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91–729 PDF 2006

S. HRG. 107–1147

FTC REAUTHORIZATION

HEARING

BEFORE THE

SUBCOMMITTEE ON CONSUMER AFFAIRS, FOREIGN 

COMMERCE AND TOURISM

OF THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

JULY 17, 2002

Printed for the use of the Committee on Commerce, Science, and Transportation

(

(II)

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ERNEST F. HOLLINGS, South Carolina, Chairman 

DANIEL K. INOUYE, Hawaii 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

JOHN B. BREAUX, Louisiana 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

MAX CLELAND, Georgia 

BARBARA BOXER, California 

JOHN EDWARDS, North Carolina 

JEAN CARNAHAN, Missouri 

BILL NELSON, Florida 

JOHN MCCAIN, Arizona 

TED STEVENS, Alaska 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

SAM BROWNBACK, Kansas 

GORDON SMITH, Oregon 

PETER G. FITZGERALD, Illinois 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

KEVIN D. KAYES, Democratic Staff Director 

MOSES BOYD, Democratic Chief Counsel 

JEANNE BUMPUS, Republican Staff Director and General Counsel 

SUBCOMMITTEE ON CONSUMER AFFAIRS, FOREIGN COMMERCE

AND TOURISM 

BYRON L. DORGAN, North Dakota, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

RON WYDEN, Oregon 

BARBARA BOXER, California 

JOHN EDWARDS, North Carolina 

JEAN CARNAHAN, Missouri 

BILL NELSON, Florida 

PETER G. FITZGERALD, Illinois 

CONRAD BURNS, Montana 

SAM BROWNBACK, Kansas 

GORDON SMITH, Oregon 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

(III)

C O N T E N T S 

Page 

Hearing held on July 17, 2002 ............................................................................... 1 

Statement of Senator Dorgan ................................................................................. 1 

Statement of Senator Fitzgerald ............................................................................ 44

Statement of Senator Hollings ............................................................................... 1 

Statement of Senator McCain ................................................................................. 39

Statement of Senator Nelson .................................................................................. 41

Statement of Senator Smith ................................................................................... 36

Statement of Senator Wyden .................................................................................. 2 

WITNESSES

Alldridge, Dennis H., President, Special Olympics-Wisconsin, Non-Profit and 

Charitable Coalition Representative .................................................................. 73 

Prepared statement .......................................................................................... 74 

Anthony, Hon. Sheila F., Federal Trade Commission .......................................... 27 

Cannon, Lou, President, DC Lodge of the Fraternal Order of Police .................. 83 

Leary, Hon. Thomas B., Federal Trade Commission ............................................ 32 

Mendoza, Hon. Charles, Member, AARP Board of Directors ............................... 51

Prepared statement .......................................................................................... 53

Muris, Hon. Timothy, Chairman, Federal Trade Commission ............................ 5

Prepared statement .......................................................................................... 7

Sarjeant, Lawrence E., Vice President, Law and General Counsel, U.S. 

Telecom Association ............................................................................................. 56

Prepared statement .......................................................................................... 58

Schwartz, Ari, Associate Director, Center for Democracy and Technology ........ 66 

Prepared statement .......................................................................................... 67 

Swindle, Hon. Orson, Federal Trade Commission ................................................ 30 

Thompson, Hon. Mozelle W., Federal Trade Commission .................................... 28

Weintzen, H. Robert, President and CEO, Direct Marketing Association, Inc. . 60

Prepared statement .......................................................................................... 62

(1)

FTC REAUTHORIZATION 

WEDNESDAY, JULY 17, 2002

U.S. SENATE, SUBCOMMITTEE ON CONSUMER AFFAIRS, FOREIGN

COMMERCE, AND TOURISM, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 9:30 a.m. in room 

SR–253, Russell Senate Office Building, Hon. Byron L. Dorgan, 

Chairman of the Subcommittee, presiding. 

OPENING STATEMENT OF HON. BYRON L. DORGAN,

U.S. SENATOR FROM NORTH DAKOTA 

Senator DORGAN. The Subcommittee hearing will come to order. 

I would like to welcome the Federal Trade Commission, as well as 

the witnesses who have gathered to provide testimony to the Subcommittee today. Let me call on the Chairman of the Full Committee for any statement he may wish to make at the opening. 

Senator Hollings. 

STATEMENT OF HON. ERNEST F. HOLLINGS,

U.S. SENATOR FROM SOUTH CAROLINA 

The CHAIRMAN. Mr. Chairman, I want to thank you and the Subcommittee under your leadership for this particular hearing. It is 

very important. We have oversight responsibilities for one of the 

most important agencies, the Federal Trade Commission, and I 

wanted to pay my respects for the hard work they are doing and 

their willingness to undertake additional consumer protection responsibilities in the communications field. 

We have got a terrible drive to remonopolize telecommunications, 

and they are being assisted materially by the Federal Communications Commission. We have got a distinguished Chairman over 

there whose first reaction to WorldCom was to see who could buy 

them. He was not interested in making the communications industry competitive and current. Instead, it is off to Wall Street, encouraging merger fever. That has been our problem, and the Federal Trade Commission is our last great hope to take on and watch 

these particular matters. 

Chairman Morris just informed me that you have got some lease 

expenses you might have to assume with our budget freeze. The 

reason we had the budget freeze at the Commerce, State and Justice Appropriations Subcommittee is that we had to do a lot of eating. We had to provide for the Homeland Security. We had to provide for the world and embassy security under the Department of 

2

State. We had to take care of the 4.1 percent pay increase, the prisons increase and, of course, the $300 million more that 98 Senators 

voted for the day before yesterday. 

With that, that is all we could do to hold the lines in the budgets 

current as of this particular year, and so it was not an effort to cut 

the Federal Trade Commission. We appreciate what the Federal 

Trade Commission is doing, and you all keep up the good hard 

work. We are depending on you. 

Thank you very much, Mr. Chairman. 

Senator DORGAN. Senator Hollings, thank you very much. 

Senator Wyden. 

STATEMENT OF HON. RON WYDEN,

U.S. SENATOR FROM OREGON 

Senator WYDEN. Thank you very much, Mr. Chairman. I appreciate the opportunity to make this brief opener. After a few minutes while I am in the Capitol, I will be back to participate in the 

hearing. I share Chairman Hollings’ view that considerable good 

work is done at the Federal Trade Commission. I will tell the folks 

at the Commission and the Chairman here I really think that the 

Commission is AWOL on energy issues, and particularly with respect to gasoline pricing, and also electric issues. 

With respect to gasoline pricing, the Commission found that anticompetitive practices known as red-lining were rampant in West 

Coast gasoline markets, and yet no action was taken. Perhaps what 

is particularly troubling and to me—just staggering—is the Federal 

Trade Commission in their inquiry, and I will quote here: ‘‘The investigation uncovered no evidence that any refiner had the ability 

profitably to raise prices market-wide or reduce output at the 

wholesale level.’’

Well, Chevron and Texaco, their president testified just to the opposite. He testified that the West Coast gasoline market is dominated by a limited number of refiner marketers whose individual 

actions can have significant market impact, and so what you 

have—and I want to be very clear with the Commission on this—

is, you have oil company executives admitting to practices that the 

Federal Trade Commission says they cannot find evidence of. 

Think about that. Oil company executives come to the Congress 

and admit to engaging in anticompetitive practices that the Commission says it cannot find evidence of, so I have some questions 

to ask about that. 

I am also very troubled about the Commission’s position with respect to competitive effects of electric utility transactions with nonutility subsidiaries and affiliates. This is important for us on the 

West Coast because of Enron. The agency, of course, does have jurisdiction with respect to wholesale market impacts, and it seems 

that the agency gives a lot of speeches about the benefits of deregulation, and I do not see much about protecting consumers. I thank 

you, Mr. Chairman, and apologize for having to be gone for a few 

minutes, but look forward to the questioning later. 

Senator DORGAN. Senator Wyden, thank you. Senator Wyden will 

be returning, and there is a Senate vote at 10:30, and we will go 

slightly into that vote before we take a very brief recess, and then 

I will be recognized on the floor of the Senate for the first amendVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
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ment, I believe immediately following the vote, so Senator Wyden 

will chair at that point. 

Let me make a couple of comments. Senator Fitzgerald, I believe, 

the Ranking Member, will also be here in a few moments. But let 

me say that this hearing is a hearing to begin the task of reauthorizing the Federal Trade Commission. It is an independent Federal 

agency with broad consumer protection mandates from Congress. 

The Commission’s authorization has expired. It is long past the 

time when Congress should do something about that, and it is my 

hope to introduce a piece of legislation at some point soon that 

would reauthorize the activities of the Federal Trade Commission. 

The two specific proposals that the Commission has that the Subcommittee will focus on this morning are interesting proposals. 

The first is the proposed national Do-Not-Call registry that 

would amend the telemarketing sales rule and enable consumers to 

eliminate most telemarketing calls by making one call to the FTC. 

While consumers appear to overwhelmingly support this initiative, 

and the idea of uninterrupted dinner free from telephone solicitation appeals to many of us, we want to be certain that doing so will 

not have unintended consequences for groups such as charitable organizations that depend on some solicitation to raise funds. But I 

must say that if you go anywhere in the country and ask people 

what is annoying them these days, especially while they are eating, 

it is the incessant telephone calls that try to sell them a credit card 

to refinance their home, to solicit some other sort of contribution. 

The American people are upset by having their privacy invaded in 

this way, and the Commission has a proposal that is something we 

will talk about a bit today and will consider as we take a look at 

the reauthorization as well. 

The Commission has also expressed an interest in rescinding the 

common carrier exemption for telecommunications issues. This exemption was put in the Federal Trade Commission Act back when 

there was only one federally-regulated telephone company. There is 

an argument that with a variety of companies now providing so 

many different types of telecommunications services, sometimes in 

combination with common carriage, sometimes as separate services, there needs to be an aggressive agency with expertise in fraud 

and marketing practices to police the industry. 

There is some concern that this change will create redundancy, 

since the Federal Communications Commission already has jurisdiction, I personally think this subject needs to be examined at 

some length, and I look forward to beginning that discussion as 

well. I frankly do not think that there is as aggressive a set of actions as should be taken by current regulatory authorities, so for 

that reason I believe this is an interesting proposal. 

Let me just make a comment on Senator Wyden’s observation, 

especially with respect to energy and gasoline prices. In recent 

months, I guess over the last year or so, I have been concerned—

in fact, I met with the Federal Trade Commission, some of them, 

some of the officials, including the Chairman. I have been concerned that consumers have not been well-served by a range of 

Federal agencies. 

For example, when we saw what happened with respect to the 

Enron Corporation where investors lost their shirts, and the people 

4

at the top of the corporation walked away with a pocket full of 

gold, I asked the question, ‘‘Well, who is looking out for the people 

that are the consumers of stocks at this point, and who were defrauded, in effect—bad information was put out to them, they were 

manipulated in many ways, they lost their shirts—who is investigating that?’’ And I was told the FTC really does not have jurisdiction. That is the Securities and Exchange Commission. 

Energy pricing, we had hearings in this room with respect to the 

manipulation of wholesale energy prices, and therefore retail prices 

in the State of California. We will have a hearing tomorrow with 

Army Secretary White, who was involved in Enron Energy Services, on that very subject, and he asked the question, ‘‘Well, who 

is active and involved in seeing that the consumers were not defrauded out of billions of dollars in California?’’ The answer was, 

‘‘Really, nobody.’’ It was supposed to have been FERC, I guess, but 

FERC and the FCC and others have done their best pillars of stone 

imitations and essentially sat on their hands while consumers in 

a wide range of areas have, in my judgment, been defrauded, or 

manipulated, or in other ways disadvantaged. 

I agree with Senator Wyden. I want watch dogs, and I want 

agencies that are aggressive, not paper tigers. I want real tigers 

going after those that are taking advantage of the American consumer. I want agencies that are aggressively pursuing fraud and 

price manipulation, and let me just say, part of my angst about 

this goes back to last fall with the hearings we had with respect 

to Enron and what happened to the investors, and there was not 

anybody seeming to be very excited about that in a regulatory area. 

The American people were excited. Congress was excited. We 

could not find regulators that were very excited about it, and the 

same was true with respect to price manipulation. I happen to 

think Californians were bilked to the tune of billions of dollars, and 

it may well be to the tens of billions of dollars in phony energy 

pricing and manipulative and fraudulent pricing practices, and 

frankly, I see precious little evidence of anybody aggressively going 

after that. Shame on those who have the responsibility but do not 

assume it, and we will talk about some of that today as well. 

The Federal Trade Commission has a specific area in which it 

works, and I mentioned earlier that we are going to talk about trying to expand that in certain area so that we might have the Federal Trade Commission involved in some of the areas that I just 

mentioned. 

The Securities & Exchange Commission was literally created 

from the Federal Trade Commission. Congress took two commissioners, the General Counsel and 120 attorneys out of the FTC to 

create the new SEC many years ago. My own feeling is that we 

ought to take a look at that once again. I am not suggesting a 

wholesale merger these days of Federal agencies, but I am suggesting that I think that we have Federal watch dogs who have not 

been watching. I think the Federal Trade Commission does a lot 

of good work in trying to prevent consumer fraud, despite the fact 

that they are a small agency. Since 1995, the Federal Trade Commission has brought over 1,000 fraud and deception cases, won 

more than $825 million in consumer redress, and reviewed over 

26,000 mergers worth nearly $10 trillion. They have been active in 

5

a wide range of areas. I will not describe them all. We have been 

pleased to work with the Commission in many areas. 

Mr. Muris will remember last fall when I was not pleased that 

we could not find a way for the Commission to believe it ought to 

go hip deep into the Enron issue. But you know, I understand that 

you have certain jurisdictional areas that you evaluate, and other 

agencies and other regulatory bodies have jurisdiction. So I hope 

maybe we can find a way to sort all this out, and decide if there 

are agencies that do not want to regulate, then let us get rid of 

them and give the responsibility to some agency that is staffed by 

people who do want to regulate. 

This system of ours, this market system, needs effective regulation. This nonsense about let us just deregulate everyone and let 

the consumer beware, if we have not gotten a belly full of that in 

the last year, then somebody has been sleeping. You need, in this 

market system, effective oversight and regulation. There are people 

who are willing to defraud the consumers, and we need not just in 

the criminal justice system investigations, but we need regulatory 

agencies to prevent that from happening. 

So with that as a precursor, let me call on Mr. Muris to begin 

providing us your comments this morning. Let me welcome the 

Chairman and all the members of the Federal Trade Commission, 

and let us include your entire statements as a part of our permanent record, and you may summarize as you choose. 

Chairman Muris, why don’t you proceed. 

STATEMENT OF HON. TIMOTHY MURIS, CHAIRMAN,

FEDERAL TRADE COMMISSION 

Mr. MURIS. Thank you, Mr. Chairman, we are happy to be here, 

and we especially appreciate your support and kind words. In attendance with me today are the full Commission. In order of seniority, to my right is Commissioner Anthony, to my immediate left 

is Commissioner Thompson, to my far right, at least geographically 

and sometimes in other ways, is Commissioner Swindle, and to my 

far left is Commissioner Leary. We certainly appreciate the opportunity to appear before you today. 

Since our last reauthorization in 2000, I believe the Commission 

has been very aggressive, and certainly I believe we have continued 

in my Chairmanship the aggressive nature of my predecessor, Bob 

Pitofsky. 

On a personal note, I want to say that this is my sixth job in 

the Federal Government. I have voted with my feet in agreeing 

that we do need aggressive regulation. Four of those jobs have been 

at the FTC. I am extremely proud to be the FTC’s Chairman. Our 

mission is vital, the issues are extraordinary, and the people are 

great. 

Let me outline our mission briefly. In the time you have allotted, 

my colleagues will each discuss a specific issue. I will talk very 

generally. 

In consumer protection, which is one of our two main missions, 

protection of consumer privacy is a key focus of our efforts. In this 

fiscal year, we have increased our resources 50 percent to address 

consumer harm that results from the misuse of consumer information. In addition to bringing 22 cases in this area in the last 14 

6

months, as you mentioned, we have proposed amending the Telemarketing Sales Rule to create a national Do-Not-Call list. If we 

adopt that registry, it would allow consumers to make one call to 

remove their name from most lists. 

We have also been active in another important privacy issue, 

which is the ubiquitous spam that people receive. We are probably 

one of the few places in the world that wants to receive spam. We 

have something called the ‘‘Refrigerator’’ in our computer lab that 

now has over 14 million spam. We have recently begun systematically looking at those spam, picking targets. 

There are a great many deceptive solicitations made. For example, we recently bought a case against a very pernicious practice. 

Individuals would receive a spam that said, ‘‘Receive a free Sony 

Play Station,’’ and in five clicks of their mouse they would be on 

a pornographic website with their phone bill being billed to a 900 

number. We shut that down. 

We certainly remain aggressive in fighting other frauds, including a variety of telemarketing fraud; franchise fraud; business opportunity and work-at-home schemes; advance fee loans; credit loss 

protection; and false and unsubstantiated claims for health and 

weight loss products. 

I would like to give you a couple of recent examples. We obtained 

a federal court order against the promoters of Miss Cleo Psychic 

Services for misrepresenting the cost of the services. Surprisingly, 

she did not see it coming. 

[Laughter.] 

Senator DORGAN. Do you want to go slower, Chairman Muris? 

Mr. MURIS. We also challenged the marketers of the devices you 

may have seen on television promising washboard abs. Those commercials and infomercials were ubiquitous at the end of last year 

and the beginning of this year. We have sued, and we have preliminarily stopped that activity. 

Turning to antitrust, merger enforcement, of course, continues to 

be a staple of our efforts. Recently there have been fewer mergers, 

but there are still a great many cases that require enforcement activity, and we have been bringing such cases. 

Health care is a major part of our effort. We have increased our 

resources in this area in this fiscal year by 50 percent as well. Most 

of those resources, probably about 70 percent-plus, involve pharmaceuticals, and I testified recently before you on that issue. Our 

focus has been on efforts by branded drug manufacturers to slow 

or stop competition from lower priced generics. We are particularly 

concerned about anticompetitive gaming of certain parts of the 

Hatch-Waxman Act, and the day I was here to testify on competition in the pharmaceutical industry, we announced a case. We 

brought another case recently, and we have many other investigations underway. 

I am sure the other Commissioners will want to respond to Senator Wyden. I think he was quoting from Commissioners’ statements that were issued shortly before I arrived. Energy is vital to 

our entire economy. We have spent a lot of effort on maintaining 

competitive energy markets, and we recently have increased our efforts. For the first time, on a real-time basis, we are now tracking 

the price of gasoline in 360 cities. We are looking for price anomaVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
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lies, whatever their cause; one: so that we can better understand 

what is going on in the marketplace; and two: so we can identify 

enforcement targets if appropriate ones exist. 

As you mentioned, we have some legislative recommendations. 

The first, which will be discussed in more detail by Commissioner 

Anthony, involves the elimination of the exemption for common 

carriers. We also request some technical changes, as we describe in 

our written testimony. 

Let me just conclude by saying, I firmly believe that we have a 

vital role. I want to thank you for your continued support of our 

mission, and I want to note that in accomplishing this mission 

there is a very high degree of unity among the five Commissioners. 

In fact, there is a near unanimous pattern in voting, particularly 

when it comes to law enforcement. That does not mean we agree 

on everything. We spend a lot of time working issues out among 

ourselves to achieve consensus, and we also work very closely with 

our staff. As you will see, the Commissioners are independentminded, but I believe we work extraordinarily well together to 

serve the public interest. 

[The prepared statement of Mr. Muris follows:]

PREPARED STATEMENT OF HON. TIMOTHY MURIS, CHAIRMAN, FEDERAL TRADE COMMISSION

I. Introduction 

Mr. Chairman and Members of the Subcommittee, the Federal Trade Commission 

(FTC) is pleased to appear before you to support our reauthorization request for Fiscal Years 2003 to 2005. Since our last reauthorization hearing in February 2000, 

the FTC has continued to take innovative and aggressive actions to protect consumers and promote competition. 

The FTC is the only federal agency with both consumer protection and competition jurisdiction over broad sectors of the economy. 1 We enforce laws that prohibit 

business practices that are anticompetitive, deceptive, or unfair to consumers. We 

also promote informed consumer choice and public understanding of the competitive 

process. The work of the FTC is critical in protecting and strengthening free and 

open markets in the United States and, increasingly, the world. 

The FTC is a small agency, but one with a large mission. The FTC has shouldered 

an ever-increasing workload as the economy becomes more global and more high 

tech. The agency has met its broad responsibilities with only modest increases in 

resources. Highlights of recent accomplishments include:

• Enhancing consumer privacy and security. Since April 2001, the FTC has 

brought 22 cases involving privacy and security issues, ranging from 

‘‘pretexting’’ (obtaining personal information under false pretenses) and children’s privacy to ‘‘spam’’ (unsolicited commercial e-mail). The agency also has 

held three workshops to address privacy issues such as financial privacy notices 

and the security of consumer information.

• Recovering as much as $60 million for nearly 18,000 consumers who were victims of fraudulent lending under the terms of a proposed settlement that requires court approval. Working with the AARP, six states, and individual plaintiffs, in March 2002 the FTC settled charges against a mortgage company and 

its CEO for misleading consumers about fees they would be charged, which 

amounted to 10 to 15 percent of the loans.

• Attacking fraud. Since June 2001, the FTC has filed 98 federal court actions 

and obtained judgments for more than $160 million.

• Stopping branded drug manufacturers from eliminating competition from cheaper generic equivalents. Recent cases addressing conduct allegedly stifling generic competition have involved drugs for high blood pressure, anxiety, and angina and other cardiac problems.

• Preventing anticompetitive effects of mergers in the petroleum industry. Last 

year, the FTC reviewed three multi-billion dollar oil mergers and, where necessary, required divestitures in two of the proposed mergers to ensure continued 

8

competition in refining, distribution, and retail sales of gasoline in markets 

across the United States.

• Ensuring competition among health care providers. The FTC is challenging as 

illegal agreements among providers to fix fees and boycott health plans that resist paying higher fees. The FTC’s goal is helping to insure the existence of a 

competitive health care industry that consistently delivers high-quality care at 

competitive costs.

In accomplishing these goals, there is a high degree of unity among the five Commissioners. In fact, there is near unanimity in voting patterns, particularly with respect to votes concerning law enforcement matters. The near unanimity of voting 

patterns reflects both a broad consensus among the Commissioners about the types 

of cases the Commission should pursue, and the careful and deliberate process by 

which the Commissioners consider matters, consulting with the staff to address the 

issues and concerns of individual Commissioners. As Chairman Muris has stated, 2

through the efforts of a talented, dedicated, and professional staff, the current Commission is building on the extraordinary work of former Chairman Robert Pitofsky. 

II. Mission Focus 

In the next few years, the FTC will focus its resources in significant areas of the 

economy through law enforcement actions, consumer and business education campaigns, and continuing assessment of ongoing developments in the marketplace. As 

we explain in detail below, the FTC’s activities fulfill its mission on behalf of American consumers by:

• Continuing emphasis on critical areas of law enforcement—stopping and preventing consumer fraud and deception as well as stopping anticompetitive 

mergers;

• Enhancing consumer privacy and security; 

• Preventing deceptive and anticompetitive health care practices; 

• Promoting and maintaining competitive energy markets; 

• Keeping pace with technology and the changing marketplace; 

• Targeting special initiatives to specific groups of consumers; and 

• Advancing efficient law enforcement.

A. Continuing Emphasis on Critical Areas of Law Enforcement 

Two areas in the FTC’s jurisdiction have become staples of its law enforcement 

agenda—(1) fighting consumer fraud and deception, and (2) preventing anticompetitive mergers. Since 1995, the FTC has attacked fraud and deception by bringing 

1,052 federal court and administrative actions, and obtaining orders for more than 

$825 million in consumer redress. 3 During the same time period, the FTC reviewed 

over 26,000 proposed mergers worth a total of nearly $10 trillion, opened about 

1,600 formal investigations (issuing ‘‘Second Requests’’ in more than 300 matters), 

and took enforcement action in over 230 transactions. Over the next few years, the 

FTC plans to devote significant resources to build on its solid record of achievement 

in these areas. 

1. Consumer Fraud and Deception 

The FTC targets both traditional types of fraud and deception and those types 

that capitalize on new technologies. Simply stated, our mission is to identify the 

most egregious forms of fraud and deception; to bring cases, on our own and with 

our law enforcement partners across the country and around the globe; and to educate industry about complying with the law, consumers about how to protect themselves from fraud and deception, and ourselves about emerging issues. 

The FTC has two toll-free telephone numbers and an online form available to consumers who have questions or complaints. Consumer complaints are entered into a 

number of FTC databases, which are accessible to increasing numbers of domestic 

and foreign law enforcement partners. To identify the most pervasive forms of fraud 

and deception, and to target wrongdoers for law enforcement actions, we analyze the 

information collected through the following data systems:

• Consumer Response Center. The FTC’s Consumer Response Center (CRC) 

fields complaints and inquiries on a wide variety of consumer protection issues. 

Consumers can use a toll-free number (1–877–FTC–HELP), as well as an online 

form and the mail, to contact the CRC with complaints and inquiries. The CRC 

now responds to more than 55,000 inquiries and complaints a month.

• Consumer Sentinel. Established by the FTC in 1997, Consumer Sentinel 4 is 

a fraud database available online to law enforcement agencies across the U.S. 

and Canada. It receives complaints from the FTC’s CRC and from a growing 

9

number of other organizations in the U.S. and Canada. Sentinel now contains 

more than 680,000 complaints, and is the richest source of consumer fraud data 

available to law enforcement agencies. Since June 2001, the FTC has recruited 

115 new Sentinel members, bringing the total number of Sentinel users to more 

than 460 law enforcement agencies. Law enforcement agencies can use this centralized database to identify trends and target companies that have received a 

large number of consumer complaints. Consumers also can access publicly available sections of this Web site for statistics about fraud, including the schemes 

that garner the most consumer complaints, the location of companies subject to 

complaints, and tips on how to avoid fraud.

• Identity Theft. Another FTC toll-free number, 1–877–ID–THEFT, is a central 

clearinghouse and a critical source of consumer complaint data on ID theft. 

Calls have increased from 2,200 calls per week one year ago to over 3,000 today. 

Building on its experience with Consumer Sentinel, the FTC began making the 

data available to its law enforcement partners through an online database. 

More than 350 law enforcement agencies—46 separate federal agencies and 306 

state and local agencies—now can access the data. Among the agencies represented are more than half of the state Attorneys General, as well as law enforcement authorities from a number of major cities including Baltimore, Dallas, Los Angeles, Miami, San Francisco, and Philadelphia. To encourage even 

greater participation, we have conducted law enforcement training and outreach 

since April of this year to demonstrate the efficacy of the clearinghouse. As one 

example of positive results from these efforts, within three weeks after our most 

recent training seminar in Chicago, approximately a third of the participating 

agencies without prior access to the clearinghouse had signed up. We will continue to focus resources and to devise new methods to expand law enforcement 

access to the database. Finally, FTC investigators, working with the Secret 

Service, have started to prepare preliminary investigative reports based on 

clearinghouse data, which are referred to Financial Crimes Task Forces for possible prosecution.

• Spam Database. Since 1998, the FTC has maintained an electronic mailbox 

(uce@ftc.gov) to which Internet customers can forward unsolicited commercial email, commonly known as ‘‘spam.’’ This database currently receives, on average, 

42,000 new pieces of spam every day. The total number of spam e-mails has 

grown from 700,000 in the first year to more than 10 million today. The FTC 

staff searches the database to identify trends and select law enforcement targets.

• Surf Days. The FTC ferrets out online fraud and deception through ‘‘Surf 

Days.’’ First used in 1996 to look for online pyramid schemes, the law enforcement surf is now a staple of FTC online scheme identification, usually conducted with other law enforcement agencies. It provides both a window to learn 

about online practices and a way to alert new Web site providers—some of 

whom are new entrepreneurs unaware of relevant laws—that their sites appear 

to violate the law. Since May 2001, the FTC has conducted six surfs with more 

than 140 partners, focusing on claims about unsubscribing from spam, remedies 

or preventive products for anthrax and other serious diseases, bioterror protection devices, e-tailer holiday shipping, and ultrasonic pest-control devices.

Drawing on consumer complaint data and information gathered from Surf Days, 

the FTC targets fraudulent and deceptive practices. The FTC’s cases reflect a broad 

range of illegal activity, including telemarketing fraud, franchise fraud, business opportunity and work-at-home schemes, advance fee loan and credit loss protection 

schemes, and false and unsubstantiated claims for health and weight loss products. 

The FTC also has continued to bring deceptive advertising cases, focusing in particular on cases that involve health or safety issues, or significant economic injury. 

Recent cases include:

• Project Busted Opportunity. In June 2002, the FTC, the Department of Justice, and 17 state law enforcement agencies announced law enforcement actions 

against 77 targets engaged in the sale of business opportunities or work at 

home schemes. The targets allegedly used deceptive earnings claims and paid 

‘‘shills’’ to promote their schemes or otherwise violate consumer protection 

laws. 5

• Operation Dialing for Deception. In April 2002, the FTC announced the filing of 11 federal district court complaints challenging ‘‘in-bound’’ telemarketing 

fraud—situations in which consumers call companies based on classified ads, 

Internet banners, or other promotions. Among those charged were the purveyors 

of advance-fee loans and credit cards, at-home medical billing programs, workVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00013 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
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at-home envelope stuffing schemes, and a ‘‘consumer protection’’ agency that 

was, in reality, no more than a shill for a vending machine business opportunity. 6

• Magazine Telemarketing. A federal court ordered a group of magazine subscription telemarketers to pay $39 million in consumer redress for violating the 

terms of a 1996 FTC settlement. Among other provisions, the FTC’s 1996 order 

barred the defendants from misrepresenting the cost of subscriptions, charging 

consumers’ accounts without authorization, and threatening to harm consumers’ 

credit ratings. To facilitate the redress process, the FTC established a special 

hotline for consumers who think that defendants may have billed them improperly. 7

• ‘‘Miss Cleo.’’ The FTC obtained a federal court order against the promoters of 

‘‘Miss Cleo’’ psychic services after charging that defendants misrepresented the 

cost of services, billed for services never purchased, and engaged in deceptive 

collection practices. Among other provisions, the court’s order enjoins the defendants from any future misrepresentations about the cost of psychic readings 

and from making harassing telemarketing calls. The FTC estimates that the defendants billed consumers $360 million in connection with this alleged illegal 

scheme. 8

• Ab Devices. In ‘‘Project ABsurd,’’ the FTC challenged widely advertised ‘‘ab’’ 

devices. In suits against three marketers of electronic abdominal exercise belts, 

the FTC charged that infomercials falsely advertised that users would get ‘‘six 

pack’’ or ‘‘washboard’’ abs without exercise. The 30-minute infomercials were 

heavily aired on national cable television stations, such as USA, TNN, Lifetime, 

E!, FX, and Comedy Central, and were among the ten most frequently aired 

infomercials in weekly U.S. rankings. The FTC’s action seeks a permanent injunction to stop future false or deceptive claims and the payment of redress to 

consumers who bought the devices. 9

• Wonder Bread. In March 2002, the FTC announced a settlement with the 

marketers of Wonder Bread concerning allegedly deceptive ads claiming that 

Wonder Bread could improve children’s brain function and memory. 10

• 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. 11

2. Anticompetitive Mergers 

Merger enforcement also continues to be a staple of the FTC’s enforcement agenda. Stopping mergers that substantially lessen competition ensures that consumers 

pay lower prices and have greater choice in their selections of goods and services 

than they otherwise would. The level of merger activity in the marketplace, along 

with other factors, affects the FTC’s merger workload. During the 1990s, record-setting levels of mergers, both in numbers and in size, required extraordinary efforts 

by the FTC staff to manage the necessary reviews within statutory time requirements. Recent economic conditions have reduced merger activity, and amendments 

to the Hart-Scott-Rodino Act 12 have cut the number of proposed mergers reported 

to the government. Even so, FTC merger enforcement remains a significant challenge for the following reasons:

• The size, scope, and complexity of mergers have increased. The number 

of mergers still remains relatively high by historic standards, and mergers also 

continue to grow in size, scope, and complexity. The dollar value of last year’s 

reported mergers was about 82 percent higher, in nominal terms, than the 1995 

total, even without any adjustment for the different filing thresholds. In fact, 

the $1 trillion total in 2001 exceeded the average annual total dollar value of 

reported transactions during the booming 1991–2000 decade. The size of mergers affects the FTC’s workload because mergers among large diversified firms 

are likely to involve more products than mergers among smaller firms, and thus 

generally involve more markets requiring antitrust investigation. In addition, 

larger firms are more likely to be significant players in the markets in which 

they compete—increasing the need for antitrust review. Finally, as new technologies continue to grow and as the economy becomes more knowledge-based, 

the resulting complexity of many mergers requires more extensive inquiry.

11

• Large numbers of mergers still require scrutiny. The number of proposed 

mergers raising competitive concerns remains significant. Despite fewer reported transactions, the FTC’s level of enforcement activity remains at a high 

level. Through the first eight months of this year, for example, we opened well 

over 100 merger investigations and issued 20 requests for additional information under the HSR Act (Second Requests), numbers only slightly below those 

during the peak merger wave years 1996 through 2000. Thus far in FY 2002, 

the FTC has taken enforcement action in 21 mergers. Thus, despite a drop in 

the number of merger filings, our merger enforcement workload remains high 

because the workload derives mostly from the number of transactions raising 

antitrust concerns, not from the overall number of filings.

• Non-reportable mergers now require greater attention. Although fewer 

proposed mergers remain subject to the reporting requirements of the HSR Act, 

the standard of legality under Section 7 of the Clayton Act remains unchanged. 13 Consequently, we need to identify through means such as the trade 

press and other news articles, consumer and competitor complaints, hearings, 

and economic studies, those unreported, usually consummated, mergers that 

could harm consumers. So far this fiscal year, the FTC has challenged two nonreportable mergers. 14

• Resource-intensive litigation is more frequently needed. While the FTC 

resolves most merger challenges through settlement, it is sometimes necessary 

to litigate, particularly when the merger at issue already has been consummated. Merger litigation requires enormous resources. At the height of 

preparation, a single merger case requires the full-time attention of numerous 

staff members—not only lawyers, but also economists, paralegals, and support 

staff. To counter arguments and evidence presented by merging parties, these 

cases also require analysis and testimony by outside experts with specialized 

knowledge, which can be extremely costly. Since the fiscal year began, the FTC 

has filed two administrative actions, 15 and has authorized federal court challenges to five proposed mergers involving products including rum, 16 food service 

glassware, 17 pigskin and beef hide gelatin, 18 telescopes, 19 and cervical cancer 

screening products. 20

B. Protecting Consumer Privacy and Security 

A major focus of the FTC for the next several years will be the protection of consumer privacy and security. Consumers are deeply concerned about the privacy and 

security of their personal information, both online and offline. Although privacy concerns have been heightened by the rapid development of the Internet, concerns are 

by no means limited to the cyberworld. This fiscal year, we have substantially increased resources dedicated to privacy protection. The agency has undertaken several major privacy initiatives to reduce the serious consequences to consumers that 

can result from the misuse of personal information. 

1. Do Not Call Initiative 

The FTC has proposed amending the Telemarketing Sales Rule (TSR) 21 to create 

a national do-not-call list that would be binding on telemarketers and allow consumers to make one call to remove their names from most telemarketing lists. The 

proposal also would restrict the use of ‘‘preacquired account information’’—lists of 

names and credit card numbers of potential telemarketing customers—to ensure 

that these lists are not used to bill consumers for unwanted goods or services. To 

date, the FTC has received over 40,000 comments on the TSR proposal, reflecting 

a high degree of public interest. 

2. Public Workshops 

In December 2001, the FTC co-hosted, with seven other federal agencies, a public 

workshop titled Get Noticed: Effective Privacy Notices under Gramm-Leach-Bliley

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. 22 In May 2002, the 

FTC hosted a two-day public workshop to explore issues related to the security of 

consumers’ computers and the personal information stored in them or in company 

databases. 23

3. ID Theft 

In 2001, identity theft was the number one consumer complaint made to the FTC. 

To help stamp out this growing consumer problem, the FTC has undertaken a number of initiatives:

12

• Identity Theft Law Enforcement Training. Last March, the FTC, the U.S. 

Secret Service, and the Department of Justice kicked off a series of nationwide 

training seminars to provide hundreds of 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 create a universal identity theft affidavit for victims of identity theft to submit to creditors. Available online, the form helps victims recoup their losses and restore their legitimate credit records more quickly.

• Identity Theft Education. 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 FTC has distributed more than 

850,000 hard copies of its best-selling publication, ‘‘Identity Theft: When Bad 

Things Happen to Your Good Name,’’ and has logged over 700,000 visits to its 

Web version. The FTC also launched an outreach effort to Spanish-speaking victims of identity theft, releasing Spanish versions of the identity theft booklet 

(Robo de Identidad: Algo malo puede pasarle a su buen nombre) and the ID 

Theft Affidavit. We have added Spanish-speaking phone counselors to our hotline staff and will soon launch a Spanish version of our online complaint form.

4. Privacy Enforcement Actions 

The FTC brings law enforcement actions when it has reason to believe that laws 

protecting privacy have been violated. Recent FTC privacy enforcement actions include:

• Children’s Privacy. Over the past year, the FTC brought six cases involving 

the rule implementing the Children’s Online Privacy Protection Act (COPPA) 

for alleged violation of the requirement that commercial Web sites give notice 

of their information practices and obtain parental consent before collecting, 

using, or disclosing personal information about children under 13. As part of 

these settlements, the companies agreed to pay civil penalties totaling 

$175,000. 24

• Eli Lilly. The FTC settled charges that Eli Lilly & Company unintentionally 

had disclosed the e-mail addresses of users of its Prozac.com and Lilly.com Web 

sites by failing to take reasonable 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. 25

• Pretexting Cases. The FTC has taken its first steps to enforce prohibitions 

against ‘‘pretexting’’—the use of false pretenses to obtain customer financial information—which is prohibited under the Gramm-Leach-Bliley Act. 26 FTC staff 

found apparent violations after a surf of 1,000 Web sites and a review of 500 

publications. The FTC sent warning notices to 200 firms and settled three actions in federal court involving the most egregious situations. 27

• Preacquired Account Information. 28 A group of ‘‘buying clubs’’ has agreed 

to pay $9 million to settle charges by state Attorneys General and the FTC that 

they deceptively enticed consumers into accepting free trial memberships and 

deceptively obtained billing information from the consumers, which they used 

to bill consumers for membership in the ‘‘buying clubs’’ without the consumers’ 

knowledge or authorization. 29

• Spam. In February 2002, the FTC announced federal court settlements with 

seven individuals who allegedly were disseminating deceptive chain-letter emails involving pyramid schemes with ‘‘get rich quick’’ schemes. 30 In April 

2002, the FTC announced a law enforcement action challenging ‘‘spam’’ e-mail 

messages that deceptively claimed that consumers had won a free Sony 

PlayStation 2 or other prize through a promotion purportedly sponsored by 

Yahoo, Inc. When consumers responded to the e-mail message, they were routed 

to an adult Internet site via a 900-number modem connection that charged 

them up to $3.99 a minute. 31

C. Preventing Deceptive and Anticompetitive Health Care Practices 

The cost of health care has become increasingly significant to both the economy 

and the American family. Health-related products and services account for over 13 

percent of gross domestic product, up from 10.9 percent in 1988. 32 A major FTC objective is to root out deceptive practices that waste consumer dollars on ineffective 

or bogus remedies, and to stop collusion and other anticompetitive practices that 

drive up health care costs and decrease quality. 

13

1. Internet Health Fraud and Deception 

The Internet has become the newest venue for marketing snake oil. Promoters of 

fraudulent products and services continue to use the Internet to plague consumers 

searching for cures for various diseases and preventative treatments to manage 

their health. The FTC has in place several program to protect consumers from scam 

artists who prey upon consumers’ fears and concerns about their health.

• Bioterrorism Project. Following the tragedies of September 11 and the anthrax attacks, the FTC targeted purveyors of phony products related to bioterrorism diseases. Last October, staff from the FTC, the Food and Drug Administration (FDA), and the offices of 30 state Attorneys General conducted a surf 

and followed it up with warning letters to 121 Web sites. These sites were exploiting bioterrorism fears by marketing ineffective products, ranging from oregano oil to gas masks. To date, over 70 of the 121 warned sites have eliminated 

their objectionable claims. In February, the FTC announced settlements with 

marketers of an ineffective anthrax home test kit 33 and an on-line seller of a 

colloidal silver product advertised to treat anthrax. 34

• ‘‘Teaser’’ Web Sites. One of the principal challenges facing the FTC is reaching consumers before they fall victim to a fraudulent scheme. Knowing that 

many consumers use the Internet to shop for information, agency staff have developed 14 different ‘‘teaser’’ sites that mimic fraudulent sites and that are 

found easily by consumers who conduct research on the Internet with popular 

search engines. Within three clicks, the teaser sites link back to the FTC’s site, 

where consumers can find practical, plain language information on recognizing 

fraudulent claims on a range of topics, including health care products. Feedback 

from the public on FTC teaser sites has been overwhelmingly positive. 35

• ‘‘Operation Cure.All.’’ In June 2001, the FTC, in cooperation with the FDA, 

Health Canada, and various state Attorneys General, announced ‘‘Operation 

Cure.All,’’ the latest round of enforcement actions against online purveyors of 

health products that purported to cure serious diseases. The FTC challenged allegedly unfounded claims regarding a DHEA hormonal supplement, St. John’s 

Wort, various multi-herbal supplements, colloidal silver, and a variety of electrical therapy devices.

Commissioner Sheila Anthony recently discussed Operation Cure.All 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). 36

This speech discussed the FTC’s recent law enforcement 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. 

2. Collusion and Other Anticompetitive Practices 

During the past year, the FTC has placed renewed emphasis on stopping collusion 

and other anticompetitive practices that raise health care costs and decrease quality. 

(a) Antitrust Investigations Involving Pharmaceutical Companies. The 

growing cost of prescription drugs is a significant concern for patients, employers, and government. Drug expenditures doubled between 1995 and 

2000. 37 In response, the FTC dramatically has increased its attention to 

pharmaceutical-related matters in both merger and non-merger investigations. The agency now focuses one-quarter of all competition mission resources on this industry. We also have opened increasingly more pharmaceutical-related investigations. In 1996, less than 5 percent of new competition investigations involved pharmaceuticals, while in 2001, the percentage 

of new investigations involving pharmaceutical products was almost 25 percent.

• Mergers Affecting the Pharmaceutical Industry. Last year, the FTC took 

action to restore competition in the market for integrated drug information 

databases in a case involving violations of both Sections 7 and 7A of the Clayton 

Act. This case marked the first time the FTC sought disgorgement of profits as 

a remedy in a merger case. The case resulted from the 1998 acquisition by 

Hearst Corporation of the Medi-Span integratable drug information database 

business. Pharmacies, hospitals, doctors, and third-party payors rely on such 

databases for information about drug prices, drug effects, drug interactions, and 

the eligibility for drugs under various payment plans. At the time of the acquisition, Hearst already owned First DataBank, Medi-Span’s only competitor. The 

FTC alleged that the acquisition created a monopoly in the sale of integratable 

14

drug information databases, causing prices to increase substantially to all database customers. 38 We negotiated a settlement requiring Hearst to divest the Medi-Span database and to disgorge $19 million in illegal profits, which will be 

distributed to injured consumers. 39

• Pharmaceutical Firms’ Efforts to Thwart Competition from Generic 

Drugs. In its non-merger enforcement cases, the FTC focused on efforts by 

branded drug manufacturers to slow or stop competition from lower-cost generic 

drugs. While patent protection for newly developed drugs sometimes limits the 

role of competition in this industry, competition from generic equivalents of 

drugs with expired patents is highly significant. The Congressional Budget Office reports that consumers saved $8 to 10 billion in 1994 alone by buying generic versions of branded pharmaceuticals. 40 The first generic competitor typically enters the market at a significantly lower price than its branded counterpart, and gains substantial share from the branded product. Subsequent generic 

entrants typically bring prices down even further. 41 Anticompetitive ‘‘gaming’’ 

of certain provisions of the Hatch-Waxman Act 42 to forestall generic entry has 

been a major focus of FTC enforcement actions. FTC Hatch-Waxman abuse 

cases have fallen into three categories:

(i) Agreements Not to Compete. The first category involves agreements between manufacturers of brand-name drugs and manufacturers of generics 

in which the generic firm allegedly is paid not to compete. The FTC has 

settled three such cases, including a recent settlement with American 

Home Products (AHP). That settlement resolved charges that AHP entered 

into an agreement with Schering-Plough Corporation to delay introduction 

of a generic potassium chloride supplement in exchange for millions of dollars. The FTC had alleged that an AHP generic would have competed with 

Schering’s branded K-Dur 20, used to treat low potassium conditions, 

which can lead to cardiac problems. 43

(ii) Fraudulent ‘‘Orange Book’’ Listings. The second category deals with 

unilateral conduct by branded manufacturers to delay generic entry. Pursuant to the Hatch-Waxman Act, a branded drug manufacturer must list 

any patent claiming its branded drug in the FDA’s ‘‘Orange Book.’’ Companies seeking FDA approval to market a generic equivalent of that drug 

before patent expiration must provide notice to the branded manufacturer, which then has an opportunity to file a patent infringement action. 

The filing of such an action within the statutory time frame triggers an 

automatic 30-month stay of FDA approval of the generic drug. Certain 

branded manufacturers have attempted to ‘‘game’’ this regulatory structure by listing patents in the Orange Book improperly. Such a strategy 

permits the company to abuse the Hatch-Waxman’s stay provision to 

block generic competition without advancing any of the Act’s procompetitive objectives. The FTC recently filed an action against Biovail Corporation (Biovail), alleging that it had illegally acquired a license to a patent and engaged in such an anticompetitive patent listing strategy with 

respect to its high blood pressure drug, Tiazac. The matter was resolved 

through a consent order, which requires Biovail to: (1) transfer certain 

rights in the acquired patent back to their original owner; (2) terminate 

its infringement suit against the generic competitor, thereby terminating 

the 30-month stay; (3) refrain from any action that would trigger another 

30-month stay; (4) refrain from future improper Orange Book listing practices; and (5) provide the FTC with prior notice of the acquisitions of any 

patents it intends to list in the Orange Book. 44

The FTC also recently filed an amicus brief in pivotal private litigation involving allegations of fraudulent Orange Book listing practices. 45 In re 

Buspirone—which is the subject of continuing litigation—involves allegations 

that Bristol-Myers Squibb Co. (‘‘BMS’’) violated the antitrust laws by fraudulently listing a patent on its branded drug, BuSpar, in the FDA’s Orange 

Book, thereby foreclosing generic competition. BMS argued that the conduct 

in question was covered by the Noerr-Pennington doctrine—a legal rule providing antitrust immunity for conduct that constitutes ‘‘petitioning’’ of a governmental authority. In its amicus brief opposing Noerr immunity, the FTC 

argued that submitting patent information for listing in the Orange Book did 

not constitute ‘‘petitioning’’ the FDA and that, even if it did, various exceptions to Noerr immunity applied. The district court subsequently issued an 

order denying Noerr immunity and adopting much of the Commission’s reasoning. 46 The Court’s ruling does not mean that all improper Orange Book 

filings will give rise to antitrust liability. An antitrust plaintiff must still 

15

prove an underlying antitrust claim. The Buspirone decision merely establishes that Orange Book filings are not automatically immune from the antitrust laws or exempt from their scrutiny.

(iii) Agreements Between Generic Manufacturers. The third category of 

cases involves agreements among manufacturers of generic drugs. In our 

recent complaint against Biovail and Elan Corporation, plc (Elan), the 

FTC alleged that the companies violated the FTC Act by entering into an 

agreement that provided substantial incentives not to compete in the 

market for the 30 mg and 60 mg dosage forms of generic Adalat CC. 

Biovail and Elan are the only companies with FDA approval to manufacture and sell 30 mg and 60 mg generic Adalat products. In October 1999, 

Biovail and Elan entered into an agreement involving both companies’ generic Adalat products. Under their agreement, in exchange for specified 

payments, Elan would appoint Biovail as the exclusive distributor of 

Elan’s 30 mg and 60 mg generic Adalat products and allow Biovail to 

profit from the sale of both products. Our complaint alleged that the companies’ agreement substantially reduces their incentives to introduce 

competing 30 mg and 60 mg generic Adalat products. The proposed order, 

which has a ten-year term, remedies the companies’ alleged anticompetitive conduct by requiring them to terminate the agreement and barring 

them from engaging in similar conduct in the future. 47

Commissioner Thomas B. Leary has written and spoken in depth about the issues 

that we must confront as we proceed with these cases at the intersection of intellectual property rights and antitrust enforcement. 48

• Generic Drug Study. The FTC currently is conducting an industry-wide study 

focused on certain aspects of generic drug competition under the Hatch-Waxman Amendments. The study has examined whether the Commission’s enforcement actions against alleged anticompetitive agreements, which relied on certain Hatch-Waxman provisions, were isolated examples or representative of conduct frequently undertaken by pharmaceutical companies. The study also has 

examined more broadly how the process that Hatch-Waxman established to permit generic entry prior to expiration of a brand-name drug product’s patents 

has worked between 1992 and 2000. 49

(b) Antitrust Investigations Involving Health Care Providers. So far this 

year, the agency has reached settlements with three groups of physicians for 

allegedly engaging in collusive practices that drove up consumers’ costs. In 

May, the FTC announced a settlement with two Denver-area physician organizations to resolve charges that they entered into agreements to fix fees 

and to refuse to deal with health plans. According to the complaints, primary care doctors—who compete with each other as internists, pediatricians, 

family physicians, or general practitioners—formed groups to negotiate contracts for higher fees and other terms more advantageous than they could 

obtain by bargaining separately. The FTC’s proposed orders put a stop to 

further anticompetitive collusive conduct. 50

Earlier this year, the FTC settled charges that a group of Napa County, California, obstetricians and gynecologists agreed to fix fees and other terms of dealing with health plans and refused to deal with health plans except on collectively determined terms. The FTC’s complaint further alleged that the physicians’ actions harmed employers, individual patients, and health plans by depriving them of the benefits of competition in the purchase of physician services. To resolve the matter, the physicians agreed to refrain from engaging in 

similar conduct in the future, and to dissolve the organization through which 

they conducted their allegedly anticompetitive activity. 51

(c) Workshop on Health Care and Competition Law and Policy. On September 9–10, 2002, the Commission will hold a public workshop focusing on 

the impact of competition law and policy on the cost, quality, and availability 

of health care, and the incentives for innovation in the field. Given the significance of health care spending in the United States, it is important that 

competition law and policy support and encourage efficient delivery of health 

care products and services. Competition law and policy should also encourage innovation in the form of new and improved drugs, treatments, and delivery options. Developing and implementing competition policy for health 

care raises complex and sensitive issues. The goal of this workshop is to promote dialogue, learning, and consensus building among all interested parties 

(including, but not limited to, the business, consumer, government, legal, 

16

provider, insurer, and health policy/health services/health economics communities).

D. Promoting and Maintaining Competitive Energy Markets 

Representing a significant portion of total U.S. economic output, energy is vital 

to the entire economy. The FTC focused considerable resources on energy issues, including conducting in-depth studies of evolving energy markets and investigating 

numerous oil company mergers. 

1. Oil Merger Investigations 

In recent years, the FTC has investigated numerous oil mergers. Last year, the 

agency reviewed three large oil mergers and analyzed the competitive effects in a 

host of individual product/geographic market combinations. When necessary, the 

agency has insisted on remedial divestitures to cure potential harm to competition. 

In Chevron/Texaco, the FTC accepted a consent agreement that allowed the proposed $45 billion merger to proceed but required substantial divestitures to cure the 

possible anticompetitive aspects of the transaction in 10 separate relevant product 

markets and 15 sections of the country comprised of dozens of smaller relevant geographic markets. 52 In Valero/Ultramar, the FTC obtained a settlement requiring 

Valero to divest a refinery, bulk gasoline supply contracts, and 70 retail service stations to preserve competition. 53 In Phillips/Tosco, applying the same standards, the 

Commission concluded that the transaction did not pose a threat to competition and 

voted unanimously to close the investigation. 54

2. Study of Refined Petroleum Prices 

Building on its enforcement experience in the petroleum industry, the FTC is 

studying the causes of the recent volatility in refined petroleum product prices. During an initial public conference held in August 2001, participants identified key factors, including increased dependency on foreign crude sources, changes in industry 

business practices, restructuring of the industry through mergers and joint ventures, and new governmental regulations. This information assisted the agency in 

structuring a second public conference in May 2002, focusing in greater depth on 

those factors identified as most important in the earlier conference. The information 

gathered through these public conferences will form the basis for a report to be 

issued later this year. 

3. Gasoline Price Monitoring 

The FTC also recently announced a project to monitor wholesale and retail prices 

of gasoline. FTC staff will inspect wholesale gasoline prices for 20 U.S. cities and 

retail gasoline prices for 360 cities. Anomalies in the data will prompt further inquiries and likely will alert the agency to the possibility of anticompetitive conduct 

in certain parts of the country. It will also increase our understanding of the factors 

affecting the price of gasoline. 

4. Consumer Gas-Savings Tips 

In addition to focusing resources on protecting competition to keep the family gasoline budget down, the FTC developed a series of consumer education publications 

to help families fuel up wisely: Gas-Saving Products: Facts or Fuelishness?; The 

Low-Down on High Octane Gasoline; How To Be Penny Wise, Not Pump Fuelish; and 

Gas-Saving Products: Proceed with Caution. Two of the publications were produced 

in cooperation with the American Automobile Association. To date, distribution totals for the four publications exceed 277,000. 

E. Keeping Pace With Technology and the Changing Marketplace 

As an agency with a history of studying marketplace developments, 55 the FTC is 

well-positioned to take a leading role in assessing the impact of high technology and 

globalization on domestic and world markets. In 1995, the agency held 23 days of 

hearings on these twin phenomena, which culminated in a comprehensive, two-volume Staff Report. 56 Building on this base, the FTC continues to study the impact 

of technology in general and specific innovations, such as the Internet, and to work 

increasingly with foreign government agencies and international bodies to promote 

competition and protect consumers both at home and around the globe. The FTC 

organizes numerous task forces, workshops, hearings, and conferences to gather information. 

1. Technology 

• Internet Lab. To keep pace with rapidly changing Internet technology, the 

FTC established an Internet Lab in 1999. Equipped with state-of-the-art personal computers, the lab is a resource for ongoing efforts to understand the meVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00020 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
17

dium and to search for fraud, deception, and anticompetitive practices in a secure environment. It provides the necessary equipment and software to capture 

Web sites and preserve them as evidence. The lab also provides the latest tools 

for staff to track the manner in which technology is changing the way that commercial information is transmitted to consumers. Unlike advertising in traditional media, for example, advertising in electronic media may vary in content 

and appearance depending on the appliance and Web browser used by the consumer. FTC Internet enforcement cases reflect the broad range of illegal activity 

carried out 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. Since June 2001, the FTC has brought over 

51 cases involving fraudulent or deceptive Internet marketing practices, bringing the total number of Internet cases filed since 1994 to 236.

• Internet Task Force. In August 2001, an Internet Task Force began to evaluate potentially anticompetitive regulations and business practices that could impede e-commerce. The Task Force grew out of the already-formed State Action 

Task Force, which had been analyzing potentially anticompetitive state regulations generally, and out of the FTC’s longstanding interest in the competition 

aspects of e-commerce. Over the past year, the Task Force has met with numerous industry participants and observers, including e-retailers, trade associations, and leading scholars, and reviewed relevant literature. The Task Force 

discovered that many states have enacted regulations, ostensibly for other purposes, that have the clear effect of protecting existing bricks-and-mortar businesses from new Internet competitors. The Task Force also is considering 

whether private companies may be curtailing e-commerce by employing potentially anticompetitive tactics, such as by collectively pressuring suppliers or 

dealers to limit sales over the Internet. To date, three advocacy filings have resulted in large part from the Task Force’s efforts: (1) a joint FTC/DOJ comment 

before the North Carolina state bar expressing concerns about the impact on 

consumers of ethics opinions requiring that an attorney be physically present 

for all real estate closings and refinancings; (2) a joint FTC/DOJ comment before the Rhode Island legislature on similar requirements in a real estate bill; 

and (3) an FTC staff comment before the Connecticut Board of Opticians, which 

is considering additional restrictions on out-of-state and Internet contact lens 

sellers. 57

• Internet Competition Workshop. In October, the Commission will hold a 

public workshop on possible efforts to restrict competition on the Internet. The 

workshop will include panel discussions to address certain specific industries 

that are important to consumers and that have experienced some growth in 

commerce via the Internet, but that may have been hampered by potentially 

anticompetitive state regulations or business practices. For example, the workshop will include panels on some or all of the following industries: retailing, 

automobiles, cyber-charter schools, real estate, health care, wine sales, auctions, 

contact lenses, and caskets. The Internet Task Force expects that the workshop 

will (1) enhance the Commission’s understanding of these issues, (2) help educate policymakers about the effects of possibly protectionist state regulations, 

and (3) help educate private entities about the types of business practices that 

may or may not be viewed as problematic.

• Standards Setting. As technology advances, there will be increased efforts to 

establish industry standards for the development and manufacture of new products. While the adoption of standards is often procompetitive, the standards setting process which involves competitors’ meeting to set product specifications, 

can be an area for antitrust concern. In a complaint filed last month, the FTC 

charged that Rambus, Inc., a participant in an electronics industry standardssetting organization, failed to disclose—in violation of the organization’s rules—

that it had a patent and several pending patent applications on technologies 

that eventually were adopted as part of the industry standard. 58 The standard 

at issue involved a common form of computer memory used in a wide variety 

of popular consumer electronic products, such as personal computers, fax machines, video games, and personal digital assistants. The FTC’s complaint alleges that once the standard was adopted, Rambus was in a position to reap 

millions in royalty fees each year, and potentially more than a billion dollars 

over the life of the patents, all of which would be passed on to consumers 

through increased prices for the downstream products. 59 Because standard-setting abuses can harm robust and efficiency-enhancing competition in high tech 

markets, the FTC will continue to pursue investigations in this important 

area. 60

18

• Intellectual Property Hearings. In February 2002, the FTC and the DOJ 

commenced a series of hearings on ‘‘Competition and Intellectual Property Law 

and Policy in the Knowledge-Based Economy.’’ 61 The hearings respond to the 

growth of the knowledge-based economy, the increasing role in antitrust policy 

of dynamic, innovation-based considerations, and the importance of managing 

the intersection of intellectual property and competition law to realize their 

common goal of promoting innovation. During the hearings, business persons, 

consumer advocates, inventors, practitioners, and academics are focusing on:

(a) what economic learning reveals, and does not reveal, regarding the relationships between intellectual property and innovation, and between competition 

and innovation;

(b) ‘‘real-world’’ experiences with patents and competition;

(c) procedures and substantive criteria involved in prosecuting and litigating 

patent claims;

(d) issues raised by patent pools and cross-licensing and by certain standardsetting practices;

(e) the implications of unilateral refusals to deal, patent settlements, and licensing practices;

(f) international comparative law perspectives regarding the competition/intellectual property interface; and

(g) jurisprudential issues, including the role of the Federal Circuit.

A public report that incorporates the results of the hearings, as well as other research, will be prepared after the hearings.

• Wireless Workshop. In March, FTC staff released a summary and update of 

the proceedings of its December 2000 workshop, ‘‘The Mobile Wireless Web, 

Data Services and Beyond: Emerging Technologies and Consumer Issues.’’ 62

The workshop addressed five topics: (1) an overview of the relevant technologies; (2) privacy issues raised by these technologies; (3) security issues; (4) 

advertising and disclosures in the wireless area; and (5) self-regulatory programs. The FTC will continue to monitor the development of wireless technologies, along with the privacy, security, advertising, and other consumer protection issues they raise.

2. Globalization 

• International Antitrust. Because competition increasingly takes place in a 

worldwide market, cooperation with competition agencies in the world’s major 

economies is a key component of our enforcement program. Given differences in 

laws, cultures, and priorities, it is unlikely that there will be complete convergence of antitrust policy 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. The agency has increased 

its cooperation with agencies around the world, both on individual cases and on 

policy issues, and is committed to addressing and minimizing policy 

divergences.

• ICN and ICPAC. Last fall, the FTC, the DOJ, 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 in which 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 work 

toward consensus on proposals for procedural and substantive convergence on 

best practices in antitrust enforcement and policy. Sixty-one jurisdictions already have joined the ICN, and we are working on initial projects on mergers 

and competition advocacy.

• Free Trade Agreement of the Americas. The FTC is working with the nations of our hemisphere to develop competition provisions for a Free Trade 

Agreement of the Americas.

• OECD. The FTC is participating in the continuing work of the OECD on, 

among other things, merger process convergence, implementation of the OECD 

recommendation on hard-core cartels (e.g., price-fixing agreements), and regulatory reform.

• Technical Assistance. For the past ten years, the FTC has been able to participate in assisting developing nations that have made the commitment to marVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00022 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
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ket and commercial law reforms. With funding principally from the U.S. Agency 

for International Development, and in partnership with the DOJ, about thirty 

nations have received technical assistance with development of their competition and consumer protection laws. Currently, the technical assistance program 

is active in South and Central America, South Africa, and Southeastern Europe. 

The program emphasizes the development of investigative skills, and relies on 

a combination of resident advisors, regional workshops, and targeted short term 

missions. These activities have enabled a large number of career staff to share 

their expertise, although great care is taken to avoid any intrusions on the time 

and planning for domestic enforcement projects. Future plans are focused on expanding this reimbursable program to the former Soviet Union and to Asia.

• International Consumer Protection. The number of consumer protection 

cases with an international component continues to rise. Consumers now increasingly participate in a global marketplace, often receiving telemarketing or 

e-mail solicitations from vendors outside the U.S. Increasingly, the FTC is 

called upon to lead or participate in international organizations. Last year, 

Commissioner 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. The revised guidelines will be released in early September and 

will promote a ‘‘culture of security’’ in which we all have a role to play. This 

spring, Commissioner Thompson was elected Chair of the OECD’s Committee 

on Consumer Policy.

• Cross-Border Fraud. The FTC is increasing its efforts to counter fraud that 

transcends borders. In particular, our partnerships with Canadian officials 

allow the FTC to respond more effectively to telemarketing scams emanating 

from Canada. The FTC has forged two city-specific partnerships to coordinate 

our law enforcement efforts: the Ontario Strategic Partnership, in which the 

FTC’s Midwest Regional Office has worked with Canadian law enforcers to 

focus on Toronto-based telemarketing; and Project Emptor, in which the Northwest Regional Office has partnered with British Columbia officials to target 

Vancouver boiler rooms. Drawing on these partnerships, in June 2002 the FTC 

and 17 Canadian and U.S. law enforcement and consumer protection agencies 

announced a coordinated criminal and civil law enforcement initiative to stop 

fraudulent cross border schemes and recover money for victims, many of whom 

are elderly. Fraudulent schemes targeted by the initiative included illegal international lottery scams, phony advance-fee credit card offers, and bogus credit 

card loss-protection schemes. 63 The FTC has brought seven actions and obtained nine final orders in cases involving cross-border fraud between the U.S. 

and Canada in 2002.

• IMSN Findings on Cross-Border Remedies. Last spring, the International 

Marketing Supervision Network—an organization of consumer protection agencies from 29 countries—under the leadership of the FTC, issued ‘‘Findings on 

Cross-Border Remedies,’’ which outlines obstacles to cross-border enforcement of 

consumer protection laws and suggestions for overcoming these obstacles.

• econsumer.gov. In April 2001, 13 countries and the OECD launched 

nsumer.gov public Web site where consumers can file cross-border e-commerce 

complaints with law enforcement agencies around the world, access education 

materials about e-commerce, and contact consumer protection agencies. The site 

is available to consumers in English, French, Spanish, and German. Since its 

launch, three additional countries have joined the project. To date, we have received over 1,700 complaints from consumers in six continents about companies 

in more than 68 countries. 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.

F. Targeting Special Initiatives to Specific Consumer Groups 

The FTC has initiated a variety of programs that seek to assist specific consumer 

groups. Among these groups are children, minorities and non-English speaking sections of the U.S. population, and homeowners who may be special prey for fraudulent lenders. 

1. Children and Violent Media 

In response to Congressional requests, the FTC continues to monitor violent 

media directed toward children. An FTC September 2000 report concluded that the 

entertainment industry targeted advertising of violent video games, movies, and 

music to children. 64 Subsequently, Congress directed that the FTC continue its efVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00023 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
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forts through three related initiatives: consumer research and workshops, an underage shopper retail compliance survey, and marketing and data collection. 65 In response, the FTC released a follow-up report, in April 2001, outlining improvements 

in the movie and electronic game industries but finding no appreciable change in 

the music industry’s target marketing practices. 66 The FTC’s second follow-up report, in December 2001, found that the movie and electronic game industries had 

made continued improvements, and that although the music industry had made 

progress in disclosing parental advisory label information, it had not altered its 

marketing practices. 67 The FTC’s third follow-up report, released in June 2002, 

found continued progress by the movie and electronic game industries and improvement by the music industry in including rating information in advertising that 

would help parents identify material that may be inappropriate for their children. 

This most recent report also showed compliance by the movie and electronic games 

industries with industry promises to limit ad placements, although the report found 

advertisements by all three industries continue to appear in some media popular 

with teens. 68 The report concludes that the music industry continues to advertise 

music with explicit content on television shows and in print magazines popular with 

teens. 

2. Children and Gambling 

The FTC also is assessing the marketing of online gambling sites to children. In 

June, the FTC announced the results of an informal survey of web sites to determine the access and exposure that teens have to online gambling. 69 The FTC visited 

over 100 popular gambling web sites and found that minors can, indeed, access 

these sites easily, and that minors often are exposed to ads for online gambling on 

non-gambling web sites. The FTC staff has met with representatives of the online 

gambling industry to seek voluntary corrective action, and with interested consumer 

advocates. The FTC, in conjunction with industry representatives, has launched a 

consumer and business education campaign warning about the dangers of underage 

online gambling. Online gambling industry representatives have advised FTC staff 

that they will devise a ‘‘Guide to Best Practices’’ regarding clear and conspicuous 

warnings about prohibited underage gambling, effective blocking methods, and restricted placement of industry advertisements. 

3. Spanish-Speaking Consumers 

To reach the expanding population of Spanish-speaking consumers in the United 

States, the FTC 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 into Spanish. In addition, the FTC is conducting media outreach 

and providing interviews in Spanish. 

4. Native Americans 

The FTC has partnered with the Indian Arts and Crafts Board, the Alaska State 

Council on the Arts, and the Alaska Attorney General’s office in developing and distributing more than 100,000 postcards and brochures to assure the authenticity of 

Alaskan Native art and help prevent fakes. The materials provide numerous tips—

mostly centered on a ‘‘Silver Hand’’ certification program—on how to be confident 

that Alaskan Native art is truly Native. 

5. Homeowners 

The FTC also has focused its consumer protection efforts on homeowners, especially those in poorer urban areas, who sometimes are the victims of deceptive lending practices. Since 1998, the FTC has brought 15 cases involving a variety of deceptive lending practices. This past March, the FTC, six states, AARP, and class action 

and individual plaintiffs settled claims against First Alliance Mortgage Company 

and its chief executive officer. The complaint alleged that the defendants misled consumers about the existence and amount of origination fees for their loans (which 

typically constituted 10 to 25 percent of the loan) and the interest rate and monthly 

payments of their adjustable rate mortgage 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 under liquidation in bankruptcy court, as well as a 

payment of $20 million from the company’s principals. Nearly 18,000 borrowers 

could receive as much as $60 million in redress, making this one of the FTC’s largest cases ever. 

21

G. Advancing Efficient Law Enforcement 

The FTC has undertaken a variety of efforts to streamline its practices, leverage 

its resources, and minimize the burden on the public. These ongoing ‘‘good government’’ initiatives share a common theme: they represent efforts to go beyond the 

regular, ongoing work of the agency and to find ways to make the FTC’s work more 

effective, more efficient, and less costly for businesses and consumers. We seek to 

use our limited resources wisely, because each day or dollar saved can be applied 

to additional activities that benefit consumers. 

1. Sweeps and Partnerships with Enforcement Agencies 

The FTC leverages its resources through coordinated enforcement actions with 

other law enforcement agencies, both state and federal. In particular, the FTC conducts ‘‘sweeps’’ to investigate and bring actions against specific types of frauds and 

deceptions. In the past 12 months, the FTC and 12 partners have participated in 

sweeps covering Internet health fraud, cold-call telemarketing, Internet scams, and 

business opportunities, resulting in over 170 separate law enforcement actions. 

2. Training Staff from Other Agencies 

Another way that the FTC promotes efficient law enforcement is to train staff 

from other law enforcement agencies in new technologies or techniques pioneered 

by the FTC. One example is the FTC’s ongoing Internet fraud training program. The 

FTC has created a series of regional ‘‘Netforces’’ made up of law enforcement agencies that have participated in our training. On April 2, 2002, the FTC began the 

first of these efforts by joining eight state agencies 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 alleged auction fraud to bogus cancer cure sites, and 

have sent more than 500 letters warning of the illegality of deceptive spam. 

3. Streamlining Merger Review 

A major focus of FTC efficiency efforts is the merger review process. The FTC is 

working on a number of reforms to speed the process and reduce the burden on 

merging parties without sacrificing the sufficiency of information required by the 

agency.

• Electronic Premerger Filing. As part of an overall movement to make government more accessible electronically, the FTC, working with the DOJ, will accelerate its efforts in FY 2003 to develop an electronic system for filing HSR 

premerger notifications. E-filing will reduce filing burdens for both businesses 

and government, and also will create a valuable database of information on 

merger transactions to inform future policy deliberations.

• Burden Reduction in Investigations. The agencies have taken steps to reduce the burden in document productions responsive to Second Requests. In response to legislation amending the HSR Act, the FTC amended its rules of practice to incorporate new procedures. The rule requires Bureau of Competition 

staff to schedule conferences to discuss the scope of a Second Request with the 

parties and also establishes a procedure for the General Counsel to review the 

request and rule promptly on any remaining unresolved issues. Measures adopted include a process for seeking modifications or clarifications of Second Requests, and expedited senior-level internal review of disagreements between 

merging parties and agency staff; streamlined internal procedures to eliminate 

unnecessary burdens and undue delays; and implementation of a systematic 

management status check on the progress of negotiations on Second Request 

modifications.

• Merger Investigation Best Practices. The FTC is conducting a series of national public workshops regarding modifications and improvements to the merger investigation process. The FTC will solicit input from a broad range of interest groups, including corporate personnel, outside and in-house attorneys, 

economists, and consumer groups, on topics such as using more voluntary information submissions before issuance of a Second Request, reducing the scope and 

content of the Second Request, negotiating modifications to the Second Request, 

and focusing on special issues concerning electronic records and accounting or 

financial data. 70

• Merger Remedies. Other ‘‘best practices’’ workshops will solicit comments on 

merger remedies. Among the issues to be addressed are structuring asset packages for divestitures, timing of divestitures (i.e., up front or after consummation), evaluating the competitive adequacy of proposed buyers, and assessing 

the preservation of competition after divestitures.

22

4. Consumer and Business Education 

Yet another way the FTC seeks to make law enforcement more efficient is by disseminating information about deceptive practices in the marketplace. The less often 

consumers are victimized by deceptive practices, the fewer enforcement actions the 

FTC must bring. Further, the more that businesses, especially small businesses, understand their obligations, the more readily they can comply. Thus, 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 May 2002, 

the FTC issued 108 consumer protection publications: 94 for consumers and 14 for 

businesses. Of those publications, 67 are new and 41 are revisions; 23 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 5.6 million printed publications to the public, and received 

more than 12.5 million ‘‘hits’’ on publications posted on the consumer protection portion of the FTC’s Web site. Special FTC educational undertakings include:

• National Consumer Protection Week. For the fourth consecutive year, the 

FTC took the lead in organizing National Consumer Protection Week. This year, 

the event focused 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 DOJ.

• 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.

• Response to 9/11. In the wake of September 11th, the FTC worked with other 

groups to alert consumers to possible fund-raising fraud. The FTC released a 

Consumer Alert, Helping Victims of the Terrorist Attacks: Your Guide to Giving 

Wisely on September 21, at a press conference held by the FTC’s Northeast Regional Office in conjunction with the New York Attorney General and the New 

York Better Business Bureau. 

III. Legislative Recommendations 

To improve the FTC’s ability to implement its mission and to serve consumers, 

we make the following recommendations for legislative changes. We would be happy 

to work with the Committee to develop appropriate language. 

A. Eliminate the FTC Act’s Exemption for Communications Common Carriers 

The FTC Act exempts common carriers subject to the Communications Act from 

its prohibitions on unfair and deceptive acts or practices and unfair methods of competition. This exemption dates from a period when telecommunications were provided by government-authorized, highly regulated monopolies. The exemption is now 

outdated. In the current world, firms are expected to compete in providing telecommunications services. Congress and the Federal Communications Commission 

(FCC) have dismantled much of the economic regulatory apparatus formerly applicable to the industry. Telecommunications firms also have expanded into numerous 

non-common carrier activities. Oversight by the FTC of telecommunications firms’ 

activities thus has become increasingly important. 

The FTC Act exemption has proven to be a barrier to effective consumer protection, both in common carriage and in other telecommunications businesses. The exemption also has prevented the FTC from applying its legal and economic expertise 

regarding competition to mergers and other possible anticompetitive practices, not 

only involving common carriage, but in other high-tech fields involving telecommunications. We believe that Congress should eliminate the special exemption 

to reflect the fact that competition and deregulation have replaced comprehensive 

economic regulation. 

FTC efforts to halt fraudulent or deceptive practices by telecommunications firms 

have sometimes been stymied by the common carrier exemption. While common carriage has been outside the FTC’s authority, we believe that the FTC Act applies to 

non-common carrier activities of telecommunications firms, even if the firms also 

provide common carrier services. 71 Continuing disputes over the breadth of the FTC 

Act’s common carrier exemption hamper the FTC’s oversight of the non-common carrier activities. These disputes have arisen even when the FCC does not have, or 

does not exercise, jurisdiction over the non-common carrier activity. These disputes 

may increase the costs of pursuing an enforcement action, or may cause the agency 

23

to narrow an enforcement action—for example, by excluding some participants in a 

scheme—to avoid protracted jurisdictional battles and undue delay in providing consumer redress. 

The FTC has the necessary expertise to address these issues. The FTC is the federal agency with broad consumer protection and competition experience covering 

nearly all fields of commerce. The FTC has extensive expertise with advertising, 

marketing, billing, and collection, areas in which significant problems have emerged 

in the telecommunications industry. In addition, the FTC has powerful procedural 

and remedial tools that could be used effectively to address developing problems in 

the telecommunications industry if the FTC were authorized to reach them. 

The common carrier exemption also significantly restricts the FTC’s ability to engage in effective antitrust enforcement in broad sectors of the economy. The mix of 

common carrier and non-common carrier activities within particular telecommunications companies frequently precludes FTC antitrust enforcement for much of the 

telecommunications industry. Further, because of the expansion of telecommunications firms into other high-tech industries and the growing convergence of telecommunications and other technologies, the common carrier exemption increasingly 

limits FTC involvement in a number of industries outside telecommunications. 

B. Technical Changes 

The FTC also requests two new limited grants of authority: (1) the ability to accept reimbursement for expenses incurred by the FTC in assisting foreign or domestic law enforcement authorities, and (2) the ability to accept volunteer services, inkind benefits, or other gifts or donations. Both new authorities would be useful as 

the FTC tries to stretch its resources to meet its statutory responsibilities. 

The authority to accept reimbursement for expenses incurred in assisting foreign 

or domestic law enforcement authorities would be especially useful, since the FTC 

has been working closely with domestic and foreign law enforcement authorities to 

address possible law violations. Partnering with these law enforcement authorities 

has resulted in enhanced law enforcement efforts and greater sharing of significant 

information. In some of these situations, our foreign or domestic partner is interested in reimbursing the FTC for the services it has provided or in sharing some 

of the costs of investigating or prosecuting the matter. Without specific statutory reimbursement authority, however, the FTC cannot accept and keep such reimbursements because of constraints under appropriations law. 72

In addition, the FTC requests authority to accept donations and gifts, such as volunteer services and in-kind benefits. Congress has conferred this authority by statute on various agencies, including the Office of Government Ethics, the FCC, and 

the Consumer Product Safety Commission. 73 Without this authority, the FTC cannot accept services or keep items because of appropriations law constraints. This 

broad restriction on acceptance of gifts sometimes limits the FTC’s ability to fulfill 

its mission in the most cost-effective manner. For example, the FTC cannot accept 

volunteer services from individuals wishing to provide such services to the agency. 

In addition, agency officials must sometimes refuse donated items that could otherwise be useful in carrying out the agency’s mission, such as books and similar mission-related items. 

IV. Concluding Remarks 

Mr. Chairman and Members of the Subcommittee, we appreciate this opportunity 

to provide an overview of the Commission’s efforts to maintain a competitive marketplace, free of deceptive and unfair practices, for American businesses and consumers. We believe that the Commission’s antitrust and consumer protection enforcement has demonstrable benefits for consumers and the American economy—

benefits that far outweigh the resources allocated to maintaining our mission. We 

would be pleased to respond to any questions you may have. 

ENDNOTES 

1. The FTC has broad law enforcement responsibilities under the Federal Trade 

Commission Act, 15 U.S.C. § 41 et seq. The statute provides the agency with jurisdiction over the most of the economy. Certain entities, such as depository institutions 

and common carriers, are wholly or partially exempt from FTC jurisdiction, as is 

the business of insurance. In addition to the FTC Act, the FTC has enforcement responsibilities under more than 40 statutes. 

2. Timothy J. Muris, Chairman Robert Pitofsky: Public Servant and Scholar Remarks Before the American Antitrust Institute, Second Annual Conference (Washington, D.C., June 12, 2001), available at <http://www.ftc.gov/speeches/muris/

muris010612.htm>. 

3. Much of what the FTC challenges in its consumer protection mission is hardcore fraud, and given the transient nature of many of these illegitimate operations, 

24

we frequently are unable to collect the full amount of the monetary judgment ordered. The judgment amount, however, gives some indication of the extent of fraud 

and deception stopped by the FTC. 

4. This web site is available at <http://www.sentinel.gov>. 

5. Press Release, State, Federal Law Enforcers Launch Sting on Business Opportunity, Work-at-Home Scams (June 20, 2002), available at <http://www.ftc.gov/opa/

2002/06/bizopswe.htm>. 

6. Press Release, FTC Sweep Protects Consumers from ‘‘Dialing for Deception’’

(Apr. 15, 2002), available at <http://www.ftc.gov/opa/2002/04/dialing.htm>. 

7. FTC v. H.G. Kuykendall, Jr., No. CIV–96–388-M (W.D. Okla. Mar. 4, 2002). 

8. FTC v. Access Resource Servs., Inc., No. 02–60226 (S.D. Fla. Feb. 20, 2002). 

9. FTC v. Electronic Products Distribution, L.L.C., No. 02CV0888 H(AJB) (S.D. 

Cal. May 7, 2002); v. United Fitness of America, LLC,. CV-S–02–648-KJD-LRL (D. 

Nev. May 7, 2002); FTC v. Hudson Berkley Corp., No. CV-S–0649-PMP-RJJ (D. Nev. 

May 7, 2002). 

10. Interstate Bakeries Corp., Docket No. C–3402 (Apr. 16, 2002) (consent order). 

11. Palm, Inc. Docket No. C–4044 (April 18, 2002) (consent order) 

12. 15 U.S.C § 18a, as amended, Pub. L. No 106–553, 114 Stat. 2762 (2000). 

13. See 15 U.S.C. § 18a, as amended, Pub. L. No. 106–553, 114 Stat. 2762 (2000). 

14. MSC Software Corp., Docket No. 9299 (Oct. 10, 2001) (complaint issued) (alleging that two MSC acquisitions violated Clayton Act). 

15. MSC Software Corp., Docket No. 9299 (Oct. 10, 2001) (complaint issued) (involving engineering software); Chicago Bridge Iron Co., Inc., Docket No. 9300 (Oct. 

25, 2001) (complaint issued) (pertaining to field-erected specialty industrial storage 

tanks). 

16. Press Release, FTC Authorizes Suit to Block Joint Acquisition of Seagram 

Spirits and Wine by Diageo PLC and Pernod Ricard S.A. (Oct. 23, 2001), available 

at <http://www.ftc.gov/opa/2001/10/diageo.htm>. 

17. FTC v. Libbey, Inc., Civ. Act. No. 02–0060 (RBW) (Memorandum Opinion) 

(D.D.C. Apr. 22, 2002) (granting FTC’s request for a preliminary injunction). 

18. Press Release, FTC to Challenge DGF Stoess’s Proposed Acquisition of Leiner 

Davis (Jan. 15, 2002), available at <http://www.ftc.gov/opa/2002/01/gelatin.htm>. 

19. Press Release, FTC Authorizes Injunction to Pre-empt Meade Instruments’ Purchase of All, or Certain Assets, of Tasco Holdings, Inc.’s Celestron International (May 

29, 2002), available at <http://www.ftc.gov/opa/2002/05/meadecelestron.htm>. 

20. Press Release, FTC Seeks to Block Cytyc Corp.’s Acquisition of Digene Corp. 

(June 24, 2002), available at <http://www.ftc.gov/opa/2002/06/cytyc—digene.htm>. 

21. Telemarketing Sales Rule, 67 Fed. Reg. 4492 (Jan. 30, 2002) (proposed Rule 

amendments). 

22. Press Release, Workshop Planned To Discuss Strategies for Providing Effective 

Financial Privacy Notices (Sept. 24, 2001), available at <http://www.ftc.gov/opa/2001/

09/glbwkshop.htm>. 

23. Press Release, FTC to Host Public Workshop on Consumer Information Security (Mar. 12, 2002), available at <http://www.ftc.gov/opa/2002/03/security.htm>. 

24. United States v. The Ohio Art Co., No. 3:02CV7203 (N.D. Ohio filed Apr. 19, 

2002); United States v. American Pop Corn Co., No. C02–4008DEO (N.D. Iowa Feb. 

28, 2002) (consent decree); United States v. Lisa Frank, Inc., No. 01–1516-A (E.D. 

Va. Oct. 3, 2001) (consent decree); United States v. Looksmart, Ltd., No. 01–606-A 

(E.D. Va. Apr. 23, 2001) (consent decree); United States v. Bigmailbox.com, Inc., No. 

01–605-A (E.D. Va Apr. 23, 2001) (consent decree); United States v. Monarch Servs., 

Inc., No. AMD 01 CV 1165 (D. Md. Apr. 20, 2001) (consent decree). 

25. Eli Lilly & Company, Docket No. C–4047, (May 10, 2002) (final order).

26. 15 U.S.C. § 6801. 

27. FTC v. Information Search, Inc., No. AMD–01–1121 (D. Md. Mar. 15, 2002); 

FTC v. Guzzetta, No. CV–01–2335 (E.D.N.Y. Feb. 25, 2002); FTC v. Garrett, No. H 

01–1225 (S.D. Tex. Mar. 26, 2002). 

28. The cases challenging the misuse of preacquired account information and deceptive spam also involved issues of fraud. 

29. TechnoBrands, Inc., and Charles J. Anton, Docket No. C–4041 (Apr. 15, 2002) 

(decision and order), available at <http://www.ftc.gov/os/2002/04/technobranddo.pdf>; 

FTC v. Technobrands, Inc., No. 3:02-CV–86 (E.D. Va. filed Feb.15, 2002); FTC v. Ira 

Smolev, No. 01–8922 CIV ZLOCH (S.D. Fla. filed Oct. 23, 2001). 

30. FTC v. Boivin, No. 8:02-CV–77-T–26 MSS (M.D. Fla. Jan. 15, 2002) (consent 

decree); FTC v. Estenson, No. A3–02–10 (DND Feb. 5, 2002) (consent decree); FTC 

v. Larsen, No. 8:02-CV–76-T–26MAP (M.D. Fla. Jan. 16, 2002) (consent decree); FTC 

v. Lutheran, No. 02 CV 0095 K (RAB) (S.D. Cal. Jan. 18, 2002) (consent decree); 

FTC v. Va, No. 02–60062-Civ-Zloch (S.D. Fla. Jan. 18, 2002) (consent decree); FTC 

v. Pacheco, No. 02-CV–31L (D.R.I. Jan. 22, 2002) (consent decree). 

25

31. FTC v. BTV Industries, No. CV-S–02–0437-LRH (PAL) (D. Nev. filed Mar. 7, 

2002). 

32. Katharine Levit et al., Inflation Spurs Health Spending in 2000, 21 Health 

Affairs 172 (Jan.—Feb. 2002). 

33. FTC v. Vital Living Products, Inc., No. 3:02CV74-MU (W.D. N.C. Mar. 13, 

2002). 

34. FTC v. Pletschke, Docket No. C–4040 (Feb. 22, 2002) (decision and order). 

35. The titles of the teaser sites are: Looking for Financial Freedom?; The Ulti- mate Prosperity Page; Nordicalite Weight Loss Product; A+ Fast Ca$$h for College; 

EZTravel: Be an Independent agent; EZTravel: Certificate of Notification; EZToyz 

Investment Opportunity; HUD Tracer Association; CreditMenders Credit Repair; 

NetOpportunities: Internet is a Gold Mine; National Business Trainers Seminars; 

VirilityPlus: Natural Alternative to Viagra; ArthritiCure: Be Pain-Free Forever. 

36. Commissioner Sheila F. Anthony, Remarks Before the Food & Drug Law Institute, 45th Annual Educational Conference, Combating Deception in Dietary Supplement Advertising (Apr. 16, 2002), available at <http://www.ftc.gov/speeches/anthony/

dssp2.htm>. 

37. See National Health Expenditures, by Source of Funds and Type of Expenditures, Health Care Financing Administration, available at <http://www.hcfa.gov/

stats/nhe-oact/tables/t3.htm>

38. FTC v. The Hearst Trust, The Hearst Corp., and First DataBank, Inc., Civ Act. 

No.1:01CV00734 (D.D.C. Apr. 5, 2001) (complaint) (Commissioner Leary and Commissioner Swindle dissenting). 

39. FTC v. Hearst, Civ. Act. No. 1:01CV00734 (D.D.C. Nov. 9, 2001) (Stipulation 

for Entry of Final Order and Stipulated Permanent Injunction). 

40. Congressional Budget Office, How Increased Competition from Generic Drugs 

Has Affected Prices and Returns in the Pharmaceutical Industry (July 1998), available at <http://www.cbo.gov>. 

41. Id.

42. See Federal Food, Drug, and Cosmetics Act, 21 U.S.C. § 301 et seq. The HatchWaxman amendments were contained in the Drug Price Competition and Patent 

Restoration Act of 1984, Pub. L. No. 98–417, 98 Stat. 1585 (codified at 15 U.S.C. 

§§ 68b, 68c, 70b; 21 U.S.C. §§ 301 note, 355, 360cc; 28 U.S.C. § 2201; 35 U.S.C. 

§§ 156, 271, 282 (1984)). 

43. Schering-Plough Corp., Dkt. 9297 (Apr. 2, 2002) (consent order as to American 

Home Products). In an initial decision filed on June 27, 2002, an FTC Administrative Law Judge (ALJ) dismissed all allegations of anticompetitive conduct in a 

March 2001 Federal Trade Commission complaint against pharmaceutical manufacturers Schering-Plough Corporation (Schering) and Upsher-Smith Laboratories 

(Upsher-Smith). Schering-Plough Corp., Dkt. 9297 (June 27, 2002) (initial decision) 

(available at <http://www.ftc.gov/os/2002/07/scheringinitialdecisionp1.pdf, and http:/

/www.ftc.gov/os/2002/07/scheringinitialdecisionp2.pdf . An appeal is pending with the 

Commission. 

44. Biovail Corp., File No. 011–0094 (Apr. 23, 2002) (proposed consent order accepted for placement on public record for comment). 

45. In re Buspirone Patent Litigation/In re Buspirone Antitrust Litigation, Memorandum of Law of Amicus Curiae The Federal Trade Commission in Opposition to 

Defendant’s Motion to Dismiss available at <http://www.ftc.gov/os/2002/01/

busparbrief.pdf 

46. In re Buspirone, 185 F. Supp. 2d 363 (S.D.N.Y. 2002). 

47. Biovail Corp., File No. 011–0132 (June 27, 2002) (proposed consent order accepted for placement on public record for comment). 

48. See Thomas B. Leary, Commissioner, Antitrust Issues in Settlement of Pharmaceutical Patent Disputes, Part II, Remarks Before the American Bar Association’s 

Antitrust Healthcare Program, Washington, D.C., (May 17, 2001) <http://

www.ftc.gov/speeches/leary/learypharmaceuticalsettlement.htm>; Thomas B. Leary, 

Commissioner, Antitrust Issues in Settlement of Pharmaceutical Patent Disputes, Address Before the Sixth Annual Antitrust Healthcare Forum, Northwestern University School of Law, Chicago, Illinois (Nov. 3, 2000), available at <p://www.ftc.gov/

speeches/leary/learypharma.htm The Commission also submitted testimony this 

Spring on competition in the pharmaceutical industry before the Committee on 

Commerce, Science, and Transportation, U.S. Senate. The testimony is available at 

<p://www.ftc.gov/os/2002/04/pharmtestimony.htm

49. See Fed. Reg. 61334 (Oct. 17, 2000); 66 Fed. Reg. 12512 (Feb. 27, 2001). 

50. Physician Integrated Servs. of Denver, Inc., Michael J. Guese, M.D., and 

Marcia L. Brauchler, File No. 011–0173 (May 13, 2002) (proposed consent order accepted for placement on public record for comment); Aurora Associated Primary 

Care Physicians, L.L.C., Richard A. Patt, M.D., Gary L. Gaede, M.D., and Marcia 

26

L. Brauchler, File No. 011–0174 (May 13, 2002) (proposed consent order accepted 

for placement on public record for comment). 

51. Obstetrics and Gynecology Med. Corp. of Napa Valley, File No. 011–0153 (May 

14, 2002) (final order). 

52. Chevron Corp./Texaco Inc., Docket No. C–4023 (Jan. 2, 2002) (consent order). 

53. Valero Energy Corp./Ultramar Diamond Shamrock Corp., Docket No. C–4031 

(Feb. 19, 2002) (consent order). 

54. Phillips Petroleum Corp./Tosco Corp., File No. 011–0095 (Sept. 17, 2001) 

(Statement of the Commission). 

55. For example, an FTC study of the broadcasting industry influenced passage 

of the Radio Act of 1927 (a predecessor to the Federal Communications Act of 1934), 

and the FTC’s disclosure of securities abuses played a role in heightening Congressional recognition of the need for securities regulation and led to the Securities Act 

of 1933. 

56. Staff of the Federal Trade Commission, Anticipating the 21st Century: Competition Policy in the New High-Tech, Global Marketplace (May 1996). 

57. Letter from Timothy J. Muris, Chairman, Federal Trade Commission and 

Charles A. James, Assistant Attorney General (Antitrust), Department of Justice, 

to The Honorable John B. Harwood, Speaker of the Rhode Island House of Representatives (regarding proposed bill H. 7462, Restricting Competition From NonAttorneys In Real Estate Closing Activities) (Mar. 29, 2002); Letter from Timothy 

J. Muris, Chairman, Federal Trade Commission and Charles A. James, Assistant 

Attorney General (Antitrust), Department of Justice, to Ethics Committee, North 

Carolina State Bar (regarding North Carolina State Bar Opinions Restricting Involvement of Non-Attorneys in Real Estate Closings and Refinancing Transactions) 

(Dec. 14, 2001); and Comments of The Staff of the Federal Trade Commission, Intervenor, In Re: Declaratory Ruling Proceeding On the Interpretation and Applicability 

of Various Statutes and Regulations Concerning the Sale of Contact Lenses Ct. Bd. 

Of Examiners for Opticians, Mar. 27, 2002). 

58. Rambus Inc., Docket No. 9302 (June 18, 2002) (complaint), available at <http:/

/www.ftc.gov/os/2002/06/rambuscmp.htm>. 

59. Id.

60. In 1996, the FTC brought a similar case against Dell Computer, alleging that 

Dell had failed to disclose that it had an existing patent on a personal computer 

component that was adopted as the standard by a video electronics group. Dell Computer Co. Docket No. C–3658 (May 20, 1996) (consent order) (Commissioner 

Azcuenaga dissenting). 

61. See 66 Fed. Reg. 58146 (Nov. 20, 2001). 

62. Federal Trade Commission, Public Workshop: The Mobile Wireless Web, Data 

Services and Beyond: Emerging Technologies and Consumer Issues (Feb. 2002), 

available at <http://www.ftc.gov/bcp/reports/wirelesssummary/pdf>. 

63. Press Release, U.S., Canadian Law Enforcers Target Cross-Border Telemarketing (June 10, 2002), available at <http://www.ftc.gov/opa/2002/06/

crossborder.htm>. 

64. Federal Trade Commission, Marketing Violent Entertainment to Children: A 

Review of Self-Regulation and Industry Practices in the Motion Picture, Music Recording & Electronic Game Industries (Sept. 2000), available at <http://www.ftc.gov/

reports/violence/vioreport.pdf>. 

65. See Conf. Rep. No. 107–278, at 162 (Nov. 9, 2001). 

66. Federal Trade Commission, Marketing Violent Entertainment to Children: A 

Six-Month Follow-Up Review of Industry Practices in the Motion Picture, Music Recording & Electronic Game Industries (Apr. 2001), available at <http://www.ftc.gov/

reports/violence/violence010423.pdf>. 

67. Federal Trade Commission, Marketing Violent Entertainment to Children: A 

One-Year Follow-Up Review of Industry Practices in the Motion Picture, Music Recording & Electronic Game Industries (Dec. 2001), available at <http://www.ftc.gov/

os/2001/12/violencereport1.pdf>. 

68. Federal Trade Commission, Marketing Violent Entertainment to Children: A 

Twenty-One Month Follow-Up Review of Industry Practices in the Motion Picture, 

Music Recording & Electronic Game Industries (June 2002), available at <http://

www.ftc.gov/reports/violence/mvecrpt0206.pdf>. 

69. Press Release, FTC Warns Consumers about Online Gambling and Children 

(June 26, 2002), available at <http://www.ftc.gov/opa/2002/06/onlinegambling.htm>. 

70. See Press Release, FTC Initiates ‘‘Best Practices Analysis’’ for Merger Review 

Process (Mar. 15, 2002), available at <http://www.ftc.gov/opa/2002/03/bcfaq.htm>. 

71. See, e.g., FTC v. Verity Int’l, Ltd., 194 F. Supp. 2d 270 (S.D.N.Y. 2002). 

72. The Securities and Exchange Commission (SEC) currently has authority to accept payment and reimbursement for investigative or other assistance that it proVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
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vides to a foreign securities authority. See 15 U.S.C. § 78d(f). Congress were to grant 

the FTC similar authority, that would permit the agency to accept reimbursement 

from foreign or domestic law enforcement authorities for services provided or for cooperative investigative or law enforcement activities. 

73. See 5 U.S.C. App. 4, § 403(b); 47 U.S.C. § 154(g)(3); and 15 U.S.C. § 2076(b)(6).

Senator DORGAN. Chairman Muris, thank you very much. 

I think we will go in order if you would like. Commissioner Anthony is next. 

STATEMENT OF HON. SHEILA F. ANTHONY,

FEDERAL TRADE COMMISSION 

Ms. ANTHONY. Mr. Chairman, Members of the Subcommittee, I 

would like to take a moment to address our legislative recommendation to repeal the FTC Act’s exemption for communications common carriers, but first I would like to thank you, Chairman Dorgan, for tackling this important issue. There has been a 

general feeling at the Commission for sometime that this exemption should be eliminated, and this hearing today is really the first 

time Congress has asked us to address this topic, and this impediment actually to our ability to protect consumers, and so I appreciate your leadership in this regard. 

Section 5 of the FTC Act grants the Commission broad authority 

to protect consumers. We deal with classic consumer protection 

issues such as fraud and deceptive advertising, as well as antitrust 

issues such as mergers and anticompetitive conduct. One of the few 

activities expressly exempted from the Commission’s authority is 

common carriage subject to the Communications Act. At the time 

this Act was adopted, early in the 20th Century, the exemption 

made sense. As you noted, telecommunications services were being 

provided in the United States substantially by single service monopoly firms highly regulated by the Interstate Commerce Commission first, and then by the FCC. With pervasive regulation and a 

noncompetitive marketplace, there really was little need for the 

FTC’s additional oversight. 

I call your attention to a picture over here on the wall of the 

committee room showing some old telephone systems, and just 

draw the distinction that that was what we were operating under 

a good while ago, but we are now at the dawn on of the 21st Century, and the state of affairs in the telecommunications industry is 

vastly different. Ma Bell’s tightly regulated monopoly has given 

way to competition and a largely deregulated market. 

In addition, the business activities of telecommunications firms 

have now expanded far beyond common carriage and into fields including Internet services and cable television. AT&T is a good example. Opening the door to competition in telecommunications also 

opens the door to a raft of consumer protection issues that are the 

FTC’s bread and butter. Unfortunately, the exemption stands in 

the way of the FTC protecting consumers in this new telecommunications marketplace. The bottom line is that the exemption has 

outlived its purpose, and consumers are being harmed. 

Let me give you some concrete examples of what I am talking 

about in the consumer protection arena. We have seen telecommunications firms increasingly engage in aggressive business 

activities, including fraud and deception to gain or retain customer 

28

and market share both in their common carrier businesses and in 

their other business. We have seen cramming, which are unauthorized charges for goods and services on consumer’s telephone bills, 

and we have seen a torrent of misleading long distance advertising. 

The FTC has extensive experience with these types of billing, 

marketing, collection and advertising issues. Furthermore, even 

when telecom firms engage in fraudulent or deceptive business 

practices that do not fall within the exemption, the exemption can 

still pose an obstacle. Defendants often argue that the exemption 

protects every action of a company that enjoys common carrier status. The Commission firmly believes that only the common carrier 

activities of such companies are exempted, but litigating this issue, 

as the Commission has been repeatedly forced to do, raises the cost 

of pursuing enforcement actions. It forces the agency to make pragmatic decisions about who to include in a complaint, and about unnecessary delays in obtaining consumer redress and other remedies. 

In the competition arena, the exemption creates serious antitrust 

enforcement obstacles. The exemption potentially precludes the 

FTC from reaching a variety of conduct that may warrant antitrust 

scrutiny. For example, a regulated common carrier may seek to 

deter competition from providers of Internet telephony by degrading connections, or through connection fees. A telco might also 

refuse to deal with a DSL-based broadband ISP except on conditions that disfavor Internet telephony. The scenarios are virtually 

limitless. 

The point is that the exemption effectively removes a large part 

of the Government’s resources, antitrust resources from being 

available to address competition problems in markets that are 

highly important to consumers and to our economy. Removal of the 

exemption is in the public interest. The FTC is well-equipped to address competition issues in markets undergoing deregulation and 

technological change, as it has already in natural gas, electricity, 

and cable. 

The FTC was specifically created as an expert administrative 

body with economic expertise to address complex competition 

issues. In sum, American consumers will benefit if the Congress repeals the communications common carrier exemption from the FTC 

Act, and I urge this Subcommittee to take the leadership in doing 

so. 

Thank you. 

Senator DORGAN. Thank you. 

Commissioner Thompson. 

STATEMENT OF HON. MOZELLE W. THOMPSON,

FEDERAL TRADE COMMISSION 

Mr. THOMPSON. Good morning, and thank you, Chairman Dorgan 

and Members of the Subcommittee, for the opportunity to appear 

before you today and offer testimony in support of the FTC’s reauthorization. 

Today, I would like to talk to you about a vital and increasingly 

important area of the agency’s work, the area of international consumer protection. It is a unique time in our history where improvements in communications and technology have created a global 

29

marketplace where American consumers and businesses play an active role. It is also a special time in our economic history, where 

people in the United States and throughout the world recognize 

that consumer confidence is a necessary element for the global 

marketplace to survive. Finally, it is an important time because 

people around the world are looking to America for leadership on 

these issues. 

The FTC has a long history of protecting consumers in the American marketplace, which is the most vibrant, transparent, and diverse in the world. Therefore, it is not surprising that the FTC 

would now be called upon to play an important role internationally 

in the area of consumer protection, enforcement, and policy development. This leadership role is evidenced by work in international 

organizations like the OECD Committee on Consumer Policy, 

where I was recently honored to be elected chair, and since it is 

the only international policymaking forum that focuses solely on 

consumer policy issues and the IMSN, or International Marketing 

Supervision Network, an organization of international law enforcement Agencies that share information about how to protect consumers against fraud. 

In addition, we work with important regional organizations, 

whether it is APEC, Asia Pacific Economic Cooperation forum, or 

the Free Trade Association of the Americas, as well as stakeholder 

organizations like the Transatlantic Consumer Dialogue and the 

Global Business Dialogue for Electronic Commerce. 

These last two organizations in particular provide us with an opportunity to hear from businesses, consumers, and Governments 

about international consumer issues. 

Of course, all of these efforts benefit from the support of Chairman Muris and his recognition that the FTC’s role in international 

consumer protection is of great benefit to both American consumers 

and businesses. 

Now, I would like to talk a little bit about the specific areas that 

we are working on in international consumer protection, since they 

help to illustrate our commitment and the commitment of our 

international colleagues to the important issue of consumer confidence. At both the OECD and the IMSN, we are working with our 

international counterparts to develop a common understanding of 

what constitutes core consumer protection. We are beginning with 

work on a statement about cross-border fraud. By working on such 

issues, we hope to develop more effective means of going after those 

who commit harm across national boundaries. 

We are also continuing to develop bilateral relationships that enable us to share information and take coordinated enforcement action to protect consumers. Among the countries we have entered 

into agreements with are Canada, Australia, and the United Kingdom. These relationships have resulted in an increase this year in 

cross-border prosecutions of cases that have been developed, for example, between the FTC’s regional offices and our Canadian colleagues, but these international efforts are not limited to simply 

consumer protection enforcement. 

We have also worked with our colleagues in a number of other 

consumer protection areas, beginning, for example, with our work 

with the OECD’s groundbreaking guidelines for consumer protecVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00033 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
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tion in the electronic marketplace, which was released in 2000, and 

at latest count has been translated into 17 languages. There, the 

Committee on Consumer Policy has also examined questions of online ADR, or alternative dispute resolution, that might provide 

cross-border consumers with inexpensive alternatives to courts. 

They have also worked on summaries and surveys of various 

countries’ protections for credit and debit card holders because of 

the frequency with which such cards are used in cross-border 

transactions. 

To conclude, I expect the Commission will continue its work in 

these areas, and will seek to actively participate in international 

fora that reach out to countries such as those in Asia, Latin America, and Eastern Europe. These international relationships will continue to be important, because mutual understanding about consumer protection is a key element in ensuring that there will be 

consumer confidence in an American, as well as a world marketplace. 

I continue to have confidence that our economic system produces 

the strongest, most transparent, and safest markets in the world. 

However, our economic well-being in part comes from active involvement of agencies like ours taking appropriate law enforcement 

action and by providing leadership in a global setting about appropriate as well as inappropriate business conduct. In that way, I believe the FTC has a very important place in making markets accountable to consumers in both our antitrust and consumer protection missions, and I believe we are demonstrating why we are 

among the most effective in the world in doing so. 

Thank you for your consideration, and I will be happy to answer 

any questions you may have. 

Senator DORGAN. Mr. Thompson, thank you very much. 

Commissioner Swindle. 

STATEMENT OF HON. ORSON SWINDLE,

FEDERAL TRADE COMMISSION 

Mr. SWINDLE. Thank you, Mr. Chairman. I would like to comment briefly about the Commission’s activities in both the security 

and privacy agenda. 

Security and privacy of confidential personal information have 

been concerns at the Federal Trade Commission for many years, 

especially in the context of online technologies and electronic commerce. In the wake of the September 11 tragedies, all levels of Government and industry have directed an enormous amount of attention to the critical nature of information systems and network security. Adequately enhancing this security is a complex challenge requiring a new way of thinking for everyone involved. 

The FTC’s consumer security agenda complements the FTC’s privacy agenda, as set forth by Chairman Muris in October of 2001, 

which encompasses all aspects of consumer privacy both online and 

offline. By protecting consumer privacy and security, we hope to increase consumer trust in e-commerce, and reap the benefits of this 

extraordinary tool for education, entertainment, consumer interest, 

and commerce. 

In May, the Commission held a 2-day workshop on consumer security. We sought to identify critical topics that were demanding 

31

attention in order to enhance consumer security and minimize the 

vulnerabilities of the Nation’s critical infrastructure. Workshop 

participants, including experts from academia, Government, and 

the private sector examined the most relevant security threats that 

consumers may face on the Internet. We explored best practices 

and how consumers’ activities in today’s interconnected world 

might make them unwitting participants in various security incidents. The workshop will serve as a building block for future Commission education and outreach efforts. 

The Commission’s Offices of Public Affairs and Consumer and 

Business Education, in consultation with security and technology 

experts inside and outside of Government are developing a comprehensive, long-term education campaign aimed at promoting a 

culture of security among consumers, businesses, and organizations 

in the United States and beyond. The education campaign will offer 

practical tips and best practices such as encouraging home 

broadband users to install firewalls to protect their computers from 

unwanted infiltration. 

With the assistance of industry and consumer advocates, we are 

currently determining what kinds of messages can and should be 

delivered to ensure the largest possible number of groups and individuals become aware of the challenges that we face today. We 

hope that information about good security practices will be available to consumers in virtually every aspect of daily life: the workplace, schools, libraries, homes, and, of course, on the Internet. 

Our goal is to achieve a level of awareness where good security 

practices become second nature to consumers. Ideally, all of us will 

one day engage in sensible security practices in the same way that 

we put on our seatbelts in the car before starting it, or look both 

ways before crossing a street. 

On the international front, the Commission is playing an active 

role in the policy debate over information systems and network security, especially as these topics relate to consumers. Between December 2001 and June 2002, I served as the head of the U.S. delegation to the Organization of Economic Cooperation and Development experts’ group charged with revising the 1992 guidelines for 

security of information systems. Originally written over 10 years 

ago, the OECD’s guidelines lacked relevance in today’s interconnected world of information systems and networks. 

In light of contemporary threats, new technologies, and the essential nature of these systems and networks to our critical infrastructure, the OECD recognized that the guidelines should be updated. The revised guidelines, which I expect to receive formal approval later this month, apply to anyone involved with computers, 

the Internet, and information systems and networks. The guidelines will be available to both member and non-member countries 

developing best practices for security in our global economy. 

The revised guidelines will be user-friendly and relevant to the 

current times and the roles of all participants in the information 

economy. The spirit of that document provides many important 

messages that will be incorporated into the Commission’s outreach 

and education campaign to create a new way of thinking, or a culture of security, among all members of society when participating 

in information systems and networks. 

32

Security is on our minds at the FTC, and we hope that greater 

public awareness will soon follow. 

Thank you, Mr. Chairman. 

Senator DORGAN. Commissioner Swindle, thank you very much. 

Commissioner Leary. 

STATEMENT OF HON. THOMAS B. LEARY,

FEDERAL TRADE COMMISSION 

Mr. LEARY. Mr. Chairman, Members of the Subcommittee, I 

would like to amplify on some earlier comments and emphasize an 

aspect of our work that is sometimes overlooked. The Federal 

Trade Commission does, indeed, have important law enforcement 

responsibilities, but it is also supposed to investigate and to educate. 

People will be surprised if they study the legislative history of 

this agency. When the Commission was created in 1914, President 

Wilson and Congress then recognized that the commercial world 

was becoming increasingly complex, and that people needed some 

guidance on what practices were reasonable or unreasonable, fair 

or unfair. At the same time, we know that the Commission members who provide that guidance cannot just rely on their own preferences. They need to be educated, too, because no single person 

can be expert on the myriad facets of a complex economy. So, the 

ideal educational process should be a two-way communication between the agency and people with experience and expertise of their 

own. 

For a variety of reasons, that historic mission of the FTC has 

sometimes been neglected. However, it was revived in 1995, when 

Bob Pitofsky, our former Chairman, scheduled extensive hearings 

on global and innovation-based competition. Since that landmark 

event, similar hearings or workshops have continued at an accelerated pace. You have heard about some of them today. Let me mention some more. 

We have, for example, had hearings on so-called slotting allowances and on issues in the B2B marketplace. We have had public 

hearings on the complex factors affecting gasoline prices—and I 

might just say in passing, if in any of our inquiries we uncover any 

evidence of unlawful activity, we will act, I promise you. 

Most recently, we have had a series of hearings on the interface 

between competition law and intellectual property law. If these 

legal regimes have a common objective to promote innovation and 

consumer welfare, they approach the objective from opposite directions, and this can create tensions in particular cases. These issues 

are complex. Opinions differ, and some court decisions are hard to 

reconcile. 

Commission hearings on this subject and others can be helpful 

in a variety of ways. They provide a reality check on our own enforcement agenda. They help to inform statements we might make 

to legislative or administrative bodies at the Federal or State level. 

They inform lawyers in the private sector who advise clients day 

to day on compliance issues. They also help to build some policy 

agreement among the diverse interests that participate. We do not 

resolve all differences by talking, of course. You people know that 

much better than we do. But, it is encouraging to see how the deVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00036 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
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bate becomes narrowed and focused when people sit down together 

to address these difficult issues in a forum that we provide. 

Finally, you should be aware of the Commission’s massive educational efforts aimed at consumers as a whole. We actively monitor the marketplace, particularly the Internet, in search of consumer frauds, and we prosecute these frauds whenever we find 

them. An equally important weapon in the battle against fraud, 

however is consumer education. Consumers who are better informed about the most common scams are less likely to be victims. 

We have provided you today with a representative package of these 

educational materials, and you can see that they are prepared in 

a consumer-friendly format. 

Last year, the FTC distributed over 5 million print publications 

of this kind, and there were over 10 million hits on our website. 

This is a very important part of what we do. 

Thank you. 

Senator DORGAN. Commissioner Leary, thank you very much. Let 

me say to the Commissioners, we appreciate your testimony and 

appreciate the work of your agency. I want to ask you a series of 

questions, and did you arrange that ambient noise just when we 

began to ask questions? 

Mr. MURIS. We are not that good. 

Mr. SWINDLE. It is a new form of unrequested spam. 

Senator DORGAN. I am going to ask you a series of questions 

about what you are not doing and what you think you can not do, 

and I would like to understand a little more why that is the case. 

Example: We had testimony at this table within recent weeks by 

the Attorney General of New York. His investigation showed that 

there were some firms on Wall Street that were saying to the consumers ‘‘Buy this stock, it is a great stock, we recommend it.’’ Internally in memorandums in their companies they were saying, 

‘‘This stock is a dog, this is awful.’’ So they were cheating, defrauding the consumer, and using deceptive advertising. Why can you 

not get a suit of armor on and go get that? What prevents the FTC 

from involving themselves in that situation? 

Mr. MURIS. If I could respond first, and then some of my colleagues might want to chime in. 

With advertising of any sort, we have a good argument that we 

could act. I will say that in the specific case that you are talking 

about, there are potential legal difficulties. As I understand the situation, the individuals who are making these claims have licenses 

and are regulated through the NASD and the SEC. They have a 

whole series of regulations dealing with advertising. Our normal 

practice as a matter of comity between agencies would—we sit on 

a committee, at the Justice Department that talks about who will 

do what with various sorts of stock fraud. 

Because the SEC has 1,000 people, as many people as we have 

in our whole agency, that deal with stock fraud, we would tend to 

defer to them. 

But on a second point, we could run into legal difficulties. We 

would have to look at the specific fact situations, because of specific 

regulations that may be implicated. There have been cases, in both 

the antitrust and consumer protection contexts, where if someone 

was doing something pursuant to and in compliance with the reguVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00037 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
34

lations of another agency, then it would be very difficult for us legally to act. 

Senator DORGAN. Well, let us have you give me some information 

about that, then. I would like to understand—if you think there are 

some legal difficulties, let us think about what they are. 

Second, you are saying maybe the SEC has the jurisdiction here. 

Do you think the SEC is doing anything about this? 

Mr. MURIS. Particularly since we had our initial conversations, 

I think it was in January, I have met and had continued conversations with people at the SEC and with people at the Justice Department in many of these areas. I understand they have a criminal task force. I do not personally know everything they are doing. 

They have told me that there are many individuals working on 

these issues. I believe that they have briefed your staff, although 

I do not know that for a fact, and I am sure they would, if asked. 

The addition of criminal investigations causes another complication 

for us, because law enforcers, including the FTC, are quite reluctant to proceed civilly when there is a criminal investigation. 

Senator DORGAN. But in order to get to the evaluation of whether 

there is a criminal act, someone has to investigate it. When you 

have a company out there saying, ‘‘Buy this stock, this is a good 

deal, it is very important that you buy this stock,’’ and internally, 

they are saying ‘‘this is a dog.’’ It seems to me that is deceptive advertising. Frankly, I think the cracks are bigger than the platform 

when you talk about things falling through the crack at the SEC, 

but that is a different issue. 

Let me ask—now, I understand a bit, and you will send me some 

information about this issue. I understand why you are not too involved in that. 

Railroad pricing: Our public service commission in North Dakota 

estimates that we are overcharged $100 million in North Dakota 

for rail service by a monopoly rail service. Are you able to be involved in price investigations with respect to the railroads? 

Mr. MURIS. Commissioner Anthony, go ahead. 

Ms. ANTHONY. I think that would be considered a common carrier, and we again fall under that. 

Senator DORGAN. So who would be working on that? Who in the 

Federal Government would be working on that issue in a regulatory way? 

Mr. MURIS. Well, the Department of Transportation and the Surface Transportation Board have authority. The Justice Department 

has tended to do antitrust in that area, and I know they have had 

input into decisions of the Surface Transportation Board involving 

mergers. 

Senator DORGAN. Let me say, the Surface Transportation Board 

is sort of driven into the same corral as the SEC on most of these 

issues with respect to enforcement. 

If you, God forbid, would have breast cancer and are taking 

Tamoxifin for breast cancer, you are paying 10 times the price for 

Tamoxifin that is paid in Winnipeg, Manitoba. Who would look at 

that and see whether that might be a pricing problem? They are 

charging not double, triple, or quadruple the price, but 10 times the 

price that is charged 5 miles north of North Dakota in a one-room 

35

drugstore in Emerson, Canada. Would that be a pricing issue the 

FTC would have any jurisdiction in looking at? 

Mr. MURIS. We have been quite active in the pharmaceutical 

area for monopolization activities, but under the law there has to 

be an act other than the charging of a high price. We have been 

extremely active, and we have drastically increased our resources 

in the pharmaceutical area, and I think we are helping in many 

cases to lower the price of drugs. 

Senator DORGAN. The same issue with respect to farm chemicals 

that they tweak with respect to a formula sold in Canada. They sell 

it here for double or triple the price, the price-gouging, but let me 

go to the things we talked about just very briefly, and I will not 

extend it. 

The common carrier issue, is it the FTC’s feeling that the FCC 

is not doing its job in this area? 

Commissioner Anthony. 

Ms. ANTHONY. I would not like to characterize it that way, Mr. 

Chairman. However, I do believe that the Commission, the Federal 

Trade Commission is competent to tackle this problem with a great 

deal of expertise. That is what we do day in and day out. 

Senator DORGAN. Could I ask it a different way, Commissioner 

Anthony? If you felt that the Federal Communications Commission 

was doing a bang-up job on consumer issues, just one of these 

things you look at and say, that is a sterling job, would you be asking us to deal with this rule in this way? 

Ms. ANTHONY. I know the Chairman will realize that I am reluctant to criticize our sister agencies, and we try to work with them 

in a harmonious fashion, so what I would just say is that we do 

work with FCC frequently, and they have cooperated with us often 

on our cramming cases and in our AOL-Time Warner antitrust investigations in this area. Our job is to protect consumers, and that 

is what we do day in and day out. We bring value to the table, I 

think. 

Senator DORGAN. Well, will rescinding the common carrier exemption provide some benefits for the American people? In other 

words, would you do something better than you are doing now? 

Will rescinding the common carrier exemption improve things, and 

if that is the case, I think I have my answer. 

Ms. ANTHONY. We would like to think that we could certainly 

add to the improvement of protecting consumers in this country, 

yes. 

Senator DORGAN. You should be in the State Department. 

[Laughter.] 

Senator DORGAN. So diplomatic, the FCC will appreciate that. 

Let me ask just one additional question on the Do-Not-Call registry. We will have testimony in the second panel saying that the 

way it has developed will be devastating to certain charitable 

groups and others. Who can respond to that? 

Mr. MURIS. Under the Patriot Act, telemarketing for charities by 

for-profit entities is now covered. I do believe that the proposed 

rule as we stated, and we are still evaluating it, has problems visa-vis charities. I believe that for both constitutional and policy reasons. However, our law applies to for-profit telemarketers on behalf 

of charities. We should do it carefully, and I am still working my 

36

way through this. We have not received materials from the staff to 

the Commission yet, but I do believe there are bases to treat charities differently. 

Senator DORGAN. And with respect to financial institutions and 

common carriers, your Do-Not-Call list would not apply, would it, 

to those financial institutions or common carriers? 

Mr. MURIS. That is correct, but we are optimistic that the Federal Communications Commission, if we adopt a rule, would adopt 

a similar rule, and that that would apply. 

Senator DORGAN. Are they talking about that? 

Mr. MURIS. I believe they are internally, yes. 

Senator DORGAN. Commissioner Anthony, I was, of course, being 

complimentary when I was talking about the diplomacy with which 

you discussed your relationship with other agencies. 

Well, I have some other questions that I am going to submit in 

writing. I was asking a series of questions at the front end describing areas where you are not involved. In some areas I hope you 

would be, and lacking the authority, I would like to explore with 

you the opportunity to have some additional authority. 

Let me thank you for your testimony once again. I would call on 

Senator Smith. 

STATEMENT OF HON. GORDON SMITH,

U.S. SENATOR FROM OREGON 

Senator SMITH. Thank you, Mr. Chairman. I would like to follow 

up on your last question, which is the national Do-Not-Call list. 

Senator Wyden and I have the privilege of representing many telemarketers. There are 70,000 in the State of Oregon. Our State 

leads the Nation in unemployment right now, so we are concerned 

about those jobs. We certainly understand the motive behind the 

establishment of this list. none of us likes to be bothered by telemarketers, but on the other hand, I am wondering that in the formulation of this rule, have you done any studies on the economic 

impact to the country, to the industry, to employment in this country? 

Mr. MURIS. Our record is voluminous. There are materials on 

this issue. We held a 3-day workshop in June where we discussed 

a variety of issues. My impression, Senator, from talking to telemarketers is, they do not want to call people who do not want to 

be called, and they could do their telemarketing more efficiently on 

that basis. 

We certainly have not reached final decisions. The staff is in the 

process of assembling the comments and digesting them. They will 

make recommendations to the Commission, and the Commission 

will decide based upon the full rulemaking record. Of course, what 

is said here will become a part of our record. 

Senator SMITH. Might you make an exception for businesses to 

contact those consumers with whom they have an established business relationship? Is that part of your rulemaking contemplation? 

Mr. MURIS. Some very persuasive points were made at our 3-day 

workshop. Again, I have not discussed this issue with my colleagues, but I think that in certain limited circumstances such an 

exemption, if narrowly tailored, might make sense. We are evaluVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00040 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
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ating it. Many states who have Do-Not-Call lists have such a provision. 

Senator SMITH. I for one would encourage that exemption, or exception, and I wonder if you have plans to harmonize with the 20 

states that already have these Do-Not-Call lists? Have you got coordination with the states on that? 

Mr. MURIS. Well, I think that is very important. I think we all 

have the same goals and desires. At the staff level we have been 

talking extensively with the state officials who are involved with 

this issue, the State Attorneys General. That is certainly desirable, 

and I personally do not see any reason why we cannot accomplish 

harmonization. 

Senator SMITH. I think that is critical. 

And finally, I wonder, can you share with us how you propose to 

keep your list, the national list, current and accurate, as that 

seems a fairly daunting task. Do you have a system for keeping it 

current? 

Mr. MURIS. Thanks to modern technology, it is not nearly as 

daunting a task as it would have been several years ago. We have 

learned a lot from the various states. Some of the states, for example, were keeping a list with index cards, and I think that would 

not be practical on a national basis. 

Senator SMITH. I would not suggest that, either. 

Mr. MURIS. We have solicited request proposals from various contractors on how we would implement a list. We have spent a lot 

of time on that issue, and I do believe it is feasible if it is done 

using modern technology. 

Senator SMITH. Thank you, Mr. Chairman. That is all my questions. 

Senator DORGAN. Senator Wyden. 

Senator WYDEN. Thank you, and I want to begin on this West 

Coast gasoline pricing issue. You have got three West Coast Senators here. We consistently pay higher gasoline prices than the rest 

of the country, and I think the discussion begins with last year’s 

report where the Commission found that red-lining anticompetitive 

practices were rampant in those West Coast markets and did not 

take any action. I want to read you exactly what the Commission 

said, Mr. Muris, and what the oil companies are admitting to contradicts it, and let me just read you from your report on it. 

Your report said, the investigation uncovered no evidence that 

any refiner had the ability profitably to raise prices market-wide 

or reduce output at the wholesale level. That was the finding at 

page 4 of the Commission’s report, yet Chevron, their president, 

Chevron-Texaco, told the Senate that his company had sufficient 

market power to influence prices on its own. He testified—and I 

will quote here—‘‘the West Coast gasoline market is dominated by 

a limited number of refiner marketers whose individual actions can 

have significant market impact, so what you have is an oil company executive telling the U.S. Senate that he can do what the 

Federal Trade Commission says it cannot find evidence of.’’

So my question to you, Mr. Muris—and this has great impact on 

all of us who represent the West Coast gasoline markets—given the 

fact that a major oil company executive is contradicting what your 

Commission found, does that indicate that the study was flawed, 

38

or does it indicate that you all just do not have the authority to 

go out and get the facts? 

Mr. MURIS. In fairness to my colleagues, all four of them participated in that study, but I did not. If I could allow them to respond, 

and then I could address your comments. 

Senator WYDEN. That would be fine. I would just like to know 

how you reconcile something which has enormous impact for consumers with two statements that are just directly contradictory. 

Mr. LEARY. Well, Senator, I am willing to step into the breach 

on that. I was here at the time. I would really like to amplify on 

what I am about to say in writing to put this all in the full context. 

However, just facially, there is a tremendous difference between 

one company saying another company has big influence on pricing 

in a marketplace, and that company admitting that people have engaged in anticompetitive activities, or that they can profitably restrict output in order to raise prices. 

You can have tremendous influence on a marketplace in a downward direction as well, so the two statements that you are talking 

about are, first, not necessarily internally contradictory. Second, 

that report was about 100 pages long and canvassed a vast amount 

of information. The Commission at that time, on the information 

before it, unanimously concluded that we could not find evidence 

of law violation. 

Senator WYDEN. You have an oil company executive admitting to 

Congress that individual companies have sufficient market power 

to be able to affect the West Coast gasoline market. You said in 

your report that that could not be done. 

Mr. LEARY. No. 

Senator WYDEN. I read it to you. It says, ‘‘The investigation uncovered no evidence that any refiner had the ability profitably to 

raise prices.’’

Mr. LEARY. That is not the same thing. 

Mr. SWINDLE. Senator Wyden. 

Senator WYDEN. I do not know, a clear meaning to me is that 

you all found that one company could not drive the market, and yet 

you have Chevron and Texaco saying one can. I mean, certainly the 

other point is right, you could drive it downward, too. Nobody disputes that. I just do not see anybody pushing real hard to drive 

things downward, and I see a lot of people pushing to drive them 

upward. 

Mr. LEARY. I do not hear the executive you are quoting, Senator, 

to be saying another company has the ability to restrict output and 

raise prices. 

Senator WYDEN. He is saying one company, their individual actions can drive the market, and you are saying you found otherwise. 

Mr. SWINDLE. Senator Wyden, if I may comment, the key word 

here is profitably, and I think most companies are in the business 

to make profit. We see examples every year of a single refinery 

having an effect on the market oftentimes because it had a fire, it 

had to shut down. No one is contesting the capacity to affect the 

market, but the intentional conduct to affect the market, I would 

think, in most companies, would have to be accompanied by the ultimate goal of making profits. 

39

I think it is a pretty dangerous game, even though there are, as 

we all realize, limited numbers of competitors on the West Coast. 

For them to jump in and try to do something dastardly to the market by their own conduct and then suffer the consequences themselves, it does not make sense. I think there is a distinction between those two statements. 

Senator WYDEN. They do not suffer any dastardly consequences. 

Basically, in much of the West Coast area three companies control 

75, 80 percent of the market, and you can stick it to consumers 

when you couple it with red-lining, and I guess if it is the position 

of the Federal Trade Commission that when they said that they 

found nobody had the ability to drive the market, and ChevronTexaco says one company can drive the market on the West Coast, 

I mean, if you all do not read this the way I do, then we can just 

move on, but it sure looks pretty clear to me. 

Now, Commissioner Thompson, in your concurring opinion you 

raised additional concerns about red-lining, but you also said that 

there really was not much that could be done, or I guess that you 

wanted to see done. Was that because you did not have sufficient 

evidence, or what was the motivating factor with respect to your 

joining the majority there? 

Mr. THOMPSON. At the time, I believe that we did not have sufficient evidence. Now, what I would say to you, my view today is, 

if we have evidence, or have information that tells me that we are 

likely to find evidence someplace, I would support us going after it, 

but at the time of that report we conducted a fairly thorough investigation and we could not find that evidence, but my view is that 

we at the Commission are always looking for opportunities to ferret 

out anticompetitive behavior, and if you or anyone else can bring 

us information that tells us that there is evidence, then I am sure 

that my colleagues and I would be willing to go for it. 

Senator WYDEN. Well, with all due respect—my time is up. I am 

going to return to this subject—I brought you that evidence. I 

brought you case after case from the West Coast of companies that 

were shellacked by anticompetitive practices, and I will return to 

this on another round. 

Senator DORGAN. There are 9 minutes remaining on the vote 

that is occurring on the Senate floor. Let us try to get in as much 

as we can before we break for the vote. 

Senator McCain. 

STATEMENT OF HON. JOHN MCCAIN,

U.S. SENATOR FROM ARIZONA 

Senator MCCAIN. I want to thank the witnesses for being here, 

and I think you are doing a fine job. I appreciate the many contributions you are making. 

Mr. Muris, in a recent ‘‘Seinfeld’’ episode, Mr. Seinfeld’s phone 

rang. He picked up the phone and it was a telemarketer and he 

said, ‘‘You know, I am busy right now. Can I have your home 

phone number and call you back?’’ And the telemarketer said ‘‘No, 

I cannot be called at home.’’ And he said ‘‘Well, neither should I,’’ 

and hung up the phone. Could we allow something like that to happen? Should the telemarketer’s home phone number be able to be 

revealed to the caller so that the caller can call the telemarketer 

40

back at his or her convenience? Do you think Seinfeld was onto 

something there? 

Mr. MURIS. I think he was certainly onto something about the 

frustration people feel about this practice. We received over 40,000 

comments. It was the most we have ever received, other than in 

one case where someone had gone to stock car race tracks and 

passed out free comment cards. These comments are all different. 

Everyplace we go, many people comment, and comment favorably. 

As I said, we need to do this rule right, we need to do it sensibly, 

and we are moving in that direction. We also need authority from 

Congress. The law allows us to raise the money through fees, but 

we need authority from Congress to spend the money, so under the 

proposal we have we will need legislation before we can implement 

the rule. 

Senator MCCAIN. I think we can go to work on that. It seems to 

me that that would be appropriate. I have a media report here that 

says even with a list in place consumers could still get phone 

pitches from industries and groups, including some heavyweight 

telemarketers regulated by agencies other than the FTC. Among 

them are phone companies, airlines, banks, brokers, charities, and 

political campaigns. Is that true? 

Mr. MURIS. There are people we cannot reach. We are optimistic 

that the Federal Communications Commission, if we adopt a rule, 

will adopt a similar rule. We believe in the aggregate that approximately 80 percent of the telemarketing calls would be reached. The 

calls from politicians, however, neither the FCC nor the Federal 

Trade Commission has authority to regulate those calls. 

Senator MCCAIN. We would never want anything like that to 

happen, would we? 

[Laughter.] 

Senator MCCAIN. Because we have a vote now, I would like to 

ask one more question and switch gears. You recently issued another report on the marketing of violence to children by the television, music, and movie industry. Again, I want to point out: The 

whole point here was not that anyone was trying to impose any 

kind of censorship. The problem we had was these entertainment 

organizations marketing to children content that they themselves 

had judged was not suitable for children. 

I mean, I have to keep repeating that over and over again, because I keep being accused of trying to impose some kind of censorship. We think it is fair that when the movie industry judges a certain movie not suitable for children below a certain age, that they 

not market that product to children below that certain age. That 

is what this is really all about. I hate to be so redundant, but I 

keep hearing the charge that we are trying to impose acts of censorship on the industry. 

How is the industry doing, and how would you rate their performance so far? 

Mr. MURIS. Well, let me respond briefly. I know Commissioner 

Swindle has paid a lot of attention to this, and maybe Orson wants 

to respond as well. 

We just issued our fourth report. We have found more progress, 

quite frankly, in the movie industry and in the video game industry 

41

than in the music industry. If Commissioner Swindle wants to 

elaborate. 

Mr. SWINDLE. I think the Senator is right, the advertising to children below the acceptable level of content——

Senator MCCAIN. That they determine themselves. 

Mr. SWINDLE. They are still doing it. It is rather complex, in that 

we have markets that are obviously for children, we have markets 

that our children watch, and then we have markets, obviously, for 

adults, and it is that middle ground that I think we see most of 

the violations today. 

There have been great improvements, or there have been good 

improvements, I should not say great. I think that could be spun 

be the wrong way. 

The movie industry has made progress. The video game industry 

has made progress. The music industry for all practical purposes 

is literally just putting a stick in our eye. They do not choose to 

pursue this. They will plead First Amendment over and over and 

over, which is absolutely not the case. I do not think any of us really care what they publish, but we do care about the marketing of 

it to children, obviously, below the age level that should be listening to this kind of stuff, and by their own standards they somewhat 

suggest that there is a delineation here, but they simply are not 

conforming. 

Senator MCCAIN. You know the sad thing about it, Commissioner 

Swindle, is that they sat here, where you are sitting, and said that 

they would make changes to stop marketing this. So, it is remarkable that they would testify before Congress that they would take 

certain actions, particularly the record industry, and in your view, 

which is far more informed than mine, then make little or no 

progress in the direction that they committed to. It is really reprehensible. 

Mr. SWINDLE. I was at the hearing and heard that statement. I 

would point out something here that I think is critical. We all—I 

mean, the First Amendment is the cornerstone of our society and 

our way of Government. We do not want to infringe on that. If consumers do not like what is coming at them, they have a manner 

in which they can correct that. Unfortunately, as long as sufficient 

consumers buy the stuff, in particular, what the music industry is 

putting out, they will continue to do it. It is economics. 

Senator MCCAIN. But, to entice children to purchase a product 

that they have deemed unsuitable for that child’s consumption 

seems to me to have nothing to do with the First Amendment, but 

a whole lot to do with unsavory practices. 

I thank you, Mr. Chairman. I thank the Commission. 

Senator DORGAN. Senator Nelson. 

STATEMENT OF HON. BILL NELSON,

U.S. SENATOR FROM FLORIDA 

Senator NELSON. Including, Senator—including Alcopops, which 

is marketing alcohol to minors, and you all have a lawsuit on that 

right now. 

We have got to go vote, and I am going to have my questions 

asked by the Chairman, but just let me say hello to my good 

friends Orson Swindle and Sheila Anthony. It is good to see you all, 

42

and as Sheila said, your role is to protect the consumer, and please 

be very vigorous in what you are doing on protection of the consumer. I will have the Chairman ask my questions. 

Senator DORGAN. Thank you. Senator Wyden left to vote, and he 

will be back early, so I expect within 5 minutes Senator Wyden will 

pick up the gavel. We will recess for 5 minutes until Senator 

Wyden is back. The hearing stands in recess. 

[Recess.] 

Senator WYDEN. Let us resume the hearing, if we could have all 

of our guests take their seats, please. 

Senator Fitzgerald has joined us, and I think with the Senator’s 

leave, I will finish some additional questions, and then we will recognize the Senator. 

To continue on this West Coast gasoline pricing issue, Chairman 

Muris, let me review what you have done since you have been 

named Chairman. You were appointed Chairman and the agency 

initiated daily monitoring of prices in 300 gasoline markets around 

the country. You directed the FTC staff to review the oil company 

mergers that the FTC allowed to go through in the past several 

years to determine if the agency did not do enough to remedy the 

anticompetitive impact of the mergers, and you held a number of 

very widely publicized conferences on gasoline pricing. 

If you do not believe that there are anticompetitive problems in 

the gasoline market, what is the purpose of spending all this taxpayer money? 

Mr. MURIS. That is a very good question. Let me address what 

we have done and why we have done it. 

First of all, there are a variety of issues besides the ones that 

you raise. There are concerns about the volatility of prices. There 

are also, as Senator Levin’s committee and their report noted, concerns about increases in concentration. We have taken four steps, 

because these are serious issues that need to be addressed, and because I think it is important that we continually reevaluate our 

work, particularly in the merger area, where the standards are so 

factual, specific, and in some ways ad hoc. 

We are producing, based on the conferences you mentioned, a 

study about gas price volatility that is underway right now. We are 

updating an oil merger study that was done twice in the 1980s, 

which I think will address some of the issues that Senator Levin 

addressed. We are looking at the impact of past mergers, particularly a few mergers that the Commission did not challenge. There 

has been a recent working paper that raises some questions about 

the aftermath of one of the mergers. Finally, we are, for the first 

time, tracking prices in real time. 

We are doing these things for several reasons, including the educational function that Commissioner Leary mentioned, of understanding what goes on in the marketplace; the function that Commissioner Thompson and others have mentioned, of looking for possible anticompetitive problems; and the function of, quite frankly, 

I think Government agencies should continually reevaluate the 

standards that they apply. 

In terms of the gas price tracking, although we just started it, 

we have found some anomalies. One of the anomalies, for example, 

in California was attributable to an unreported problem in a refinVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00046 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
43

ery. We are at an early stage in this project. We have a few leads 

that may be anticompetitive problems, and I believe it is appropriate for us to engage in these activities because energy is a very 

important part of our domain. I think what you heard, and this investigation concluded before I arrived, was that people felt there 

was not sufficient evidence to proceed; I think it is important that 

we continue to look for evidence both to explain to the public why 

there are problems, and to see if there are anticompetitive violations. 

Senator WYDEN. In effect, what the Federal Trade Commission 

is doing with the merger reviews and reconsidering the merger reviews is, it is reconsidering merger reviews that it did before the 

deals were allowed to go through, and what I am wondering about 

is why we are not protecting consumers, doing something to protect 

their interest at the outset instead of essentially doing merger reviews twice, and as you know, I would like to see the Commission 

particularly try to help consumers in these highly concentrated industries at the front end before the merger goes through. 

I mean, you are going to go back and look at the whole slew of 

mergers, BP and Amoco, Exxon and Mobil, BP-Amoco and Arco, 

Chevron and Texaco, Phillips and Tosco. Would it not be better to 

have a policy to try to protect the consumer at the front end? 

Mr. MURIS. I am sorry if I left the wrong impression. That is not 

what I am suggesting, and I will ask my colleagues if they want 

to comment in a moment here. The Commission has been quite aggressive in merger enforcement. Most of those mergers occurred before I arrived, some have occurred since, the Commission has taken 

remedial action in a large number of oil industry mergers, requiring divestitures in the tens of billions of dollars. 

Some of what we are looking at in these retrospectives are mergers that the Commission did not challenge. One of the things we 

are particularly looking at, not just in oil but in other areas, is the 

impact of those mergers we did not challenge. Again, I will ask my 

colleagues if they want to comment on our oil industry policy, 

merger policy. 

Mr. LEARY. Well, Senator, I was present for some of those oil industry mergers, and I can assure you that they were looked at very 

carefully, and there were gigantic divestitures required at the level 

where it has the particular impact on consumers. Divestitures were 

required at lower levels of concentration than we have done for any 

other industry of which I am aware. 

However, foresight is never perfect. There is nothing inconsistent 

at all, in my view, with having an extensive review up front but, 

in an area that is of such significant concern to people like yourself 

and others, going back to take another look at it and see whether 

or not we got it right. 

Senator WYDEN. I do not quarrel with that. What has happened 

in the West Coast, though, is nobody really does anything until the 

damage is done. I mean, we have had the competitive juices sucked 

out of the West Coast gasoline markets. We have lost hundreds of 

stations. We have got in most towns in my State a couple of companies driving the market, documented red-lining. Commissioner 

Thompson asked, could we have it. I have given you all of the 

44

cases. You found it, and yet everybody says, ‘‘Well, gosh, we do not 

have any evidence of collusion.’’

Well, of course you are not going to have a couple of big oil company executives go somewhere and say, ‘‘this is a great day, let’s 

set the market,’’ but I will tell you, I find what you have done with 

respect to the West Coast gasoline market, I think it is a textbook 

case of how you do not do consumer protection. I see absolutely no 

evidence of anybody trying to stand up for West Coast gasoline consumers. I think all of the studies and conferences and seances that 

you all seem to be having really are not going to lead to much of 

anything. 

I hope the merger issue produces something. I guess if it generates a bunch of new reports that are going to collect dust and not 

lead to any real enforcement action, I may do something I have not 

done in all my years in the Congress, in 21 years in the House and 

Senate, and I will move to cut off the money for exercises that are 

just a joke with respect to consumer protection. 

I want to recognize my colleague, Senator Fitzgerald, and then 

I will come back for some additional questions on other subjects. 

Senator Fitzgerald. 

STATEMENT OF HON. PETER G. FITZGERALD,

U.S. SENATOR FROM ILLINOIS 

Senator FITZGERALD. Well, thank you, Chairman Wyden. I would 

also like to thank the Subcommittee Chairman Dorgan for putting 

this hearing together. I know that the FTC has not been reauthorized since 1996. I think it would be appropriate at some point to 

reauthorize the FTC. You probably feel like Rodney Dangerfield, 

you can’t get no respect if you cannot get reauthorized, but we are 

glad you are still operating. We appreciate all of you being here 

today. 

In my 31⁄2 years in the Senate, I have already seen a couple of 

situations in which oil prices spiked, and there were demands for 

FTC investigations. I think oil prices spiked in 1999. My colleague 

from Illinois, Senator Durbin, asked the FTC for an investigation. 

Chairman Pitofsky at that time undertook an investigation to see 

whether there was any collusion or price-fixing in the industry, and 

the FTC could not find evidence of that. I think instead, the FTC 

found evidence that supplies of petroleum were tight. There had 

been fires at a pipeline, only one refinery in Illinois, and a declining supply of oil that caused the price spikes. 

Then last year, we had another price spike in oil. My colleague 

from Illinois asked for another investigation, and I believe that 

similar conclusions were reached. So I think there is always a potential that people can figure that there is some kind of conspiracy 

going on when oil prices go up, but I think it primarily concerns 

the supply and demand. 

Let me ask you a question along those lines, starting with Chairman Muris. If you were to find evidence of illegal collusion amongst 

oil companies, I take it that you would take action to go after whoever was involved in such collusion? Is that not correct? 

Mr. MURIS. Yes, Senator, absolutely. One of the reasons that we 

are tracking prices on a real-time basis is to better understand the 

reasons for price volatility. I have recently sent a letter to all of the 

45

State Attorneys General, asking for their help. If we do find localized problems we hope to be able to work together to understand 

them, and if there are law enforcement violations, to move on 

them. 

An additional point I forgot to mention to Senator Wyden is, I 

think one useful thing that has come out of the Commission’s work 

is the role of the EPA rules in terms of so-called boutique fuels in 

contributing to the price spikes. Our staff has submitted comments 

to the EPA and offered to work with them to try to get competitive 

concerns considered as a part of the calculus in what they are 

doing with these rules, because when you divide up the country by 

requiring so many different fuel blends, you are exacerbating problems that are caused by refinery fires and other incidents. 

Senator FITZGERALD. I think in Illinois, at one point, we had four 

different types of fuel used in different parts of the State, so clearly 

that presents a problem if the refineries have to gear up for narrowly targeted markets. That is happening all across the country. 

Let me ask this. What does the FTC do if they find evidence of 

collusion or price-fixing in an industry? Do they refer it to the Justice Department for prosecution? What happens? What are the mechanics when this is found? 

Mr. MURIS. It depends upon the nature of the collusion, and 

what is going on. The Justice Department has criminal authority 

and we do not, so they do criminal investigations. We have brought 

price-fixing cases, and cases that look much like price-fixing. Recently, for example, we brought three price-fixing cases involving 

physicians, one in the Napa area in California, and two in the Denver area. 

Senator FITZGERALD. Did you do the investigation? 

Mr. MURIS. Yes, we did. 

Senator FITZGERALD. And do you have authority to do criminal 

investigations? 

Mr. MURIS. No. We brought these cases civilly, and the Justice 

Department sometimes proceeds civilly as well. They often proceed 

criminally. Quite frankly, it is very difficult to convict professionals 

of criminal price-fixing. 

Senator FITZGERALD. What did you find they had been doing, and 

what did you allege? 

Mr. MURIS. We accepted consent agreements. What the consent 

agreements alleged was that groups of physicians got together and 

essentially hired an agent to negotiate. The only integration that 

the doctors had was that an agent who they hired negotiated with 

the managed care plans to raise the reimbursement rates substantially, and we have obtained consent agreements stopping those 

practices. The Justice Department sometimes proceeds civilly and 

sometimes criminally. If we really found evidence of a criminal violation, by virtue of our relationship with the Justice Department, 

we would refer it to them for criminal prosecution. 

Senator FITZGERALD. On that issue, physicians have begun to 

talk about asking for the right to collectively bargain, because they 

feel they are excessively hampered. There are hundreds of thousands of physicians in this country, and they have to negotiate with 

a handful of HMOs in their areas. They feel that the deck is 

stacked against them, and that every year their reimbursements 

46

are cut, their cost goes up, and there is nothing that they can do 

about it. 

You may not want to get into this issue and recommend anything 

for Congress, but it is possible that Congress is going to be confronted with voting on legislation. I think legislation that would 

give physicians the right to collectively bargain has been introduced in the House and has passed at least a committee in the 

House. Do you think it is right that physicians, if they band together even in a small group to negotiate with an HMO, should be 

subject to the Federal Government coming after them? 

Mr. MURIS. First of all, there was a bill that passed the House. 

The Commission opposed it. I believe all of my colleagues—I was 

not on the Commission at the time—were opposed. 

Senator FITZGERALD. The Commission opposed the bill? 

Mr. MURIS. Yes. 

Senator FITZGERALD. Why was that? 

Mr. MURIS. Because the bill would raise prices to consumers. The 

Commission and the Justice Department have a long history of 

bringing these cases, and these few cases that we recently brought 

indicate what such a bill would do. It would give people a license 

to raise prices, and that would be anticompetitive. 

I do think there are steps that physicians can take to get together to improve their practices, to improve quality. Our staff recently issued an advisory opinion for the first time recognizing socalled clinical integration, which is where doctors get together to 

try to share with each other information on how to treat patients 

more effectively. That does not violate the antitrust laws. In fact, 

we should encourage that activity, but if the doctors are simply getting together to fix prices, as they did in the cases that I mentioned, then it does not make any sense, I believe, to create a special class of people who can fix prices outside the antitrust laws. 

Senator FITZGERALD. And the reason would be that the doctors 

are all self-employed businessmen. Typically, if they are not employees of a company, their getting together to negotiate with an 

HMO becomes businesses conspiring with each other to fix prices. 

I am hearing a lot from doctors in Illinois about how they feel that 

they have absolutely no leverage when they are negotiating individually with an HMO. 

The HMO tells the doctors that ‘‘If you want to get patient referrals, you must accept our price schedule,’’ which is typically low. 

The doctor, being one doctor when there are tens of thousands in 

the area, feels overwhelmed, and that he or she has no bargaining 

power. They feel that they are just getting crushed to the point 

that medical school applications are declining rapidly in this country because the practice of medicine has become much less attractive. 

Mr. MURIS. There are serious issues about the relationship between managed care and physicians, particularly on quality issues. 

The antitrust laws should not be a bar to doctor’s dealing with 

those issues. Doctors do join together in many areas now where 

they are not just individual practitioners, but if what the doctors 

simply want to do is get together to fix prices, I have no understanding in the world why public policy should allow that to hapVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00050 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
47

pen. That is anticonsumer, and it is not helpful to the problems we 

have in the medical area. 

Inflation is growing rapidly again in health care. We have an active program, not just with doctors. By far most of our resources 

go to pharmaceuticals. We are also looking at hospital mergers in 

which concentration has increased. Competition has a role in 

health care, but I do believe, and I will say it again, that physicians—in terms of paperwork, in terms of quality control, in terms 

of a lot of issues that do not directly affect prices—can legally get 

together under the antitrust laws. 

Senator FITZGERALD. You think right now they have the power 

to do that, to negotiate amongst themselves to set a unified front 

in other areas besides the actual prices? 

Mr. MURIS. Absolutely, and this advisory opinion, which we will 

be glad to send to you, will allow them to integrate for the purposes 

of improving quality. In fact, we have non-public investigations, 

and in some of them we are seeing doctors who are engaged in 

such clinical integration. If they are doing that, then I think that 

is commendable. 

Senator FITZGERALD. When did you issue that advisory opinion? 

Was it recent? 

Mr. MURIS. Yes. I believe it was in March. 

Senator FITZGERALD. I would like to get a copy of that, if I could, 

and with that, Mr. Chairman, I thank the panel for being here. 

Senator WYDEN. I thank my colleague. 

I want to go now with the Commission to another area of the energy business, where troubling anticompetitive practices have been 

uncovered as well. The Enron memos reveal significant evidence 

that Enron was engaged in a deliberate scheme to manipulate the 

West Coast electric market. Transcripts provided to the Federal 

Energy Regulatory Commission by Portland General Electric raise 

questions about the role of transactions between utilities and their 

affiliates engaged in energy trading activities that may have been 

used as part of the Enron scheme. 

For example, one trader was quoted as saying, ‘‘Enron wants to 

do something kind of squirrely.’’ Another transmission employee is 

quoted as saying, ‘‘They are doing that, selling power to Enron, 

across the Bonneville Power Agency going down to California 

again. They did that before, remembering there are all those extra 

accounts, and then you guys have to make sure you do whatever 

extra input you have to do.’’

Now, these statements—and this is a question for you, Mr. 

Muris—clearly suggests that these employees had concerns about 

these transactions that their parent companies wanted to engage 

in. My question is, to begin this area, Mr. Muris, doesn’t the Federal Trade Commission have jurisdiction over utilities engaging in 

transactions with their subsidiaries and affiliates that have anticompetitive impact on a wholesale market? 

Mr. MURIS. Yes, I believe we do, although there is regulation by 

FERC, which applies directly to many of these provisions. It is possible, because there may be an implied exemption doctrine under 

the antitrust laws, depending on what the FERC regulation is, that 

the antitrust laws do not apply. 

48

Senator WYDEN. Well, our reading again is that the FTC does 

have authority here, and I would like to know whether the Federal 

Trade Commission has ever used its authority to investigate the 

use of affiliate transactions by Enron or others in the electric utility business as part of a scheme to manipulate a wholesale market. 

Mr. MURIS. I believe there are potential anticompetitive problems 

here. This happens to raise an issue with which we had some friction with Chairman Hollings. The Justice Department and the FTC 

have, for over 5 decades, agreed with each other that they would 

not investigate the same matters. Indeed, in mergers, that is a 

legal requirement. 

Historically, the Federal Trade Commission has done all of energy except for electricity. We had agreed with DOJ that we would 

change that, and that the FTC would do all of energy. Pursuant to 

some problems Senator Hollings had that were not related to that 

issue, the agreement was abrogated, and now electricity remains 

with the Justice Department in terms of antitrust issues. In terms 

of which agency has the expertise, it has historically been the Antitrust Division, and under the 1993 Clearance Agreement which is 

now in place, since the 2002 Clearance Agreement was abrogated, 

it is the Justice Department that has primarily been looking at 

electricity. 

Senator WYDEN. I again have to just walk away with all of these 

problems, and the FTC certainly before anything you have described had authority over wholesale market impacts in the energy 

field. I cannot understand why, when there is an egregious case of 

an electric utility engaging in an abusive transaction with a subsidiary that has significant price impact on the wholesale market, 

which is what happened on the West Coast, I cannot see why the 

Federal Trade Commission is unwilling to get involved. 

Mr. MURIS. Well, I completely agree with your premise. Before 

we abrogated the agreement, in fact, the newspaper stories which 

came out within a week of the agreement being abrogated raised 

suspicions of anticompetitive conduct. Let me be clear, I have no 

idea whether there are, in fact, violations of the antitrust laws, but 

certainly the material I read in the paper raises suspicions. Under 

our scheme, however, for decades the two agencies have agreed 

that only one will investigate a particular area and particular 

kinds of conduct. After we abrogated the agreement, electricity returned to the Justice Department. 

Senator WYDEN. Do you think that ought to be changed? 

Mr. MURIS. Well, I signed an agreement that was abrogated that 

gave all of energy to the FTC. I thought that was appropriate. For 

reasons unrelated to energy, Senator Hollings wanted the agreement abrogated. The Justice Department abrogated the agreement, 

and we returned to our prior state of affairs. 

Senator WYDEN. It just looks to me like when you deal with energy at the Federal Trade Commission, if you want to have a conference you have gone to the right place. The Federal Trade Commission will do it for you. If you want to do anything that is going 

to protect the consumer to get a real enforcement action, you have 

got to go elsewhere. 

49

Mr. MURIS. If I could just respond, most of this happened before 

I was there, but I think the Commission was extremely aggressive 

on the merger front, Senator 

Senator Wyden. Well, what do you want to have changed? I 

mean, you have said this happened before you, but I do not see 

anything going to change. What I see is what I have described in 

Oregon with respect to the West Coast gasoline market. We have 

handed you the evidence of red-lining, of a whole host of anticompetitive practices. That did not seem to be sufficient. Here I am 

talking about areas where the Federal Trade Commission has had 

authority, and you said you had given it up, and I said, ‘‘well, it 

is your watch now, you have got a chance to lead, do you want to 

lead?’’, and you have said, ‘‘well, I guess not.’’

Mr. MURIS. No. What I have said is, I preferred to lead. Not by 

my choice was the agreement abrogated. We have returned to the 

state of affairs that existed before we signed the agreement, and 

under that state of affairs, it is the Justice Department that has 

handled electricity. We were in the process of hiring people to look 

at electricity mergers. I met with the Chairman of FERC. We were 

trying to work out a process where we could more actively participate in electricity issues and electricity mergers, but if we did that 

now, I am sure I would be accused of—in fact, I know I would be 

accused of—violating something that we promised not to do, which 

was to implement that agreement, so whatever else you think, or 

whatever other charges you may want to lay, we are not guilty on 

that one. 

Senator WYDEN. Out of curiosity, Mr. Muris, on your watch have 

Federal Trade Commission employees gone out at the state level 

and testified on State deregulation issues with respect to energy? 

Mr. MURIS. In gas prices, yes, sir. 

Senator WYDEN. But not on electric issues? 

Mr. MURIS. On electric issues, let me distinguish law enforcement from advocacy and studies. The House Energy and Commerce 

Committee asked the Commission a few years ago to produce some 

studies on electricity deregulation. The Commission has produced 

two studies, one a few years ago, one last year just as I arrived, 

and we have used those studies to talk to people at the State level, 

and we have also talked to FERC about the state of competition 

in electricity. 

On gasoline, we recently filed comments criticizing a proposal 

that would have made it more difficult in the Commonwealth of 

Virginia—this is at the staff level we have done this—that would 

have made it more difficult to lower prices. 

The Commission has filed several comments like that in the late 

1980s and 1990s, and we filed this one last year. These were laws 

aimed at some of these new hypermarket firms that were coming 

into markets and selling gasoline at lower prices. They were going 

to make it harder for those firms to lower prices. We filed a comment with a Virginia legislative committee. The committee, in fact, 

voted the bill down. 

Senator WYDEN. Well, that certainly sounds useful, I guess. 

What I was driving at is that if you have told us you do not have 

any authority in these energy matters any more really, and that 

has essentially been your testimony, I am curious about what is 

50

going on at the State level that sounds like what you did at the 

Virginia initiative sounded useful. 

Mr. MURIS. Well, let me make clear, we have authority—first of 

all, we have jurisdiction. We cannot divest ourselves of our jurisdiction. Only Congress can do that, but for over 5 decades, since 1948, 

the two agencies have agreed that they will not duplicate each 

other in terms of investigations. When it comes to electricity mergers and electricity cases, those have been done historically by, and 

the expertise resides in, the Department of Justice. After we abrogated the agreement in the middle of May, that expertise remains 

with the Department of Justice. We are applying the rules we had 

in place pursuant to the 1993 Clearance Agreement. 

Senator WYDEN. One last question on the energy question. Commissioner Thompson, were you concerned at all with respect to 

whether the rules are ones that will make it virtually impossible 

to prove collusion, or anticompetitive practices. When you wrote 

your opinion in the gas pricing question you raised some issues, at 

least in my mind, with respect to what you thought the rules 

should be on evidence. You heard me say that I just do not think 

oil companies in 2002 show up somewhere and say, ‘‘Let us go fix 

prices.’’ I am curious what you meant with respect to the rules on 

proving collusion and anticompetitive practices. 

Mr. THOMPSON. I was concerned about whether we had significant groundwork, enough to bring an action based on a claim of 

site-specific pricing. Now, I think one of the things the Chairman 

outlined is that the work that we are doing now in examining what 

we looked at and whether they were effective in remedying some 

of the conditions we are seeing now will help to inform us as to 

whether we should be changing how we look at those questions, 

and what kind of remedial action we should be taking, but I raise 

the concern because I thought it was an important one to consider 

and examine, and that is why I think one of the things we are 

doing now is to actually look carefully at whether some of the assumptions and some of the conduct that we were concerned about 

and some of the remedies that we in fact put into place actually 

get at——

Senator WYDEN. What remedies were put in place? I cannot find 

a single remedy, I cannot find a single thing that was done for the 

West Coast consumer on this. Please enlighten me with respect to 

the remedies you put in place. 

Mr. THOMPSON. I am talking in a more general fashion about 

things like divestitures, what we did in Exxon-Mobil, what we did 

in a number of different cases. Now, I have not been around for all 

of the mergers, but I think we have taken a very aggressive position with regard to challenging the most recent oil company mergers, but I think that we need to go back and take a look and find 

out whether that aggressive position actually resulted in the kinds 

of positive benefits that we had hoped. 

Senator WYDEN. I will hold the record open for anybody on the 

Commission, either the Chairman or any individual Member who 

can give me some information with respect to anything concrete, 

specific, that was done to help the West Coast consumer, because 

I cannot find a single thing out there, and in the interest of fairVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00054 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
51

ness the record will be open and we will await the Commission or 

any individual commissioner’s opinion on it. 

Unless you all have anything further, we will excuse you at this 

time. Does anybody want to add anything further? 

[No response.] 

Senator WYDEN. You are excused. 

Our next panel, Mr. Charlie Mendoza, member, Board of Directors, AARP; Mr. Lawrence Sarjeant, U.S. Telecom Association; Mr. 

Robert Wientzen, Direct Marketing Association; Mr. Harry 

Schwartz, Center for Democracy and Technology; Dennis Alldridge, 

President, Special Olympics-Wisconsin; and Mr. Lou Cannon, 

President of the DC Lodge of the Fraternal Order of Police. If you 

all would come forward. 

All right, gentlemen, we welcome you, and it is gentlemen on this 

panel. Mr. Mendoza, we note that you have got kind of a time 

crunch, so why don’t we begin with you. We are going to make your 

prepared statements a part of the record in their entirety. I note 

that there is almost a kind of physical compulsion to read a statement when you come, but we will put it in the record in its entirety, and if you can just talk a few minutes, that will give us a 

chance to get into your issues. 

Mr. Mendoza, welcome. 

STATEMENT OF CHARLES MENDOZA, MEMBER,

AARP BOARD OF DIRECTORS 

Mr. MENDOZA. Thank you very much, Mr. Chairman. I really appreciate—and I apologize, I have to be sneaking out of here, but 

I am Charlie Mendoza, and I am a member of the AARP Board of 

Directors, and on behalf of our membership, I really want to thank 

you for allowing us to be here this morning to discuss the performance of the Federal Trade Commission in fulfilling its mission, and 

I think that our constituency, which is now over 35 million consumers over the age of 50, we recognize the importance of the role 

that the Federal Trade Commission plays in protecting the wide interests of consumers on many, many issues, and we do support the 

FTC in its efforts to serve the Nation as its consumer protection 

agency, and we really do commend it for adapting to address these 

evolving deceptive practices despite, I guess, many limited resources. 

But my testimony here today will focus on the Commission’s proposal to amend the telemarketing sales rule, and AARP strongly 

supports the FTC’s goal of implementing a national Do-Not-Call 

category, or registry, preventing interference with the caller’s identification services and eliminating the improper use by telemarketers of preacquired account information. 

Additionally, you will see in our submission that it touches on 

other issues under the jurisdiction of the Commission such as the 

FTC’s work on the funeral rule identity theft and misleading or deceptive product advertisements. AARP’s interest, though, in the 

telemarketing sale rules and the concerns about telemarketing are 

longstanding. 

We have been doing this for a long, long time, the educative effort, and since the adoption of the rule in 1995 we at AARP have 

really dedicated significant resources in educating the consumers 

52

about telemarketing fraud, and I have been personally all across 

the Nation talking on this issue with Federal, State, and local law 

enforcement agencies. 

We have also worked with State legislators to enact telemarketing legislation. In fact, my own State of Georgia was one of 

the first to enact a telemarketing law. AARP is a strong supporter 

of the existing rule, and we believe that the Commission’s recommended additions to the rule will make it even better. 

The rule has empowered law enforcement agencies to prosecute 

unlawful telemarketers, and I think it has held legitimate telemarketers to established standards of conduct. It also has provided 

the States with a floor of consumer protection, and many States 

have been successful in raising that floor. Close to 30 States have 

expanded upon the rule’s protections and prohibitions in developing 

State-specific laws and regulations that better protect the consumers within their States. 

The Commission’s proposal to implement a national Do-Not-Call 

registry, I think, is a well-reasoned approach to address the concern that our members have expressed regarding their inability to 

stem the volume of telemarketing calls, particularly in States that 

lack Do-Not-Call laws. 

Provided it is properly implemented to benefit the consumers, the 

establishment of the registry should be substantial. A national DoNot-Call listing would supply consumers with a sense of comfort 

along with a return of control over their telephone. 

We are pleased that the prohibition applies to all calls within the 

jurisdiction of the Commission, including calls soliciting charitable 

contributions initiated by a for-profit entity. We think that the expanded jurisdiction which has been afforded the FTC through the 

enactment of the USA Patriot Act and its amendments is welcome. 

It now prevents questionable organizations soliciting on behalf of 

sound-alike charities from calling consumers, while allowing the 

local church, fire department, and fraternal organization to continue their legitimate funding appeals. 

Doing so allows credibility to the caller, and allows the call recipient to make contribution decisions based on the merits, with 

less concern about whether the caller is representing a legitimate 

group. 

AARP is also pleased that the FTC is considering expanding the 

scope of the rule’s coverage by eliminating the exemption for common carriers. Taking such action is consistent with the purpose of 

implementing a Do-Not-Call registry, which is reducing the number 

of unwanted telemarketing calls to the consumer. We believe that 

a joint effort between the Federal Communications Commission 

and the Federal Trade Commission to include common carriers 

under the Do-Not-Call provision of the telemarketing sales rules 

would reduce confusion and lead to a more comprehensive registry. 

The national Do-Not-Call registry would complement the existing 

State Do-Not-Call lists. 

The continued ability of the States to protect their residents and 

to enforce their rules is a strong reason not to preempt them with 

the establishment of the registry. While the registry will provide 

much needed relief to consumers across the country, some States 

will offer consumers even more. 

53

AARP fully supports the Commission’s efforts to prohibit the 

blocking of caller identification, Caller ID. The proposed changes to 

the rules that will require the disclosure of the caller or the organization’s actual name and telephone number are to be applauded. 

We believe that consumers who spend money on Caller ID services 

should be able to use the product for its intended purpose. Adoption of the call blocking provision of the rule will return control of 

the telephone where it belongs, in the hands of the consumer. 

I see the amber light is coming on, and they wrote more than I 

really need to say, but the bottom line here is that we believe this 

registry will support, will strengthen particularly our consumers, 

people like me who have a heck of a time hanging up. We listen 

to these calls. We have had the training, we have had the education, but it is still difficult, and so on behalf of our members, we 

would like you to consider that, Mr. Chairman. 

[The prepared statement of Mr. Mendoza follows:]

PREPARED STATEMENT OF CHARLES MENDOZA, MEMBER, AARP BOARD OF DIRECTORS

Chairman Dorgan and Members of the Committee: 

My name is Charlie Mendoza and I am a member of AARP’s Board of Directors. 

On behalf of AARP and its 35 million members, thank you for inviting us here this 

morning to discuss the performance of the Federal Trade Commission (FTC) in fulfilling its mission. AARP recognizes the important role that the Federal Trade Commission plays in protecting the interests of consumers on a wide range of issues. 

We support the FTC in its efforts to serve as the Nation’s consumer protection agency and commend it for adapting to address evolving and troublesome deceptive practices despite limited resources. 

Our testimony today will focus on the Commission’s proposal to amend the Telemarketing Sales Rule. AARP strongly supports the FTC’s goals to implement a national Do Not Call registry, prevent interference with Caller Identification services 

and eliminate the improper use by telemarketers of preacquired account information. Additionally, our testimony will touch on other issues under the jurisdiction 

of the Commission such as death care, identity theft and advertising restrictions. 

Telemarketing Sales Rule 

AARP’s interest in the Telemarketing Sales Rule and concerns about telemarketing abuses are long-standing. Seven years ago we were active participants 

in the original rulemaking proceeding. Since the adoption of the Rule in 1995, AARP 

has dedicated significant resources to educating consumers about telemarketing 

fraud and to working with federal, state and local law enforcement agencies to combat it. We have also worked with state legislatures to enact state telemarketing legislation. The existing Rule has supported these efforts and we believe that the Commission’s recommended additions will strengthen the Rule. 

AARP’s strong support of the Telemarketing Sales Rule is well documented both 

at the Commission and here in the Congress through our filed comments, testimony 

and participation in FTC-led workshops. The Rule has served as a foundation from 

which AARP has been able to mount education and awareness campaigns. Our advocacy efforts have built upon the Rule’s provisions regarding disclosures, prohibitions, and enforcement mechanisms. We have also conducted research related to the 

Rule, some of which will be described later in these comments. 

The Rule has also empowered law enforcement agencies to prosecute unlawful 

telemarketers and helped legitimate telemarketers to establish standards of conduct. The existence of the Telemarketing Sales Rule has improved the ability of federal, state, and local law enforcement officials to take action against telemarketing 

firms, and specific violations of the Rule have led to prosecutions and, in some cases, 

remuneration for victims. 

Finally, the Rule has provided the states with a floor of consumer protection—

and many have been successful in raising that floor. Close to thirty states have expanded upon the Rule’s protections and prohibitions in developing state-specific 

laws and regulations that better protect consumers. At least eleven of the states 

have enacted laws using provisions from an AARP model law building upon the 

Rule, and additional states are in the process of considering comprehensive telemarketing legislation. In fact, recent AARP surveys conducted in New Jersey, MinVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00057 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
54

1 AARP NJ Telemarketing and ‘‘Do Not Call’’ List Survey (January 2002); AARP Michigan 

Telemarketing and ‘‘Do Not Call’’ List Survey (April 2002); AARP Minnesota Telemarketing and 

‘‘Do Not Call’’ List: An AARP Survey (December 2001). 

nesota and Michigan found that an overwhelming percentage of survey participants 

favor additional state laws to prevent unfair, misleading, or deceptive telemarketing 

practices. 1

National Do-Not-Call Registry 

AARP supports the Commission’s decision to introduce a national Do-Not-Call registry, asking only that it not preempt states’ efforts to establish stronger protections 

for consumers. As proposed, the national Do-Not-Call registry would enable a consumer to call a toll-free number to place his or her phone number on a national list. 

Telemarketers would then be required to access the FTC’s list, removing the numbers of all consumers whose numbers appeared on the registry. 

The Commission’s proposal is a well-reasoned approach to address concerns 

AARP’s members have expressed regarding their inability to stem the volume of 

telemarketing calls, particularly in states that currently lack Do-Not-Call laws. Provided it is properly implemented and strictly enforced, the benefit to consumers of 

the establishment of the registry should be substantial. A national Do-Not-Call listing would supply consumers with a sense of comfort along with a return of control 

over their telephone. 

We are pleased that the prohibition applies to all calls within the jurisdiction of 

the Commission, including calls soliciting charitable contributions initiated by forprofit entities. The expanded jurisdiction accorded the FTC through enactment of 

the Uniting and Strengthening America by Providing Appropriate Tools Required to 

Intercept and Obstruct Terrorism Act (USA PATRIOT Act) amendments is welcome. 

It now prevents questionable organizations soliciting on behalf of sound-alike charities from calling consumers, while allowing the local church, fire department, and 

fraternal organizations to continue their legitimate fundraising appeals. Doing so 

adds credibility to the caller and allows the call recipient to make a contribution 

decision on the merits, with less concern about whether the caller is representing 

a legitimate group. 

AARP is also pleased that the FTC is considering expanding the scope of the 

Rule’s coverage by eliminating the exemption for common carriers. Taking such action is consistent with the purpose of implementing a Do Not Call registry, which 

is to reduce the number of unwanted telemarketing calls to the consumer. We believe that a joint effort between the Federal Communications Commission and the 

FTC to include common carriers under the Do Not Call provisions of the Telemarketing Sales Rule would reduce confusion, leading to a more comprehensive registry. 

The national Do-Not-Call registry would complement existing state Do-Not-Call 

lists. AARP has been an active participant across the country on behalf of state DoNot-Call lists. The continued ability of the states to protect their residents and to 

enforce their rules is a strong reason not to preempt them with the establishment 

of the registry. Statements by the Commission that ‘‘state requirements should be 

preempted only to the extent that the national Do-Not-Call registry would provide 

more protection to consumers’’ support our position and are consistent with AARP 

principles that federal consumer protections should serve as a floor, not a ceiling. 

While the registry will provide much needed relief to consumers across the country, 

some states will offer consumers even more. 

Call Blocking 

AARP fully supports the Commission’s efforts to prohibit the blocking of caller 

identification (Caller ID) information. The proposed changes to the Rule that will 

require the disclosure of a caller or organization’s actual name and telephone number is to be applauded. AARP has strongly advocated for this change in business 

practices. In previous comments at the Commission and in support for legislation 

in both the House and the Senate, we have urged implementation of this type of 

requirement. We believe that consumers who spend money on Caller ID services 

should be able to use the product for its intended purpose. Increasingly, consumers 

are asked to ‘‘take responsibility’’ and ‘‘make the best choice,’’ and become ‘‘empowered.’’ Inasmuch as consumers’ purchase Caller ID services to become empowered 

and screen telemarketers, they should be able to use these services for this purpose. 

Why would legitimate telemarketers want their name and/or phone number concealed, effectively rejecting a free advertisement? The existing environment that allows telemarketers to block their identifiers places consumers at a disadvantage. 

Not only are consumers unable to identify who is calling as the call arrives, but also 

55

they cannot return a call because the number is unavailable. Adoption of the call 

blocking provision of the Rule will return control of the telephone where it belongs, 

in the hands of the consumer. 

Additionally, AARP has recommended that the name of the charitable organization with a verifiable phone number of the organization appear on the display. This 

would provide consumers with the information necessary to decide if they want to 

pick up the call. It also supplies the consumer with a phone number to call to verify 

that the telemarketer is indeed calling on behalf of the organization and gives the 

consumer a direct link to the charity if questions arise. Further, this approach enables consumers to contact government agencies such as the Better Business Bureau or state Attorney General to verify the legitimacy of the organization, and 

helps prevent consumers from becoming victims. Such a requirement would likely 

benefit legitimate telemarketers as well, since a consumer is more likely to accept 

a call from the American Cancer Society than from a telemarketing firm. 

Preacquired Account Information 

AARP strongly supports the proposed revision to the Telemarketing Sales Rule 

that prohibits the practice of receiving any consumer’s billing information from any 

third party for use in telemarketing, or disclosing any consumer’s billing information to any third party for use in telemarketing. 

A telemarketer’s ability to use preacquired account information without the obtaining this information directly from the consumer is a major concern. Historically, 

preacquired account information has been used in conjunction with free trial offers 

that end up being paid subscriptions, and complimentary memberships in travel 

clubs that show up at the consumer’s doorstep as negative option solicitations, with 

dues or membership fees assessed for inaction. In these cases, not only did consumers honestly believe that they were agreeing to a free-of-charge service, they 

clearly were unaware of the fact that the telemarketer was already in possession 

of billing information. Over and over we hear from consumers that they had no idea 

that money could be taken from their account without their providing an account 

number. This is a deceptive, unfair, and abusive practice that should be prohibited. 

As with any rule or regulation, enforcement of the Telemarketing Sales Rule is 

critical. Equally important is the disclosure of information regarding enforcement 

actions. AARP is very concerned with the lack of national data regarding enforcement actions, the effectiveness of the Rule or even the amount of money that currently being spent on telemarketing. Absent this type of information, it is extremely 

difficult to measure the success of various education efforts and enforcement partnerships, including those in which AARP is engaged. Collecting national telemarketing data that is accessible to the general public would prove beneficial to all 

interested parties. 

In sum, AARP supports the FTC’s efforts to amend the Telemarketing Sales Rule 

to include a national Do Not Call registry with as few exemptions as possible. Implementation of such a rule is clearly in the public’s best interest and should not 

be delayed or weakened. 

Death Care 

Another industry sales rule within the jurisdiction of the FTC that is of importance to AARP and its members is the Funeral Rule. Over the past decade significant change has taken place in the funeral and burial industries. Changes include: 

consolidation of funeral homes and cemeteries; cemeterians providing funeral goods 

and services and funeral directors providing burial goods and services; an increase 

in third-party providers; Internet shopping; and the proliferation of preneed contracts. 

These changes provide consumers with a mixed bag of results—some good, some 

not so good. The Funeral Rule, implemented by the Federal Trade Commission in 

1984, was designed to ensure that ‘‘consumers have access to sufficient 

information . . . ’’ and prohibited misrepresentations ‘‘used to influence consumers’ 

decisions on which goods and services to purchase.’’ The original Rule, however, 

could not have anticipated the changes the industry has undergone. In the interest 

of both consumers and industry, AARP has recommended that the Rule be expanded 

to include all providers of funeral and burial goods and services. 

Expansion of the Funeral Rule by the FTC would better protect consumers and 

provide a ‘‘level playing field’’ to all participants in the funeral and burial goods and 

services marketplace. Even this type of expansion, however, would not alleviate 

some of the problems associated with the sale of preneed contracts. We have therefore also recommended that the Commission include minimum contract standards 

in the revised Rule. We believe that the FTC’s current review of the Funeral Rule 

should lead to action that will address our concerns. 

56

Regarding the current review, while AARP recognizes the difficulty the Commission has with the many demands on their limited resources, we believe the FTC 

should respond to the Funeral Rule review process in the very near future. It will 

be three years next month since comments were due to the Commission. During 

that same interval, the industry has continued to evolve and consumers have continued to fall victim to misleading, deceptive and sometimes criminal behavior on the 

part of death care providers. A Commission decision might not right all the wrongs, 

but it could provide some clarity for consumers and providers alike. 

Other Issues 

An alarming problem confronting consumers is that of identity theft. The act happens quickly and quietly, yet the effects can be devastating and can take literally 

years to clean up. However, the FTC is to be commended for working on behalf of 

consumers to make the rehabilitation of one’s identity a little bit easier. Thanks to 

the Commission’s adoption of the ID Theft Affidavit, a consumer can now fill out 

one form that will alert all of the credit agencies at one time to the plight. Previously, victims were required to report the theft to a number of different credit 

agencies. 

Another area for which the Commission has responsibility are laws that prohibit 

misleading or deceptive advertising. This oversight authority can be particularly important in areas such as labels of foods and nutritional supplements where false and 

misleading claims in advertising may cause persons with serious illness and disease 

to forego proven medical treatments in favor of products glamorized by unsubstantiated claims and potentially risk even greater harm to their health. Inadequate resources unfortunately limit the FTC’s reach in this area. 

That leads to our final point: concern over limited funds. When provided with the 

resources necessary to carry out its mission, the FTC does an excellent job of enforcing the law. Inadequate funding clearly hampers the agency’s effectiveness. 

Despite uneven enforcement, we support the Commission’s efforts to crack down 

on false and misleading advertising, deter fraudulent telemarketers and uncover Funeral Rule infractions. We ask the Congress to recognize the importance of the FTC 

to consumers when making appropriations decisions, granting them the resources 

to effectively enforce the rules they have promulgated. 

Conclusion 

Mr. Chairman, AARP appreciates having the opportunity to testify today in support of the Federal Trade Commission’s efforts to protect consumers. In particular, 

we strongly support the proposed revisions to the Telemarketing Sales Rule, including the national Do Not Call registry, which will benefit consumers and should be 

adopted as proposed with as few exemptions as possible. 

In addition, we hope that the Congress will adequately fund the Commission so 

that it can accomplish the mission it has been given: to enforce consumer protection 

laws. Thank you for providing us with the opportunity to voice our views.

Senator WYDEN. Thank you. Very good. 

Mr. Sarjeant. 

STATEMENT OF LAWRENCE E. SARJEANT, VICE PRESIDENT, 

LAW AND GENERAL COUNSEL, U.S. TELECOM ASSOCIATION 

Mr. SARJEANT. Good morning, Mr. Chairman. Thank you and 

Members of the Subcommittee for giving the United States Telecom 

Association the opportunity to testify and present its views on the 

issue of whether the Federal Trade Commission should be authorized by Congress to have concurrent jurisdiction with the Federal 

Communications Commission over common carrier marketing and 

advertising practices. 

USTA is the Nation’s oldest trade organization representing local 

telephone companies. USTA’s carrier members provide a full array 

of voice and data and video service over wire line and wireless networks. USTA is opposed to giving the FTC concurrent jurisdiction 

with the Federal Communications Commission. USTA is opposed to 

conferring regulatory authority over telecommunications common 

carriers upon another Federal agency, resulting in potentially duVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00060 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
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plicative, conflicting, and costly new regulatory requirements, especially where there is not a clearly demonstrated public interest 

benefit in doing so. 

The FTC, since its creation in 1914, has not had regulatory authority with respect to common carriers. The reason for this exemption is, there is no absence of regulations. There is no void to fill. 

Those who would suggest that the Congress and the FCC have dismantled the regulatory apparatus applicable to the common carrier 

industry are simply wrong. Incumbent local exchange carriers are 

still pervasively regulated by the FCC and the States. 

Yesterday, the FCC adopted revised rules implementing Section 

222 of the Telecommunications Act of 1996 concerning carriers’ use 

of customer proprietary network information, CPNI, in marketing 

products and services. If one looks at 47 Code of Federal Regulations Section 64-2400, one would see that the FCC has detailed requirements for common carriers in rendering customer bills. 

The stated purpose and scope of these truth-in-billing rules is to, 

among other things, aid customers in understanding their telecommunications bills, and to provide them with the tools they need 

to make informed choices in the market for telecommunications 

services. The FCC also has rules implementing Section 227 of the 

Act known as the Telecommunications Consumer Protection Act, 

which limits unsolicited advertisements that use automatic telephone dialing systems, artificial or prerecorded voice messages, and 

fax machines. 

It was during the William Kennard administration that the FCC 

established an enforcement bureau, and the then-Consumer Information Bureau, which is now the Consumer and Governmental Affairs Bureau. Both have made it a priority to ensure that consumers have access to both information about telecommunications 

services and assistance in resolving disputes with common carriers 

providing interstate telecommunications services. 

One of the many responsibilities of the Consumer and Governmental Affairs Bureau is to provide staff assistance to the Consumer and Disabilities Telecommunications Advisory Committee, a 

Federal advisory committee that provides feedback to the FCC on 

a regular basis on issues of interest and concern to consumers generally and the disabilities community. 

The FCC has determined that Section 201(b) of the Communications Act of 1934, as amended, requires that common carriers practices for and in connection with communications services shall be 

just and reasonable, and any such practice that is unjust or unreasonable is unlawful. The FCC has used this Section 201(b) authority to determine that unfair and deceptive marketing practices by 

common carriers constitute unjust and unreasonable practices. The 

FCC has indicated that its authority and actions pursuant to 

201(b) of the Communications Act, as amended, would be guided by 

the principles of truth in advertising, developed by the FTC under 

Section 5 of the FTC Act. 

There is no existing lack of authority. The FCC has already fully 

occupied the field when it comes to interstate communications carriers. Nonetheless, the FCC has worked jointly with the FTC to 

make sure that there are no gaps left between the respective jurisdictions of the two agencies, and I would direct the Subcommittee 

58

to the joint policy statement of the FCC and FTC on March 1 of 

2000. The FCC has been very active from an enforcement perspective in a variety of areas that impact consumers, such as telephone 

solicitation, marketing, slamming, and unsolicited facsimiles. This 

enforcement is accomplished through the Telecommunications Consumer Division of the FCC Enforcement Bureau. I will not identify 

all of the enforcement actions, but there is a website that the FCC 

has, and this division has listed all the different enforcement actions and the fines that have been assessed. 

As Chairman Powell has indicated in testimony before both the 

House and the Senate, the FCC is dedicated to putting more resources into enforcement, including litigation resources. Chairman 

Powell also called upon the Congress to substantially raise the forfeiture amounts for violations of the Communications Act, and Congress has responded. Extending concurrent jurisdiction to the FTC 

over telecommunications common carriers would be counterproductive, as it would lead to confusion. Common carriers would 

not know which agency to rely on for advice, or which agency’s 

compliance standards to follow. 

The FTC request for concurrent jurisdiction appears to be a solution in search of a problem. There is no barrier to effective consumer protection with respect to common carriers. There being no 

compelling demonstration of a problem in need of fixing, USTA ask 

that you not authorize the FTC to assert concurrent jurisdiction 

with the FCC over telecommunications common carriers. 

Thank you. 

[The prepared statement of Mr. Sarjeant follows:]

PREPARED STATEMENT OF LAWRENCE E. SARJEANT, VICE PRESIDENT, LAW AND

GENERAL COUNSEL, U.S. TELECOM ASSOCIATION

Thank you Mr. Chairman and Members of the Committee for giving the United 

States Telecom Association (USTA) the opportunity to testify and present its views 

on the issue of whether the Federal Trade Commission (FTC) should be authorized 

by Congress to have concurrent jurisdiction with the Federal Communications Commission (FCC) over common carrier marketing and advertising practices. I am Lawrence E. Sarjeant and I serve as Vice President Law and General Counsel of USTA. 

I appear at the hearing today on behalf of the entire association. USTA is the nation’s oldest trade organization for the local telephone industry. USTA’s carrier 

members provide a full array of voice, data and video services over wireline and 

wireless networks. 

A. Telecommunications Common Carriers Are Already Subject to

Regulation of Their Market and Advertising Practices by the FCC and 

the States 

USTA would be strongly opposed to giving the FTC concurrent jurisdiction. USTA 

is not opposed to regulatory authorities both state and federal having the jurisdiction to police, enforce, remedy and regulate these practices. What USTA is opposed 

to is adding one more federal regulatory body resulting in potentially duplicative, 

conflicting and costly new regulatory requirements. 

The FTC since its creation in 1914 has not had regulatory authority with respect 

to common carriers. This exemption for common carriers has been recognized by the 

federal judiciary (See, e.g., FTC v. Miller, 549 F.2d. 452, 7th Cir, 1977), and it has 

been reaffirmed by Congress. The reason for this exemption is that there is no absence of regulation—there is no void to fill. Common carriers were regulated in 1914 

by the Interstate Commerce Commission, and when the FCC was created by Congress in 1934, the regulatory authority over telephone common carriers was transferred to it. The exemption from FTC authority was continued. Incumbent local exchange carriers are still pervasively regulated by the FCC and the States. 

59

B. The FCC Has Determined That Telecommunications Carrier Marketing 

Practices Is Subject to Section 201(b) 

The FCC has determined that Section 201(b) of the Communications Act of 1934, 

as amended ‘‘requires that common carriers’ practices . . . for and in connection 

with . . . communication service, shall be just and reasonable and any 

such . . . practice . . . that is unjust or unreasonable is hereby declared to be 

unlawful . . . ’’ (FCC–FTC Joint Policy Statement, FCC 00–72, 2/29/2000, para. 4). 

The FCC has used this Section 201(b) authority to determine that unfair and deceptive marketing practices by common carriers constitute unjust and unreasonable 

practices. In February 2000, when the FCC and the FTC issued a Joint Policy Statement for Advertising of Dial-Around and other long distance services to consumers, 

the FCC indicated that its authority and actions pursuant to Section 201(b) of the 

Communications Act, as amended, would be guided by the ‘‘principles of truth in 

advertising developed by the FTC under Section 5 of the FTC Act.’’ Consequently, 

there is no existing lack of legal authority. The FCC has already fully occupied the 

field when it comes to interstate communications carriers. With respect to intrastate 

communications, the states continue to have full authority, pursuant to existing 

state laws. 

C. The FCC Has Taken Enforcement Actions Against Telecommunications 

Carriers’ Marketing Practices 

The FCC has not only recognized that it has statutory authority to take action 

against unfair and deceptive practices by common carriers, it has taken affirmative 

enforcement actions pursuant to that authority. The FCC has been very active from 

an enforcement perspective in a variety of areas that impact consumers such as telephone solicitation marketing, slamming, and unsolicited facsimiles. This enforcement is accomplished through the Telecommunications Consumers Division of the 

FCC Enforcement bureau. The following are marketing enforcement actions taken 

by the FCC as identified on its’ website—

MARKETING ENFORCEMENT ACTIONS

04–01–2000 $1,000,000 in total fines proposed in Notice of Apparent Liability 

against NOS Communications, Inc. (NOS) and Affinity Network Incorporated 

(ANI) for apparent unfair and deceptive marketing practices

12–07–2000 Order on Reconsideration of 7/17/00 Order imposing a forfeiture 

against Business Discount Plan, Inc. (denied in part, granted in part). Forfeiture adjusted to $1,800,000.

03–01–2000 $100,000 Consent Decree with MCI WORLDCOM for marketing 

and advertising practices

As Chairman Powell has indicated in testimony before both the House and Senate, the FCC is dedicated to putting more resources into enforcement, including litigation resources. Chairman Powell has also called upon the Congress to substantially raise the forfeiture amounts for violations of the Communications Act. The 

House in H.R.1542, has responded to this request by means of the Upton Amendment added H.R. 1542 on the House floor. H.R.1542 as passed by the House, provides the FCC with cease and desist authority in common carrier matters, while 

also increasing the future amount to up to $10,000,000. Violations of cease and desist orders will result in forfeitures of up to $20,000,000. 

USTA, therefore, believes that the FCC has taken steps to enhance enforcement 

efforts, and it has taken enforcement actions with respect to the marketing and advertising issues in question. There is, in USTA’s judgment, no need to complicate 

the issue by adding still another independent regulatory commission to the mix. It 

would be one thing if the FCC did not have the requisite authority, or if it did have 

the authority, but failed to exercise it or exercise it properly. This is not the case. 

There is no regulatory failure that USTA has observed. Certainly, USTA members 

do not think so. 

D. Adding Concurrent FTC Jurisdiction Over Marketing Practices of

Telecommunications Carriers Would Be In Conflict with

Congressionally Developed Regulatory Scheme 

The FCC comprehensively regulates marketing, including telemarketing, by common carriers and their agents. To add concurrent FTC jurisdiction would be in conflict with the comprehensive regulatory scheme developed by Congress and enforced 

by the FCC. 

Relevant cases in point are: first, under Section 227 of the Communications Act 

of 1934, as amended (Telephone Consumer Protection Act, TPCA), the FCC exercises general jurisdiction over telemarketing by common carriers as well as by their 

60

non-carrier affiliates. Significantly, the TPCA and the FCC’s implementing regulations apply to both interstate and intrastate telemarketing by all carriers, non-carriers and their agents; second, Section 222 of the Communications Act, as amended 

and the FCC’s implementing regulations address how telecommunications carriers 

may use Customer Proprietary Network Information (CPNI) they obtain from their 

customers in marketing products and services, including in the course of inbound 

telemarketing; and third, Sections 272 through 276 of the Communications Act of 

1934, as amended and the FCC’s implementing regulations create an additional set 

of rules governing marketing activities by Bell Operating Companies and their noncarrier affiliates. 

Extending concurrent jurisdiction to the FTC over telecommunications common 

carriers would be counterproductive, as it would lead to confusion. Common carriers 

would not know which agency to rely on for advice or which agency’s compliance 

standards to follow. There being no compelling demonstration of a problem in need 

of a solution, USTA asks that you not authorize the FTC to assert concurrent jurisdiction with the FCC over telecommunications common carriers. 

Thank you.

Senator WYDEN. Very good. 

Mr. Wientzen. 

STATEMENT OF H. ROBERT WIENTZEN, PRESIDENT AND CEO, 

DIRECT MARKETING ASSOCIATION, INC. 

Mr. WIENTZEN. Thank you, Mr. Chairman. I am Bob Wientzen. 

I am President and CEO of the Direct Marketing Association. We 

are the largest trade association for businesses interested in interactive and database marketing. We have about 5,000 member organizations here in the United States and 50 other countries. We represent all aspects of the teleservices industry both on the profit and 

non-profit side. They are members of our association, and any 

change in the legal requirement for this segment is necessarily 

going to have a significant impact on our members and on that segment of the industry. 

Telemarketing makes an important contribution to the U.S. econ- omy. Outbound consumer telemarketing generated about $274 billion in sales in 2001, and it is estimated to employ a little over 4 

million workers. The telemarketing industry employs a high number of minorities and individuals in welfare to work programs, and 

telemarketing companies often are located in small towns, where 

they are the primary employer. It is an inseparable part of an even 

larger $661 billion industry that contributes close to 6 percent of 

the U.S. GDP, and more than 6 million jobs to the U.S. economy. 

In addition, telemarketing is a mainstay for obtaining charitable 

contributions in the United States. 

I want to acknowledge the Commission for its efforts in stopping 

fraud and deception through increased enforcement of existing 

laws, rather than pushing for new laws. The Commission already 

has broad authority to enforce against bad actors in the marketplace. We have heard a good bit about that this morning, and we 

at the DMA continue to work closely with the Commission on stopping fraud through referrals of cases on a regular basis. 

I want to focus our testimony this morning on the Commission’s 

Do-Not-Call registry proposal and related issues. The DMA believes 

the Commission has laudable goals in proposing an amendment to 

the telemarketing sales rule and has filed comments in the proceedings, as well as participated in its workshops. I believe that a 

focus on enforcement rather than additional regulation is the appropriate course to take in respect to combatting what is admitVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00064 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
61

tedly cases of abusive telemarketing. For this reason, the DMA opposes the creation of a Government-administered Do-Not-Call list 

as currently proposed by the Commission. 

We believe the Commission’s proposal extends way beyond the 

Telemarketing Consumer Fraud and Abuse Prevention Act’s purpose of reducing abusive and deceptive practices, and that it will 

interfere with legitimate telemarketing activities that comprises a 

significant portion of our economy. 

Likewise, we believe the proposal restricts legitimate commercial 

speech that is protected by the First Amendment. This is particularly the case with respect to the limitation on businesses being 

able to communicate with their existing customers who are on a 

national Do-Not-Call list. 

Now, we believe the Commission’s authority under the TSR does 

not extend to the creation of a national Do-Not-Call list. At the 

time of the enactment, the Congress specifically stated, and I 

quote, ‘‘The Committee does not intend to limit legitimate telemarketing practices.’’ There is no reference to a Do-Not-Call list in 

either the statutory texts or the legislative history of the Act. However, the Telephone Consumer Protection Act, referred to as the 

TCPA, demonstrates that where Congress wanted the agency to 

consider such a mechanism, it did so in a statute. 

Specifically, the TCPA authorized the Federal Communications 

Commission to conduct a rulemaking proceeding in which it was to 

consider a number of measures to protect residential telephone 

subscribers’ rights in an efficient, effective, and economic manner, 

and without the imposition of any additional charge to telephone 

subscribers. 

Now, the Commission’s current proposal would directly contradict the FCC’s consideration and rejection of a national Do-NotCall registry in its rulemaking in 1992. In its rulemaking, the FCC 

found that a national Do-Not-Call list would be costly, and I will 

quote here again: ‘‘Costly and difficult to establish and maintain in 

a reasonably accurate form.’’ Attached to this testimony and submitted for the record are the comments we have submitted in this 

proceeding in conjunction with the U.S. Chamber of Commerce, 

which set forth in detail the legal and policy reasons against the 

Commission’s creating a Do-Not-Call list. 

Now, we are not opposed to the concept of a national Do-Not-Call 

list. The DMA has, in fact, had its telephone preference service in 

place since 1985. There are currently about 4.7 million consumers 

on our Do-Not-Call list. The TPS file covers consumer telemarketers with no exceptions or exemptions. Any consumer who 

wants to reduce the number of unwanted telemarketing calls they 

receive can have the name placed on the list for free, and I note 

with emphasis that the proposed commission’s list, unlike the DMA 

list, would not cover common carriers, as you have already heard, 

or the airlines, or banking, or insurance industries, among others, 

whereas our list does apply to those. 

With this background, I want to address specific concerns that 

the DMA has regarding the Commission going ahead with such a 

list. These areas are set forth in more detail in a letter we have 

submitted and filed with the Commission on behalf of not only the 

association, the Direct Marketing Association, but five other assoVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00065 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
62

* The information referred to has been retained in Committee files. 

1These numbers are from a forthcoming WEFA Group study, Economic Impact, U.S. Direct 

and Interactive Marketing Today, 2002 Forecast 2The Faces and Places of Outbound Teleservices in the United States: The People and Places 

that Would Be Harmed by a Decline in Telemarketing, The Direct Marketing Association, Inc., 

June 2002. 

ciations. * These issues include the need for an exemption to the 

list that would allow businesses to contact customers with whom 

they already have an existing relationship, harmonization of the 

national list with more than the 20-state list that already exists, 

measures to ensure the accuracy of the list, and we have significant concerns in that area, and further evaluations of the actual 

cost of the list so as not to impose a prohibitive cost on telemarketers. 

We think there are key reasons for these issues to be considered, 

and again would stress the fact that we believe that the existing 

private list conducted for a number of years more than adequately 

deals with the concerns of consumers as evidenced, Senator, by the 

fact that in those States that have do-not-call lists, the vast majority of the people who have already been on the DMA’s list do not 

sign up for these lists. They in fact find that they work just fine, 

and so we would submit to you that the current FTC proposal is 

inappropriate, and duplicative of the private sector and the States’ 

existing lists. 

[The prepared statement of Mr. Wientzen follows:]

PREPARED STATEMENT OF H. ROBERT WIENTZEN, PRESIDENT AND CEO,

DIRECT MARKETING ASSOCIATION, INC. 

I. Introduction 

Good morning, Senator Dorgan, and Members of the Subcommittee, and thank 

you for the opportunity to appear before you as the Subcommittee discusses reauthorization of the Federal Trade Commission. I am Robert Wientzen, President and 

CEO of the Direct Marketing Association, Inc. (‘‘The DMA’’). 

The Direct Marketing Association is the largest trade association for businesses 

interested and involved in interactive and database marketing, with approximately 

5,000 member organizations from the United States and more than 50 other nations. Founded in 1917, its members include direct marketers from every business 

segment, as well as the non-profit and electronic marketing sectors. All aspects of 

the teleservices industry, both profit and non-profit, are represented in The DMA’s 

membership. Any change in the legal requirements for this segment necessarily 

would have an impact on The DMA and its members. 

Telemarketing makes an important contribution to the United States economy. 

Outbound consumer telephone marketing generated $274.2 billion in sales in 2001 

and is estimated to employ 4.1 million workers. 1 The telemarketing industry employs a high number of minorities and individuals in welfare-to-work programs, and 

telemarketing companies often are located in small towns where they are a primary 

employer. 2 It is an unseparable part of an even larger $661 billion industry that 

contributes almost 6 percent of U.S. GDP and more than 6 million jobs to the U.S. 

economy. In addition, telemarketing is a mainstay for obtaining charitable contributions in the United States. 

I want to acknowledge the Commission for its approach in stopping fraud and deception through increased enforcement of existing laws rather than through pushing 

for new laws or adopting new rules. The Commission already has broad authority 

to enforce against bad actors in the marketplace. We at The DMA continue to work 

closely with the Commission on stopping fraud through referral of cases to the Commission on a regular basis and industry and consumer education on fraud prevention. I would like to focus our testimony today on the Commission’s do-not-call registry proposal and related issues. The DMA believes that the Commission has laudable goals in its proposed amendments to the Telemarketing Sales Rule (‘‘TSR’’), 

and has filed comments in the proceeding as well as participated in its workshop. 

63

3 H.R. Rep. No. 103–20, at 9 (1993), reprinted in 1993 U.S.C.C.A.N. 1626. 4 47 U.S.C. § 227(c)(2). 

5 Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 7 FCC 

Rcd 8752, ¶ 14 (1992) (the ‘‘TCPA Order’’). 

* The information referred to has been retained in Committee files. 

I believe that the focus on enforcement rather than additional regulation also is the 

appropriate course to take with respect to combating abusive telemarketing. 

For this reason, The DMA opposes the creation of a government-administered national do-not-call list as currently proposed by the Commission. We believe that the 

Commission’s proposal extends beyond the Telemarketing and Consumer Fraud and 

Abuse Prevention Act’s purpose of reducing abusive and deceptive practices and will 

interfere with the legitimate telemarketing activities that compose this significant 

portion of the economy. Likewise, we believe that the proposal restricts legitimate 

commercial speech that is protected by the First Amendment. This is particularly 

the case with respect to the limitation on businesses being able to communicate 

with their existing customers who are on a national do-not-call list. 

We believe that the Commission’s authority under the TSR, prescribed by the 

Congress, does not extend to the creation of a national do-not-call list. At the time 

of enactment, the Congress specifically stated that ‘‘... the Committee does not 

intend to limit legitimate telemarketing practices.’’ 3 There is no reference to a donot-call list in either the statutory text or the legislative history of the Act. However, the Telephone Consumer Protection Act, referred to as the ‘‘TCPA,’’ demonstrates that where Congress wanted an agency to consider such a mechanism, it 

did so in a statute. Specifically, the TCPA authorized the Federal Communications 

Commission to conduct a rulemaking proceeding in which it was to consider a number of measures to protect residential telephone subscriber rights in an ‘‘efficient, 

effective, and economic manner and without the imposition of any additional charge 

to telephone subscribers.’’ 4

The Commission’s proposal would directly contradict the FCC’s consideration—

and rejection of—a national call registry in its rulemaking implementing the TCPA 

in 1992. In its rulemaking, the FCC found that a national do-not-call list would be 

‘‘costly and difficult to establish and maintain in a reasonably accurate form.’’ 5 Attached to this testimony and submitted for the record are the comments that The 

DMA submitted in this proceeding in conjunction with the United States Chamber 

of Commerce, which set forth in detail the legal and policy reasons against the Commission creating a do-not-call list. * 

The DMA, of course, is not opposed to the concept of a national do-not-call list. 

The DMA has had its Telephone Preference Service (‘‘TPS’’) in place since 1985. 

There are currently 4.7 million consumers on the TPS do-not-call list. The TPS covers consumer telemarketers with no exceptions or exemptions. Any consumers who 

want to reduce the number of unwanted national telemarketing calls they receive 

can have their names placed on the TPS list for that purpose free of charge. I note 

that the proposed Commission list, unlike the DMA list, would not cover common 

carriers, or the airline, banking, or insurance industries, among others. 

With this background, I want to address specific concerns with the Commission’s 

proposal that The DMA believes should be addressed if the Commission proceeds 

with a do-not-call list. These areas are set forth in more detail in a letter also submitted for the record with my testimony that was filed with the Commission on behalf of The Direct Marketing Association, the American Teleservices Association, the 

Electronic Retail Association, the Magazine Publishers of America, the National Retail Federation, and the Promotion Marketing Association collectively. *

These include:

• The need for an exemption to the list that would allow businesses to contact 

customers with whom they have an established business relationship.

• Harmonization of any national list with the more than 20 states that have donot-call lists, so that businesses and consumers can deal with one list.

• Measures to ensure the accuracy of the list.

• Further evaluation of the actual costs of such a list so as not to impose prohibitive costs on businesses to comply.

II. An Exemption to the Proposed National Do-Not-Call List Should be

Created to Allow Businesses to Contact Individuals with Whom They 

Have an Established Business Relationship. 

Of these issues, the most critical to The DMA is the creation of an exemption that 

will preserve the ability of businesses to contact those individuals with whom they 

64

6TCPA Order at ¶ 34. The sponsors of federal legislation to regulate unsolicited commercial 

electronic mail have incorporated a similar established business relationship exemption in their 

bills, including H.R. 3113, which passed the U.S. House of Representatives by a vote of 427 to 

1 in 2000. 

have an established business relationship who register for the do-not-call list. In 

other areas of the law governing marketing, exemptions exist for contacting individuals when such a relationship exists. For example, the FCC in its rules implementing the TCPA provides for marketing to established customers using both fax 

and telemarketing. The FCC concluded in this rulemaking that ‘‘a solicitation to 

someone with whom a prior business relationship exists does not adversely affect 

subscriber privacy interests. Moreover, such a solicitation can be deemed to be invited or permitted by a subscriber in light of the business relationship.’’ 6 This reasoning is equally applicable under the TSR. 

It is unrealistic to expect consumers who sign on to a national do-not-call list to 

understand that, by doing so, businesses with which they have relationships will no 

longer be permitted to contact them to offer goods and services. It is for this very 

reason that almost all of the states that have implemented do-not call lists have created exemptions for customers with a pre-established business relationship. The 

Commission proposes that, after signing onto the do-not-call list, consumers with existing business relationships can exercise their choice to receive calls from specific 

companies through the companies’ obtaining ‘‘express verifiable written authorization.’’ In these tough economic times, where businesses are struggling to attract new 

customers, it hardly seems appropriate to require written permission to call an existing customer. 

III. Any National Do-Not-Call List Should Be Harmonized with State

Do-Not-Call Lists. 

The next issue that I would like to discuss is that of harmonization of any national list with state lists. Any government-mandated national do-not-call list that 

is established must be harmonized with state lists so that companies could comply 

with one list. In the past several years, many states have enacted do-not-call lists. 

The current framework, in which telemarketers are required to comply with more 

than 20 state laws, creates significant burdens on businesses. A preferable approach 

would limit such burdens by creating one list to which marketers could subscribe 

that would encompass state lists and a national list. 

This harmonization must extend beyond compilation and administration of the 

list to include exemptions and enforcement standards as well for interstate calls. 

However, such is not the case as envisioned by the FTC in its TSR proposed revisions. 

IV. Steps Should Be Taken to Help Ensure the Accuracy of a Do-Not-Call 

List. 

The national do-not-call list as proposed by the Commission will not accurately 

reflect individuals who place their names on the list because society is highly mobile, with telephone numbers changing regularly. The Commission proposes that its 

list be based upon a person’s placement of his or her ‘‘name and/or telephone number’’ on the Commission-maintained registry and the capture of Automatic Number 

Identification (‘‘ANT’’) information. It is estimated that phone numbers change for 

16 percent of the U.S. population on an annual basis. Phone numbers are usually 

reassigned approximately 90 days after an individual has moved and is no longer 

using the number. 

A list with solely name or phone number would be outdated annually, if not sooner. Such a scenario would not honor consumers’ preferences. In fact, it could result 

in individuals who did not place their names/numbers on the list not receiving calls 

that they may want. The DMA’s TPS, by obtaining name, address, and telephone 

number, can regularly be checked against the U.S. Postal Service’s National Change 

of Address List. The Commission’s proposal would not employ similar measures to 

ensure an accurate list. An approach that solely captures name and phone number 

would require at a minimum an annual renewal to afford meaningful choice. 

V. The Costs Estimated by the Commission Do Not Accurately Reflect the 

Costs of Running a National List. 

The Commission’s forecasted annual $5 million cost of administering a national 

do-not-call list far underestimates the true costs of administering such a list. Under 

the current proposal based on this estimate, the Commission will charge national 

telemarketers $3,000 per year to purchase the do-not-call list. The Commission does 

not specify who will bear the burden of the additional costs in the probable event 

that this estimated cost for administration of the do-not-call list proves inadequate. 

65

* The information referred to has been retained in Committee files. 

The DMA and its members are concerned that, if in fact it costs significantly more 

to administer the do-not-call list, such costs not be passed on to marketers. 

As described above, the Commission’s current proposal will not create an accurate 

list. It will be far more expensive to compile a list that is capable of being accurate 

and authenticated because obtaining additional information beyond name and/or 

number cannot be automated. For example, Experian, Inc., a company that offers 

marketing lists to businesses, offers a consumer opt-out from being placed on marketing lists that result from ‘‘prescreening.’’ In order to ensure accuracy and 

verification to honor the opt-out, Experian uses automated technology that confirms 

an individual’s telephone number, address, and Social Security Number. Experian 

estimates the cost per person solely to collect and input a consumer’s information 

to be $1.28. This does not include the costs of administering the list. If, as some 

project, the Commission’s proposed list will result in 64 million names, using the 

$1.28 figure, such a list would cost more than $80 million in the first year alone. 

Similarly, the FCC found the high costs of such a database, ranging from $20 million to $80 million in the first year and $20 million per year thereafter, to be prohibitive. 

Additionally, we note our belief that the Commission’s proposal to assess such fees 

violates both OMB Circular A–25 and the Independent Offices Appropriations Act, 

both of which we believe would require a specific delegation from Congress to assess 

such charges. For the record, we have attached our filing to the Commission regarding the issue of do-not-call list user fees, which sets forth our legal analysis of this 

issue. * 

VI. Agents of Charities Should Not Be Subject to the Do-Not-Call List. 

The DMA, through its Nonprofit Federation, has members who are very concerned 

about an imposition of a do-not-call list on charities. The Commission proposes that 

agents who perform telemarketing for non-profit charitable organizations would be 

subject to the list. Charitable organizations themselves would not be subject to the 

list. The Commission should not extend the do-not-call list to non-profit organizations’ agents. Such an extension would have devastating economic effects on charities’ ability to raise funds as the number of individuals whom they could contact 

would be severely limited. Likewise, this type of extension to agents of charities 

would create an uneven playing field between those non-profits that have to hire 

a telemarketing firm for cost efficiency reasons, and those that can use internal staff 

to telemarket. 

VII. Transfer of Preacquired Account Information Should Be Permitted for 

Legitimate Business Practices. 

Finally, we would like to take this opportunity to discuss one additional proposed 

amendment to the TSR other than the do-not-call list. The Commission proposes a 

flat ban on the transfer of a consumer’s account information. The Commission bases 

its proposed prohibition on the transfer of preacquired billing information on the belief that ‘‘the sharing of consumers’ pre-acquired billing information is likely to 

cause unauthorized charges to consumers.’’ While again the Commission has laudable goals, its proposal goes beyond deceptive and abusive practices and will limit 

useful and legitimate practices. There are numerous transfers of account information that provide practical efficiencies and benefits to both consumers and businesses. We believe that the Commission’s concerns can best be addressed through 

appropriate informed consent from consumers. 

For example, if a consumer calls and orders outdoor clothing from a merchant and 

is offered by the same sales agent another merchant’s fly-fishing magazine, transfer 

of information should not be prohibited if the customer agrees to the transfer. Likewise, it is a significant benefit to consumers when the customer calls the merchant 

and is then transferred for the second seller to be able to obtain and use information 

such as address and credit card information generated from the first sale. This 

eliminates the need for a consumer to restate to the second sales representative information that was just provided to the first sales representative. Transfer and/or 

use of account information in such scenarios with disclosure to and consent by the 

consumer is inherently more efficient for both the merchant and consumer. 

Similarly, legitimate marketers may elect to conduct joint marketing programs 

pursuant to which one marketer, e.g. an airline, may provide its customers’ names 

and telephone numbers to a hotel chain so that the hotel can solicit that customer 

to book hotel space for the customer’s business or vacation travel. Allowing the marketers to share consumer billing information with the consumer’s informed and exVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00069 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
66

press verifiable consent again makes the transaction easy, convenient, and efficient 

for marketers and consumers alike. 

VIII. Conclusion 

I thank the Chairman and the Members of Subcommittee for the opportunity to 

express the views of The DMA. We know that Congress and this Subcommittee will 

continue to monitor these issues closely and we look forward to working with you.

Senator WYDEN. Very good. 

Mr. Schwartz. 

STATEMENT OF ARI SCHWARTZ, ASSOCIATE DIRECTOR,

CENTER FOR DEMOCRACY AND TECHNOLOGY 

Mr. SCHWARTZ. Senator Wyden, I would like to thank you, Senator Dorgan and the rest of the Subcommittee for having the Center for Democracy and Technology here to testify today. As you 

know, the Center has been following the Federal Trade Commission’s work in the area of privacy closely during the last 7 years. 

During that time, we have been impressed with the Commission’s 

commitment of resources and intellectual capital on this increasingly important issue. 

In my written testimony, I have documented 10 areas where the 

Commission has focused its privacy efforts over the past 2 years. 

Most of the Commission’s privacy work has been tied directly to its 

mission of preventing deceptive and fraudulent business practices. 

For example, in an area where you have concerns, unsolicited commercial e-mail, commonly known as spam, the Commission has focused action on the area of fraudulent scams. I think that the 

Chairman went into the details of some of these scams they have 

gone after. 

In their web privacy sweeps, the Commission has conducted detailed reviews of privacy notices. This has allowed them to convince 

companies to post online privacy notices while helping to prevent 

vague and even fraudulent policies. While this work has been 

largely successful, the actions of the Commission in privacy areas 

enabled by specific statutes demonstrates that the FTC already has 

sufficient expertise to take on general privacy protection responsibilities. 

The Commission has demonstrated the thoughtful and patient, 

yet innovative and ultimately very workable, approach to addressing privacy issues that has transcended through the administrations. An example of this is the Commission’s work to enforce the 

Children’s Online Privacy Protection Act, also slow but steady improvement in the complex area of financial privacy education and 

enforcement. 

In each of these cases the Commission has brought a wide range 

of players to the table to work out difficult issues through an 

iterative and inclusive process. The Commission’s work on the donot-call telemarketing registry also shows this comprehensive approach to developing sound privacy protections. The Commission 

has made it clear that it has no intention to ban telemarketing outright, but instead to give consumers more control over how and 

why calls come to their home during dinner time. 

CDT and the broad coalition of consumer and citizen groups are 

generally pleased with the current rule as proposed. However, we 

would support any effort to give consumers more choices and more 

67

controls at the time of signing up for the registry and after as the 

Commission continues to investigate a balanced approach. 

To give the Commission general authority and other consumer 

privacy related areas, Congress must now pass privacy legislation. 

The Full Commerce Committee has already taken up this step by 

voting in favor of the Online Privacy Protection Act earlier this 

year. We hope that the rest of Congress will follow your leadership 

on this critical issue of corporate trust and accountability. 

Thank you. 

[The prepared statement of Mr. Schwartz follows:]

PREPARED STATEMENT OF ARI SCHWARTZ, ASSOCIATE DIRECTOR, CENTER FOR

DEMOCRACY AND TECHNOLOGY

I. Summary 

Chairman Dorgan and Members of the Committee, the Center for Democracy and 

Technology (CDT) is pleased to have this opportunity to testify about the Federal 

Trade Commission (FTC) and its role in consumer and privacy protection. 

Over the past seven years the FTC’s activities in the area of information privacy 

have expanded. The Commission has convened multiple workshops to explore privacy, issued several reports, conducted surveys, and brought several important enforcement actions in the area of privacy. The Commission’s work has played an important role in bringing greater attention to privacy issues and pushing for the 

adoption of better practices in the market place. 

Two years ago, CDT testified that ‘‘(t)he work of the Federal Trade Commission—

through its public workshops, hearings... provides a model of how to vet issues 

and move toward consensus.’’

Chairman Muris has successfully continued the consultation and education process, working with public interest groups and industry on key issues and taking enforcement actions or instituting rulemakings on several important new fronts. 

CDT and other public interest and consumer groups have been pleased with the 

Commission’s thoughtful approach to creating a National ‘‘Do Not Call Registry.’’ 

The registry will provide consumers with an easy way to cut down on unwanted 

telephone calls and will offer industry a streamlined means of complying with the 

growing number of state and self-regulatory ‘‘Do Not Call’’ lists. 

CDT has also been pleased with the Commission’s extensive new educational effort with the public and industry on privacy notices, ID theft, wireless privacy, 

spam, and other issues. It should be noted that each of these areas is clearly within 

the FTC’s jurisdiction to prevent deceptive trade practices. 

However, CDT would like to see the Commission use its new resources to stop 

unfair information practices as well as deceptive ones. These unfair practices include: lack of meaningful notice and choice; the ability to correct and amend personal information; and inadequate security safeguards. 

It has long been CDT’s belief that unfair information practices are already covered 

by the Commission’s current authority. Yet, the long-standing hesitancy of the Commission to proceed has made it necessary for Congress to confirm this authority in 

law. Although Chairman Muris has suggested that general federal privacy legislation is unnecessary, CDT sees an urgent need for legislation similar to S. 2201, the 

Online Privacy Protection Act, as passed by the full Senate Commerce Committee 

earlier this year. Privacy protections in law—enforced by the FTC—are an essential 

ingredient of building and maintaining consumer confidence in the networked economy. We thank you, Chairman Dorgan, as well as Chairman Hollings and the other 

Senators who worked so hard to move this issue forward in the Committee. CDT 

looks forward to continuing to work with you to see such a measure signed into law. 

II. About CDT 

CDT is a non-profit, public interest organization dedicated to developing and implementing public policies to protect and advance civil liberties and democratic values on the Internet. One of our core goals is to enhance privacy protections for individuals in the development and use of new communications technologies. We thank 

the Chairman for the opportunity to participate in this hearing and look forward 

to working with the Committee to develop policies supporting civil liberties and a 

vibrant communications infrastructure. 

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1 15 U.S.C. 6101–6108

2 16 CFR Part 310

3http://research.aarp.org/consume/njltelemarketing.pdf 4http://www.ftc.gov/bcp/conline/edcams/donotcall/pubs/NDNCR—therule.pdf 

5http://www.ftc.gov/os/comments/dncpapercomments/04/consumerprivacyguide.pdf 

III. The Role of the FTC as the Federal Government’s Leader on Consumer 

Privacy Issues 

The FTC has used its current jurisdiction to take basic steps to protect the privacy of Americans in several innovative and balanced ways. The Commission is the 

government’s leader in consumer privacy policy and should be commended for its 

current work in the area given its limited view of its own jurisdiction. 

Last fall, Chairman Muris said that the Commission would increase privacy enforcement by 50 percent. According to internal figures, the Commission believes it 

is on track to reach this goal. This dramatic increase was on top of the new attention given to privacy issues that had begun five years earlier. 

In particular, over the past two years, the Commission has worked in ten areas 

of interest to CDT: 

1. Telemarketing Sales Rule—‘‘Do Not Call’’ Registry 

Under the 1994 Telemarketing and Consumer Fraud and Abuse Prevention Act, 1

the Commission was given the authority to regulate telemarketing sales. The Commission’s regulations, named the Telecommunications Sales Rules (TSR), were put 

into effect in 1995. 2 The TSR placed some basic time, place and manner restrictions 

on calls and left the door open to revisiting the rule if it was not adequately protecting consumers. 

Some have said that telemarketing is merely an annoyance and not a privacy concern and therefore stronger rules are not necessary. CDT disagrees. We define privacy as individual control over one’s personal information. Control over one’s telephone number and other personal information is central to the privacy issue in the 

modern world. 

The American public seems to agree with us. An AARP study of New Jersey residents showed that 77 percent viewed telemarketing first and foremost as an invasion of privacy; 10 percent a consumer rip-off, and only 2 percent a consumer opportunity. 3

The Commission has responded to the public concern about telemarketing by 

issuing a notice of proposed rulemaking, reopening the TSR and seeking public comment about how the rule could be rewritten to put consumers back in control of 

their telephones. 4 As a part of this process, the Commission has proposed the creation of a ‘‘do not call’’ registry, similar to those already in existence in 15 states. 

On this proposal, over 42,000 public comments have been submitted to the Commission. Over 90 percent of them support the proposed ‘‘Do Not Call’’ registry. 

CDT believes that consumer choice should play an essential role in telemarketing: 

Telemarketing should not be banned, but consumers should be able to decide what 

kind of marketing calls they want and when they want to receive them. Currently, 

consumers must take one of several different approaches to remove their names 

from telemarketing lists. They must (1) sign up for the Direct Marketing Association’s do-not-call list; (2) enlist the help of some or all of twenty different state laws 

that include do-not-call provisions; and/or (3) contact individual companies to direct 

them to place them on a company-based do-not-call list. Currently, consumers must 

find their way through this complex maze of options. 

CDT, in coalition with other consumer groups, filed extensive comments with the 

Commission supporting the proposed new Do-Not-Call list. 5 (The coalition were also 

the creators of ConsumerPrivacyGuide.org—a Web site designed to educate consumers on what they can do to protect their own privacy.) Our joint comments state 

that institution of a national ‘‘Do-Not-Call’’ list by the FTC would provide consumers 

with a straightforward, easy-to-exercise mechanism to remove their names from 

telemarketing lists. The FTC initiative would lift the burden from consumers who 

must either use the DMA service or a state do-not-call request on a company-bycompany basis. 

We stressed in our comments that the FTC’s ‘‘Do-Not-Call’’ initiative should not 

dilute or undercut the protections afforded consumers by the states against invasive 

telemarketing. Further, as we pointed out, it is critical that consumers are not 

charged a fee to be placed on the ‘‘Do-Not-Call’’ list—consumers’ ability to protect 

the privacy of their personal information should not be contingent upon their ability 

to pay a fee. 

CDT has been pleased with how the public process on this important issue has 

progressed. To date it has been a model example of how a complex but important 

69

6For more information on CDT’s views on the CAN SPAM act, please see our recent Policy 

Post http://www.cdt.org/publications/ppl8.12.shtml 7http://www.consumer.gov/idtheft/

issue can be addressed through an open, public process. We hope that the Commission will follow an equally inclusive process when it issues its final draft of the rule. 

2. Privacy Education 

The FTC has generally served a valuable role working with and educating the 

business community about privacy best practices and implementation of fair information practices. An important example is the work the FTC has undertaken in the 

area of privacy notices. The millions of confusing privacy notices mailed to consumers under the Graham-Leach-Bliley Act highlighted the difficulties encountered 

in providing consumers with clear, comprehensive and easily understood notice. 

While significant work had been undertaken by the business community and advocates to explore and develop better ways to effect good notice, the FTC workshop 

held in late 2001 was an important opportunity to raise issues to be resolved and 

share findings in a public discussion. Participants were able to voice concerns, note 

accomplishments and chart out areas for future research. 

Forums such as these are important tool in highlighting and encouraging efforts 

to address specific privacy issues. 

3. Unsolicited Commercial Email (Spam) 

The Commission taken several useful steps regarding the issue of unsolicited commercial email, or ‘‘spam:’’

• The Commission has created an educational Web site for consumers and businesses. The site provide consumers with helpful information on how spam 

works, why they get spam, and how to decrease the amount of spam they receive. The site advises businesses on how to comply with a user’s unsubscribe 

request.

• The FTC also conducted a study to test whether ‘‘unsubscribe’’ or ‘‘remove me’’ 

requests were being honored. The study reported that the majority of consumer 

requests were not getting through. The Commission thereupon sent out warning 

letters to spammers.

• In April of 2002, the FTC filed a complaint against Internet spammers who allegedly sent out deceptive, unsolicited commercial emails and participated in 

Web fraud. The FTC joined several state law enforcement officials in the United 

States as well as four Canadian law enforcement agencies in bringing 63 different actions against various Web schemes and scams that targeted victims 

through spam.

While the Commission, given its limited view of its jurisdiction, has taken these 

exemplary first steps in research, education and enforcement regarding unsolicited 

commercial email, CDT would like to see it given more power to tackle fraudulent 

spam Further appropriate steps could be taken under provisions in the CAN SPAM 

Act (S. 630),sponsored by Senators Burns and Wyden and recently passed by the 

full Commerce Committee. CDT is hopeful that we can begin to turn the tide on 

spam while still protecting the First Amendment right of anonymous non-commercial/political speech online. 6

4. Gramm-Leach-Bliley Compliance 

Under the new financial services law, the Commission has jurisdiction over important financial institutions such as insurance and mortgage companies. In an August 

2001 survey, CDT found that these companies were among the worst in posting privacy notices on Web sites. That month, we filed a complaint with the FTC about 

several mortgage companies that were not posting notices as required by the FTC’s 

GLB regulations. While the Commission has not officially closed the case, the five 

remaining Web sites have now posted privacy policies. 

CDT believes that there is probably still more basic, but important enforcement 

work that the Commission could to do in the area of privacy notice for insurance 

and mortgage companies. 

5. Identity Theft and Identity Fraud 

The FTC has been a leading agency in the prevention and prosecution of identity 

theft through its identity theft program. The program contains three key elements: 

the Identity Theft Data Clearinghouse; 7 consumer education and assistance reVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00073 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
70

8 A staff summary of the event was released in February 2002 http://www.ftc.gov/bcp/workshops/wireless/. 9Public Workshop on ‘‘On-Line Profiling’’—http://www.ftc.gov/bcp/profiling/index.htm 

10http://www.ftc.gov/os/2000/06/onlineprofilingreportjune2000.pdf and http://www.ftc.gov/os/

2000/07/index.htm#27 11http://www.ftc.gov/bcp/workshops/infomktplace/index.html 

sources; collaborative enforcement efforts involving criminal law officers and private 

industry. 

The Identity Theft Clearinghouse currently holds more than 170,000 victim complaints and serves as an important tool for 46 federal and 306 state and local law 

enforcement agencies, including the US Secret Service, the Department of Justice, 

the US Postal Inspection Service, and the International Association of Chiefs of Police. The FTC has also been increasing outreach programs to educate law enforcement officials on how the Clearinghouse database can be used to enhance investigations and prosecutions. 

In regards to consumer education and assistance resources, the FTC has held 

training seminars for law enforcement officials at all levels in an attempt to give 

law enforcement the necessary tools they will need to combat identity theft. The 

FTC has also implemented a nationwide, toll-free hotline that consumers can call 

if they have become a victim and a Web site that consumers can access to file a 

complaint and gain helpful prevention tips. 

The Commission’s work in this area shows that it can be a leader with other law 

enforcement agencies, serving as the main contact to the public. Hopefully the Commission’s work, along with the passage of new legislation in this area, can help to 

cut down on what many believe to be the fastest growing crime in the country. 

6. Wireless Privacy 

In December 2000, the Commission held a workshop entitled ‘‘The Mobile Wireless Web, Data Services and Beyond: Emerging Technologies and Consumer 

Issues.’’ 8 As this subcommittee knows well, the wireless privacy issues have been 

a growing concern for consumers due to the emerging use of location tracking technologies to provide consumers with enhanced services. It was clear from the workshop that the staff and Commissioners have the understanding and skills necessary 

to undertake a serious privacy or security investigation in this area if it is warranted. However, the Commission has taken little action in this area since the workshop. CDT urges the Commission to follow-up with another workshop in this area 

as wireless technologies and location applications progress. 

7. Online Profiling and Data Mining 

Online profiling is the practice of aggregating information about consumers’ preferences and interests, gathered primarily by tracking their movements online. It remains one of the most complex and opaque issues in privacy. Consumers are concerned because they know someone is watching, but they don’t know who, how or 

to what end. 

In November 1999, FTC examined online profiling, focusing on the use of the resulting profiles to create targeted advertising on Web sites. 9 In June and July of 

2000, the FTC issued a two-part report on online profiling and industry self-regulation. 10 The Commissioners unanimously commended the Network Advertising Initiative (NAI) for its self-regulatory proposal that seeks to implement Fair Information Practices for the major Internet advertisers’ collection of online consumer data. 

The July report also asked Congress to enact baseline legislation to protect consumer privacy. In addition to its several reports, the FTC has also held a series of 

public workshops on data mining in an effort to educate consumers as well as it 

itself. 11

The reports and workshops that the FTC has undertaken in this area have represented the best work done in this area internationally. Unfortunately, since Chairman Muris has taken office, little public work has been continued in this area. We 

hope that the Commission will return to this area, one that causes concern to so 

many consumers. 

8. Computer Security Education 

The FTC has taken several steps to educate consumers on computer security. In 

addition to holding workshops, the FTC is drafting a guide for consumers on how 

to stay safe online using a high-speed Internet connection. The guide details how 

users can protect their computers from viruses and hackers by explaining security 

features such as firewalls and updating virus protection software. The FTC has 

worked diligently to make the report both understandable and appealing to the average consumer through careful analysis and easy to read text. The Commission has 

71

12http://www.ftc.gov/bcp/workshops/security/index.html 13http://www.pff.org/pr/pr032702privacyonline.htm 14 CDT was the originator of the P3P concept and has continued to work on the specification 

and its adoption. More information about P3P can be found at http://www.w3.org/p3p and http:/

/www.p3ptoolbox.org 15 Business Week has conducted a number of surveys showing that privacy is the number one 

concern of both those who are not online and those who are online, but do not shop online. The 

most recent is available at http://businessweek.com/2000/00l12/b3673006.htm. Jupiter Communications has estimated that $18 billion in consumer transactions did not take place online because of privacy concerns (McCarthy, John, ‘‘The Internet’s Privacy Migraine,’’ presentation, 

SafeNet2000, December 18, 2000). 16 15 U.S.C. 6501

continued to work with consumer groups to ensure that the guide is easy to use and 

contains the necessary information. In addition, FTC held a public workshop in May 

to examine issues surrounding the security of consumers’ computers. 12

9. Internet Privacy Sweeps 

Earlier this year, the Commission continued its ongoing assessment of the state 

of Internet privacy which began five years ago and has been repeated twice since. 

This year, the Commission embraced a report 13 organized by the Progress and Freedom Foundation and conducted by the Ernst and Young accounting firm. The results show significant improvement in the number of privacy policies posted and the 

growth of the new privacy protocol, the Platform for Privacy Preferences (P3P). 14

This positive growth is due, in part, to the educational work of the Commission. 

On the other hand, the study found that self-regulatory seal programs have actually been shrinking. This is mainly due to the bankruptcy of many dot com players, 

but it also indicates that we are entering a time of a major privacy gap. Some companies are actively involved in the privacy issue and are doing their best to build 

trust. Meanwhile, a small number of free-rider companies are doing no work on privacy. The marketplace has remained confusing to the average consumer and many 

prefer to sit on the sidelines until baseline privacy is assured. 15

CDT hopes that Congress will continue to support and monitor the FTC’s privacy 

sweeps—and we urge the Commission to work with a wide range of organizations 

and academics, including consumer groups, when preparing the parameters and 

methodology for future sweeps. 

10. COPPA Compliance 

In 1998, Congress passed the Children’s Online Privacy Protection Act (COPPA) 16

in order to protect children’s personal information in interactions with commercial 

sites. The FTC was required to enact a rule to implement COPPA and in doing so 

it clarified issues concerning coverage and liability, modified several definitions that 

would have interfered with children’s ability to participate, speak and request information online, and made every effort to create a predictable and understandable environment for the protection of children’s privacy online. 

Since issuing its final Rule implementing COPPA, the FTC has taken several effective and necessary steps to enforce and enhance compliance with COPPA. This 

past spring, the FTC released a package of initiatives that included:

• The announcement of a settlement in its sixth COPPA enforcement case, 

against the operators of the ‘‘Etch-A-Sketch’’ Web site, resulting in a $35,000 

civil penalty.

• The release of an FTC COPPA compliance survey and a business education initiative, including the publication of ‘‘You, Your Privacy Policy and COPPA’’ to 

help children’s Web site operators draft COPPA-compliant privacy policies.

• The announcement of warning letters to more than 50 children’s sites alerting 

them to the notice provisions of COPPA and the requirement that they comply 

with the provisions.

• In response to public input, the decision to extend COPPA’s sliding scale mechanism for obtaining verifiable parental consent until 2005.

While there is still work to be done, the COPPA experience demonstrates that the 

FTC can develop workable privacy rules in complex and sensitive areas that go well 

beyond its traditional arenas. 

IV. The Future Role of the FTC in Privacy Issues 

While the Commission’s privacy work has been successful, it has also been limited 

mainly to areas of deceptive or fraudulent practices. CDT believes that this limited 

focus is preventing the Commission from taking on urgently needed actions in the 

privacy area.

72

17 Alan Westin. Privacy and Freedom (New York: Atheneum, 1967) 7. 18http://www.ftc.gov/os/2002/04/sb2201muris.htm 

• Proposed Privacy Legislation

CDT believes that a comprehensive, effective solution to the privacy challenges 

posed by the information revolution must be built on three components: industry 

best practices propagated through self-regulatory mechanisms; privacy as a design 

feature in products and services; and some form of federal legislation that incorporates Fair Information Practices—long-accepted principles specifying that individuals should be able to ‘‘determine for themselves when, how, and to what extent information about them is shared.’’ 17 Legislation need not impose a one-size-fits-all 

solution. However, as a starting point, strong privacy legislation is urgently needed 

to cover sensitive personal information such as privacy of medical and financial 

records. For broader consumer privacy, there need to be baseline standards and fair 

information practices to augment the self-regulatory efforts of leading Internet companies, and to address the problems of bad actors and uninformed companies. Finally, there is no way other than legislation to raise the standards for government 

access to citizens’ personal information increasingly stored across the Internet, ensuring that the 4th Amendment continues to protect Americans in the digital age. 

On May 17, 2002 the Senate Commerce Committee passed S. 2201, the Online 

Privacy Protection Act. S.2201 would set a true baseline of privacy protection and 

would give the FTC the clear authority to go after companies engaging in unfair 

information practices. 

During the Committee process, Senator McCain asked the FTC Commissioners to 

give their views on S.2201. In response, Chairman Muris gave five reasons that 

such a bill was not necessary at that time. 18 CDT disagrees strongly with the 

Chairman. While CDT continues to work with the FTC to help advance self-regulatory efforts, privacy enhancing technologies and public education, we believe that 

these efforts alone are not and cannot be enough to protect privacy or instill consumer confidence on their own. 

CDT commends the Senate Commerce Committee for its excellent work in improving S.2201 during the Committee process. We hope that the Committee continues 

to push for the FTC’s expanded jurisdiction in this area.

• Proposed Rescinding of Common Carrier Exemption

The Committee also asked CDT to address the issue of rescinding the exemption 

that prevents the Commission from exercising general jurisdiction over telecommunications ‘‘common carriers.’’ 

The idea of creating a level playing field is appealing, particularly when some 

communications services fall within the jurisdiction of the FTC. In particular, lifting 

the restriction in certain areas—such as billing, advertising and telemarketing—

could ensure that the agency with the most expertise in these areas is taking a leading role. 

However, rescinding the exemption completely could lead to duplication of government regulation and/or confusion for consumers in certain areas. For example, telecommunications companies are already subject to the Customer Proprietary Network Information (CPNI) rules administered by the Federal Communications Commission, which limit reuse and disclosure of information about individuals’ use of 

the phone system including whom they call, when they call, and other features of 

their phone service. At this point, we are not sure it would be wise to take this issue 

away from the FCC. Similar questions may arise with other issues: Which agency 

would take the lead? By which rules would a complaint about deceptive notice be 

addressed? How will these decisions be made? 

The Commission has been thoughtful in these areas in the past, so it is likely that 

any concerns could be addressed. Yet, if this proposal moves forward, the Commission would need to be able to have a detailed examination and plan for dealing with 

similar areas of overlap. 

Conclusion 

The FTC is to be commended for taking some very laudatory steps to address the 

serious and widely shared concerns of the American public about privacy. Indeed, 

as the foregoing review of issues demonstrates. The FTC already has sufficient expertise to take on general privacy protection responsibilities. However, the Commission has, in our view, taken an unduly narrow view of its jurisdiction, such that 

Congressional action is needed to establish a baseline of fair information practices 

in law. We will continue to work with this Committee and the Commission to find 

73

innovative, effective and balanced solutions to the privacy problems posed by the 

digital age.

Senator WYDEN. Thank you. 

Mr. Alldridge. 

STATEMENT OF DENNIS H. ALLDRIDGE, PRESIDENT, SPECIAL 

OLYMPICS–WISCONSIN, NON–PROFIT AND CHARITABLE

COALITION REPRESENTATIVE 

Mr. ALLDRIDGE. I thank the Subcommittee and its fine staff for 

allowing me to appear this morning regarding the Federal Trade 

Commission’s proposed national Do-Not-Call registry. My perspective is that of President of Special Olympics-Wisconsin. I speak on 

behalf of the Not-for-Profit and Charitable Coalition. The Not-forProfit Coalition has 277 member organizations. 

All are non-profit or charitable organizations. About 2 dozen are 

national groups such as Mothers Against Drunk Driving, the Leukemia and Lymphoma Society, the National U.S. Junior Chamber 

of Commerce, and Amvets, American Veterans. About 250 are 

State and local groups and include scores of charities, veterans 

groups, law enforcement, fire fighter, paramedic and other public 

safety organizations. 

Special Olympics-Wisconsin is a non-profit member of the coalition. Our mission is to provide year-round sports training and athletic competition in a variety of Olympic-like sports for children 

and adults with cognitive disabilities, 9000 athletes who are currently being served by our program each year. These athletes are 

helped along the way by 3,500 coaches and more than 17,000 volunteers. We have 220 registered local agencies, each under the direction of a volunteer agency manager. 

Our volunteers put in more than 350,000 hours of service annually, which allow our athletes to log over 500,000 hours of training 

and competition. Last year, we conducted 72 state-wide competitions and Special Olympics-Wisconsin was proud to award more 

than 27,000 medals and ribbons to deserving young men and 

women who overcame disabilities that few of us can even comprehend. Inspiring greatness in our athletes each and everyday is 

our goal. 

I speak only for the coalition, but I am confident that thousands 

of non-profits and charities totally agree with our views with respect to the Commission’s proposed rulemaking. The common 

thread is that we all use and rely upon public appeals by professional representatives. These representatives perform at least two 

critical functions. First, they account for the lion’s share of our revenue. For example, public appeals made by professional representatives account for more than 37 percent of Special Olympics-Wisconsin’s annual revenue. 

Second, and I emphasize this as an often overlooked point, they 

carry our program and mission to the general public, they put out 

the call for volunteers, and they build attendance at our games and 

competitions. That is very critical for a volunteer-driven organization like Special Olympics. 

Also, Mothers Against Drunk Driving often launches, advocates, 

and supports national, State, and local legislative and administrative campaigns. Their professional representative’s telephone calls 

74

serve as a public alert and general call to arms with respect to 

those campaigns. Often, appeals for financial support are not made 

until the end of the conversation. 

Fully two-thirds of all legitimate non-profits and charities rely 

upon professional representatives to make these public appeals. 

The Commission’s proposed Do-Not-Call registry would irreparably 

harm every single one of these organizations, and it would deal a 

death blow to thousands of them. While the Commission predicts 

that its national registry would cut the potential donor call pool by 

40 percent, knowledgeable observers suggest that the FTC’s guesstimate is extremely low, and as if that were not enough, please 

allow me to explain how the Do-Not-Call registry further terrorizes 

non-profits and charities. 

Special Olympics-Wisconsin has individuals who have donated 

money to support our program in each of the last 5 years. Motivated by their understandable desire to avoid commercial telemarketing calls, one of these individuals may place their name on 

the FTC’s Do-Not-Call registry. The professional representative for 

Special Olympics-Wisconsin would be prohibited from calling that 

proven donor supporter unless that individual had given his prior 

explicit consent to receiving a telephone call from our representative. 

Thus, by placing his name on the FTC’s Do-Not-Call registry, 

that long-time donor supporter has unwittingly shut out contacts 

by Special Olympics-Wisconsin made by our representative. Ironically, because the FTC’s Do-Not-Call registry totally exempts telemarketing calls for credit cards, banks, insurance, airlines, long 

distance services, and political candidates, they have left themselves open to many of the types of commercial calls they were hoping to avoid in the first place. 

While the not-for-profit and charitable community is bewildered 

and alarmed, we do not ascribe bad faith to the Commission for including our professional representatives and thus ourselves in this 

proposal. In Wisconsin, we had hearings on the Do-Not-Call laws. 

They passed a law which specifically exempts calls made on behalf 

of the not-for-profits. Also, as you all know, charitable calling in 

Wisconsin and every other State is highly regulated, so we respectfully ask that they reconsider their position and completely exempt 

these public appeals by our professional representatives and us. 

Finally, we seek the Subcommittee’s active support of our efforts. 

Thank you. 

[The prepared statement of Mr. Alldridge follows:]

PREPARED STATEMENT OF DENNIS H. ALLDRIDGE, PRESIDENT, SPECIAL OLYMPICSWISCONSIN, NON-PROFIT AND CHARITABLE COALITION REPRESENTATIVE

I. Introduction 

Mr. Chairman and Members of the Subcommittee, my name is Dennis H. 

Alldridge. I am the President of the Special Olympics Wisconsin (‘‘SOWI’’). I appear 

today before the Subcommittee on behalf of the Not-For-Profit and Charitable Coalition (‘‘Coalition’’) to offer testimony on the irreparable harm on nonprofit and charitable organizations that will result from the Federal Trade Commission’s (‘‘Commission’’) implementation of a national ‘‘Do-Not-Call’’ registry pursuant to proposed 

amendments to the Telemarketing Sales Rule, 16 C.F.R. § 310 et seq. (‘‘TSR’’). At 

the outset, I want to clarify that my testimony is limited to the negative impact of 

the ‘‘Do-Not-Call’’ registry as applied to nonprofit and charitable organizations and 

their professional fundraisers, that is, noncommercial conduct that is not intended 

75

1SOWI’s comment is available on the Commission’s website at http:///www.ftc.gov/os/ comments/dncpapercomments/04/sowisconsin.pdf. The Coalition’s comments are available at (1) 

http://www.ftc.gov/os/comments/dncpapercomments/04/notfor profit.pdf, and (2) http://

www.ftc.gov/os/comments/dncpapercomments/supplement/npcc.pdf. These written comments are 

incorporated by reference into this Prepared Statement. 2The Coalition participated in the public forum on the proposed TSR amendments held by 

the Commission on June 5–7, 2002. A transcript of the proceeding has not been released by the 

Commission. 3Special Olympics’ mission is to provide year-round sports training and athletic competition 

in a variety of Olympic-type sports for persons eight years of age and older with cognitive disabilities, giving them continuing opportunities to develop physical fitness, demonstrate courage, 

Continued

to induce purchases of goods or services under the TSR and the Telemarketing Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6101 et seq. (‘‘Telemarketing 

Act’’). 

As discussed in written comments filed with the Commission 1 in response to the 

Commission’s Notice of Proposed Rulemaking, see Notice of Proposed Rulemaking, 

67 FED. REG. 4492 (Jan. 30, 2002) (‘‘Notice’’), SOWI and the Coalition strongly oppose the proposed TSR amendments and the national ‘‘Do-Not-Call’’ registry as applied to nonprofit and charitable organizations. 2 The ‘‘Do-Not-Call’’ registry will 

decimate an already cash poor nonprofit and charitable industry. By the Commission’s own estimates, up to 40 percent of all households will sign up with the ‘‘DoNot-Call’’ registry. See Federal Trade Commission, Fiscal Year 2003 Congressional 

Justification Budget Summary, at 6. This probably is a conservative estimate based 

on information cited by the Commission. But even assuming the accuracy of the estimate, there is no doubt that most nonprofit and charitable organizations will not 

survive with a 40 percent reduction in communications with current and prospective 

donors and commensurate erosion of their charitable message and donations. 

The Coalition has three major concerns. First, the ‘‘Do-Not-Call’’ registry as applied to professional fundraisers soliciting contributions on behalf of nonprofit and 

charitable organizations will devastate these organizations. It will reduce funding, 

impede the fulfillment of mission objectives, and silence the constitutionally protected dissemination of the nonprofit and charitable message. Second, the Uniting 

and Strengthening America by Providing Appropriate Tools Required to Intercept 

and Obstruct Terrorism Act of 2001, Pub. L. 107–56 (Oct. 25, 2001) (‘‘USA PATRIOT 

Act’’) did not give the Commission jurisdiction to regulate nonprofit and charitable 

institutions and their professional fundraisers. Nor did it give the Commission authority to restrain nondeceptive, nonabusive, and legitimate charitable solicitations 

by professional fundraisers acting on behalf of legitimate nonprofit and charitable 

organizations. The Commission’s contrary interpretation departs from its 1995 Advisory Opinion that the TSR generally imposes no restrictions on the legitimate fundraising activities of nonprofits and their professional fundraisers because a donation 

is not ‘‘telemarketing’’ under the Telemarketing Act and the TSR. Finally, the Coalition believes that the ‘‘Do-Not-Call’’ registry is unconstitutional as applied to professional fundraisers who solicit charitable donations on behalf of nonprofit and charitable organizations. Such conduct by professional fundraisers is fully protected noncommercial speech under the First Amendment. 

We appreciate the willingness of the Subcommittee and staff to listen to the concerns of the nonprofit and charitable community, and we look forward to continuing 

our work with the Subcommittee in order to achieve a resolution. We respectfully 

submit that the only viable resolution is to permit nonprofit and charitable organizations to continue to fulfill their vital public functions by excluding from the Telemarketing Act and the proposed TSR amendments (including the proposed national 

‘‘Do-Not-Call’’ registry) charitable solicitations by professional fundraisers on behalf 

of nonprofit and charitable organizations. 

II. Overview of Special Olympics Wisconsin and the Coalition 

My testimony today is based on more than twenty years experience in the nonprofit sector with the Special Olympics. I have been President of SOWI since 1989. 

Prior to my position with SOWI, I was the Executive Director of Illinois Special 

Olympics, Inc. between 1980–1989. As the Chief Executive Officer of SOWI, I have 

responsibility for the organization’s planning, budgeting, public relations, and fundraising. These responsibilities are conducted in accordance with the standards, policies and procedures of the Special Olympics International and SOWI including, for 

example, SOWI’s fundraising guidelines and ‘‘Do-Not-Solicit’’ list. 

SOWI is an accredited program of Special Olympics, Inc. (‘‘SOI’’). SOI is an international nonprofit organization founded by Eunice Kennedy Shriver in 1968 to provide sports training and competition to persons with cognitive disabilities. 3 SOI proVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00079 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
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experience joy and participate in a sharing of gifts, skills and friendships with their families, 

other Special Olympics athletes and the community. 

grams are patterned after the Olympic Games. In fact, SOI is the only organization 

authorized by the International Olympic Committee to use the word ‘‘Olympics’’ in 

its corporate name. Similar to the Olympics, SOI has a global presence, with programs in every state and in 150 countries. It serves nearly 1,000,000 athletes and 

500,000 volunteers who take part in more than 15,000 Special Olympics games 

around the world, involving 24 summer and winter sports. 

SOWI alone serves 9,000 athletes in 220 Wisconsin communities participating in 

72 statewide competitions. Participation in sports brings significant benefits to people with cognitive disabilities of all ages and abilities. Through the work of SOWI, 

persons with disabilities are given physical benefits (fitness, increased coordination, 

cardiovascular fitness and endurance), mental benefits (knowledge of rules and 

strategy, along with increased selfesteem, self-confidence, and pride), and social benefits (teamwork, interaction with peers and people without cognitive disabilities, opportunity to travel and learn about other places and interests, family pride, and increased community awareness and acceptance). These benefits empower SOWI athletes to lead richer, more rewarding lives by applying new skills and confidence to 

school, work, home and social life. 

SOWI’s nonprofit mission is reflective of other members of the Coalition. The Coalition is composed of 277 national, state, and local nonprofit and charitable organizations with tax-exempt status under the United States Internal Revenue Code, 26 

U.S.C. § 501(c), that oppose the Commission’s proposed rule. The Coalition includes 

a broad spectrum of organizations in the nonprofit and charitable sectors that provide highly diversified program benefits to the public and their members. It includes 

national nonprofits devoted to fighting disease and improving the quality of life for 

Americans such as Mothers Against Drunk Driving, The National Federation for the 

Blind, the Cancer Federation, and the Leukemia and Lymphoma Society. Many Coalition members target the special needs of sick or missing children such as The Kids 

Wish Network, Miracle Flights for Children, National Children’s Cancer Society, 

and the Committee for Missing Children. In addition to these national charities, the 

Coalition consists of more than 180 statewide membership organizations representing hundreds of thousands of active and retired law enforcement officers, professional and volunteer fire fighters, Jaycees, and veterans. 

The public benefits created by the Coalition members are substantial and unparalleled. The various public safety organizations represent police chiefs, sheriffs, 

highway patrol, state and municipal police, narcotic officers, fire chiefs, professional 

fire fighters, paramedics and state investigatory personnel. As full time public safety personnel, the organizations are a unique and unrivaled source of knowledge and 

expertise on law enforcement, the fire service, and emergency medical services. They 

offer advice and counsel on criminal apprehension, detention, enforcement, fire safety, delivery of fire fighting services, and anti-terrorism expertise. They provide 

training and education on topics such as enhancements in law enforcement and fire 

fighting technology which improve the quality of services realized by the public. And 

many of the organizations sponsor comprehensive public service and educational 

programs on issues such as seat belt usage, home fire prevention, alcohol abuse, 

safe driving, illegal drugs, missing children, and community policing. 

Thousands of charitable causes and state and local community programs are sponsored, supported or funded by these public safety organizations. A few examples illustrate the connection between the Coalition members and community programs. 

Professional fire fighters represented in the Coalition provide extensive volunteer 

and financial support for The Muscular Dystrophy Association, and similar national 

support is provided by law enforcement organizations to the Special Olympics. Other 

examples include death benefit and benevolent programs for public safety officers 

killed or injured in the line of duty, scholarship programs for high school students, 

summer camps for underprivileged youths, hospital visits to children with terminal 

illnesses, and support of burn camps and burn victims. 

The Coalition also includes a significant number of state military veterans organizations affiliated with the American Legion, Military Order of the Purple Heart, 

Veterans of Foreign Wars, AMVETS, and the Vietnam Veterans of America. Together, these organizations facilitate, support, and fund countless public initiatives 

such as emergency financial aid; relocation, medical, employment and educational 

services for veterans; support for orphans and widows of veterans killed in the line 

of duty; assistance to disabled veterans in securing Veteran’s Administration benefits and obtaining medical treatment, coordinating volunteer efforts that provide 

hundreds of thousands of hours of uncompensated services to hospitals; assisting 

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4 In fact, the Commission cites implicit Congressional support for the ‘‘Do-Not-Call’’ registry 

to regulate nondeceptive and entirely legitimate nonprofit and charitable communications. The 

Commission states that ‘‘Congress recognized that telemarketers’ right to free speech is in tension with and encroaches upon consumers’ right to privacy within the sanctity of their 

homes... Congress provided authority for the Commission to curtail these practices that impinge on consumers’ right to privacy but are not likely deceptive under FTC jurisprudence. This 

recognition by Congress that even non-deceptive telemarketing business practices can seriously 

impair consumers’ right to be free from harassment and abuse and its directive to the Commission to reign in these tactics, lie at the heart of § 310.4 of the TSR.’’ See Notice, 67 FED. REG. 

at 4543. 16 C.F.R. § 310.4, as proposed, will make it an abusive telemarketing act or practice 

in violation of the TSR if a professional fundraiser—acting on behalf of a nonprofit and charitable organization—places an outbound telephone call to any donor who subscribes to the ‘‘DoNot-Call’’ registry. 5Prepared Statement of the Federal Trade Commission on Charitable Solicitation Fraud before the Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce, United States House of Representatives (Nov. 6, 2001) (‘‘To date, the findings of fraud 

are few and far between, and the Commission continues to monitor this situation as aggressively 

as any the Commission has ever pursued’’). 6See, e.g., Better Business Bureau Annual Complaint Summary—1999 (ranking complaints 

against national charities as 524th on its list of complaints by type of business, with complaints 

against local charities ranking 271st); National Fraud Information Center, Telemarketing Fraud 

Statistics (charitable solicitation fraud not listed in the ‘‘Top 10 Frauds’’ in 2000 and 2001). 

veterans in obtaining employment; and providing transitional housing for homeless 

veterans. 

III. Summary of the Proposed TSR Amendments 

The TSR regulates specific deceptive and abusive telemarketing practices as defined by the Telemarketing Consumer Fraud and Abuse Prevention Act, 15 U.S.C. 

§ 6101 et seq. (‘‘Telemarketing Act’’). Enacted in 1994, the Telemarketing Act represents an effort by Congress to address fraudulent commercial telemarketing conduct harmful to consumers. That mandate, however, does not support a regulatory 

interpretation that creates a government-imposed prohibition against communicating with certain consumers—upon risk of federal, state or civil liability. Nor 

does it support a regulatory scheme creating a mandatory fee-based telephone registry that will eliminate or significantly reduce all nonprofit and charitable telephone calls regardless of whether they are fraudulent, abusive or deceptive. 

Under the Telemarketing Act, the Commission’s regulatory authority has been 

limited to deceptive and abusive telemarketing acts and practices intended to induce 

the purchase of goods or services, that is, commercial conduct. The Commission now 

proposes a fundamental departure from this approach that will compromise substantially the ability of nonprofit and charitable organizations to generate funding 

necessary to fulfill their vital missions and silence their nonprofit message. First, 

the Commission seeks to expand its jurisdiction by regulating nondeceptive, nonabusive, noncommercial and admittedly legitimate charitable solicitations by professional fundraisers acting on behalf, and as an extension, of nonprofit and charitable 

organizations. 4 And second, the Commission seeks to implement a national ‘‘Do-NotCall’’ registry applicable equally to commercial telemarketers and noncommercial 

charitable solicitations by professional fundraisers on behalf of nonprofit and charitable organizations. Combined, the proposed amendments will give the Commission 

the authority to do indirectly what it acknowledges cannot be done directly under 

the Telemarketing Act, that is, regulate nonprofit and charitable organizations by 

asserting jurisdiction over their inextricably linked agents and service providers 

that perform charitable solicitations on their behalf and function as an extension of 

these organizations. 

The Commission purportedly justifies the amendments on the grounds that consumers have a heightened interest in residential privacy and need protection 

against unscrupulous telemarketers that may perpetrate fraudulent charitable solicitations, see, e.g., Notice, 67 FED. REG. at 4497 n.51. These are laudable goals, 

but there can be no serious question by the Commission that SOWI and members 

of the Coalition are not fraudulent. In fact, in the past, the Commission has found 

comparatively little evidence of charitable solicitation fraud. 5 The vast majority of 

TSR comments filed with the Commission did not identify fraud as an issue, much 

less alleged nonprofit and charitable solicitation fraud. Notice, 67 FED. REG. at 

4495 (‘‘A majority of the comments received during the Rule review focused on 

issues relating to consumer privacy and consumer sovereignty, rather than on fraudulent telemarketing practices’’). Indeed, the Better Business Bureau and other organizations consistently rank charitable solicitation fraud extremely low on complaint 

lists. 6 To the extent that residential privacy is at stake, the Commission’s broad and 

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7Donations to nonprofit and charitable organizations are regulated extensively under state 

laws. The overwhelming majority of states that have passed ‘‘Do-Not-Call’’ statutes of one form 

or another expressly exempt or exclude coverage of nonprofit and charitable solicitations including solicitations by professional fundraisers on behalf of these entities—a approach rejected by 

the Commission here. And virtually every state imposes statutory and regulatory requirements 

on professional fundraisers soliciting donations on behalf of nonprofit and charitable organizations such as registration and licensing, posting of bonds, point-of solicitation disclosures, fraud 

protection provisions, record keeping provisions, and annual reporting of financial information. 

These requirements serve numerous functions. They offer public information on the activities 

of charities, and they also allow state enforcement authorities to identify violations and prosecute where necessary. 

indiscriminate approach to regulate all telephone calls is neither constitutional nor 

reasonable based on the clear damage to nonprofit and charitable organizations. 

IV. The Proposed TSR Amendments Will Have a Devastating Impact on 

Nonprofit and Charitable Organizations by Interfering with Their

Nonprofit and Charitable Missions 

The proposed TSR amendments will have an irreparable negative impact that will 

limit dramatically the ability of nonprofit and charitable organizations to use the 

services of professional fundraisers. The consequences will be devastating for members of the Coalition and include, but are not limited to, massive reductions in donations, diminished ability to satisfy important public safety and community functions 

based on limited resources, and substantial harm to consumers who benefit from, 

and rely upon, these functions. Perhaps the most significant harm will be silencing 

the communication and fulfillment of the mission objectives of nonprofit and charitable organizations. As noted by the United States Supreme Court, nonprofit and 

charitable organizations use professional fundraisers ‘‘who ‘necessarily combine’ the 

solicitation of financial support with the ‘functions of information dissemination, discussion, and advocacy of public issues.’’’ Village of Schaumburg v. Citizens for a Better Env’t, 444 U.S. 620, 632 (1980) (citation omitted). See Riley v. Nat’l Fed. of the 

Blind, 487 U.S. 781, 798 (1988) (‘‘where the solicitation is combined with the advocacy and dissemination of information, the charity reaps a substantial benefit from 

the act of solicitation itself’’) (citations omitted). Interfering with the solicitation of 

support likely would end the advocacy of ideas. Schaumburg, 444 U.S. at 632. 

Professional fundraisers are essential to the fulfillment of the nonprofit and charitable mission and necessarily involve the fundraisers’ communication of the nonprofit message. For example, SOWI receives no federal funding. To provide expensive year-round program benefits, SOWI relies on nonprofit contributions from organizations, individuals, corporations, foundations, and fundraising by professional 

fundraisers. Indeed, professional fundraisers provide approximately 68 percent of 

SOWI’s annual income. 85 percent of these donations are from individual donors 

with long and reciprocally valued relationships involving financial support and volunteering with SOWI. These relationships are jeopardized by the proposed TSR 

amendments. Ultimately, the donations are used to fund competitions, training, and 

programs that not only help our athletes improve their skills, but also build selfesteem and confidence. In summary, SOWI fulfills its mission only through small 

donations from a large number of donors. Fundraising by professional fundraisers 

is essential to the survival of SOWI. 

12 SOWI’s reliance on professional fundraising is not unique. By necessity or 

choice, many nonprofit and charitable organizations rely on professional fundraisers 

to solicit charitable donations on their behalf. An estimated 60 percent to 70 percent 

of nonprofit and charitable organizations use professional fundraisers to deliver 

their messages to consumers and solicit donations. Jeff Jones, Do Not Call: Proposed 

FTC Rules Could Hurt, THE NONPROFIT TIMES (Mar. 2002) (citing Paulette 

Maehara, CEO of the Association of Fundraising Professionals). Similar to SOWI, 

many of these organizations have small staffs in relation to the program benefits 

delivered. They simply do not have the infrastructure, personnel, operational efficiencies, and expertise to impart the fundraising message currently imparted by 

professional fundraisers. 

Many nonprofit and charitable organizations have built constituencies through 

grass roots support. Telephones are the most practical and cost effective interactive 

medium for these organizations in recognition of the fact that direct (e.g., face-toface) solicitation is logistically impossible and direct mail is cost prohibitive. Telephone calls by professional fundraisers confer obvious benefits. Trained professional 

fundraisers deliver prepared scripts, often created or approved by the nonprofit and 

charitable clients, to communicate the clients’ messages. The fundraisers understand the unique state law requirements governing the communications. Most states 

require registration, bonds, and point-of-solicitation disclosures. 7 Ultimately nonVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00082 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
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8SOWI relies on approximately 17,000 volunteers to contribute 350,000 hours to train our 

9,000 athletes for 72 statewide competitions. 9 A compelling argument can be made that it would create an appearance of impropriety for 

the many state trooper and police organizations in the Coalition directly to contact donors. 

profit and charitable organizations reap benefits from this process including (1) donations from consumers to support the needs of the organization, and (2) delivery 

of the central message of the nonprofit and charitable organization. In the case of 

SOWI, telephone calls to current and prospective donors by professional fundraisers 

allow us to (1) recruit volunteers to participate in SOWI athletic competitions, 8 (2) 

spread the special message of SOWI to elicit public support for our programs, and 

(3) request donations. 

Nonprofit and charitable organizations rely on the expertise and operational efficiencies of professional fundraisers to conduct their fundraising campaigns and disseminate their message. SOWI employs several professional fundraising firms to 

provide these services with an extremely low incidence of complaints. There are advantages to this approach. Successful and cost-effective fundraising requires basic 

resources and specialized knowledge that nonprofit and charitable organizations 

lack. There must be a substantial investment of capital, a highly trained and supervised work force, and thorough knowledge of the state and federal regulatory requirements. Trained professionals offer significant resources, expertise and operational efficiencies that cannot be duplicated by nonprofit and charitable organizations. Indeed, that is why the substantial majority of nonprofit and charitable organizations rely on professional fundraisers. 

The implications of the proposed TSR amendments are staggering as applied to 

nonprofit and charitable solicitations. The nature of nonprofit and charitable organizations’ communications with current and prospective donors will change fundamentally. Nonprofit and charitable organizations will be forced to assume this communications role because, as the Commission advises, solicitation by their employees 

or volunteers is not covered by the Telemarketing Act and the TSR. This creates 

government imposed competitive disadvantages on smaller and mid-sized nonprofit 

and charitable organizations that do not have the resources, personnel and constituencies to take up the slack as compared to larger, national nonprofit and charitable 

organizations that are better funded and more capable of engaging in fundraising. 9

Many nonprofit and charitable organizations—including SOWI—would lack the ability and expertise to perform these functions. To be sure, the proposed TSR amendments will have an adverse effect on SOWI by eliminating a major source of support 

for our athletes, interfering with the recruiting of support from volunteers and solicitation of donations, and reducing our ability to provide our athletes with programs 

including competitions and other education endeavors. Comparable adverse results 

would be experienced by all nonprofit and charitable organizations that depend on 

the services provided by professional fundraisers. 

V. The Commission Has Exceeded its Authority Under the Telemarketing 

Act and the USA PATRIOT Act by Expanding its Jurisdiction to Include 

Professional Fundraisers Acting on Behalf of Nonprofit and Charitable 

Organizations 

The proposed TSR amendments misconstrue the Congressional purpose of the 

USA PATRIOT Act. Although the Commission acknowledges that the USA PATRIOT Act does not authorize the agency to regulate directly nonprofit and charitable organizations, Notice, 67 FED. REG. at 4497, nonetheless the agency employs 

a strained and flawed statutory construction that the USA PATRIOT Act amended 

the Telemarketing Act in a manner that ‘‘compels the conclusion that for-profit entities that solicit charitable donations now must comply with the TSR, although the 

Rule’s applicability to charitable organizations is unaffected.’’ Notice, 67 FED. REG. 

at 4497 (footnote omitted). 

In reaching this conclusion, the Commission attributes three fundamental 

changes to the Telemarketing Act as a consequence of the USA PATRIOT Act. First, 

it contends that Section 1011(b)(3) of the USA PATRIOT Act amended and broadened the definition of ‘‘telemarketing’’ in the Telemarketing Act, 15 U.S.C. § 6306(4), 

by adding the term ‘‘charitable contribution,’’ although excluding contributions to 

political and religious organizations. Notice, 67 FED. REG. at 4496. Second, it asserts that Section 1011(b)(2) added to the ‘‘abusive telemarketing acts or practices’’ 

listed in the TSR certain disclosures by persons engaged in ‘‘telemarketing for the 

solicitation of charitable contributions.’’ Notice, 67 FED. REG. at 4496. And third, 

the Commission asserts that the USA PATRIOT Act amended the ‘‘deceptive telemarketing acts or practices’’ in the Telemarketing Act to include ‘‘fraudulent charitable solicitations.’’ Notice, 67 FED. REG. at 4496. 

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The Commission correctly notes a defect in the USA PATRIOT Act that is relevant to understanding the underlying Congressional intention. That is, Congress 

expressed no intention to expand upon the Commission’s jurisdictional limitations 

under the Telemarketing Act. Notice, 67 FED. REG. at 4496 (‘‘Notwithstanding its 

amendment of these provisions of the Telemarketing Act, neither the text of section 

1011 nor its legislative history suggest that it amends Sections 6105(a) of the Telemarketing Act—the provision which incorporates the jurisdictional limitations of the 

FTC Act into the Telemarketing Act and, accordingly, the TSR’’) (emphasis added). 

One such jurisdictional limitation is the well-established lack of authority by the 

Commission over nonprofit and charitable organizations. Notice, 67 FED. REG. at 

4497 & n.49. And, as Congress unambiguously expressed in the Telemarketing Act, 

the Commission has no authority under the statute to regulate any activity not committed to the Commission’s jurisdiction under the Federal Trade Commission Act. 

15 U.S.C. § 6105(a). Accord Notice, 67 FED. REG. at 4496–4497. 

The Commission claims that the failure of Congress to remove the jurisdictional 

limitations of the Telemarketing Act, when read in conjunction with the USA PATRIOT Act’s mention of fraudulent charitable solicitations, ‘‘compels the conclusion’’ 

that the Congressional purpose in the USA PATRIOT Act was to regulate professional fundraisers soliciting charitable donations on behalf of nonprofit and charitable organizations. Notice, 67 FED. REG. at 4497. This interpretation is anything 

but compelled. It opens a Pandora’s Box of inconsistencies and inequities under the 

Telemarketing Act and TSR that certainly were not intended by Congress. For example, though motivated by fraudulent charitable solicitations, there is no basis in 

the USA PATRIOT Act nor the legislative history to reach the conclusion that Congress believed that consumers are in more need of the Telemarketing Act protections where the charitable solicitation is performed by professional fundraisers on 

behalf of nonprofit and charitable organizations, as opposed to directly by the employees and volunteers of nonprofit and charitable organizations. And yet, under the 

proposed rule, this precisely is the outcome. 

A more plausible interpretation of the USA PATRIOT Act is that Congress intended to regulate bogus charitable solicitations where the nonprofit or charitable 

cause itself is of a criminal or fraudulent nature. This is vastly different from regulating all professional fundraisers soliciting donations on behalf of legitimate nonprofit and charitable organizations such as SOWI. The most compelling evidence of 

this Congressional purpose is not even addressed in the Commission’s proposed 

rulemaking, that is, the legislative history of the USA PATRIOT Act. The ‘‘Crimes 

Against Charitable Americans Act’’ was introduced by Sen. Mitch McConnell (R-KY) 

on October 2, 2001. In his explanation of the need for the legislation and its intended purpose, Sen. McConnell consistently stated that the bill was intended to address fraudulent charitable solicitations by ‘‘crooks’’ and ‘‘false charities’’ of a ‘‘criminal’’ nature:

• ‘‘But this largess have proven an irresistible target to criminals who prey upon 

the generous and good-hearted nature of Americans in this time of national 

emergency.’’ 147 CONG. REC. S10059, S10065 (daily ed. Oct. 2, 2001) (statement of Sen. McConnell) (emphasis added).

• ‘‘We heard reports of false charities exploiting well-intentioned Americans during the Gulf War and after the Oklahoma City bombing and we now hear similar reports that the September 11 attacks have given these unusually heartless 

criminals new opportunities to perpetrate fraud.’’ 147 CONG. REC. S10059, 

S10065 (daily ed. Oct. 2, 2001) (statement of Sen. McConnell) (emphasis added).

• ‘‘Almost daily we hear of American citizens receiving solicitations from phony 

charities.’’ 147 CONG. REC. S10059, S10065 (daily ed. Oct. 2, 2001) (statement 

of Sen. McConnell) (emphasis added).

• ‘‘News reports from more than a dozen States, from New York to Florida to 

California, reveal that Americans are being asked to contribute to what turn[s] 

out [sic] to be bogus victim funds, phony firefighter funds and questionable 

charitable organizations.’’ 147 CONG. REC. S10059, S10065 (daily ed. Oct. 2, 

2001) (statement of Sen. McConnell) (emphasis added).

• ‘‘Instead, this money is siphoned into the pockets of cold-hearted criminals.’’ 147 

CONG. REC. S10059, S10065 (daily ed. Oct. 2, 2001) (statement of Sen. McConnell) (emphasis added).

• ‘‘These crooks often try to confuse their victims by using names that sound like 

reputable charities and relief efforts.’’ 147 CONG. REC. S10059, S10065 (daily 

ed. Oct. 2, 2001) (statement of Sen. McConnell) (emphasis added).

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10 U.S. Const. amend. I (‘‘Congress shall make no law respecting an establishment of religion, 

or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or 

the right of the people peaceably to assemble, and to petition the Government for a redress of 

grievances’’). 

• ‘‘Other crooks use the name ‘firefighter fund’ or ‘victim’s survivors fund’ in their 

fraudulent appeals.’’ 147 CONG. REC. S10065 (daily ed.) (Oct. 2, 2001) (emphasis added).

• ‘‘Not only do they steal valuable resources from the most worthy of recipients, 

but they erode the trust of the American people in legitimate charitable organizations.’’ 147 CONG. REC. S10059, S10065 (daily ed. Oct. 2, 2001) (statement 

of Sen. McConnell) (emphasis added).

The legislative history confirms that Congress sought to authorize the Commission to address criminal and fraudulent charities, not the legitimate nonprofit and 

charitable organizations now singled out by the Commission. Sen. McConnell advised the Commission as such on June 14, 2002, when he wrote Chairman Muris 

and stated that ‘‘[w]hen Congress enacted this legislation, it did not envision, nor 

did it call for, the FTC to propose a federal ‘do-not- call’ list, and certainly not a 

list that applied to charitable organizations or their authorized agents . . .[T]he 

Crimes Against Charitable Americans Act never intended, called-for, required, or 

even envisioned the ‘do-not-call’ list that the FTC is now proposing.’’ June 14, 2002 

Letter from Senator Mitch McConnell to The Honorable Timothy J. Muris (available 

at http://wwwgrandlodgefop.org/letters/ltr—020614—ftc.pdf) (accessed July 14, 

2002). 

In fact, the best evidence in support of this interpretation is a Commission-issued 

Advisory Opinion interpreting the TSR and carefully distinguishing between legitimate professional fundraisers as opposed to fraudulent telemarketing. In an 1995 

Advisory Opinion issued to American Telephone Fundraisers Association, Inc., a 

professional fundraiser, the Commission concluded that the TSR generally imposes 

no restrictions on the legitimate fundraising activities of nonprofits, including professional fundraisers, because seeking donations is not ‘‘telemarketing’’ under the 

statute and rule. See The Applicability of the Telemarketing Sales Rule—The Telemarketing Rule generally Imposes No Restrictions on the Legitimate Fundraising 

Activities of Nonprofit Organizations, 120 F.T.C. 1154 (Dec. 15, 1995). The advisory 

opinion states:

The Commission’s understanding is that telephone fundraising on behalf of nonprofit organizations is not, in fact, typically undertaken as part of a ‘‘plan, program or campaign . . .conducted to induce the purchase of goods or services.’’ . . .Legitimate fundraising activity is conducted primarily to elicit donations and not to induce purchases. Even when donors receive gifts, premiums, 

memberships or other incentives, representatives of the non-profit sector have 

advised the Commission that legitimate charities generally do not conduct telephone solicitations in which the stated or actual value of goods or services offered exceeds the amount of a donor’s payment. The Commission’s enforcement 

experience suggests that fraudulent telemarketers, in contrast, obtain money from 

consumers by promising goods or services with inflated values as consideration 

for smaller ‘‘donations.’’

Id. (emphasis added). The Advisory Opinion also acknowledges that the ‘‘Commission’s construction of the term ‘telemarketing,’ as defined in the Act and the Rule, 

is fully consistent with the legislative purpose of the Telemarketing Act. The Commission’s interpretation permits efficient interdiction of fraud without encumbering the 

legitimate use of telemarketing by sellers of good or services or by non-profit entities. In summary, until the proposed TSR amendments were introduced, the Commission’s interpretation was that the Telemarketing Rule generally imposes no restrictions on the legitimate fundraising activities of nonprofit organizations.’’ Id. 

(emphasis added). 

VI. The ‘‘Do-Not-Call’’ Registry is Unconstitutional as Applied to the

Noncommercial Speech of Nonprofit and Charitable Organizations and 

Their Professional Fundraisers 

As applied to the noncommercial speech of nonprofit and charitable organizations 

and their professional fundraisers, the proposed ‘‘Do-Not Call’’ registry is unconstitutional because it violates the First Amendment right to freedom of speech. 10 The 

Commission acknowledges that the First Amendment protections for nonprofit and 

charitable organizations ‘‘extend to their for-profit solicitors.’’ Notice, 67 FED. REG. 

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11See Riley v. Nat’l Fed. of the Blind, 487 U.S. 781 (1988) (‘‘Our prior cases teach that the 

solicitation of charitable contributions is protected speech, and that using percentages to decide 

the legality of the fundraiser’s fee is not narrowly tailored to the State’s interest in preventing 

fraud’’); Village of Schaumburg v. Citizens for a Better Env’t, 444 U.S. 620, 632 (1980) (‘‘Prior 

authorities, therefore, clearly establish that charitable appeals for funds... involve a variety 

of speech interests—communication of information, the dissemination and propagation of views 

and ideas, and the advocacy of causes—that are within the protection of the First Amendment’’). 12See Notice, 67 FED. REG. at 4493 n.17 (‘‘In addition to these exemptions, certain entities 

including banks, credit unions, savings and loans, companies engaged in common carrier activity, non-profit organizations, and companies engaged in the business of insurance are not covered by the Rule because they are specifically exempt from coverage under the FTC Act’’). 

at 4497 n.51 (citation omitted). 11 The Commission concedes a ‘‘strong First Amendment protection of charitable fundraising.’’ Notice, 67 FED. REG. at 4522 n.286. 

And it agrees that solicitations by professional fundraisers on behalf of nonprofit 

and charitable organizations is fully protected speech, not commercial speech. Ultimately, the proposed TSR amendments and the ‘‘Do-Not-Call’’ registry ‘‘unduly 

intrude[s] upon the rights of free speech.’’ Schaumburg, 444 U.S. at 633. 

The regulation of charitable solicitations by professional fundraisers on behalf of 

nonprofit and charitable organizations does not survive strict scrutiny, because 

charitable solicitations are fully protected speech. Memorial Hosp. v. Maricopa 

County, 415 U.S. 250 n.21 (1974). The proposed rule is not narrowly tailored to further a strong interest that the Commission is entitled to protect without interfering 

with the First Amendment protections of members of the Coalition. Secretary of the 

State of Md. v. Joseph H. Munson Co., Inc., 467 U.S. 947, 959–61 (1984); 

Schaumburg, 444 U.S. at 636–37. Where, as here, the Commission attempts to regulate the content of protected speech, it must employ the least restrictive means to 

advance the articulated interest. Sable Communications of Cal., Inc. v. Federal 

Communications Comm’n, 492 U.S. 115, 126 (1989). Clearly the Commission has not 

satisfied this burden. 

Even assuming that the privacy protection and fraud prevention interests cited 

by the Commission warrant some change in the current regulatory scheme, it does 

not follow that the ‘‘Do-Not-Call’’ registry is narrowly tailored enough to accomplish 

this objective constitutionally. Time and again, the Supreme Court has held unconstitutional any effort by government to impinge upon free speech rights by imposing 

unreasonable restrictions on professional fundraisers acting on behalf of nonprofit 

and charitable organizations. In Riley, as in Munson and Schaumburg, the government imposed restrictions focused on unconstitutional economic regulations. Here, 

the Commission proposes an equally infirm national ‘‘Do-Not-Call’’ registry (1) to 

which all professional fundraisers acting on behalf of nonprofit and charitable organizations must subscribe, (2) through which all communications with prospective donors must be filtered monthly, and (3) by which the Commission will prohibit certain solicitations or face federal, state or civil penalties. 

Other constitutional problems are created by exempting specific industries that 

engage in inherently commercial telemarketing (for example, airlines, insurance 

companies, credit unions, telephone companies, banks) and specific types of conduct 

(for example, religious and political telemarketing and solicitations directly by nonprofit and charitable organizations). This facially discriminatory approach raises 

grave equal protection issues. By exempting certain commercial telemarketing from 

the TSR 12 but not excluding professional fundraising on behalf of nonprofit and 

charitable organizations, the Commission favors commercial speech over protected 

speech. The Supreme Court has held unconstitutional a government ordinance that 

accorded a greater degree of protection to commercial speech than noncommercial 

protected speech. Metromedia, Inc. v. City of San Diego, 453 U.S. 490, 513 (1980). 

This is exactly what is accomplished by the proposed rule—the commercial speech 

freedoms of banks, insurance companies and other exempt industries would be unregulated by the Telemarketing Act, while the fully protected speech of the nonprofit and charitable organizations in the Coalition would be burdened. 

No less of a concern is the proposal to exclude political and religious contributions 

from the TSR based on a policy decision that religious discourse is a ‘‘paramount 

societal value’’ and a legal conclusion that political contributions are neither commercial nor charitable within the meaning of the USA PATRIOT Act. Notice, 67 

FED. REG. at 4499. The exclusions only reinforce the discriminatory effects and unconstitutionality of the proposed rule. Under the proposed rule, contributions for 

‘‘political parties and candidates’’ are not covered by the TSR because ‘‘they involve 

neither purchases of goods or services nor solicitations of charitable contributions, 

donations or gifts . . . ’’ Notice, 67 FED. REG. at 4499. And, purely ‘‘as a matter 

of policy,’’ the Commission proposes to exclude religious contributions because ‘‘the 

risk of actual or perceived infringement on a paramount societal value—free and unVerDate 0ct 09 2002 10:35 Feb 07, 2006 Jkt 091729 PO 00000 Frm 00086 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\91729.TXT JACK PsN: JACKF
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13The Coalition’s written comments to the Commission discuss other constitutional infirmities 

with the proposed TSR amendments including unconstitutional prior restraint and content 

based restrictions and are incorporated by reference. 

fettered religious discourse—likely outweighs the benefits of protection from fraud 

and abuse that might result from including contributions to such 

organizations . . . ’’ (emphasis added). 

In doing so, the Commission favors political and religious speech over fully protected free speech and discriminates against nonprofit and charitable organizations. 

As the Supreme Court has explained, however, appeals for charitable contributions 

are inextricably intertwined with the underlying conveyance of information and 

ideas—that is, speech. Schaumburg, 444 U.S. at 632 (‘‘solicitation is characteristically intertwined with informative and perhaps persuasive speech seeking support 

for particular causes or for particular views on economic, political, or social issues, 

and for the reality that without solicitation the flow of such information and advocacy would likely cease’’). These protections are fully vested even where a professional fundraiser is the conduit of the nonprofit and charitable organization’s 

speech. These speech rights are entitled to the full protection of the First Amendment, and must receive no less protection than political speech or religious discourse. 13

VII. Conclusion 

Thank you for the opportunity to share the views of SOWI and the Coalition on 

the substantial harm to nonprofit and charitable organizations as a result of the 

Commission’s proposed TSR amendments and, specifically, the ‘‘Do-Not-Call’’ registry. We look forward to working with the Subcommittee to assure that the many 

important consumer benefits conferred by nonprofit and charitable organizations are 

not reduced or eliminated by the Commission’s proposed TSR amendments.

Senator WYDEN. Very good. 

Mr. Cannon. 

STATEMENT OF LOU CANNON, PRESIDENT, DC LODGE OF THE 

FRATERNAL ORDER OF POLICE 

Mr. CANNON. Good morning, Mr. Chairman. I would like to especially thank you, Ranking Member Fitzgerald and Senator McCain 

for allowing me to appear before you here today. 

My name is Lou Cannon. I am the President of the District of 

Columbia Lodge Number 1. I am here this morning at the request 

of the National President of the FOP, Steve Young, to provide the 

Subcommittee with the concerns of the more than 300,000 members of the FOP with respect to the recent proposed rulemaking by 

the FTC and specifically the proposed national Do-Not-Call registry. 

The FOP is the Nation’s largest law enforcement labor organization, with members in 43 State lodges and more than 2,000 local 

lodges. The majority of these lodges and members are constantly 

engaged in charitable endeavors, and play an active role in the life 

of the communities they serve. Here in the District of Columbia, for 

example, the FOP is actively supporting such worthwhile organizations as the Boys & Girls Club, Concerns of Police Survivors, 

Easter Seals, Mothers Against Drunk Driving, Special Olympics, 

and in conjunction with the Washington Times, a local youth education program. All of these charitable enterprises are supported in 

part by the D.C. Lodge. 

In turn, we depend on the generosity of the community through 

grassroots fundraising efforts which enable us to support these 

community-wide programs and services. Since our organization is 

voluntary in nature, we do not have the staff nor the resources to 

raise the necessary funds to carry out these programs, and many 

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of our State and local lodges must rely on the efforts of professional 

fundraisers. 

Sound public policy dictates that it would be inappropriate for 

public safety personnel themselves to call residents of their community and seek financial support. Indeed, in some jurisdictions it is 

illegal to do so. Thus, the use of an outside commercial telemarketing service bureau is a necessity for the FOP. 

The State and local lodges that hire these firms mandate that 

they maintain their own Do-Not-Call lists, placing the names of 

those who request it on the list. The creation of a second Do-NotCall list would cause unnecessary confusion, and essentially mean 

that the firms employed by the FOP would be forced to follow two 

sets of rules on behalf of a single organization. 

In January of this year, the FTC published in the Federal

Register a notice of proposed rulemaking to amend the Telemarketing Sales Rule, (TSR), which will negatively impact organizations like the FOP. As you know, the TSR prohibits specific deceptive and abusive telemarketing acts or practices, and it is currently limited to telemarketing for commercial purposes only. 

The proposed rule is aimed to implement Section 1011 of the 

USA Patriot Act, also known as the Crimes Against Charitable 

Americans Act. Although Section 1011 did not call for the FTC to 

establish a national Do-Not-Call registry, it has been included in 

the provisions of the proposed rule to implement that Act. The intent of Section 1011 was to crack down on fraudulent telemarketers 

using the September 11 terrorist attacks to pose as fake charities 

in order to take advantage of the compassion of American citizens. 

The FOP strongly opposes the establishment of this national DoNot-Call registry. We further believe that the Government should 

not restrict the right of non-profit organizations to deliver their 

message and seek public support based solely upon who compensates the caller. This proposed list would not apply to all nonprofits, only to those calls made on behalf of non-profits by paid 

telemarketers, an issue on which the FOP has no choice. We must 

hire telemarketers. 

The fact that non-profits using paid employees to make the same 

calls will not be subject to the Do-Not-Call list creates a prohibited 

prior restraint on the non-profit organization that does not have 

the resources to use its own employees. The proposed rule places 

our regular supporters out of reach. Individuals wishing to minimize or eliminate calls received from annoying long distance companies will not realize they have placed themselves in a position 

whereby they cannot be called by organizations with which they 

have a prior, longstanding existing relationship. 

An added layer of the Do-Not-Call regulation will also have the 

unintended effect of raising the costs of fundraising by increasing 

compliance costs, and thereby reducing the net amount of funds 

available for community services and activities. 

In conclusion, the FOP believes the FTC’s proposed amendments 

to the Telemarketing Sales Rules should be revised so that it does 

not apply to calls made by, or on behalf of, non-profit organizations 

that are not selling goods or services. We further believe that the 

Commission’s proposed Do-Not-Call registry is outside of the scope 

85

or intent of the Crimes Against Charitable Americans Act and 

should be eliminated from the proposed rule. 

On behalf of the membership of the FOP, let me thank you 

again, Mr. Chairman, for the opportunity to appear here and testify. I would be pleased to answer any questions you may have. 

Senator WYDEN. Thank you very much. 

My first question for the panel—and anyone who wants to respond is welcome to. Twenty-two States have enacted Do-Not-Call 

lists. Do any of you believe that there have been significant—and 

I want to emphasize that—significant problems for consumers, 

businesses, non-profits, others at the State level? 

Let me just go down the row, just significant problems. 

Mr. Mendoza. 

Mr. MENDOZA. I do not think there have been significant problems. 

Mr. SARJEANT. I do not have any input on that. 

Mr. SCHWARTZ. I have not heard of any significant input. I have 

spoken to many of the States. 

Mr. ALLDRIDGE. Indiana has lost a significant amount of money 

in charities because of the law. 

Senator WYDEN. One State out of 22. Any others? 

Mr. ALLDRIDGE. Not that I am aware of. 

Mr. CANNON. I do not have the specific States, but talking to 

some of the telemarketers, they have said there have been significant reductions. 

Senator WYDEN. We can keep it open if you folks at the Fraternal Order of Police want to give us a further answer. What I am 

looking for, obviously, I want to find out first if there are any big 

problems for anybody at the State level of the 22 States. 

Mr. WIENTZEN. Senator, I think a number of small businesses 

are telling us that they have had significant reductions in their 

revenue as a result of lost business, and certainly the teleservices 

industry has suffered in many of those States where there is a 

large number of people who have signed up, and the teleservices 

industry reports in a recent conference we held that they are having a rather significant amount of difficulty integrating the different rules that many of those States have imposed. 

Senator WYDEN. If you all could get us some specific examples, 

and particularly what I would like to know is, four States, eight 

States, 12 States, every State, and some specific examples so we 

can really kind of get our teeth into some of the concrete problems 

that some seem to be concerned about. 

Mr. ALLDRIDGE. Senator, Indiana is one of only two States that 

does not have an exemption for the charitable call. 

Mr. SCHWARTZ. Can I add something, too? I have had a problem 

doing the education, as someone who does education on privacy 

issues, educating different States on what the Do-Not-Call lists are. 

One of the advantages of the national list is the ability to give 

one number, one easy way to be able to do this. 

Senator WYDEN. Thank you for, in that adroit way, getting into 

a new argument. 

Mr. WIENTZEN. Senator, can I add one other point? 

Senator WYDEN. Then I want to move on. 

86

Mr. WIENTZEN. Most of the States that have implemented DoNot-Call lists have prior business relation exemptions, I think 21 

of the existing State laws exempt any prior business relationship. 

If you start to have a situation where you cannot call your customers, I think you will see a very significant difference in a national list reaction. 

Senator WYDEN. For the DMA, how different is your list from 

what the Federal Trade Commission is proposing? 

Mr. WIENTZEN. Well, I do not think it is different. That is one 

of our arguments. We have allowed people to get on this list. It is 

free. In our case, people stay on for 5 years. Perhaps the biggest 

difference is, we ask the individuals to give their address as well 

as their name and phone number in order that we can update that 

list as people change addresses. 

You know, America is a very changing society. About 16 to 17 

percent of the American society moves each year, gets a new telephone number for the most part. With the Federal Trade Commission proposal, we seriously doubt that those people will have their 

new number put on the list and the old number removed, and so 

our system is different in that regard. 

Senator WYDEN. Well, my only point for all of you at DMA, and 

we have worked with you on a great many things, and I appreciate 

it, I would urge you to work with the Federal Trade Commission 

and see if we can find a way to resolve this, because if you all believe that your list is a lot like theirs, there ought to be at least 

some common ground here to see if we can come up with something. 

Mr. SCHWARTZ. Can I also make an additional point here? I have 

to disagree with Mr. Wientzen. His list is not free for people who 

want to sign up on the Internet. It costs $5 if you want to sign up 

on the Internet, and then also you cannot call in to a toll-free number, as Chairman Muris suggested they would allow at the FTC. 

You have to mail the piece in as well. It is much more complex for 

consumers than the system that the FTC is proposing. 

Senator WYDEN. Well, that is fair to comment on, but I do think 

that the DMA folks, to their credit, if they are saying what you are 

doing is in many respects like the Federal Trade Commission, we 

ought to have an opportunity to bring people together. 

Mr. WIENTZEN. We are prepared to have those discussions, Mr. 

Chairman. 

Senator WYDEN. Good. That is the point. For our non-profit 

friends, tell us what percentage of the organization’s funds come 

from unsolicited telephone solicitations by professionals. Even a 

ballpark sense would be good. 

Mr. ALLDRIDGE. In the State of Wisconsin, that is 37 percent of 

our revenue out of a $5.5 million budget. 

Mr. CANNON. It can vary depending on the amount of the agreements, anywhere from, I would say 20 percent on up, and there is 

a wide range across, with different agreements that you have with 

the telemarketers. 

Senator WYDEN. Now, the Chairman, Chairman Muris said earlier the Federal Trade Commission ought to consider whether nonprofits ought to be treated differently with respect to Do-Not-Call 

lists. For those of you in the non-profits, what is your view of what 

87

different could mean, and what would be appropriate? Should soliciting by non-profits be totally unregulated, or the other modifications that could help you? Give us your sense of what that might 

consist of in a way, again, that would strike a balance, and would 

allow an effort to move forward. 

Mr. CANNON. As I testified, we have our own Do-Not-Call lists 

in place, so if you come across somebody that wishes to be removed, 

we automatically take them off. We tried to do this internally by 

using retired officers, and it was virtually impossible to do, because 

of the nature of the equipment that is needed, the cost of that 

equipment, and the amount of time that has to be dedicated to 

that, thereby making it impossible for it to be done internally, 

whereas the companies that do this have all the necessary resources. 

Also, we have developed longstanding lists that we have as contributors, so to be able to force us to remove them because of somebody that is calling for communications or something puts us at an 

extreme disadvantage. 

Senator WYDEN. What if the Federal Trade Commission—and 

this is for the two non-profits—gave consumers the option of requesting to be put on the Do-Not-Call list for commercial calls 

only? Would that be helpful to you? 

Mr. CANNON. I think that would be extremely helpful, and that 

it would also solve part of the problem, that you do not want to be 

inundated by three or four long distance companies, as I can tell 

you I personally have over the course of a week. But, if you are interested, all of these deal with the community which they are in. 

It is not like DCFOP is going to call Wisconsin or something like 

that. You are dealing with your community base. You are bringing 

issues to the forefront that they may not know about, affording 

them an opportunity to help their own community by doing this. 

So I think that would certainly be a step in the right direction, by 

eliminating the commercial calls or separating them from your 

charitable calls. 

Senator WYDEN. Mr. Mendoza I know has to leave. Is there anything you would like to add further? 

Mr. MENDOZA. No, thank you. 

Senator WYDEN. Anyone else? 

Mr. ALLDRIDGE. That is exactly what happened in Wisconsin. 

They were able to exempt the professional representatives and the 

non-profits. 

Senator WYDEN. I am going to move on to cover a couple of matters on the common carrier issue. I would only say I just think this 

is doable, folks. I look at all of you, and I think there ought to be 

a way to find common ground. The DMA people have indicated 

they will talk to the Federal Trade Commission. That sounds constructive. Our folks with the non-profits have talked about various 

exemptions that could be helpful. I hope you will leave this and go 

out and try to find a way to put this together and do it in a way 

that works for all of the parties. 

A question for USTA and the Center for Democracy and Technology, and that relates to the proposal to end the exemption for 

the common carriers. Are there some areas like the Telephone Consumer Protection Act, where the FTC and the FCC both currently 

88

have some jurisdiction and responsibilities, and are working together? 

Mr. SARJEANT. Well, I think from an enforcement standpoint 

with respect to common carriers, it is principally the FCC. There 

may be some incidental areas where the FTC has been involved 

with common carriers, but I think it is almost exclusively the FCC. 

Mr. SCHWARTZ. Actually, there is one area that we are focusing 

on that we focus on in our written testimony, which was the customer privacy network information rule that the FCC has really 

had quite a bit of back-and-forth on with the courts, and actually 

just came up with a new ruling yesterday. It would cover privacy 

of customer information, and that is where our concerns lay. How 

will the jurisdictional issues on privacy may go forward if the exemption is lifted. We would just like more information on that. 

That was really our main point here. How would the FTC deal with 

those issues where the jurisdiction does overlap? Currently, the 

FCC has stronger rules for consumers in some privacy areas. 

Senator WYDEN. Mr. Sarjeant, the FTC Commissioners indicated 

that when the FTC tries to pursue enforcement against a company 

that has got common carrier activities, the agency goes out, spends 

a lot of resources and time repeatedly litigating the question of 

whether the common carrier exemption applies. What is your reaction to that? It does not look like a good use of the FTC’s limited 

resources. I want them to go out and help my people with gas 

prices rather than wasting money. 

Mr. SARJEANT. As I listened to the Commissioners speak this 

morning, they seemed to be fairly accepting of the fact that the jurisdiction as established by statute over common carriers rests with 

the FCC. Certainly it is within their prerogative to test judicially 

whether or not there may be some areas where the statute may 

permit them concurrent jurisdiction, but what little case law exists 

that I have seen would seem to suggest that the courts have fairly 

well settled that the jurisdiction over common carriers rests with 

the FCC or those other agencies that regulate common carriers. 

Senator WYDEN. I think that essentially what we are trying to 

do is make sure that we are not talking about common carrier activities like phone service and not the other lines of business the 

company may engage in like Internet services. Those are kind of 

the lines we are trying to draw here, and it seems to me that the 

Federal Trade Commission has got a good argument here. We will 

want to follow it up again with you. Is there anything you would 

like to add? 

Mr. SARJEANT. Well, I would just say Internet is a very good example. As the Senator probably knows, today the FCC has before 

it several proceedings where it is wrestling with just exactly what 

is Internet, and access to the Internet, whether or not you are a 

common carrier providing transport and you are connecting with 

an affiliated or an unaffiliated Internet service provider. 

The FCC is trying to get its arms around just exactly what that 

is. I think this would be a very bad time, in particular, for the FTC 

to begin to assert jurisdiction when we do not even have clarity 

concerning exactly what the appropriate regulatory classification 

for access to the Internet is. 

89

Senator WYDEN. I guess we could continue this. I am the author 

of the Internet Tax Freedom Act, the Senate sponsor, so I think I 

have a pretty decent sense of what the Internet is, but I think we 

have gotten the drift with respect to your remarks. 

Does anybody want to add anything further? We wanted you all 

to give us good information with respect to the do-not-call issue 

and also on the common carrier exemption. I think it has been constructive. We will give you the last word if anybody wants to add 

anything. 

Mr. WIENTZEN. Mr. Chairman, I think the Subcommittee would 

be well-served to spend some energy looking into the proposed cost, 

the estimated cost of a national Do-Not-Call registry both to put it 

together and how it will be maintained. I think it is far more complicated than perhaps has been uncovered to this point. 

Some of our folks are telling me that it is estimated it will cost $80 million to put it together to start with, which is way more, I 

think, than some of the initial estimates. 

Senator WYDEN. You might have quit while you were ahead, be- cause it sure is not going to cost $80 million if your good people 

who are operating something that seems to be close to the FTC 

work together with the FTC. 

Mr. WIENTZEN. That might well be the case, Mr. Chairman. That 

is why we are willing to talk about it. 

Senator WYDEN. Good. That is the bottom line, is trying to figure 

out a way to get the stakeholders together and to get it done. 

We appreciate all of you. We have worked with you on many occasions, and your organizations, and it has been very constructive, 

and we look forward to working with you in the days ahead. 

The hearing is adjourned. 

[Whereupon, at 12:15 p.m., the hearing adjourned.]

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