

innovation and competition.

The Commission’s October 2003 report makes 

ten recommendations to reduce the proportion of 

questionable patents. Among other steps, the report 

recommends new procedures for challenging patent 

validity, careful application of patent law to prevent or 

invalidate obvious patents, and thoughtful integration 

of economic insights into patent law and policy. 

Box 13
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Energy - Electricity and Natural Gas. 

The FTC continued to provide its expertise 

and assistance in connection with the ongoing 

process of opening electricity markets to 

competition. Agency staff submitted comments 

to the Federal Energy Regulatory Commission 

on Market-Based Rates and Authorizations, 

and on Remedying Undue Discrimination 

through Open Access Transmission Service and 

Standard Electricity Market Design. In addition, 

the staff submitted comments to the Illinois 

Commerce Commission on Asset Transfers 

Among Affiliated Companies, to the California 

Public Utilities Commission on Exit Fees and 

Distributed Generation, and to the Georgia 

Public Service Commission on Standards for 

Determining Whether Natural Gas Prices Are 

Constrained by Market Forces.

Health Care. Although the FTC typically 

uses its law enforcement authority to challenge 

potentially anticompetitive hospital mergers, the 

agency employed another of its tools to comment 

on the potential anticompetitive effects of the 

proposed acquisition of Slidell Memorial Hospital 

by Tenet Healthcare. Under Louisiana law, both 

the voters and the state Attorney General must 

approve the sale of a nonprofit hospital, such as 

Slidell, and the Attorney General requested the 

FTC’s views on the transaction. In response, the 

FTC staff explained that the potential merger of 

the Slidell area’s only two full-service hospitals 

raised concerns about increased prices. The 

analysis focused on the possible effects of the 

acquisition on health care plans, which ultimately 

must reimburse hospitals in whole or in part for 

services provided to covered patients. Seventyseven percent of area voters disapproved of the 

merger.

Professional Services. The FTC staff 

provided comments to the Indiana State Bar 

Association and the Rhode Island House of 

Representatives opposing proposals that 

would unduly limit the ability of non-lawyers to 

compete in the market for real estate closings. 

In a comment to the Tennessee legislature 

on proposed regulations for the practice of 

optometry, the FTC staff noted that consumers 

could end up paying more for eyeglasses 

because the operation of commercial optometry 

practices, especially chain optical stores, could 

be more difficult.

Financial Services. The agency recently 

submitted a letter urging the Commodity 

Futures Trading Commission to support more 

competition in the market for futures trading by 

allowing a new entrant to establish a competing 

U.S.-registered commodity futures exchange. 

The letter cited two recent studies that found 

that securities-based options listed on multiple 

exchanges, rather than a single exchange, have 

significantly lowered bid-ask spreads, a result 

consistent with the effects of multiple exchanges 

in equity markets. The letter also criticized 

public restraints, such as regulatory barriers, 

that impede competition, limit new entrants, stifle 

innovation, and raise prices. After receiving 

the FTC’s letter, the CFTC voted unanimously 

to approve the new entrant’s application, with 

one CFTC Commissioner issuing a statement 

acknowledging the FTC’s analysis.

Computer Reservation Services. FTC 

comments to the Department of Transportation 
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Federal Trade Commission

urged that the Department use caution in 

applying monopoly leveraging and essential 

facilities theories in a proposed rulemaking on 

airline computer reservation systems and that 

conduct not be condemned on these grounds 

without a showing that it is exclusionary. DOT’s 

final rule eliminated most of the proposed rules 

governing airline computer reservations systems 

and included a sunset provision to terminate the 

other rules later this year.

4. Amicus Briefs.

The Commission has been active over the 

past year in providing amicus briefs to help 

courts resolve important competition policy 

issues. Recent briefs have addressed the legal 

standard under Section 2 of the Sherman Act, 

the State Action doctrine, the exclusion of nonattorneys from real estate closings, and the 

jurisdiction of U.S. courts over anticompetitive 

conduct by foreign entities.

l Verizon v. Trinko. In its first antitrust 

decision in several years, the U.S. Supreme 

Court issued an opinion in Trinko in January, 

consistent with the joint amicus brief filed 

by the Commission and DOJ. The Court 

reversed the Second Circuit, which had 

permitted the case to go forward under 

Section 2 of the Sherman Act based 

on “essential facilities” and “monopoly 

leveraging” theories, despite the failure of 

the plaintiff to allege exclusionary conduct 

under general monopolization principles. 

The case involved a new entrant provider 

of local telephone service attempting to 

acquire access to the network operated 

by the incumbent local exchange carrier. 

The government’s brief argued that 

whatever access may be required under 

the Telecommunications Act of 1996, the 

antitrust laws can be used to require access 

only if the refusal to deal can be shown to 

be exclusionary or predatory, as is generally 

required to establish a monopolization 

violation under Section 2. The Court 

essentially agreed with the arguments filed by 

the government and held that the complaint 

had failed to state an antitrust claim.

l Brentwood Academy v. Tennessee 

Secondary School Athletic Association. 

In this case involving application of the State 

Action doctrine, the Commission argued 

that a district court erred in holding that the 

doctrine protected a private association of 

secondary schools that had been deemed a 

state actor for constitutional purposes. The 

brief explained that, in the antitrust context, 

“state action” narrowly refers only to actions 

undertaken in conformity with a policy clearly 

articulated by the sovereign state itself.

l On Review of UPL Advisory Opinion. 

The Commission and DOJ submitted a joint 

amicus brief urging the Georgia Supreme 

Court to reject a State bar committee ruling 

that only licensed attorneys may conduct 

real estate closings. The brief argued that 

allowing non-lawyers to conduct closings 

likely would lower prices and increase 

consumer choice and that no evidence 

indicated that such lay closings would harm 

consumers. The Georgia court rejected the 

federal agencies’ position.
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l Empagran v. Hoffmann-LaRoche. The 

Commission and DOJ jointly addressed 

the proper application of the Foreign Trade 

Antitrust Improvements Act in this amicus 

brief to the U.S. Supreme Court. The 

agencies asserted that the jurisdiction of 

a U.S. court is improper when a foreign 

plaintiff’s claimed injury from an alleged 

antitrust conspiracy does not arise from the 

effects of that conspiracy on U.S. commerce.

l Dee-K Enterprises v. Heveafil Sdn.Bhd. 

The Commission and DOJ filed an amicus 

brief in the U.S. Supreme Court, arguing 

that the lower court should have determined 

whether an alleged price-fixing conspiracy 

with both foreign and domestic elements 

involved commerce within the reach of the 

Sherman Act, instead of whether it involved 

“primarily foreign or primarily domestic ... 

participants, acts, targets, and effects.”

B. Consumer Protection Policy

In similar fashion, the FTC applied its 

various policy tools to complement its consumer 

protection enforcement. Working with other law 

enforcement agencies, industry, the media, and 

the public, the FTC heightened media awareness 

of false advertising, provided important data and 

analysis on a variety of consumer protection 

issues, and developed even greater expertise in 

technological and legal issues related to spam.

1. Research and Reports.

In addition to using electronic databases 

and Web sites to track consumer fraud, the 

FTC conducts numerous studies of marketplace 

issues affecting consumers and publishes its 

findings in reports. 

Weight-Loss Advertising. In December 

2003, the FTC announced its “Red Flag” 

education campaign to assist media outlets 

in voluntarily screening weight-loss product 

ads containing claims that are too good to be 

true. (See Box 14.) The announcement is the 

culmination of a workshop held in November 

2002 and meetings with trade associations and 

individual media outlets over the last year. To 

support the voluntary initiative, the FTC released 

a media reference guide entitled “Red Flag: 

Bogus Weight Loss Claims.” 

Purchase of Inappropriate Material by 

Children. Last October, the FTC released its 

2003 nationwide undercover survey of stores 

and theaters. The survey was conducted to 

collect data on the extent to which retailers 

prevent children from purchasing entertainment 

products that have been rated or labeled by 

Red Flag:

Bogus Weight Loss Claims

A claim is too good to be true if it says the

product will...

ä Cause weight loss of two pounds or more a week 

for a month or more without dieting or exercise

ä Cause substantial weight loss no matter what or 

how much the consumer eats

ä Cause permanent weight loss (even when the 

consumer stops using the product)

ä Block the absorption of fat or calories to enable 

consumers to lose substantial weight

ä Safely enable consumers to lose more than three 

pounds per week for more than four weeks

ä Cause substantial weight loss for all users

ä Cause substantial weight loss by wearing it on the 

body or rubbing it into the skin

Box 14
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Federal Trade Commission

the entertainment industry self-regulatory 

associations or entertainment producers as 

inappropriate for children. The survey showed 

that 69 percent of the teenage shoppers were 

able to buy M-rated games; 83 percent were 

able to buy explicit-labeled recordings; and 36 

percent were successful in purchasing tickets for 

admission to an R-rated film at movie theaters. 

For the first time, the FTC also surveyed DVD 

retailers, where 81 percent of the teen shoppers 

were successful in purchasing R-rated movies 

on DVD.

Alcohol Industry Self-Regulation. In 

September 2003, the FTC issued a Report on 

Alcohol Marketing and Advertising. The report 

examined whether advertising for flavored malt 

beverages (FMBs) – beverages that combine 

characteristics of beer and distilled spirits – was 

targeted to underage consumers, as well as 

whether the alcohol industry had implemented 

self-regulatory recommendations made in the 

FTC’s 1999 Alcohol Report to Congress. The 

FTC investigated nine major alcohol advertisers, 

analyzing their advertisements, 

marketing plans, and consumer 

research. The report indicated 

a significant improvement in 

standards for the placement of 

alcohol ads and in the adoption 

of external advertising review 

mechanisms. The report also 

found no evidence of targeting 

underage consumers in the 

FMB market. The FTC’s report 

concluded that while advertising 

self-regulation is designed to 

reduce the number of ads seen 

by minors, a comprehensive alcohol policy also 

should address underage access to alcohol. 

False Claims in Spam. In April 2003, the 

FTC issued a report on a survey of false claims 

in spam. Sample spam analyzed in the study 

came from multiple sources, including the FTC’s 

own spam database. In a random sample 

of 1,000 pieces of spam, 84.5 percent were 

deceptive on their face and contained apparently 

false “from” lines, “subject” lines, or message 

text, or advertised an illegitimate product or 

service. The remaining, 15.5 percent, although 

not necessarily truthful, were not deceptive 

on their face. (See Box 15.) This is the first 

systematic review of the likely truth or falsity 

of claims appearing in spam. The incidence 

of likely false claims in the text of spam varied 

considerably among types of offers. The highest 

category for signs of falsity in the sample, 90 

percent, was for investment and business 

opportunities. 

False Claims In Spam Study

No Obvious

Deception

15.5%

No Clear Falsity

34%

Clear Falsity

66%

Only 15.5% of the spam were not clearly false or did not sell an illegitimate product or service, such as 

prescription drugs without a prescription, gambling, or pornography.

Promoting

Illegitimate 

Products or 

Services

18.5%

Box 15
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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, 

academics, other government agency 

representatives, and a host of other experts in 

various fields.

Marketing Violent Entertainment to 

Children. Besides the report described above, 

the FTC hosted a public workshop last October 

to examine issues about the marketing of 

violent entertainment to children. The workshop 

provided a forum for discussing the state of 

self-regulation in the entertainment industry and, 

in particular, children’s access to products that 

have been rated as potentially inappropriate 

for them or have been labeled with a parental 

advisory.

Spam Forum. Building upon its research, 

education, and law enforcement efforts, the FTC 

held a three-day public forum from April 30 to 

May 2, 2003, on spam. At the forum, the FTC 

gathered representatives from many sides of the 

issue to explore and encourage progress toward 

potential solutions to the detrimental effects of 

spam. The consensus was that, while a solution 

to the spam problem is critically important, it 

cannot be found overnight. Instead, solutions 

must be pursued from many directions – 

technology, the law, and consumer action – and 

depend on the continued cooperative efforts 

between government and the private sector. 

The information gathered during this event will 

be an important resource as the FTC meets the 

mandates of the CAN-SPAM Act. 

Information Flows Workshop. In 

June 2003, the agency held a workshop on 

“information flows” to examine the benefits 

and costs to consumers and businesses of the 

collection and use of consumer information. The 

goal is to balance the protection of consumer 

privacy interests with the promotion of the free 

flow of information that benefits the economy. 

The workshop featured participants with a 

range of perspectives, including executives 

from a variety of businesses that use consumer 

information extensively, academic researchers, 

consumer privacy advocates, and government 

officials. Panelists presented their original 

research and debated the appropriate 

methodology for evaluating information practices 

from consumer and business perspectives, 

including the appropriate use of cost-benefit 

analysis. 

Green Lights and Red Flags: FTC Rules 

of the Road for Advertisers. In September 

2003, the FTC, Kentucky Attorney General’s 

Office, and Better Business Bureau of Louisville, 

Southern Indiana, and Western Kentucky 

presented a one-day back-to-basics workshop 

about complying with truth-in-advertising 

standards. The FTC has joined with other state 

and local officials to present similar workshops 

in Chicago, New York City, and Santa Clara, 

California, and expects to continue this education 

campaign through 2004.

3. Advocacy.

Advocacy continued to be an important way 

to advance the FTC’s consumer protection 

mission during 2003. The agency lends 

its expertise to other government agencies 
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and intervenes in court 

proceedings when important 

issues affecting consumers 

are at stake. 

Consultation with the 

FDA. Complementing the 

FTC’s own efforts to ensure 

that consumers have access 

to truthful information, the 

FTC staff responded to a 

number of requests from the 

Food and Drug Administration 

for comment on the FDA’s 

current and proposed 

approaches to regulatory 

issues:

l Direct to Consumer 

Drug Advertisements. 

The FTC staff provided 

comments to the FDA 

advocating the continued 

consumer advertising 

of prescription drugs, 

and suggesting changes 

to make the current 

regulatory scheme less burdensome for 

industry and more effective for consumers. 

l Qualified Health Claims. The agency 

also commented on the FDA’s proposed 

regulations for “qualified health claims” for 

food and dietary supplements. Overall, the 

FTC staff supported allowing marketers to 

communicate truthful, non-misleading health 

claims for foods and dietary supplements 

when appropriately qualified to include the 

level of scientific support. 

l Food Labeling and Obesity. Finally, the 

agency commented on food labeling and 

obesity, making specific recommendations 

regarding labeling requirements, including 

reviewing certain serving sizes, and removing 

the prohibition on calorie comparisons on 

food labels. The FTC staff noted that these 

changes would help consumers identify 

healthier, lower calorie food and encourage 

companies to develop and market more of 

these foods. As described in the briefing 

papers on food advertising and on obesity, 

the FTC continues to coordinate with FDA 

TOOL: Reports and Workshops

• Weight Loss Advertising: An Analysis of Current

Trends Report. Issued in September 2002, the report

examined 300 weight loss advertisements and

concluded that use of false and misleading claims was

widespread and on the rise.

• Deception in Weight Loss Advertising Workshop and

Report. Public workshop held November 2002 to

evaluate scientific validity of common weight loss

advertising claims and explore new approaches

against weight loss fraud. Workshop report and media

guidance brochure released December 2003.

TOOL: Promoting Industry Self-Regulation

• Outreach to encourage the media to reject ads with

obviously false weight loss claims.

• Guidelines to encourage voluntary self-regulation

among marketers of weight loss products.

• Outreach to encourage industry associations to

institute and enforce truthful advertising standards for

member companies.

TOOL: Advocacy

• Comments to FDA that calorie information

be more prominent, accurate, and available

to consumers. Recommendations largely

adopted in Calories Count: Report of FDA

Working Group on Obesity.

GOAL: Ensure consumer access

to truthful information 

about weight loss.

TOOL: Consumer and Business Education

• Red Flag, a reference guide for the media on screening

weight loss ads, released December 2003.

• Voluntary Guidelines for businesses that market weight

loss products and services.

• Project Waistline, a public information campaign with

brochures, bookmarks, and “news you can use” features

on effective strategies for healthy weight loss, buying

exercise equipment, and health club memberships. 

Information in English and Spanish.

• “Teaser” Web site. NordicaLite, a sham weight loss

product, is advertised on the Web to educate

consumers about false advertising claims.

TOOL: Congressional Testimony

• Testimony on Ephedra-Containing

Dietary Supplements (July 2003). 

• Testimony on Dietary Supplement

Enforcement (October 2002).

TOOL: Law Enforcement

• Over 110 cases filed since 1990. 

• Over $65 million in redress, disgorgement, and

civil penalties.

• Recent cases:

� Advanced Patch Technologies - consent order

involving allegedly false and unsubstantiated

weight loss claims for “Peel Away the Pounds”

patch; over $1 million in consumer redress.

� Fountain of Youth Group - consent order

involving allegedly false and unsubstantiated

weight loss and health claims for dietary

supplements including “Skinny Pill.”

The FTC’s Integrated Approach to Consumer Protection Policy

The FTC uses a variety of tools to achieve its policy goals, 

such as ensuring access to truthful information about weight loss products and services.

Box 16
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on implementation of policies to permit 

qualified health claims for foods and dietary 

supplements through formal written comment 

and through participation on FDA’s Qualified 

Health Claims Task Force

4. Amicus Briefs.

The Commission also files amicus briefs in 

appropriate cases to champion the interests of 

consumers. Last year, the Commission argued 

to the Ninth Circuit in Rausch v. The Hartford 

Financial Services Group that an insurance 

company takes “adverse action,” as that term 

is defined in the Fair Credit Reporting Act, 

when the insurance company sets a price for 

insurance, based on information in a consumer 

report that is higher than the price it would 

have charged if the information had been more 

favorable. The brief argued that the district court 

misinterpreted both the wording of the Act and its 

legislative history when it held that an insurance 

company does not take “adverse action” with 

respect to a new customer when it offers that 

customer insurance on less favorable terms 

than it offers to others. In February 2003, the 

Commission filed a similar brief in the U.S. Court 

of Appeals for the Ninth Circuit in Willes v. State 

Farm.

As part of its efforts to monitor classaction settlements to ensure that the interests 

of consumers are adequately represented, 

the agency has filed amicus briefs opposing 

particularly objectionable class-action 

settlements. In Schneider v. Citicorp Mortgage, 

Inc., the Commission objected to the use of 

low-value, or no-value, “coupon” compensation. 

Similarly, in In re First Databank and Carter 

v. IRC Services, the Commission objected to 

excessive attorney fees, which divert needed 

compensation from injured consumers. 

5. Consumer and Business Education 

and Outreach.

Consumer and business education serves 

as the first line of defense against fraud and 

deception. With each major consumer protection 

enforcement initiative, the FTC launches a 

comprehensive education campaign. During 

the past 12 months, the FTC issued or revised 

over 100 consumer and business education 

publications, and FTC consumer tips have 

appeared in every national newspaper, on every 

national television network (broadcast and 

cable), and in every newspaper in the top 100 

media markets. Distribution also continued to 

rise. During fiscal year 2003, the FTC distributed 

more than 5.2 million printed publications 

and logged more than 22 million accesses to 

publications on its Web sites.

Hispanic Outreach. The FTC expanded 

its outreach to Hispanic consumers in the last 

year. The agency distributed more than 300,000 

printed and 300,000 electronic publications to 

Spanish-speaking consumers, and received 

more than 5,400 Spanish-language complaints 

by phone and online – more than double 

what the agency received last year. The FTC 

also managed an aggressive media outreach 

campaign that led to staff interviews in major 

national dailies, major market dailies, magazines, 

national radio and television, and local TV and 

radio stations.

www.consumer.gov. The FTC continues 

to manage www.consumer.gov and to recruit 
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new members to participate in the site, which 

offers one-stop access to federal consumer 

information. The number of members has grown 

to more than 180 agencies.

Identity Theft Training. Expanding on a 

program initiated last year with six regional 

training sessions, the FTC, the U.S. Secret 

Service, and DOJ conducted a series of training 

seminars for local and state law enforcement 

officers throughout the country, from Orlando, 

Florida and New York City to Seattle and 

Kansas City, Missouri. In the past two years, 

the agencies conducted 11 training sessions for 

more than 1,300 law enforcement officers and 

plan additional training sessions for the year 

ahead.

Financial Literacy. Title V of the FACT Act 

establishes a Financial Literacy and Education 

Commission (FLEC) to be chaired by the 

Secretary of the Treasury and composed of 

the FTC and 19 other federal agencies. The 

purpose of the FLEC is to develop a national 

strategy to promote financial literacy and 

education among all American consumers and 

to establish avenues, such as a Web site and 

toll-free hotline, to serve as clearinghouses 

that provide a coordinated point of entry for 

information about federal financial literacy. At the 

inaugural FLEC meeting, Chairman Muris spoke 

about the importance of financial education. 

FTC staff also are actively participating in the 

FLEC’s working groups.

National Consumer Protection Week. This 

year’s National Consumer Protection Week 

(NCPW), held this past February, focused on 

financial literacy. Consumers conduct financial 

transactions that require an educated decision 

virtually every day. Without the right information, 

many of these transactions can be confusing 

and overwhelming. NCPW 2004, sponsored 

by government agencies and consumer 

advocacy organizations, including the FTC, 

aimed to help consumers learn more about 

their options in the marketplace and how to 

manage their finances better. The NCPW Web 

site, www.consumer.gov/ncpw, contains helpful 

information for consumers in several languages, 

on a variety of financial topics, including credit 

and money management, saving and investing, 

insurance, retirement planning, and home 

ownership. 

Awards. Two FTC outreach projects were 

honored for excellence. The Southwest Region’s 

“Consumer College” – a series of free one-hour 

consumer classes for students of El Centro 

Community College in Dallas – was named 

one of three grand prize winners in the College 

Planning & Management magazine’s first 

Community College Innovation Awards Program. 

The FTC’s Alaska Native Art campaign was 

honored with an ACE award from the National 

Association of Consumer Agency Administrators, 

the second award for the campaign.

Consumer Alerts. The FTC continues to 

publish consumer alerts on a broad range of 

topical subjects. Some recent alerts are:

l Federal and Postal Job Scams Advertising 

Campaign. Ads have been running in 

the classified sections of newspapers, 

employment guides, and Web sites to alert 

vulnerable consumers to federal and postal 

job scams and how to avoid them. This 
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“information” remedy is funded by $1.6 million 

recovered in the Career Information Services 

case. Since the ads began in October 

2003, the number of related requests to the 

CRC have spiked, and the campaign site 

at www.ftc.gov/jobscams is logging almost 

20,000 visits per month.

l Post-Disaster Home Repair Rip-offs. After 

a natural disaster, the demand for qualified 

contractors usually exceeds the supply. 

Because many legitimate companies are 

booked for months, frustrated consumers 

may not take the necessary precautions 

when hiring contractors. This alert, “After 

a Disaster: Repairing Your Home,” warns 

consumers of potential home repair rip-off 

artists who may overcharge, perform shoddy 

work, or skip town without finishing the job. 

l Online File Sharing. The FTC’s alert 

“File Sharing: A Fair Share? Maybe Not” 

warns consumers about a number of risks 

associated with file sharing. The alert also 

lists suggestions to assist consumers to 

secure the personal information stored on 

their computers when using file sharing 

software.

l Spam. The FTC expanded its series of 

consumer alerts on spam e-mail. “Who’s 

Spamming Who? Could it Be You?” warns 

consumers that spammers are taking over 

home computers to send bulk e-mails by the 

millions. The alert gives tips on information 

security that can reduce the odds of an 

abuse. 

l Phishing. “Is Someone ‘Phishing’ for 

Your Information?” alerts consumers about 

“phishing” – a high-tech scam that uses 

spam to deceive consumers into disclosing 

their credit card numbers, bank account 

information, Social Security numbers, 

passwords, and other sensitive personal 

information.

Chapter 4: 

International Activities

The FTC is involved in international activities 

that are increasingly critical to the achievement 

of the agency’s missions. The Commission 

has built a strong network of cooperative 

relationships with its counterparts abroad and 

plays a lead role in key multilateral fora. The 

FTC actively assists new democracies in 

developing competition and consumer protection 

agencies in new market-based economies. 

The growth of communication media and 

electronic commerce presents new challenges 

to law enforcement – fraud and deception now 

know no borders. The Commission works 

more and more with other nations to protect 

American consumers who can be harmed by 

both anticompetitive conduct and frauds that are 

perpetrated outside the U.S.

A. Competition

1. Cooperation in Enforcement and 

Policy Development.

Cooperation with competition agencies of 

other jurisdictions is a key component of an 

effective enforcement program. The FTC has 

broadened and deepened its cooperation with 

agencies around the world on individual cases 
Fulfilling the Original Vision - 41

Federal Trade Commission

and on policy issues. The FTC’s relationships 

with counterparts in the European Union, 

Canada, and other jurisdictions remain vital as 

the staffs continue to work together closely on 

investigations of mutual interest, including the 

following matters during the past year:

l Pfizer/Pharmacia. The resolution of the 

competition concerns raised by Pfizer’s $60 

billion acquisition of Pharmacia involved 

close coordination between the FTC and 

the European Commission on two of the 

nine affected markets in which the FTC 

obtained remedial measures. The FTC also 

coordinated various antitrust aspects of the 

transaction with competition authorities in 

Australia, Canada, Mexico, and South Africa.

l DSM/Roche. DSM’s proposed $2 billion 

acquisition of Roche Vitamins and Fine 

Chemicals Division presented potential 

anticompetitive effects in the market for a 

critical enzyme in certain cattle feed. The 

remedy ultimately coordinated by the FTC 

and the EC required the unwinding of a 

joint venture, as well as assurances that the 

remaining venture partner would be capable 

of maintaining competition. 

l GE/Agfa. The successful resolution of this 

merger investigation involved cooperation 

with the competition authorities of Ireland, 

Germany, and the EC. The cooperation 

demonstrated the value of the contacts that 

have developed among the agencies that 

enable them to respond quickly to multijurisdictional mergers. The parties reached 

settlements with the FTC and the EC that 

were announced within two weeks of each 

other and within the time frame sought by the 

parties.

The FTC and its counterpart agencies seek 

to streamline cooperation in merger cases and 

remain committed to addressing and minimizing 

policy divergences in all areas. These efforts 

are exemplified by the “best practices” that the 

EC and the U.S. agencies issued in 2002 that 

institutionalize and make more transparent the 

means by which the agencies review mergers 

subject to review in both jurisdictions. During 

the past year, the U.S. agencies provided input 

into EC proceedings regarding merger policy and 

intellectual property regulations, the Japan Fair 

Trade Commission’s proposed reform of rules 

relating to the treatment of “essential facilities,” 

and proposed amendments to the Canadian 

Competition Act. Similarly, the U.S. agencies 

have benefitted from input from their foreign 

counterparts on policy reviews in the United 

States.

2. Multilateral Competition 

Cooperation.

The FTC participates actively in various 

multilateral competition fora that further 

international cooperation and convergence. 

ICN. The International Competition 

Network, which has 86 member competition 

agencies from 76 jurisdictions, provides a 

venue for antitrust officials worldwide to achieve 

consensus on proposals for procedural and 

substantive convergence on best practices 

in antitrust enforcement and policy. (See 

Box 17.) In June 2003, the ICN hosted its 

second annual conference, highlighting its 

work on multi-jurisdictional merger review, 
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competition advocacy, and capacity building. 

Based on recommendations of the Merger 

Working Group’s Subgroup on Notification 

and Procedures, which the FTC chairs, the 

ICN adopted seven Recommended Practices 

on Merger Notification Procedures, which 

complement the eight Guiding Principles for 

Merger Notification and Review adopted the 

previous year. In preparation for the ICN’s 

April 2004 annual conference, the Mergers 

Working Group has prepared new recommended 

practices on conduct of merger investigations, 

procedural fairness, confidentiality, and 

interagency coordination, and is preparing a 

manual on recommended techniques for merger 

investigations.

The ICN’s Competition Advocacy Working 

Group developed an online information and 

resource center, prepared a compilation of 

advocacy provisions, conducted sectoral 

studies of advocacy, and assembled a “tool 

kit” of competition advocacy mechanisms. Its 

work is continuing in the Capacity 

Building and Competition Policy 

Implementation Working Group. 

The Capacity Building Group 

also prepared a report on the 

challenges developing countries 

face in implementing competition 

policies, and one of its subgroups, 

which the FTC co-chairs, is 

conducting a study on the types 

of technical assistance that work 

best in particular circumstances, 

examining ways to build broader 

support for competition policy and 

examining the relationship between 

technical assistance funding 

agencies and their counterpart competition 

agencies. The Working Group on Antitrust 

Enforcement in Regulated Sectors, created in 

2003, has subgroups compiling reports on the 

viability of antitrust law in regulated sectors, 

antitrust enforcement initiatives in regulated 

industries, and the manner in which antitrust 

authorities and regulators exercise authority in 

areas of overlap. 

OECD. The OECD Competition Committee 

is an important forum for competition officials 

from developed countries to share experiences 

and promote best practices. During the past 

year, the FTC has participated actively in the 

OECD’s continuing work on, inter alia, merger 

process convergence, regulatory reform, and 

examining the issues at the intersection of trade 

and competition policy. The FTC was a leader in 

the OECD’s first joint roundtable on competition 

and consumer protection, which explored 

the synergies between the two disciplines 

Albania 

Andean Community

Argentina

Armenia

Australia

Austria 

Azerbaijan

Barbados

Belgium

Brazil

Bulgaria

Canada

Chile 

Colombia

Costa Rica

Croatia

Cyprus

Czech Republic

Denmark

International Competition Network

Member Jurisdictions

EFTA

Estonia

European Union

Finland

France

Germany

Greece

Hungary

Iceland

India

Indonesia

Ireland

Israel

Italy

Jamaica

Japan

Kazakhstan

Kenya

Korea

Kyrgyzstan

Latvia

Lithuania

Macedonia

Malta

Mexico

Morocco

Netherlands

New Zealand

Norway

Pakistan

Panama

Peru

Philippines

Poland

Portugal

Romania

Russia

Senegal

Slovak Republic

Slovenia

South Africa

Spain

Sri Lanka

Sweden

Switzerland

Taiwan

Tajikistan

Thailand

Tunisia

Turkey

Ukraine

United Kingdom

United States 

Uzbekistan

Venezuela

Yugoslavia

Zambia

Box 17
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in promoting consumer welfare. The OECD 

also hosted a Global Forum on Competition 

involving OECD members and representatives of 

approximately 30 non-members.

3. Trade/Competition Fora.

Trade agreements increasingly involve 

competition issues. The FTC co-chairs the U.S. 

delegation to the World Trade Organization 

Working Group on the Interaction between 

Trade and Competition Policy, which examined 

issues relating to the role of competition policy 

in the WTO. The FTC staff participated in the 

WTO Ministerial Conference in Cancun. The 

FTC has been working with other U.S. agencies 

and the other nations of the hemisphere to 

develop competition provisions for a Free 

Trade Agreement of the Americas. The FTC 

also participated in the U.S. delegation that 

negotiated the competition chapter of proposed 

Free Trade Agreement with Australia.

B. Consumer Protection

Because the past few years 

have seen a dramatic rise in the 

number of consumer complaints 

and investigations that blur 

jurisdictional lines, the FTC has 

focused its international consumer 

protection efforts on crossborder fraud. Fraudsters use 

ever-evolving electronic media 

to scam consumers while hiding 

behind jurisdictional borders. As 

a result, the FTC has stepped 

up its commitment to fight these 

frauds, regardless of where they 

may originate. As part of this effort, the FTC 

has increased its visibility and participation in 

international organizations such as the OECD’s 

Committee on Consumer Policy and the 

International Consumer Protection Enforcement 

Network. (See Box 18.)

1. Five-Point Plan to Fight CrossBorder Fraud.

This past year, the FTC continued to move 

forward to implement the Five-Point Plan to Fight 

Cross-Border Fraud, first unveiled in 2002. The 

plan includes: (1) OECD guidelines on crossborder enforcement cooperation, (2) legislative 

proposals, (3) a workshop to explore publicprivate partnerships, (4) bilateral and multilateral 

cooperation arrangements, and (5) international 

technical assistance. 

l OECD Guidelines. In June 2003, the 

OECD’s Committee on Consumer Policy 

announced its “Guidelines for Protecting 

Consumers From Fraudulent and Deceptive 

Commercial Practices Across Borders,” 

Cross-Border Complaints 

By Calendar Year (1995 – 2003)

1,237

4,567

8,660

6,236

12,213

16,318

30,798

45,066

84 0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1995 1996 1997 1998 1999 2000 2001 2002 2003

Box 18
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which reflect a commitment among member 

countries to work together to combat crossborder fraud. The Guidelines contain 

broad principles regarding law enforcement 

coordination, as well as specific information 

on how countries can work together in 

joint investigations. They also detail the 

authority of consumer protection agencies 

internationally, invite private-sector 

cooperation in anti-fraud efforts, and set 

the stage for future discussions regarding 

consumer redress.

l Legislative Proposals. The FTC has 

submitted proposals for legislative 

changes that would improve the FTC’s 

ability to combat cross-border fraud. The 

recommendations focus primarily on 

improving the agency’s ability to combat 

fraud involving foreign parties, evidence, or 

assets. When enacted, the legislation would 

enable the FTC to share key information with 

foreign partners, which may enable them to 

pursue the fraudsters in their country who are 

targeting U.S. consumers. In particular, the 

legislation would help the FTC fight deceptive 

spam by allowing the agency to investigate 

more fully messages originating from outside 

the United States. 

l Public/Private Workshop. In February 

2003, the FTC held a workshop on public/

private partnerships to fight cross-border 

fraud. The workshop delved into ways in 

which members of certain key industries 

(e.g., private mailbox operators, shipping 

companies, electronic payment processors, 

and Internet service providers) can help 

combat international consumer scams.

l Bilateral and Multilateral Cooperation 

Arrangements. The FTC has entered 

into several enforcement cooperation 

memoranda of understanding (MOUs) with 

key partners, such as Canada, Australia, the 

United Kingdom, and Ireland. These MOUs 

have helped streamline cooperation and 

coordinate joint actions against cross-border 

fraud involving these countries. In addition, 

the agency participates in several multilateral 

organizations, which allow networking and 

foster cooperation with foreign enforcement 

agencies from all over the world. Such 

groups include the International Consumer 

Protection and Enforcement Network, APEC’s 

Electronic Commerce Steering Group, the 

Mexico-U.S.-Canada Health Fraud Task 

Fostering International

Cooperation in Consumer 

Protection

Commissioner Mozelle W. Thompson is actively 

involved in the FTC’s efforts to foster greater 

international cooperation on consumer protection 

issues. He continues to head the U.S. delegation 

to the International Consumer Protection and 

Enforcement Network (ICPEN); and in April 2003, he 

spearheaded a joint meeting between ICPEN and 

OECD’s Committee on Consumer Policy. Since March 

2002, he has chaired the OECD’s Committee on 

Consumer Policy. 

In June 2003, as a result of Commissioner 

Thompson’s leadership, the OECD issued its 

“Guidelines for Protecting Consumers From Fraudulent 

and Deceptive Commercial Practices Across Borders.” 

In announcing the Guidelines, Commissioner 

Thompson remarked, “Cross-border fraud, perpetrated 

through telemarketing, Web sites, and spam, harms 

consumers and consumer confidence in the global 

marketplace. The OECD Guidelines ... reflect an 

international commitment by consumer protection law 

enforcement agencies to work together to combat 

these schemes.”

Box 19
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Force, and the Informal Panamerican 

Dialogue.

l International Technical Assistance. The 

FTC’s international technical assistance, 

detailed below, is also an important part of 

the fight against cross-border fraud.

2. Cross-Border Telemarketing Fraud/

Canadian Partnerships.

The FTC’s international efforts have paid 

special attention to the U.S.’s neighbor to 

the north, Canada. The agency has forged 

partnerships with Canadian officials to 

coordinate law enforcement efforts in three 

places: the Ontario Strategic Partnership, 

coordinated by the FTC’s Midwest Region to 

focus on Toronto-based telemarketing; “Project 

Emptor,” coordinated by the Royal Canadian 

Mounted Police, the FTC’s Northwest Region, 

British Columbia officials, and others, to target 

Vancouver telemarketing boiler rooms; and 

a new partnership focusing on the Canadian 

province of Alberta. Cases have targeted 

such areas as advance-fee credit cards and 

cross-border lottery schemes that target senior 

citizens. 

3. International Cooperation on Spam.

The FTC is using its growing network of 

international contacts to build global partnerships 

against spam. This past February, the FTC 

staff gave a presentation on the agency’s spamrelated initiatives at the OECD Spam Workshop 

in Brussels. As a result, many foreign agencies 

with spam enforcement responsibilities (such 

as telecommunications and data protection 

authorities) have expressed their interest in 

mutual cooperation on this issue.

C. International Technical Assistance

 For over a decade, the FTC has assisted 

transition economies that have made the 

commitment to market and commercial law 

reforms. With funding principally from US 

AID, and in partnership with DOJ, the FTC 

has provided technical assistance to over 40 

nations in the development of their competition 

laws. In this past year, the FTC provided 

technical assistance on competition matters in 

Russia, Southeast Europe, Eurasia, the Andean 

Community, Egypt, Indonesia, Mexico, and 

South Africa. The FTC maintains a resident 

advisor program in Indonesia and, with DOJ, 

continues its resident advisor program in South 

Africa. The FTC’s short-term programs have 

emphasized the development of investigative 

skills. These programs rely on a combination 

of resident advisors, regional workshops, and 

targeted short-term missions. The agency 

schedules these technical assistance activities to 

enable career FTC staff to share their expertise 

with their counterparts in the newer competition 

agencies of the world. In the past year, the 

FTC received funding to begin new programs 

of assistance to the ASEAN community of ten 

nations in Southeast Asia. 

To broaden international cooperation 

on consumer protection and ensure that no 

country becomes a haven for fraud, the FTC is 

conducting US AID-funded training missions in 

Eastern Europe, Eurasia, and South America. 

Last year, FTC staff conducted consumer 

protection training missions in Hungary, 
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Slovenia, Romania, Ukraine, and Peru, covering 

such issues as basic consumer protections, 

consumer credit, advertising principles, 

advertisement interpretation, and advertising 

substantiation. A central feature is to assist 

with the detection and prevention of fraud in ecommerce and through the Internet. Although 

these nations are developing economically, 

some are home to the most sophisticated 

scam artists targeting U.S. consumers today. 

For instance, a significant amount of Internet 

auction fraud originates in Romania. The 

FTC’s recent mission to Bucharest focused on 

training Romanian authorities on how to conduct 

Internet-related investigations and strengthening 

relationships with that country’s cybercrime 

authorities.

Reflecting on Past Achievements 

and Considering the Future

The past 12 months have provided occasion 

to recognize important people and events 

in the FTC’s history. In summer 2003, Marc 

Winerman, a senior attorney in the Office of the 

General Counsel and an expert on the agency’s 

history, published a seminal article on the early 

history of the FTC, entitled The Origins of the 

FTC: Concentration, Cooperation, Control, 

and Competition. In September, the Bureau of 

Economics held a symposium in honor of the 

100th anniversary of the Bureau of Corporations, 

the precursor to the FTC, which Congress later 

incorporated into the FTC upon its creation in 

1914. The agency has continued many of the 

functions of the old Bureau of Corporations, such 

as collecting market information, conducting 

industry and policy research, and preparing 

reports at the request of the Congress and the 

President. Finally, in December, the agency 

made the third presentation of the Miles W. 

Kirkpatrick Award for distinguished service, 

this time to Jodie Bernstein, former Director of 

the Bureau of Consumer Protection. Assisting 

Chairman Muris in making the presentation was 

former Chairman Robert Pitofsky, who served 

with Jodie Bernstein during separate tours at the 

agency. 

During the coming 12 months, the FTC 

will have more reason to celebrate its past 

and consider its future. September 26, 2004 

commemorates the 90th anniversary of the 

Federal Trade Commission Act, and March 16, 

2005 marks the 90th anniversary of the day 

when the Chief Justice of the Supreme Court of 

the District of Columbia, the Honorable J. Harry 

Covington, administered the oath of office to the 

FTC’s first five Commissioners, permitting the 

agency to begin operation. Next September, 

the FTC will host several events to observe this 

milestone. The 90-year mark will provide an 

opportunity for the FTC not only to reflect on past 

achievements but also to plan future initiatives to 

serve American consumers and fulfill the vision 

that inspired its formation.
Fulfilling the Original Vision - 4

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Principal Contributors to Report

Judith Bailey, Chair

James M. Giffin, Competition

Karen Leonard, Consumer Protection

Dawne E. Holz, Graphics and Design

Contributing FTC staff also include Asheesh Agarwal, Jeanine Balbach, 

James Cooper, Jeanne M. Crouse, John F. Daly, Rachel Miller Dawson, John Delacourt, 

Susan S. DeSanti, Nikki Ellington, Maame Gyamfi, James C. Hamill, Jr., 

D. Bruce Hoffman, Brian Huseman, Maryanne Kane, Rona Kelner, William E. Kovacic, 

Erin Malick, Maureen Ohlhausen, Lydia B. Parnes, C. Lee Peeler, Bilal Sayyed, 

Randolph W. Tritell, Marianne Watts, Beth Arvan Wiggins, Marc L. Winerman, 

Pablo Zylberglait, and Todd J. Zywicki.
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Federal Trade Commission Annual Awards

0ctober 2003

Chairman’s Award David Torok

Louis D. Brandeis Award Rhett Krulla

Eleanor F. Greasley Award Betty Moss

Catherine Norris

Stephen Nye Award Renard Francois

April Tabor

Richard C. Foster Award Sylvia Brooks

Diane Reinertson

James M. Mead Award Erin Malick

Frances Williams

Douglas McGuckin 

Dolores Wood

Mary Gardiner Jones Award Doris Pressley

Outstanding Scholarship Award Marc Winerman

Paul Rand Dixon Award Michele Arington

Jesse Leary

Gregory Ashe

Judith Moreland

Ramona Elliott

Steven Wernikoff

John Jacobs

A. Leon Higginbotham, Jr. Award Dean Forbes

Award for Excellence in Supervision Joan Fina

Peggy Twohig 

David Pender 

Michael Vita 

Robert Schroeder 

Otis B. Johnson Award Robin Overholt 

Colleen Tressler 

Enid Williams

Excellence in Economics Award Christopher Taylor 

Outstanding Team Effort Award TSR Do Not Call Team

601 New Jersey Avenue Relocation Team

Competition and Intellectual Property in the Knowledge-

 Based Economy Hearing and Report Team