Strong Foundation:

The FTC Year in Review

Federal Trade Commission

April 2002

R Q WWW.FTC.GOV
Federal Trade Commission

The FTC Year in Review

Contents

A Broad Mission To Protect Consumers .......................................................................................... 1

Chapter 1: Competition Law Enforcement ...................................................................................... 1

I. Merger Enforcement ............................................................................................................................2

II. Non-merger Enforcement.....................................................................................................................3

III. Major Industries ....................................................................................................................................4

A. Energy ......................................................................................................................................................... 4

B. Health Care.................................................................................................................................................. 6

C. High-Tech and Intellectual Property ............................................................................................................. 9

Chapter 2: Consumer Protection Law Enforcement ...................................................................... 9

I. Identifying Fraud and Deception ........................................................................................................10

II. An Overview of Consumer Protection Cases ..................................................................................... 11

Chapter 3: New Enforcement Initiatives ........................................................................................ 14

I. Competition ........................................................................................................................................14

A. Antitrust Exemptions .................................................................................................................................. 14

B. E-Commerce Initiative ............................................................................................................................... 15

C. Improving the Empirical Foundation for Enforcement ............................................................................... 15

II. Consumer Protection .........................................................................................................................16

A. Privacy ....................................................................................................................................................... 16

B. Class Actions ............................................................................................................................................. 19

Chapter 4: International Activities: New Initiatives, Enforcement, and Assistance.................. 19

I. Competition ........................................................................................................................................19

A. International Competition Network ............................................................................................................ 19

B. Bilateral Cooperation ................................................................................................................................. 19

C. Trade/Competition Fora ............................................................................................................................. 20

D. Multilateral Fora ......................................................................................................................................... 20

E. Technical Assistance ................................................................................................................................. 20

II. Consumer Protection .........................................................................................................................20

A. Cross Border Fraud ................................................................................................................................... 21

B. IMSN Findings on Cross-Border Remedies .............................................................................................. 21

C. econsumer.gov .......................................................................................................................................... 21

Chapter 5: Other Activities That Promote Competition And Protect Consumers ...................... 21

I. Education and Outreach ....................................................................................................................21

II. Workshops, Hearings, and Studies ....................................................................................................22

III. Good Government Initiatives ..............................................................................................................24
Federal Trade Commission

Builiding on a Strong Foundation
Federal Trade Commission

The FTC Year in Review - 1

A Broad Mission To Protect

Consumers

Through its enforcement of consumer protection

and competition laws, the Federal Trade Commission

seeks to insure that markets operate freely and

efficiently for the benefit of consumers. In addition to

its broad enforcement authority, the Commission also

has unique jurisdiction to identify, analyze, and report

on a wide range of competition and consumer

protection issues of major importance. The agency’s

mission is to prevent business practices that are

anticompetitive, deceptive, or unfair to consumers; to

enhance informed consumer choice and public

understanding of the competitive process; and to

accomplish these goals without unduly burdening

legitimate business activity.

Our activities of the past year illustrate how the

agency’s broad mandate promotes competition and

protects consumers. This report highlights the FTC’s

goals and achievements:

$ retaining and building on the agency’s recent

history of aggressive law enforcement;

$ identifying and implementing new initiatives to

address emerging concerns of consumers;

$ focusing on industries significant to consumers,

such as health care and energy; and

$ continuing to use the FTC’s historical role of

researching and reporting on significant

developments in the marketplace to advance the

state of knowledge about important economic

issues.

The FTC continues an aggressive law

enforcement program. In our competition mission,

we have challenged a substantial number of merger

transactions as likely to violate § 7 of the Clayton Act.

We also have opened a large number of

investigations into unilateral or coordinated conduct

that may violate the antitrust laws. Our non-merger

initiatives will further develop the law in areas such

as standard-setting and the reach and breadth of

antitrust exemptions.

In our consumer protection mission, we continue

to pursue fraud and deception cases, the mainstays

of this program. We are implementing new methods

to identify illegal conduct, and are considering ways

in which we can cooperate with other government

agencies to put the most egregious recidivists in jail.

In keeping with the growing importance of both

online and offline privacy issues, we have

implemented a three-pronged privacy agenda,

consisting of law enforcement, rulemaking, and

business and consumer education. This fiscal year,

we are increasing by 50 percent the resources

dedicated to privacy protection.

Recognizing the growing importance to American

consumers of activity occurring outside the United

States, we have increased our cooperation with other

antitrust and consumer protection enforcement

agencies throughout the world.

The actions and initiatives discussed in the

following pages are the product of, and a testament

to, the FTC’s professional, highly-qualified, and

dedicated staff. Their work has made the FTC the

well-respected agency it is today.

Chapter 1

Competition Law Enforcement

“Continuity” characterizes the Commission’s

antitrust enforcement initiatives. The agency has

followed a consistent course over the past 20 years,

reflecting a broad consensus that the purpose of

antitrust is to protect consumers, that economic

analysis should guide enforcement policy decisions,

and that antitrust concerns – whether involving

mergers or non-merger conduct – most likely involve

direct competitors.

“Continuity” does not mean “unchanging,” of

course. Knowledge continues to expand, new

markets emerge, existing markets develop, and the

Commission’s priorities, strategies, and agenda have

evolved to remain current with these dynamic forces.

We have embarked on new initiatives; these

ventures build on the solid and uncontroversial

foundation of current antitrust enforcement policy.
Federal Trade Commission

Building on a Strong Foundation - 2

I. Merger Enforcement

The 1982 Merger Guidelines (as modified in

1984, 1992, and 1997) reflect the standards the

Commission applies in evaluating mergers. As

Commissioner Thomas Leary has traced in some

detail in his speech, “The Essential Stability of

Merger Policy in the United States” (January 17,

2002), the key principles of merger policy have

remained intact over the past four Presidential

administrations, with only gradual changes at the

margins.

The marketplace drives the Commission’s

merger workload. In recent years, record-setting

levels of mergers, both in numbers and in size,

required extraordinary efforts to manage the

necessary merger reviews within the mandated time

periods.

More recently, economic conditions have reduced

merger activity (see Figure 1), and amendments to

the Hart-Scott-Rodino Act have raised the thresholds

that determine which proposed mergers must be

reported to the antitrust agencies. Nevertheless,

merger enforcement remains a significant challenge

for three reasons: (i) indicators other than the

number of filings show continued need for extensive

enforcement, (ii) numerous transactions still warrant

our scrutiny, despite the lower number of filings, and

(iii) notwithstanding the change in the reporting

requirement, the Commission remains responsible

for protecting consumers from harm due to

anticompetitive transactions.

(i) Increasing Size, Scope, and Complexity. Mergerrelated demands on the Commission remain high

by historic standards, as mergers continue to

grow in size, scope, and complexity. For

example, even with the revised reporting

thresholds in effect for most of the year, the

dollar value of merger transactions

reported in FY 2001 exceeded $1

trillion, a level reached for the first

time only in 1997. See Figure 2.

Mergers among large, diversified

firms may raise antitrust concerns in

dozens of separate product and

geographic markets, each requiring

investigation and analysis. Moreover,

as new technologies continue to

emerge and as the economy

becomes more knowledge-based, the

resulting complexity of many mergers

requires extensive inquiry.

(ii) Many Mergers Warrant Scrutiny.

The number of proposed mergers

raising competitive concerns appears

to remain significant. Thus, the

agency continues to open

investigations, issue second requests, and bring

cases at a rate comparable to recent years,

despite fewer filings. Through the first six

months of fiscal year 2002, the Commission took

enforcement action to prevent competitive

problems in 17 proposed mergers.

(iii) Focus on Non-Reportable Mergers. Although

most proposed mergers raising antitrust issues

remain subject to the HSR Act, the revision to the

reporting thresholds left the standard of legality

under Section 7 of the Clayton Act unchanged.

Consequently, we use the trade press and other

news articles, consumer and competitor

complaints, hearings, economic studies, and

Merger and Acquisition Dollar Value as a Percentage of GDP

Calendar Years 1980 - 2001

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Source: Mergerstat® Review

Figure 1
Federal Trade Commission

The FTC Year in Review - 3

other means to identify non-reportable

transactions that may harm competition. The

agency is fully prepared to challenge

consummated mergers or mergers that are too

small to require an HSR filing.

Two such non-reportable mergers that the

Commission has challenged recently involve

MSC.Software. The Commission’s administrative

complaint alleges that in 1999 MSC acquired, in

separate non-reportable transactions, its only two

competitors, Universal Analytics, Inc. (UAI) and

Computerized Structural Analysis & Research Corp.

(CSAR), in the market for advanced computer-aided

engineering software (Nastran).

In addition to its review of certain non-HSR

reportable transactions, the Commission will

challenge, when appropriate, consummated

acquisitions. One such matter is Chicago Bridge &

Iron Company N.V.’s acquisition of the Water

Division and Engineered Construction Division of

Pitt-Des Moines, Inc. The Commission’s

administrative complaint alleges that these firms

were the two leading U.S. producers of large, fielderected industrial and water storage tanks and other

specialized steel-plate structures. This matter is

currently in administrative litigation. The

Commission this year also entered into a consent

order in another consummated transaction, requiring

Airgas, Inc., to divest assets sufficient to establish

another competitor in the market for nitrous oxide.

In the past six months, the Commission also has

authorized the filing of three complaints in federal

district court seeking to block proposed mergers.

Two of these matters were eventually settled; the

third matter remains in litigation:

$ Diageo/Vivendi To resolve concerns that the

proposed $8.15 billion joint acquisition of

Seagram Spirits and Wine by Diageo PLC and

Pernod Ricard S.A. would violate § 7 by

combining the second- and third-largest sellers

of rum in the U.S., the Commission agreed in

December to accept for public comment a

proposed consent agreement calling for

divestiture of the Malibu rum brand.

$ Deutsche Gelatine-Fabriken Stoess AG/Leiner

Davis Gelatin Corporation To resolve concerns

that the proposed $170 million acquisition of

Leiner Davis Gelatin Corporation by Deutsche

Gelatine-Fabriken Stoess AG would have

anticompetitive effects in the market for pigskin

and beef hide gelatin, the Commission obtained

a consent order requiring the parties to modify

the transactions so as to maintain Leiner Davis’

operations in the relevant market.

$ Libbey Inc./Anchor Hocking On January 14,

2002, in the United States District Court for the

District of Columbia, the Commission alleged that

Libbey Inc.’s proposed $322 million acquisition of

Anchor Hocking would violate § 7 in the food

service glassware market. On April 22, 2002,

the court granted the FTC’s motion for a

preliminary injunction.

II. Non-merger Enforcement

The broad consensus on antitrust policy reflects

the belief that horizontal activities – agreements

between or among competitors – should be the

major focus of non-merger enforcement. While

merger activity remains relatively high, a decline

from the unprecedented levels of recent years has

allowed us to restore resources to non-merger

enforcement, consistent with historical allocations

between merger and non-merger programs. In fiscal

year 2001, the FTC opened 56 non-merger

investigations, more than double the number begun

in the previous fiscal year. See Figure 2. We have

opened an additional 19 investigations during this

fiscal year.

We presently have two non-merger matters in

Part III litigation.

$ The Three Tenors In September 2001, the FTC

entered into a consent agreement with Warner

Communications to resolve charges that Warner

and Polygram illegally agreed to fix prices for

audio and video products featuring “The Three

Tenors.” The case against Vivendi Universal

S.A., the successor corporation to Polygram, is

currently before an FTC administrative law judge.
Federal Trade Commission

Building on a Strong Foundation - 4

$ Generic Drug Litigation In March 2001, the

Commission issued an administrative complaint

alleging that Schering-Plough Corporation, the

maker of K-Dur 20, a widely-prescribed

potassium chloride supplement, illegally paid

Upsher-Smith and American Home Products

millions of dollars to induce them to delay

launching their generic versions of the branded

drug beyond any delay they might have agreed

to without such payments. In April 2002, the

Commission reached a settlement with American

Home Products. The settlement prohibits AHP

from entering into agreements (1) in which a

branded drug manufacturer pays the maker of a

generic product to delay entering the market, or

(2) in which a potential generic entrant agrees

with a brand-name company not to enter the

market with a generic product that is not subject

to a claim of patent infringement. The

administrative litigation with Schering and

Upsher-Smith continues.

To fulfill the FTC’s charter to develop and explain

the contours of antitrust law, Chairman Muris is a

strong believer in using the FTC’s administrative

litigation process. When he was Director of the

Bureau of Competition in the mid-1980s, the

Commission issued 17 administrative complaints.

We presently have four competition

matters in active Part III administrative

litigation, substantially above the

recent norm.

III.Major Industries

Because of their great importance

to consumers, the Commission gives

special attention to certain industries.

A. Energy

Representing a significant portion

of the total U.S. economic output,

energy is vital to the economy. The

FTC has gained considerable

experience with energy issues during

the past two decades, having

investigated numerous oil mergers

and other energy activity.

1. Merger Enforcement

Consistent with its long-standing analytical

approach, the Commission has carefully investigated

three significant oil industry mergers in the past year.

In each case, it has determined the competitive

effects of the proposed transaction in a host of

individual product/geographic market combinations.

When necessary, it has insisted on remedial

divestitures to cure potential harm to competition.

$ Chevron/Texaco The Commission accepted a

consent agreement that allowed the proposed

$45 billion merger of Chevron Corporation

(Chevron) and Texaco Inc. (Texaco) to proceed,

while requiring substantial divestitures to cure the

anticompetitive aspects of the transaction. The

proposed merger – combining two of the largest

integrated oil companies in the world – raised

antitrust concerns affecting ten separate relevant

product markets and 15 sections of the country

comprised of dozens of smaller relevant

geographic markets.

The Commission’s Order requires divestiture

of all of Texaco’s interests in two joint ventures,

formed in 1999, that combined the downstream

Value of HSR-Reported Merger Transactions and 

Number of New Non-merger Investigations

Fiscal Years 1994 - 2001

0

10

20

30

40

50

60

70

80

90

FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01

Investigations

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

Transactions (In Trillions)

Nonmerger Investigations Value of HSR Transactions

Figure 2
Federal Trade Commission

The FTC Year in Review - 5

operations of Texaco and Shell Oil Company.

The two joint ventures, Equilon and Motiva,

operate eight petroleum refineries and about 115

terminals, hold interests in crude oil and refined

product pipelines, and market their products

through about 23,700 branded gasoline stations.

In addition, the Order requires divestiture of

Texaco’s interests in a natural gas pipeline

system in the Gulf of Mexico and a Texas

fractionating plant, along with its general aviation

businesses in 14 states.

$ Valero/UDS The Commission’s investigation of

the proposed $6 billion merger of oil refiners

Valero Energy Corporation (Valero) and Ultramar

Diamond Shamrock Corporation (UDS) focused

on the market for gasoline meeting the California

Air Resources Board’s (CARB) requirements. All

gasoline sold to California consumers must meet

CARB specifications, which are designed to

reduce pollution caused by gasoline exhaust.

The Commission allowed the transaction to

proceed, but required Valero to divest UDS’s

Golden Eagle Refinery, bulk gasoline supply

contracts, and 70 UDS retail service stations in

Northern California to a Commission-approved

buyer.

$ Phillips/Tosco The Commission

also investigated the $7 billion

proposed merger of Phillips

Petroleum Corporation (Phillips)

and Tosco Corporation (Tosco).

Applying the same standards that

it relies upon in all merger

enforcement actions, the

Commission determined that this

transaction did not pose a threat

to competition. It voted

unanimously to close the

investigation, and issued a public

statement to explain its reasoning.

The Commission noted that the

two firms operated primarily in

different parts of the country, and

that their combined share of the markets in which

they both operated was small.

2. Other Activities

The Commission has undertaken other efforts

that complement and support its enforcement in the

energy industry. These activities build on our

previous, recent investigations into high gas prices in

the Midwest and in certain western states.

$ Refined Petroleum Products Conference

Building on its extensive enforcement experience

in the petroleum industry, the Commission will

explore the causes of the recent volatility of

refined petroleum product prices during a

conference scheduled for May 8-9, 2002, and

plans to release a report summarizing its findings

later this year.

$ Gasoline Price Monitoring We are monitoring

wholesale and retail prices of gasoline – by far,

the single largest refinery product. Members of

our staff inspect wholesale gasoline prices for 18

(soon to be 20) cities and retail gasoline prices

for 360 cities throughout the U.S. See Figure 3.

We will analyze this data to search for

explanations of any pricing anomalies that we

identify.

FTC Gasoline Price Monitoring Locations

Figure 3
Federal Trade Commission

Building on a Strong Foundation - 6

$ Comment to the Virginia Legislature on

Proposed Predatory Pricing Legislation The

Commission’s expertise on energy issues was

the genesis for the staff’s February 2002 letter

analyzing Virginia legislation that would have

outlawed “below cost” pricing of gasoline. The

staff explained that genuine “predatory” pricing is

already illegal under the antitrust laws, and that

the legislation would likely prevent gas “price

wars” and other procompetitive price-cutting. A

legislator opposing the bill read excerpts from the

staff letter during the hearing at which the bill was

debated, and the bill failed by a vote of 12 to 9.

$ Boutique Fuel Comment Earlier this year, the

staff commented on the Environmental Protection

Agency’s “Study of Unique Gasoline Fuel Blends

(Boutique Fuels), Effects on Fuel Supply and

Distribution and Potential Improvements.” The

comment suggested that the EPA, in fulfilling the

mandate of the President’s National Energy

Report, would find it useful to perform a

“competitive analysis” based on the principles in

the Merger Guidelines to identify how changes in

regulations could affect the price and availability

of gasoline. We are making suggestions to the

EPA regarding how to perform such an analysis.

$ Electricity As discussed in Box 1, the

Commission has participated extensively in the

debate concerning electricity restructuring efforts.

B. Health Care

The cost of health care is significant to both

consumers and the economy. Health-related

products and services account for over 13 percent of

gross domestic product, up from 10.9 percent in

1988.

1. Non-merger Enforcement

Three of the major participants in the health care

market are doctors, hospitals, and third-party payers.

We are active in all three areas, with many

investigations into activity that may be unlawful and

anticompetitive. A recent proposed settlement

illustrates conduct that can harm consumers.

Electricity Restructuring

The Commission has emphasized competition and

consumer protection policy principles in its comments

relating to restructuring of the electricity industry.

The Commission has adopted four principles that

guide its efforts in providing advice to the states and

federal agencies involved with introducing and

fostering competition in the electricity industry:

• Eliminate or reduce substantial and durable

horizontal market power in electricity generation

markets;

• Remove incentives for vertically integrated firms to

engage in undue discrimination and crosssubsidization;

• Foster accurate, non-deceptive information

disclosure to customers about price and service

offerings; and

• Promote uniform disclosure of the prices and other

relevant attributes of offers to customers.

These principles have guided the staff’s comments

to 14 states as they consider whether to embark on

introducing competition into the retail sale of electricity

to consumers. These comments were compiled in a

July 2000 FTC Staff Report.

Most recently, the staff analyzed the features of

state retail competition programs that have resulted in

consumer benefits and those that have not. The

September 2001 Staff Report concluded that the states

that have moved toward competition in electricity

generation and retail marketing are in a transition

period, during which retail price regulation will continue

as some elements of competition are introduced.

Given that many states are in a transition phase that

represents a hybrid of regulation and competition,

many of the expected benefits of competition have not

yet emerged. Nothing that has happened so far,

however, indicates that competition – once the

transition period is complete – will not produce

additional benefits to electricity customers.

Because the momentum toward the adoption of

retail competition by additional states has stopped in

light of the retail electricity restructuring problems in

California, the staff has focused on providing

competition policy-based advice to FERC as it fosters

conditions in wholesale electricity markets that are

conducive to allowing markets to operate relatively free

from regulation. In the last few months, the staff has

provided comments on five issues identified by FERC

as important to its electricity restructuring agenda.

Box 1
Federal Trade Commission

The FTC Year in Review - 7

$ Napa Valley OB/GYN Group The Commission

accepted, subject to public comment, a consent

agreement with a group of Napa County,

California obstetricians and gynecologists (OB/

GYNs) charged with agreeing on the fees they

would charge and engaging in an illegal boycott

of health plans to extract higher fees. First

informally, and then through a group they formed

called Obstetrics & Gynecology Medical Corp. of

Napa Valley (OGMC), the doctors demanded that

they be paid according to the fee schedule they

set. The complaint alleged that these actions

harmed consumers, employers, and health plans

by increasing the fees for OB/GYN services.

Some health plans discontinued providing certain

coverage in Napa County. The OB/GYNs did not

engage in any activity, such as clinical or

financial integration of their practices, that might

have justified the collective fee agreements. To

resolve the matter, the doctors have agreed to

disband OGMC and to refrain from engaging in

similar anticompetitive conduct in the future.

2. Pharmaceuticals

The FTC continues to work to ensure that

anticompetitive practices do not delay market entry

of generic drugs and to prevent firms from engaging

in other anticompetitive practices that raise drug

prices. We seek to ensure that protections provided

to drug innovators under the Hatch-Waxman Act are

not abused to harm consumers. The statute was

designed to facilitate the development of new

pharmaceuticals, while keeping them affordable, by

balancing incentives for investment in innovation with

the benefits of vigorous competition from generic

drugs.

The FTC is examining two types of cases

involving the anticompetitive use of Hatch-Waxman.

The first type of case involves agreements between

makers of brand-name drugs and makers of generic

drugs, under which, it is alleged, the generic entrant

essentially is paid not to compete. As explained

above in Chapter 1, Section II, one of these matters

is in litigation (Schering). The Commission just

finalized a consent order with one of the parties in

this litigation (American Home Products). The

In re Buspirone Amicus Filing

Complementing our efforts to investigate Orange

Book cases, the Commission filed an amicus brief in In

re Buspirone in January. The Buspirone plaintiffs

alleged that Bristol-Myers, in violation of Sherman Act

§ 2, improperly listed a newly-obtained patent in the

Orange Book, and fraudulently represented to the FDA

that the patent covered an approved use of BuSpar,

despite contrary representations to the Patent and

Trademark Office (PTO). Bristol-Myers filed a motion

to dismiss, arguing that a claim based on its Orange

Book filing could not proceed because it was immune

under the Noerr-Pennington doctrine. Given the

importance of the issue to competition in the

pharmaceutical industry, and to ongoing government

investigations at the FTC, and given the Chairman’s

longstanding interest in addressing and clarifying the

Noerr-Pennington doctrine, the Commission filed an

amicus brief opposing the motion to dismiss. In an

opinion that relied extensively on the arguments raised

in the Commission’s amicus brief, the district court

denied Bristol-Myers’ motion.

The court’s order rejected Bristol-Myers’ claim of

Noerr-Pennington immunity on three independent and

alternative grounds. Most important, the court agreed

with the Commission that Orange Book filings simply

do not constitute protected “petitioning;” rather, like

tariff filings, they are mechanical, informational filings

that do not trigger the exercise of legal or discretionary

judgment by the FDA and do not call for agency

decision-making. Nor, the court concluded, are Orange

Book filings incidental to petitioning.

The court further held that, even if Orange Book

filings were “petitioning,” two specific exceptions to the

Noerr doctrine – the Walker Process (Walker Process

Equipment, Inc. v. Food Machinery & Chemical Corp.,

382 U.S. 172 (1965)) and “sham” exceptions – would

preclude a finding of antitrust immunity.

Under Walker Process, a patent holder may be

subject to antitrust liability for attempting to enforce a

patent procured through fraudulent misrepresentations

to the PTO. The Buspirone court applied Walker

Process beyond the PTO context and squarely held

that the exception applies to FDA Orange Book listings

and that plaintiffs allegations satisfied Walker Process.

Finally, the court held that the plaintiffs’ allegations

satisfied the “sham” exception to Noerr immunity,

because Bristol-Myers’ contradictory representations to

the PTO and the FDA rendered its representations to

the FDA objectively baseless under Professional Real

Estate Investors Inc. v. Columbia Pictures Indus., 508

U.S. 49 (1993) (PRE).

 In re Buspirone Patent Litigation, 185 F. Supp. 2d

363 (S.D.N.Y. 2002); the Commission’s brief is

available at www.ftc.gov/os/2002/01/busparbrief.pdf.

Box 2
Federal Trade Commission

Building on a Strong Foundation - 8

second type of case involves unilateral action by

branded manufacturers allegedly to delay generic

competition. For example, some branded

manufacturers list additional patents in the FDA’s

“Orange Book,” often shortly before their original

patents expire, and then launch patent infringement

suits against generic drug firms poised to enter the

market. Under Hatch-Waxman, such litigation

triggers an automatic 30-month stay on FDA

approval of the generic drug. We have been

investigating such conduct.

$ Biovail (Tiazac) The Commission recently

announced a settlement with Biovail Corp., a

pharmaceutical manufacturer, to settle charges

that Biovail’s acquisition of an exclusive patent

license was an unlawful asset acquisition in

violation of Clayton Act § 7 and FTC Act § 5 and

an unlawful monopolization in violation of FTC

Act § 5. The complaint alleges that Biovail had

monopoly power in the market for Tiazac and

generic bioequivalent versions of Tiazac – a drug

used to treat high blood pressure and chronic

chest pain – and that the acquisition of an

exclusive license for a patent on a unique

formulation of the active ingredient in Tiazac

protected Biovail’s monopoly in the relevant

market. Furthermore, Biovail allegedly engaged

in acts willfully to maintain its Tiazac monopoly by

wrongfully listing the patent in the Orange Book

and making misleading statements to the FDA.

To resolve the charges, Biovail must divest part

of its exclusive patent rights. The proposed order

also prohibits Biovail from wrongfully listing any

patents in the Orange Book; prohibits any action

that would trigger a statutory stay on generic

Tiazac entry; and requires prior notice of

acquisitions of patents that will be listed in the

Orange Book.

We also have been active, as an amicus, in

private “Orange Book” litigation. See Box 2.

3. Merger Enforcement

The Commission’s health care merger practice

remains active. This year we obtained significant

relief in a transaction consummated in violation of

the HSR reporting requirements and reviewed a

major merger among drug wholesalers.

$ Hearst/Medi-Span In a novel case involving

violations of both §§ 7 and 7A of the Clayton Act,

as well as the first-time use of disgorgement of

profits as a remedy in a merger case, the

Commission restored competition in the market

for integrated drug information databases. The

court-approved final consent decree required

Hearst to divest the former Medi-Span business

and pay $19 million to disgorge the allegedly

unlawful profits it earned while it was the sole

supplier of integrated drug information

databases. In a related action, the Commission

obtained a record civil penalty of $4 million for

Hearst’s alleged failure to comply with the

reporting requirements of the HSR Act.

$ AmeriSource/Bergen Brunswig After

conducting a full investigation of the proposed

merger of AmeriSource Health Corporation and

Bergen Brunswig Corporation, the 3rd and 4th

largest drug wholesalers in the U.S., the

Commission concluded that the evidence did not

demonstrate a violation of § 7. As the

Commission explained in a public statement, the

AmeriSource/Bergen matter differed from the

earlier challenged proposed mergers of

AmeriSource Health Corporation with McKesson

Corporation and Bergen Brunswig Corporation

with Cardinal Health, Inc. Unlike the earlier deals,

which would have left just two dominant firms at

the top of the industry, this transaction, by

combining numbers three and four, would create

a stronger rival to compete with the top two firms.

Moreover, the evidence was not consistent with

any theory of competitive harm, including either

price increases or a slowing in price decreases.

The Commission also determined that the

merging parties had presented good evidence to

support their assertion that the combined

company would cut its costs and invest in valueadded services, and do so more quickly than

either firm might have done alone.
Federal Trade Commission

The FTC Year in Review - 9

4. Other Activities

Two initiatives complement our healthcare

enforcement.

$ Hospital Merger Retrospective We are

studying consummated hospital mergers to

determine whether particular hospital mergers

have led to higher prices; the Commission will

consider bringing enforcement actions against

consummated, anticompetitive hospital mergers.

$ Generic Drugs Study The Commission is

studying competition in the sale of prescription

drugs and the impact of generic competition

under the Hatch-Waxman Act. The study may

identify other anticompetitive strategies used to

exploit Hatch-Waxman provisions and ultimately

provide guidance on possible revisions to the law.

See further discussion in Chapter 5, Section II.

C. High-Tech and Intellectual Property

The continuing development of “high-tech”

industries and the significance of intellectual property

influence our antitrust agenda. The U.S. economy is

more knowledge-based than ever. While the

fundamental principles of antitrust do not differ when

applied to high-tech industries, or those in which

patents or other intellectual property are highly

significant, the issues are often more complex, take

more time to resolve, and require different kinds of

expertise. Thus we now have patent lawyers on

staff, and sometimes hire technical consultants in

areas such as electrical engineering or

pharmacology.

For mergers, we apply the well-established

framework of the Merger Guidelines to high-tech

industries, with some important nuances. We

proceed with perhaps even greater care than usual.

The technology sector is rapidly changing, making

market power often more ephemeral in nature,

perhaps lessening the need for intervention in some

instances. In addition, the fashioning of remedies

can be more complicated in knowledge-based

sectors. A firm’s intellectual property may be far

more valuable than its tangible property. If a

manufacturing process is protected by patent, for

example, divestiture of the machinery may be

meaningless. Consequently, a thorough

understanding of the technology and the applicable

intellectual property is critical to the design of an

effective remedy, which may include the divestiture

or licensing of patents.

An increasing number of the FTC’s non-merger

competition matters also require the application of

antitrust law to conduct relating to intellectual

property. The FTC’s efforts are focused on two

areas. One is the generic drug industry (as

discussed in Chapter 1, Section II). The other is

standard setting, in which we have significant

investigations. These investigations raise issues

similar to the Dell case, brought by the Commission

in 1995, involving attempts to influence the

development of standards in which a party holds

relevant intellectual property rights.

As discussed below in Chapter 5, Section II, the

FTC and the Department of Justice Antitrust Division

are jointly sponsoring hearings on competition and

intellectual property law and policy.

Chapter 2

Consumer Protection Law

Enforcement

Over the past year, the Commission has

continued an ambitious program of law enforcement,

targeting both traditional types of fraud and

deception and those types that capitalize on new

technologies. Simply stated, the FTC’s consumer

protection mission is to identify the most egregious

forms of fraud and deception; to bring cases, on our

own and with our law enforcement partners; and to

educate ourselves about emerging issues, industry

about complying with the law, and consumers about

how to best protect themselves from fraud and

deception. This chapter discusses the first two parts;

education is discussed in Chapters 3 and 5 below.
Federal Trade Commission

Building on a Strong Foundation - 10

I. Identifying Fraud and Deception

To identify the most serious forms of fraud and

deception, the FTC relies on its complaint databases,

which are accessible to increasing numbers of law

enforcement partners. In the past year, FTC

databases have grown dramatically, and the FTC

staff has recruited many new law enforcement

partners at home and abroad. Some examples:

$ Consumer Response Center The CRC is now

responding to over 55,000 inquiries and

complaints a week. Consumers use the FTC’s

toll-free number (1-877-FTC-HELP), file

complaints online, and send letters. Last fiscal

year, the CRC added 350,000 complaints to the

FTC’s database.

$ Consumer Sentinel Established by the FTC in

1997, Consumer Sentinel is available online to

law enforcement agencies across the U.S. and

Canada. It receives fraud complaints from the

FTC’s CRC and from a growing number of other

organizations in the U.S. and Canada. Sentinel

now contains over 500,000 complaints, and is the

richest source of consumer fraud data available

to law enforcement agencies. In the last year, the

FTC recruited 240 new law enforcement

partners, bringing the total number of Sentinel

users to more than 400 law enforcement

agencies. Consumers also can access publicly

available sections of this Web site and find a

wealth of statistics about fraud, including the

scams that garner the most consumer complaints

(see Box 3); the scams that cost consumers

most; the location of companies complained

about, by state and by province; the number of

identity theft complaints, by state; the types of

identity theft most frequently reported; and how

to spot and avoid fraud and deception online and

off.

$ Identity Theft The FTC’s toll-free number,

1-877-ID-THEFT, a central clearinghouse for ID

theft complaints, is also a rich source of

consumer complaint data. Calls to the FTC’s tollfree number continue to increase, from 2,200

calls a week one year ago, to over 3,000 today.

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 300 law

enforcement agencies access the data. In

addition, FTC investigators, working with the

Secret Service, have begun developing

preliminary investigative reports that are referred

to regional Financial Crimes Task Forces for

possible prosecution.

$ Spam Database 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, on average, 26,000 new pieces of

spam every day. The total number of spam has

grown from 700,000 in the first year to over 10

million today. See Figure 4. The database is

searchable, allowing the Commission staff to

track trends and identify law enforcement targets.

$ Surf Days First used in 1996 to look for online

pyramid schemes, the law enforcement “Surf

Day” has become a popular method for the

Commission and other agencies to identify online

scams of all kinds. The FTC identifies a type of

deceptive practice that warrants investigation and

then recruits partners to search the Web for a

specified period of time using a protocol tailored

Top 10 Consumer Fraud Complaints

Calendar Year 2001

1 Identity Theft (42%)

2 Internet Auctions (10%)

3 Internet Services and Computer Complaints (7%)

4 Shop-at-Home and Catalog Offers (6%)

5 Advance Fee Loans and Credit Protection (5%)

6 Prizes, Sweepstakes, Gifts (4%)

7 Business and Work-at-Home Opportunities (4%)

8 Foreign Money Offers (4%)

9 Magazines and Buyers Clubs (3%)

10 Telephone Pay-Per-Call, Information Services (2%)

Box 3
Federal Trade Commission

The FTC Year in Review - 11

to the Surf Day’s subject matter. An efficient tool,

the law enforcement surf accomplishes two

objectives: it provides a window to learn about

online practices, and it provides an opportunity to

alert new Web site providers – some of whom

are new entrepreneurs unaware of existing laws

– if their sites appear to violate the law. In the

last year, the Commission conducted 5 surfs with

over 70 partners, focusing on claims about

unsubscribing from spam, bioterror protection

devices, cures or preventative products for

anthrax and other bioterror-related diseases, etailer holiday shipping, and ultrasonic pest-control

devices.

II. An Overview of Consumer Protection I

Cases

Drawing on Consumer Sentinel data and Surf

Days, the FTC staff targets the most pervasive types

of fraud and deception. In four sweeps targeting

Internet health fraud, cold-call telemarketing, and

Internet scams, the Commission and 12 partners

have brought over 60 law enforcement actions since

May 2001. Since May, the Commission has obtained

judgments ordering more than $97 million in

consumer redress.

Using the Internet, fraud

promoters can mimic legitimate

business and reach vast numbers of

consumers. The Commission’s cases

reflect the broad range of illegal

activity online, from traditional scams

like pyramid schemes, health fraud,

and bogus investments to high-tech

frauds that take advantage of the

technology itself to scam consumers.

In the past year, the Commission has

brought over 60 cases involving

fraudulent or deceptive marketing

practices related to the Internet,

bringing the total number of Internet

cases filed since 1994 to more than

225.

In addition to online fraud, the

Commission continues to pursue

other, more traditional deceptive schemes including

telemarketing fraud, franchise fraud, business

opportunity and work-at-home scams, advance fee

loan and credit card loss protection schemes, and

false and unsubstantiated claims for health and

weight loss products.

Some of the case highlights from this year

include:

$ Netforce Regional Sweeps In 2000 and 2001,

the FTC conducted a comprehensive Internet

Fraud Investigations Training program for local,

state, federal, and international law enforcement

agencies. To follow up on this Training Program,

the Commission created a series of regional

“Netforces” comprised of those law enforcement

agencies that have participated in our training.

On April 2, 2002, the FTC announced the first of

these efforts by joining eight state law enforcers

in the northwest United States and four Canadian

agencies in an initiative targeting deceptive spam

and Internet fraud. Together, these agencies

have brought 63 law enforcement actions against

Web-based scams ranging from auction fraud to

bogus cancer cure sites, and have sent more

than 500 letters warning of the illegality of

sending deceptive spam.

Unsolicited Commercial E-mail

Forwarded to FTC’s Spam Database

Calendar Years 1998 – 2002

1.3

4.0

1.7

0.7

8.0

0

1

2

3

4

5

6

7

8

9

1998 1999 2000 2001 2002*

In Millions

* Projected: Based on 2.1 million for Jan – Mar 2002

Figure 4
Federal Trade Commission

Building on a Strong Foundation - 12

$ FTC v. Verity International, Ltd. The FTC

charged Verity and its principals with misusing

the international telephone billing system to

charge consumers for “videotext” services –

Internet-based “adult” entertainment – that the

consumers never purchased or authorized. The

charges for these services appeared as

international calls to Madagascar. On April 1,

2002, the District Court issued an opinion and a

preliminary injunction against defendant

Automatic Communications Limited – an

Australian corporation that contracted with AT&T

and Sprint to bill line subscribers for videotext

services. ACL sought dismissal, in part, by

claiming that it was a common carrier, and

therefore outside of the FTC’s jurisdiction. The

Court held that even if ACL is a common carrier

for other purposes, it was not acting as a

common carrier here, and therefore was not

exempt from the FTC’s jurisdiction.

$ FTC v. Access Resource Services, Inc. In

February 2002, the FTC obtained a stipulated

preliminary injunction in a federal district court

action against the promoters of “Miss CLEO”

psychic services. The FTC’s complaint alleges

that the defendants misrepresented the cost of

services both in advertising and during the

provision of the services, billed for services that

were never purchased, and

engaged in deceptive collection

practices. The FTC estimates that

the defendants billed consumers

at least $360 million in connection

with this alleged scheme.

$ Bioterrorism Project Following

the tragedy of September 11 and

subsequent events, the

Commission initiated its

Bioterrorism Project targeting

individuals who purported to sell

products and therapies to treat or

cure bioterrorism-related diseases

and health conditions. The FTC

staff, with the Food and Drug

Administration and more than 30 state Attorneys

General, conducted an Internet surf on October

25-26, 2001, and sent warning letters to 121

Web sites that were using various bioterror

claims to market products ranging from oregano

oil to gas masks. To date, over 70 of the 121

warned sites have eliminated suspect claims. On

February 27, 2002, the Commission announced

settlements with the marketers of a home test kit

for anthrax (FTC v. Vital Living Products), and an

online seller of a colloidal silver product

purported to treat anthrax (In re Kris A.

Pletschke, individually and doing business as

Raw Health).

$ Cure.All Internet health fraud continues to

plague consumers looking for solutions to

serious illnesses. In June 2001, as part of an

ongoing and comprehensive law enforcement

and consumer education campaign begun in

1997, the FTC announced the latest round of

enforcement actions against online purveyors of

health products to cure serious diseases. The

Commission challenged allegedly unfounded

claims for a DHEA hormonal supplement, St.

John’s Wort, various multi-herbal supplements,

colloidal silver, and a variety of electrical therapy

devices. Operation Cure.All is a coordinated

effort with the FDA, Health Canada, and various

Bureau of Consumer Protection

Significant Redress Orders

$69.8

$60.0

$51.3

$40.0 $39.0

$30.0

$37.5

$0

$10

$20

$30

$40

$50

$60

$70

$80

General

Motors Corp.,

11/83

First Alliance

Mortgage

Corp., 3/02*

US Oil & Gas

Corp., 3/87

Equinox Int'l

Corp., 2/01

Diversified

Marketing

Services

Corp., 3/02

J.K.

Publications,

8/00

Cresent

Publishing,

Inc., 9/01

In Millions

* Pending court approval.

Figure 5
Federal Trade Commission

The FTC Year in Review - 13

state Attorneys General. Commissioner Sheila

Anthony recently discussed our program before

the Food and Drug Law Institute’s 45th Annual

Educational Conference in a speech titled

“Combating Deception in Dietary Supplement

Advertising” (April 16, 2002). This speech

discussed our recent actions and proposed a

strengthened self-regulatory response and more

media responsibility to address the widespread

problem of deceptive and unsubstantiated health

claims for dietary supplement products.

$ Fraudulent Lending Practices Since 1998, the

Commission has brought 15 cases involving

subprime lending. In March 2002, one of the

largest FTC settlements ever was announced.

See Figure 5. The FTC, six states, AARP, and

class action and individual plaintiffs settled

charges that First Alliance Mortgage Company

and its chief executive officer violated federal and

state laws in making home mortgage loans to

customers. Specifically, the complaint alleged

that defendants misled consumers about the

existence and amount of origination fees for their

loans (which typically constituted 10% to 25% of

the loan) and the interest rate and monthly

payments of their adjustable rate mortgage

(“ARM”) loans. Consequently, according to the

complaint, consumers believed they were

borrowing less money at lower interest rates than

they actually were. The settlement, which

requires court approval, creates a consumer

redress fund that will include all of the remaining

assets of First Alliance and its affiliates, now

being liquidated in bankruptcy court, as well as a

payment of $20 million from principal Brian

Chisick and his wife, Sarah Chisick. Nearly

18,000 borrowers could receive as much as $60

million in redress.

$ Wonder Bread In March 2002, the FTC

announced a settlement with the marketers of

Wonder Bread over allegedly deceptive ads

claiming that Wonder Bread containing added

calcium could improve children’s brain function

and memory.

$ Palm, Inc. Palm, the leading manufacturer of

Personal Digital Assistants (PDAs), agreed to a

settlement concerning its claims that its PDAs

come with built-in wireless access to the Internet

and e-mail, as well as other common business

functions – claims that the FTC alleged were not

true for many models of the popular PDAs.

Announced in March 2002, the settlement

requires Palm to disclose, clearly and

conspicuously, when consumers have to buy

add-ons to perform advertised functions.

$ FTC v. John Zuccarini In October 2001, the

Commission sued the perpetrators of a scheme

allegedly involving the use of more than 5,500

copycat Web addresses to divert Internet surfers

from their intended Internet destinations to one of

the defendant’s sites, and hold them captive

while the defendant pelted their screens with ads.

According to the FTC, the defendant registered

Internet domain names that were misspellings of

legitimate domain names or that incorporated

transposed or inverted words or phrases.

Surfers looking for a site who misspelled its Web

address or inverted a term were taken to the

defendant’s sites. They were then bombarded

with a rapid series of windows displaying ads for

goods and services, including Internet gambling

and pornography.

$ FTC v. Diversified Marketing Service Corp. A

federal court held a magazine subscription

telemarketing group in contempt of court and

ordered it to pay $39 million in consumer redress

for violating the terms of a 1996 FTC settlement.

The FTC’s 1996 order barred the defendants

from: misrepresenting the cost or duration of the

magazine subscriptions; misrepresenting the

reason they obtained consumers’ account

information; charging consumers’ accounts

without authorization; refusing to cancel

subscriptions; misrepresenting consumers’ right

to cancel telemarketing contracts under state

law; and threatening to harm consumers’ credit

ratings. To facilitate the redress process, the

Commission established a special hotline for
Federal Trade Commission

Building on a Strong Foundation - 14

consumers who think they may have been

improperly billed by the defendant companies.

$ FTC and State of New York v. The Crescent

Publishing Group, Inc. The FTC and the New

York Attorney General’s office brought this joint

action, alleging that defendants promoted scores

of adult entertainment Web sites as “free” and

purportedly required credit card numbers from

consumers only to prove that they were adults.

In fact, according to the complaint, thousands of

consumers were charged recurring monthly

membership fees ranging from $20 to $90, and

consumers who tried to dispute the charges were

met with a variety of barriers. Last November,

the FTC announced that the defendants had

agreed to pay $30 million to settle the case. The

settlement bars the illegal practices in the future,

and requires the defendants to post bonds – $2

million for the corporate defendants and

$500,000 each for the individual defendants –

before they continue to market adult

entertainment on the Internet.

$ Dialing for Deception This month, the

Commission announced the filing of 11 federal

district court complaints against defendants

allegedly engaged in “in-bound” telemarketing

fraud – in which consumers call companies

based on classified ads, Internet banners, or

other promotions. According to the complaint,

among those charged were the purveyors of

advance-fee loans and credit cards, at-home

medical billing programs, work-at-home envelope

stuffing schemes, and a “consumer protection”

agency that was, in reality, no more than a front

for a vending machine business opportunity. In

each case, the Commission charged the

defendants with violating the FTC Act, the

Telemarketing Sales Rule, or both. In all 11

complaints, the FTC is either seeking – or has

received – relief ranging from temporary

restraining orders to preliminary or permanent

injunctions, as well as a freeze of the defendants’

assets and the appointment of a receiver to

oversee their finances pending trial, as

appropriate.

Chapter 3

New Enforcement Initiatives

I. Competition

A. Antitrust Exemptions

Certain conduct that otherwise would violate the

antitrust laws is exempt from antitrust challenge. An

understanding of the proper scope of those

exemptions – consistent with, but not broader than,

the underlying policy rationale – has important

consequences for consumers. Antitrust enforcers

should identify and prevent anticompetitive conduct

that may resemble, but does not constitute,

protected activity. When the governing standard is

unclear, however, enforcement (and deterrence) can

be problematic. Thus, for example, the ABA Antitrust

Section’s 2001 report on antitrust policy (“The State

of Federal Antitrust Enforcement – 2001”)

recommended a reexamination of the scope of the

state action exemption.

New task forces at the FTC are examining that

exemption, as well as the Noerr-Pennington

exemption. Each is considering a variety of actions,

including antitrust enforcement, amicus briefs, and

competition advocacy.

The State Action Task Force is conducting a

careful analysis of existing case law on the scope of

state action immunity, as first articulated in Parker v.

Brown. The Task Force is working to clarify the state

action doctrine, including more rigorous enforcement

of Midcal’s “clear articulation” and “active

supervision” requirements, when the underlying

private conduct raises significant antitrust concerns.

The work of the State Action Task Force recently

has provided the basis for two comments, as well as

related testimony, on state legislation seeking to

create an antitrust exemption for physician collective

bargaining. On January 18, 2002, in response to an

inquiry from Representative Lisa Murkowski, the
Federal Trade Commission

The FTC Year in Review - 15

Commission staff commented on an Alaska Senate

Bill that would have authorized collective bargaining

by physicians. The staff indicated that the proposed

regime likely did not satisfy the “active supervision”

requirement. On March 22, 2002, as a follow-up to

the written comment, Ted Cruz, Director of the

Commission’s Office of Policy Planning, testified

before the Labor and Commerce Committee of the

Alaska House on the Alaska Senate Bill. On

February 8, 2002, the Commission staff commented

on Washington House Bill 2360, a bill also

concerning physician collective bargaining. Although

House Bill 2360 provided for different procedural

safeguards than the Alaska Senate Bill discussed

above, the Commission staff once again concluded

that the proposed regulatory regime likely did not

satisfy the “active supervision” requirement of the

state action doctrine.

The Noerr-Pennington Task Force is conducting

a careful analysis of existing case law regarding

petitioning immunity, as first articulated in Eastern

R.R. Presidents Conf. v. Noerr Motor Freight and

United Mine Workers of America v. Pennington. The

Task Force is investigating the feasibility and

desirability of working to clarify the Noerr-Pennington

doctrine, including expanded recognition of an

independent misrepresentation exception to Noerr

and the continued extension of the Walker Process

exception beyond the Patent and Trademark Office

context. The work of the Noerr-Pennington Task

Force provided much of the basis for the

Commission’s amicus brief in In re Buspirone,

discussed in Box 2 on page 7.

B. E-Commerce Initiative

The Commission has formed an Internet Task

Force to investigate regulatory regimes that have the

intended or unintended effect of preventing

consumers from enjoying the cost savings and

convenience associated with e-commerce. One of

the biggest myths of the New Economy is that the

Internet is wide-open and unregulated. The Task

Force has found that this characterization is often

inaccurate, as many regulatory schemes have been

extended to online competitors, frequently with

significant anticompetitive results. The Task Force is

exploring various ways to reduce or eliminate these

barriers to expanded e-commerce.

The work of the Internet Task Force recently has

provided the basis for comments relating to both

contact lens sales and real estate closings. With

respect to contact lenses, the staff submitted a

comment to the Connecticut Board of Examiners of

Opticians, which had initiated a proceeding to

determine the applicability of various state statutes

and regulations concerning the sale of contact

lenses. Among other points, the staff noted that

requiring out-of-state replacement lens sellers to

obtain Connecticut optician and optical establishment

licenses, or to dispense lenses only upon the paper

receipt of an original prescription, would

disproportionately impact Internet sellers without

providing corresponding consumer benefits.

Additionally, the Commission, with the Antitrust

Division of the Department of Justice, filed

comments on a North Carolina Bar opinion and on

proposed Rhode Island legislation that would prohibit

non-attorneys from participating in real estate

closings. Both comments noted that following this

course of action would raise consumer costs and

potentially prevent competition from Internet lenders

that could provide more convenient closing services.

C. Improving the Empirical Foundation

for Enforcement

Last September, the Bureau of Economics

hosted an Empirical Industrial Organization

Roundtable with some of the nation’s leading

antitrust economists. Discussion involved the

strength of the empirical base for key antitrust

theories and provided suggestions on focusing our

resources to improve understanding of competition

issues and economics’ contribution to antitrust

enforcement.

The Bureau of Economics is examining the use

of econometric estimates of consumer demand using

retail scanner data in investigations of branded

products mergers. (The Bureau of Economics

Working Paper No. 246, “Demand System

Estimation and Its Application to Horizontal Merger

Analysis,” can be found on the FTC’s Web site.) The

Bureau of Economics is also engaged in a project to
Federal Trade Commission

Building on a Strong Foundation - 16

help the Commission better address, define, and

identify instances of coordinated interaction. The

staff is also evaluating how efficiencies are handled

in merger investigations.

II. Consumer Protection

A. Privacy

Although the rapid development of the Internet

has heightened privacy concerns, these concerns

are by no means limited to the cyberworld.

Consumers are deeply concerned about the privacy

of their personal information, both online and off.

Consumers can be harmed as much by the thief who

steals credit card information from a mailbox or

dumpster as by the one who steals that information

from a Web site.

The FTC currently enforces a number of laws

that address consumers’ privacy. This fiscal year, we

are increasing by 50 percent the resources

dedicated to privacy protection. Our initiatives in this

area attempt to reduce the serious consequences

that can result from the misuse of personal

information, and fall into three major categories:

vigorous enforcement of existing laws, additional

rulemaking, and continued consumer and business

education.

1. Enforcement Actions

Some of the case highlights from this year

include:

$ Eli Lilly In January, the Commission announced

a proposed settlement with Eli Lilly and

Company. The complaint alleged that Lilly

unintentionally disclosed the e-mail addresses of

users of its Prozac.com and Lilly.com Web sites

by not taking appropriate steps to protect the

confidentiality and security of that information.

The settlement requires Lilly to establish a

security program to protect consumers’ personal

information against any reasonably anticipated

threats or hazards to its security, confidentiality,

or integrity. Significantly, the settlement applies

to Lilly’s information practices both online and

offline.

$ Children’s Privacy The FTC’s Rule

implementing the Children’s Online Privacy

Protection Act (COPPA) went into effect on April

21, 2000. Since April 2001, the Commission has

brought five cases to enforce the Rule that

requires that certain commercial Web sites give

notice of their information practices and obtain

parental consent before collecting, using, or

disclosing personal information from children

under 13. The companies under order agreed to

pay civil penalties totalling $140,000.

$ Financial Privacy On July 1, 2001, the FTC’s

rule implementing the privacy protections of the

Gramm Leach Bliley (GLB) Act became effective.

The rule requires that financial institutions

provide notice and an opportunity for consumers

to “opt-out” of the sharing of personal financial

information with third parties. The FTC has taken

its first steps in enforcing the GLB’s prohibition

against “pretexting,” the practice of using false

pretenses to obtain customer financial

information. The project included a surf of more

than 1,000 Web sites and a review of over 500

publications, followed by warning notices to 200

firms whose advertising indicated possible GLB

violations. The FTC filed three settlements in

federal district court against alleged pretexters

last month.

$ Preacquired Account Information The

Commission announced that a group of “buying

clubs” had agreed to pay $9 million to settle

charges by the FTC and several state Attorneys

General. The defendants’ alleged ringleader, Ira

Smolev, and other related companies were

charged with misleading consumers into

accepting trial buying club memberships and

deceptively obtaining consumers’ credit card

account numbers, without the consumers’

knowledge or authorization, from telemarketers

pitching the buying clubs. Consumers then were

enrolled in the clubs and charged up to $96 in

yearly membership fees.
Federal Trade Commission

The FTC Year in Review - 17

$ Spam Fraudulent and deceptive spam

promoting chain letters, pyramid schemes or

other kinds of “get rick quick” schemes imposes

tremendous burdens on consumers and the

Web. In February 2002, the FTC announced

federal court settlements with seven individuals

who allegedly were disseminating deceptive

chain-letter e-mail and who even claimed to be

approved by the FTC. More recently, a federal

district court issued a temporary restraining order

shutting down a business that allegedly used

deceptive spam to sell worthless Internet domain

names such as “.usa”.

$ Remove Me Surf In an initiative announced with

our Netforce partners on April 2, 2002 (see

Chapter 2, above), “remove me” or “unsubscribe”

options in spam were tested to determine

whether they were being honored. From e-mail

forwarded to the FTC’s spam database, the

agencies culled more than 200 e-mails that

purported to allow recipients to remove their

name from a spam list. The agencies set up

dummy e-mail accounts to test the pledges, but

discovered that the vast majority of addresses to

which they sent the requests did not exist.

Based on information the Netforce gathered, the

FTC has sent more than 75 letters warning

spammers that deceptive “removal” claims in

unsolicited e-mail are illegal.

2. Rulemakings

The FTC also is pursuing rulemakings

concerning privacy. These include:

$ Telemarketing Sales Rule In January 2001, the

Commission proposed amending the

Telemarketing Sales Rule (TSR) to create a

national do-not-call list that would be binding on

telemarketers. Under the proposal, consumers

would make one call to remove their name from

most telemarketing lists. The proposed

amendments also would restrict the use of

“preacquired account information” – lists of

names and credit card numbers of potential

telemarketing customers – to ensure these lists

are not used to bill consumers for goods or

services they do not want. We have received

over 40,000 comments on the TSR proposal.

The FTC will hold a workshop on June 5-7, 2002

to discuss issues raised during the public

comment period.

$ Gramm Leach Bliley Safeguards Rule The

Commission published a proposed Safeguards

Rule to implement the security provisions of GLB

that require the FTC to establish standards for

financial institutions to maintain the security of

customers’ financial information.

3. Privacy and Security Related Consumer

and Business Education and Outreach

As in all of the FTC’s consumer protection efforts,

consumer and business education is a significant

component of the program. In particular, with two

privacy rules recently becoming effective, (GrammLeach-Bliley and COPPA), outreach to both industry

and consumers is even more important. This year’s

significant accomplishments include:

$ Identity Theft Law Enforcement Training On

March 14, 2002, the FTC, the U.S. Secret

Service, and the Department of Justice kicked off

a series of training seminars to provide local and

state law enforcement officers with practical tools

to enhance their efforts to combat identity theft.

$ ID Theft Affidavit In October 2001, the FTC

joined with several companies and privacy

organizations to make available a universal

identity theft affidavit that victims of identity theft

can submit to creditors. This form, available

online, will help victims recoup their losses and

restore their legitimate credit records more

quickly.

$ Identity Theft Materials The FTC has

coordinated with other government agencies and

organizations to develop and disseminate

comprehensive consumer education materials for

victims of identity theft and those concerned with

preventing this crime. Since its publication, the
Federal Trade Commission

Building on a Strong Foundation - 18

FTC has distributed more than

600,000 hard copies of its best

selling publication, “Identity Theft:

When Bad Things Happen to Your

Good Name,” and has recorded

over 609,500 visits to our Web

version. Other federal agencies

also have printed and distributed

this publication. See Figure 6.

To expand the reach of our

consumer education message, the

FTC has begun an outreach effort

to Spanish-speaking victims of

identity theft. Just last month, we

released a Spanish version of the

Identity Theft booklet (Robo de

Identidad: Algo malo puede

pasarle a su buen nombre) and

the ID Theft Affidavit. In addition, we have added

Spanish-speaking phone counselors to our

hotline staff. We will soon launch a Spanish

version of our online complaint form.

$ Children’s Online Privacy Protection Act The

FTC launched a special Web page at

www.ftc.gov/kidzprivacy to help children, parents,

and Web site operators understand the

provisions of the COPPA and how the new law

affects them. Resources available on the FTC’s

Web site include guides for businesses and

parents, and “smart surfing” tips for kids.

$ Gramm-Leach-Bliley FAQs The staff of the

FTC issued guidance to help financial institutions

under the FTC’s jurisdiction comply with its

consumer privacy regulations under the GLB Act.

$ FCRA Landlord Project The FTC issued a

business education publication to help landlords

comply with the federal Fair Credit Reporting Act

(FCRA). Using Consumer Reports: What

Landlords Need to Know provides guidance for

residential property owners who use reports from

credit bureaus and tenant screening services in

deciding whether to rent to consumer applicants.

$ Public Workshops Last December, the FTC cohosted a public workshop entitled Get Noticed:

Effective Privacy Notices under Gramm-LeachBliley, which assessed the impact of GLB privacy

notices, identified successful privacy notices,

discussed strategies for communicating complex

information, and encouraged industry “best

practices” and consumer and business

education.

Last month, the staff of the Commission

released a summary and update of the

proceedings of its December 2000 workshop

titled, “The Mobile Wireless Web, Data Services

and Beyond: Emerging Technologies and

Consumer Issues.” The Workshop addressed

five topics: (1) an overview of the technologies;

(2) privacy issues raised by these technologies;

(3) security issues; (4) advertising and

disclosures in the wireless area; and (5) selfregulatory programs. The Commission will

continue to monitor the development of wireless

technologies, along with the privacy, security,

advertising, and other consumer protection

issues they raise.

Next month, the Commission will host a twoday workshop to explore issues related to the

security of consumers’ computers and the

personal information stored in them or in

company databases.

Identity Theft: Distribution of Universal Affidavit

and Consumer Education Booklet

Fiscal Year 2002, by Month

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Oct Nov Dec Jan Feb Mar

Affidavit Booklet

Figure 6
Federal Trade Commission

The FTC Year in Review - 19

B. Class Actions

$ Rule 23 In February 2002, the Commission filed

comments on the proposed amendments to Rule

23 of the Federal Rules of Civil Procedure. The

Commission generally supported the proposed

amendments, which would affect the form and

content of notice to class members, the review of

class action settlements, the procedures for

appointment of counsel, and the calculation of

attorneys’ fees. The Commission also

encouraged greater competition in the selection

of class counsel and recommended that the

amendments include a requirement that the class

notify the court of related government actions;

that the court take into consideration the

existence of these related actions when

calculating attorneys’ fees; and that the court

make specific findings about the value of coupon

settlements.

Chapter 4

International Activities: New

Initiatives, Enforcement, and

Assistance

I. Competition

A. International Competition

Network

On October 25, 2001, the FTC,

the Department of Justice, and twelve

other antitrust agencies from around

the world launched the International

Competition Network (ICN). The ICN

is an outgrowth of a recommendation

of the International Competition Policy

Advisory Committee (ICPAC) that

competition officials from developed

and developing countries convene a

forum to work together on competition

issues raised by economic

globalization and the proliferation of

antitrust regimes. ICN 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.

Fifty-three jurisdictions already have joined the

ICN, and we are working on the initial projects on

mergers and competition advocacy. See Figure 7.

The merger project includes notification and

procedures, the substantive test, and investigative

techniques. The advocacy project includes

collection, analysis, and distribution of information on

competition advocacy in order to develop

recommendations for competition advocacy best

practices. The ICN will hold its first conference this

September, and the United States will host an ICN

conference on merger investigation techniques in

November.

B. Bilateral Cooperation

Cooperation with competition agencies in the

world’s major economies is a key component of our

enforcement program. The FTC has broadened and

deepened its cooperation with agencies around the

world, both on individual cases and on policy issues.

Our relationship with our colleagues in Brussels

remains strong as we continue to work closely on

mergers and other cases. For example, in HewlettAndean Community

Armenia

Australia

Belgium

Brazil

Canada

Czech Republic

Denmark

Estonia

European Union

Finland

France

Germany

Greece

Hungary

Indonesia

Ireland

Israel

Italy

Japan

Kenya

Korea

Latvia

Lithuania

Macedonia

Malta

Mexico

International Competition Network Members

Netherlands

Norway

Panama

Peru

Philippines

Poland

Portugal

Romania

Russia

Slovak Republic

Slovenia

South Africa

Spain

Sweden

Switzerland

Taiwan

Tunisia

Turkey

Ukraine

United Kingdom

United States 

Uzbekistan

Venezuela

Yugoslavia

Zambia

Figure 7
Federal Trade Commission

Building on a Strong Foundation - 20

Packard/Compaq, the FTC and European

Commission staffs, aided by the parties’

confidentiality waiver, cooperated in analyzing the

likely effects of the transaction on personal computer

and server markets. In LaFarge/Blue Circle, we

worked closely with the Canadian Competition

Bureau in designing compatible divestitures in the

U.S. and Canada. Continuing our cooperation under

our 1999 agreement, economists from the FTC,

DOJ, and the Japan Fair Trade Commission held

productive discussions on merger analysis.

The conflicting outcomes of the Department of

Justice’s and European Commission’s reviews of the

General Electric/Honeywell merger provided a potent

reminder that there are still important differences in

some aspects of our antitrust policies. Given

differences in laws, cultures, and priorities, it is

unlikely that there will be complete convergence in

the foreseeable future. Areas of agreement far

exceed those of divergence, however, and instances

in which our differences will result in conflicting

results are likely to remain rare. Moreover, we and

the EC are committed to addressing and minimizing

policy divergences. We have established task forces

to pursue further understanding and convergence on

topics including bundling and related issues arising

in the GE/Honeywell investigations and respective

merger review procedures.

C. Trade/Competition Fora

Trade agreements increasingly involve

competition issues. The FTC, with the Antitrust

Division and other U.S. agencies, has been working

with the nations of our hemisphere to develop

competition provisions for a Free Trade Agreement

of the Americas. We are negotiating competition

chapters of bilateral Free Trade Agreements with

Chile and Singapore. The WTO Ministerial

Declaration issued in Doha last November calls for

continuing work on trade and competition issues,

and we continue to be active in the WTO trade and

competition working group.

D. Multilateral Fora

The Organization for Economic Cooperation and

Development (OECD) 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, among

other things, merger process convergence,

implementation of the OECD hard-core cartel

recommendation, and regulatory reform. We also

promote sound competition policies in regional fora

such as APEC (Asia-Pacific Economic Cooperation).

E. Technical Assistance

There is an understandably high demand for U.S.

assistance from countries drafting new antitrust laws,

countries establishing antitrust agencies, and newer

agencies enforcing antitrust laws. With funding

principally from the Agency for International

Development, the FTC is proud to have shared our

experience and expertise with nations around the

world. Examples of our work include: assistance

with analytical techniques in South Africa; programs

on investigative methods for agencies in

Southeastern Europe; briefings on regulatory reform

for Russian officials; assistance in launching a new

competition agency in Indonesia; and helping draft a

competition law for Egypt.

II. Consumer Protection

The number of consumer protection cases with

an international component continues to rise.

Consumers now clearly participate in a global

marketplace. U.S. consumers often receive

telemarketing or e-mail solicitations from vendors

outside the U.S. The Commission also has

increased visibility in its participation in international

organizations. In December 2001, Commissioner

Orson Swindle became head of the U.S. delegation

to the OECD Experts Group for Review of the 1992

OECD Guidelines for the Security of Information

Systems. Commissioner Mozelle Thompson was

elected Chair of the OECD’s Committee on

Consumer Protection last month.

To reflect the growing importance of international

consumer protection, the Bureau of Consumer

Protection established the International Division of

Consumer Protection. This Division provides the
Federal Trade Commission

The FTC Year in Review - 21

necessary expertise to focus on this important area

and coordinates the broad range of law enforcement,

policy, and outreach efforts in this area.

A. Cross Border Fraud

The Commission is increasing its efforts to

counter fraud that transcends borders. Our

development and participation in cross-border

partnerships is central to our law enforcement

strategy. In particular, our partnerships with

Canadian officials allow the Commission to respond

more effectively to telemarketing scams emanating

from Canada. The Commission has forged

partnerships to coordinate our law enforcement

efforts in two specific cities: the Ontario Strategic

Partnership, coordinated by the FTC’s Midwest

Regional office to focus on Toronto-based

telemarketing, and Project Emptor, coordinated by

the Northwest Regional office and British Columbia

officials to target Vancouver boiler rooms.

The Commission, drawing on these partnerships,

has brought five actions and obtained two judgments

in cases involving cross-border fraud in the last year.

In one case, the Commission and the U.S. Attorney’s

Office in Los Angeles teamed with the British

Columbia Ministry of Public Safety and Solicitor

General to attack a foreign lottery scam operating in

British Columbia (FTC v. Dillon Sherif). In February

2002, the Commission alleged that defendants

targeted elderly consumers to sell them shares in

foreign lottery tickets or to claim that consumers had

won millions in an Australian or Spanish lottery. The

British Columbia authorities sued these defendants

in October 2001, and froze more than $1 million of

their assets. The U.S. Attorney in Los Angeles has

charged Dillon Sherif with mail and wire fraud and is

seeking his extradition to the U.S. to face these

charges.

B. IMSN Findings on Cross-Border

Remedies

The International Marketing Supervision Network

(an organization of consumer protection agencies

from 29 countries), under the presidency of the U.S.,

issued “Findings on Cross-Border Remedies,” which

outlines obstacles to cross-border enforcement of

consumer protection laws and suggestions for

overcoming these obstacles.

C. econsumer.gov

In April 2001, 15 countries and the OECD

launched econsumer.gov, a public Web site where

consumers can file cross-border e-commerce

complaints with law enforcement agencies around

the world, access education materials about ecommerce, and contact consumer protection

agencies. The site is available to consumers in

English, French, Spanish, and German. To date, we

have received over 1,200 complaints from

consumers in six continents about companies all but

one continent. Next steps for this project include

adding additional members, increasing outreach and

publicity, adding consumer education materials, and

adding information about alternative dispute

resolution for e-commerce complaints on the site.

Chapter 5

Other Activities That Promote

Competition And Protect

Consumers

I. Education and Outreach

Consumer and business education is the first line

of defense against fraud and deception. With each

major consumer protection enforcement initiative, the

FTC launches a comprehensive and creative

education campaign. Between May 2001 and the

end of March 2002, the FTC issued 83 consumer

protection publications: 74 for consumers and nine

for businesses. Of those publications, 51 are new

and 32 are revisions; 14 are translations into

Spanish, and six are joint efforts between the public

and private sectors.

The FTC continues to exceed previous

distribution records. In the last year, the FTC

distributed more than 4.5 million print publications to

the public, and received more than 10.7 million

accesses of publications on the consumer protection

portion of the FTC Web site.
Federal Trade Commission

Building on a Strong Foundation - 22

Among our most significant activities over the

last year:

$ National Consumer Protection Week For the

fourth consecutive year, the FTC took the lead in

organizing National Consumer Protection Week,

this year focusing on privacy. Other participants

were the National Association of Consumer

Agency Administrators, AARP, the National

Consumers League, the Council of Better

Business Bureaus, the Consumer Federation of

America, the U.S. Postal Service, the U.S. Postal

Inspection Service, the National Association of

Attorneys General, and the Department of

Justice.

$ Hispanic Outreach Program To reach the

expanding population of Hispanic consumers in

the U.S., we instituted an Hispanic Outreach

Program in January 2002. This effort includes

the creation of a dedicated page on the FTC

Web site, Proteccion para el Consumidor, that

will mirror the English page, and translation of 14

consumer publications, printed or posted to the

Web. We also translated the FTC Consumer

Complaint Form. The Commission also is

conducting media outreach and providing

interviews in Spanish.

$ www.consumer.gov The FTC continues to

manage www.consumer.gov and to recruit new

members to participate in the site, which offers

one-stop access to federal consumer

information. In the past year, the number of

members has grown from 135 to 178 agencies.

$ Response to 9/11 In the wake of the September

11th terrorist attacks on the World Trade Center

and the Pentagon, the FTC worked with other

agencies and organizations to alert consumers to

possible fund-raising fraud. The Commission

issued a Consumer Alert, Helping Victims of the

Terrorist Attacks: Your Guide to Giving Wisely.

This publication was released on September

21st, at a New York City press conference with

the New York Attorney General, New York Better

Business Bureau, and FTC Northeast Regional

Office participating.

II. Workshops, Hearings, and Studies

In keeping with the Commission’s historical role

of researching and reporting on significant

developments in the marketplace, we released

several major reports, including:

$ Marketing Violent Entertainment to Children

In December 2001, the FTC released a follow-up

report to its September 2000 report, “Marketing

Violent Entertainment to Children: A Review of

Self-Regulation and Industry Practices in the

Motion Picture, Music Recording & Electronic

Game Industries.“ The report found that the

movie and electronic game industries had made

continued improvements and that the music

industry had made some progress in disclosing

parental advisory label information in its

advertising. The Commission’s review of

advertising placement showed that the music

industry had not altered its marketing practices

since the Commission’s initial September 2000

report. The December report also described the

results of a second underage shopper retail

compliance survey. The FTC will release a third

follow-up report this summer.

$ Project Scofflaw’s First Five Years In January

2002, the Commission released a staff report

detailing the accomplishments of this important

law enforcement program. Project Scofflaw,

established in 1996, has resulted in the

prosecution of 27 defendants for civil and/or

criminal contempt; nearly 28 years of

incarceration and home detention for 12

defendants; and almost $4 million in penalties,

fines, and redress.

The Commission also has several projects

underway:

$ Generic Drug Study Complementing its

enforcement activities involving the

pharmaceutical industry, the Commission is
Federal Trade Commission

The FTC Year in Review - 23

studying the relationships between brand-name

and generic drug manufacturers to identify

possible obstacles to bringing new low-cost

generic alternatives to the marketplace. The

study is examining how generic drug competition

has developed under the Hatch-Waxman Act, as

well as whether agreements between makers of

branded pharmaceuticals and generic drug firms

to delay generic entry – the subject of recent

Commission cases – are isolated instances or

are more typical of industry practices. In

addition, the study is focusing on how particular

provisions of the Hatch-Waxman Act have been

employed in practice, and the extent to which

they may have been abused in furtherance of

anticompetitive strategies that delay or deter

market entry by generic drugs.

$ Refined Petroleum Products Building on its

extensive enforcement experience in the

petroleum industry, the Commission is studying

the causes of the recent volatility in refined

petroleum product prices. During a public

conference in August 2001, participants identified

key factors associated with refined petroleum

product prices, including increased dependency

on foreign crude sources, changes in industry

business practices, the substantial restructuring

of the industry through mergers and joint

ventures, and new governmental regulations.

This information has assisted the staff in

structuring a second public conference to be held

May 8 and 9, 2002. The information gathered

through these public conferences, analytical and

empirical papers and comments received, and

additional research, will form the basis for a

public report that identifies and discusses the

factors affecting the prices of refined petroleum

products. This knowledge also will assist the

Commission in making enforcement decisions

involving the petroleum industry.

$ Competition and Intellectual Property Law

Hearings In February 2002, the FTC and the

Antitrust Division of the Department of Justice

commenced a series of hearings on “Competition

and Intellectual Property Law and Policy in the

Knowledge-Based Economy.” The hearings

respond to the growth of the knowledge-based

economy, the increasing role in antitrust policy of

dynamic, innovation-based considerations, and

the emerging understanding that it is important

for intellectual property and competition policies

to work together. They seek to gather facts

about, and to enhance the understanding of, how

the doctrines and policies of both disciplines

Improvements to

the Clearance Process

Efficiently dividing work between the two federal

antitrust enforcement agencies has occupied the

energies of the DOJ and the FTC since the

Commission began operating in 1915. For many years,

the two agencies have allocated matters, through a

mechanism known as the clearance process, mainly on

the basis of their relative expertise. For the most part,

this arrangement has worked smoothly. In the last

decade, however, the convergence of industries

increasingly has blurred the lines between the

agencies’ historical areas of responsibility.

Consequently, clearance disputes have become both

more common and, in the case of major clearance

disputes, more contentious. In recent years, these

disputes have resulted in significant delays for merger

and non-merger investigations.

On March 5, 2002, the agencies announced a new

clearance agreement that allocates matters more

efficiently, rationally, and predictably. Two key features

of the new agreement are its allocation of primary

areas of responsibility for antitrust enforcement on an

industry-wide basis, and its implementation of

expedited clearance dispute resolution procedures.

The new agreement allocates to the FTC primary

enforcement responsibility for airframes; autos and

trucks; building materials; chemicals; computer

hardware; energy; healthcare; industrial gases;

munitions; grocery stores and grocery manufacturing;

retail stores; pharmaceuticals and most biotechnology;

professional services; satellite manufacturing and

launch vehicles; and textiles.

Both agencies continue to investigate potential

violations of the antitrust laws with vigilance, and

believe that the new agreement will promote the

public’s interest in vigorous and timely antitrust

enforcement. The clearance agreement does not

affect the Bureau of Consumer Protection’s operations.

Box 4
Federal Trade Commission

Building on a Strong Foundation - 24

affect initial and follow-on innovation and other

aspects of consumer welfare. During the

hearings, business persons, consumer

advocates, inventors, practitioners, and

academics have focused on:

(i) what economic learning reveals, and does

not reveal, regarding the relationships between

intellectual property and innovation, and between

competition and innovation;

(ii) “real-world” experiences with patents and

competition;

(iii) procedures and substantive criteria involved

in prosecuting and litigating patent claims; and

(iv) issues raised by patent pools and crosslicensing and by certain standard-setting

practices.

Future sessions will address unilateral refusals to

deal; patent settlements; licensing practices;

international comparative law perspectives regarding

the competition/intellectual property interface; and

jurisprudential issues, including the role of the

Federal Circuit.

III. Good Government Initiatives

In the past year, the Commission has undertaken

several initiatives that respond to constructive

criticism and suggestions for antitrust procedural and

substantive reform received from the business

community, the legal community, academia, various

consumer groups, and Congress. These initiatives,

which will increase the transparency of the FTC’s

operations, procedures, and requirements, as well as

improve the manner in which the agency operates,

will provide for a more expeditious and efficient, but

no less thorough, review of business transactions.

More efficiency will benefit employees, shareholders,

consumers, and taxpayers.

These initiatives include:

$ the Memorandum of Agreement concerning

Clearance Procedures for investigations, which

streamlines and rationalizes the process for

allocating competition matters between the FTC

and the DOJ, see Box 4;

$ conversations with the Antitrust Division and the

public regarding modifications and improvements

to the Commission’s merger investigations

process;

$ merger remedies workshops that will consider

whether the Commission’s remedy provisions are

necessary or sufficient to preserve competition

and whether the process through which remedies

are negotiated can be improved – to assist this

initiative, the staff has released a document

responding to “Frequently Asked Questions”

about the merger remedy process;

$ the FTC’s call for comments regarding the use of

its disgorgement authority;

$ additional steps to reform the Hart-Scott-Rodino

merger reporting process, including the option of

filing electronically;

$ the development of a Bureau of Economics

research agenda to support and advance our

enforcement efforts;

$ support of several professional development

activities for the legal and economic staffs,

including our seminar series in which noted legal

and economic scholars present current research

on competition and consumer protection issues;

and

$ the use of the Government Performance and

Results Act (GPRA) to improve FTC operations

by making greater use of planning, performance

measurement, and goal setting objectives.
Strong Foundation:

The FTC Year in Review

Federal Trade Commission

April 2002

R Q WWW.FTC.GOV