b'UNITED STATES OF AMERICA\n\nFederal Trade Commission\nWASHINGTON, D.C. 20580\n\nJoshua S. Millard\nAttorney, Division of Enforcement\nPhone: (202) 326-2454\nEmail: jmillard@ftc.gov\n\nAugust 26, 2019\n\nBeth Deisher\nCoordinator, Anti-Counterfeiting Task Force\nAnti-Counterfeiting Educational Foundation, Inc.\nP.O. Box 903\nSylvania, OH 43560\nRe: Anti-Counterfeiting Educational Foundation, Inc. - Advisory Opinion\nDear Ms. Deisher,\nThis is in reply to your August 8, 2019 email to the staff of the Federal Trade\nCommission (\xe2\x80\x9cFTC\xe2\x80\x9d) on behalf of Anti-Counterfeiting Educational Foundation, Inc. (\xe2\x80\x9cACEF\xe2\x80\x9d),\nrequesting an opinion concerning the marking of the word \xe2\x80\x9cCOPY\xe2\x80\x9d on imitation numismatic\nitems pursuant to the Rules and Regulations Under the Hobby Protection Act, 16 C.F.R. part 304\n(\xe2\x80\x9cHobby Rules\xe2\x80\x9d).1 In your email, you requested a response to the following questions:\n\xe2\x80\x9cDoes the incusing of the word \xe2\x80\x98COPY\xe2\x80\x99 have to be part of the manufacturing\nprocess or can it be applied later?\xe2\x80\x9d\n\xe2\x80\x9cIf it can be applied later, can any entity or individual citizen apply the word\n\xe2\x80\x98COPY\xe2\x80\x99 as long as it is in compliance with the requirements set forth in \xc2\xa7304.6?\xe2\x80\x9d\nYour email reported that members of the numismatic community have asked ACEF\nwhether it would be legal for them to mark imitation U.S. coins identified in the marketplace\nwith the word \xe2\x80\x9ccopy.\xe2\x80\x9d Additionally, you conveyed that some persons have suggested that ACEF\nhave punches made to the specifications set forth in 16 C.F.R. \xc2\xa7 304.6 and offer to mark\nimitation numismatic items as such as a service at coin shows.\n\n1\n\nAs defined in the Hobby Protection Act, 15 U.S.C. \xc2\xa7\xc2\xa7 2101-06 (\xe2\x80\x9cHobby Act\xe2\x80\x9d), an imitation\nnumismatic item is \xe2\x80\x9can item which purports to be, but in fact is not, an original numismatic item\nor which is a reproduction, copy, or counterfeit of an original numismatic item.\xe2\x80\x9d Id. \xc2\xa7 2106(4).\nThe Hobby Act defines original numismatic items to include coins, tokens, paper money, and\ncommemorative medals that have been part of a coinage or issue used in exchange or used to\ncommemorate a person or event. See id. \xc2\xa7 2106(3).\n\n\x0cMs. Beth Deisher\nAnti-Counterfeiting Educational Foundation, Inc.\nAugust 26, 2019\nIn response to your questions, as discussed below, FTC staff opines that with respect to\nunmarked imitation numismatic items found in commerce, entities other than the manufacturer\nor importer may mark the word \xe2\x80\x9ccopy\xe2\x80\x9d on such items after their manufacture following the\nmarking requirements set forth in 16 C.F.R. \xc2\xa7 304.6. However, such markings do not excuse\nprior violations by entities required to comply with the Hobby Act and Hobby Rules.\nThe Hobby Act requires manufacturers and importers of imitation numismatic items, as\nwell as persons or entities engaged in \xe2\x80\x9cthe sale in commerce\xe2\x80\x9d of such items, to mark such items\n\xe2\x80\x9cplainly and permanently\xe2\x80\x9d with the word \xe2\x80\x9ccopy.\xe2\x80\x9d 15 U.S.C. \xc2\xa7 2102(b).2 Consistent with the\nHobby Act, the Hobby Rules establish, among other things: (1) the location of markings on\nitems; (2) the sizes and dimensions of the letters and numerals to be used; and (3) how to mark\nnonincusable and incusable items. 16 C.F.R. \xc2\xa7 304.6. Incusable items are those that can be\nimpressed with a stamp.\nAs to the timing of the \xe2\x80\x9ccopy\xe2\x80\x9d mark, the Hobby Act and Hobby Rules establish that\nimitation numismatic items must be marked at least in the domestic manufacture of such items or\nbefore the importation of such items into the United States for introduction into or distribution in\ncommerce. 15 U.S.C. \xc2\xa7\xc2\xa7 2101(b), 2104; 16 C.F.R. \xc2\xa7 304.6. Failure to comply subjects violators\nto liability in governmental and private actions.3 Accordingly, the marking of the word \xe2\x80\x9ccopy\xe2\x80\x9d\nmust be part of the domestic manufacturing process for imitation numismatic items and must\noccur prior to importation of such items made outside the United States. Persons engaged in the\nsale in commerce of such items must also comply. 15 U.S.C. \xc2\xa7 2101(b); 16 C.F.R \xc2\xa7 304.3.\nNotwithstanding the foregoing, the Hobby Act and the Hobby Rules do not prohibit\nentities other than manufacturers and importers from subsequently marking unmarked imitation\nnumismatic items as copies pursuant to the marking requirements of the Hobby Rules, 16 C.F.R.\n\xc2\xa7 304.6. Indeed, the Hobby Act and the Hobby Rules contemplate that persons engaged in the\nsale in commerce of such items will comply with the marking requirement prior to such sales, 15\nU.S.C. \xc2\xa7 2101(b), 16 C.F.R. \xc2\xa7 304.3. However, later markings do not excuse prior violations by\nentities required to comply with the Hobby Act and Hobby Rules. For example, if a coin owner\nwho obtained an unmarked imitation 1932-S Washington Quarter from an importer discovers\nthat it is a copy and chooses to mark it as a copy for purposes of identification, that marking\nwould not relieve the importer from liability for failing to comply with the Hobby Act and\nHobby Rules.\nPlease note that this letter only expresses an opinion concerning laws enforceable by the\nFederal Trade Commission. See 15 U.S.C. \xc2\xa7 2105 (provisions of Hobby Protection Act \xe2\x80\x9care in\n2\n\nIt is also a violation of the Hobby Act for a person to provide substantial assistance, or support,\nto any manufacturer or importer or seller of imitation numismatic items if that person knows or\nshould have known that the assisted or supported entity is violating the Hobby Act\xe2\x80\x99s marking\nrequirements. Id. \xc2\xa7 2102(d).\n3\nViolations of the Hobby Act are enforceable by the Commission as violations of the Federal\nTrade Commission Act, 15 U.S.C. \xc2\xa7\xc2\xa7 2101(b), 2103, and also provide grounds for private suits\nseeking injunctive relief and damages. Id. \xc2\xa7 2102.\n\n\x0cMs. Beth Deisher\nAnti-Counterfeiting Educational Foundation, Inc.\nAugust 26, 2019\naddition to, and not in substitution for or limitation of, the provisions of any other law of the\nUnited States or of the law of any State\xe2\x80\x9d).\nIn accordance with Section 1.3(c) of the Commission\xe2\x80\x99s Rules of Practice and Procedure,\n16 C.F.R. \xc2\xa7 1.3(c), this is a staff opinion only and has not been reviewed or approved by the\nCommission or by any individual Commissioner, and is given without prejudice to the right of\nthe Commission later to rescind the advice and, where appropriate, to commence an enforcement\naction.\nIn accordance with Section 1.4 of the Commission\xe2\x80\x99s Rules of Practice and Procedure, 16\nC.F.R. \xc2\xa7 1.4, this response to your request for advice will be placed on the public record.\nSincerely,\n/s/\nJoshua S. Millard\nAttorney, Division of Enforcement\n\n\x0c'


b'UNITED STATES OF AMERICA\n\nFEDERAL TRADE COMMISSION\nWASHINGTON, D.C. 20580\n\nBureau of Consumer Protection\nDivision of Enforcement\nHampton Newsome\nDirect Dial: (202) 326-2889\nFax: (202) 326-2558\nEmail: hnewsome@ftc.gov\n\nJanuary 3, 2018\n\nMr. Clark R. Silcox, General Counsel\nNational Electrical Manufacturers Association\n1300 North 17th Street, Suite 900\nRosslyn, Virginia 22209\nDear Mr. Silcox:\nThis staff opinion letter responds to your recent request for guidance regarding mercury\xc2\xad\nrelated light bulb disclosures under the FTC\' s Energy Labeling Rule (16 C.F.R. Part 305). The\nRule(\xc2\xa7 305.15(b)) requires manufacturers to include an Environmental Protection Agency\n(EPA) web address ("epa.gov/cfl") on lamps containing mercury as well as on the packaging for\nthose products. The EPA website provides consumers with information about the cleanup and\ndisposal of mercury-containing bulbs. When the Commission issued these disclosure\nrequirements in 2010 (75 Fed. Reg. 41696), the predominant mercury-containing bulbs on the\nmarket were compact fluorescent lamps ("CFLs"). However, as your letter explains, other\nmercury-containing bulbs have become available more recently, including induction lamps. As\nyour letter suggests, the letters "cfl" in the URL mandated by the current Rule may be confusing\nto some consumers using these newer, non-CFL bulb types.\nYou are seeking guidance on whether, to minimize potential consumer confusion,\nmanufacturers of these bulbs may use an alternative URL ("epa.gov/bulb") to direct consumers\nto the EPA inf01mation. Although the Rule specifies use of the "epa.gov/cfl" address, we would\nnot recommend enforcement action if manufacturers of non-CFL bulbs use your suggested\nalternative address to connect consumers to the EPA website. The alternative URL would direct\nconsumers to the same EPA information about lamp cleanup and disposal while avoiding\npotential confusion created by the " epa.gov/cfl" address. To that end, we have discussed this\nissue with EPA staff, and they have created the alias web address "epa.gov/bulb" to take\nconsumers directly to "epa.gov/cfl." In the future , we will consider recommending Rule\namendments that include this address as an option for manufacturers.\nThe views expressed in this letter are those of FTC staff assigned to enforce the\nCommission\' s Energy Labeling Rule (16 C.F.R. Part 305). In accordance with Section l .3(c) of\nthe Commission\' s Rules of Practice and Procedure, 16 C.F.R. \xc2\xa7 1.3(c), this is a staff opinion only\n\n\x0cPage 2\nand has not been approved by the Commission or by any individual Commissioner. The advice\nprovided in this letter is not binding upon the Commission and is given without prejudice to the\nright of the Commission later to rescind the advice and, when appropriate, to commence an\nenforcement proceeding. In conformance with Section 1.4 of the Commission\'s Rules of\nPractice, 16 C.F.R. \xc2\xa7 1.4, this letter is being placed on the public record. If you have any further\nquestions, please contact me at (202) 326-2889.\n\n~~~\nHampton Newsome\nAttorney\n\n\x0c'


b'UNITED STATES OF AMERICA\n\nFederal Trade Commission\nWASHINGTON. D.C. 20580\n\nJock Chung\nDivision of Enforcement\nPhone: (202) 326-2984\nEmail: jchung@ftc.gov\n\nDecember 14, 2017\n\nDonald S Stein, Esq.\nGreenberg Traurig, LLP\n2101 L Street, NW, Suite 1000\nWashington, DC, 20037\n\nRe: Piirlin, LLC Advisory Opinion\nDear Mr. Stein,\nThis is in reply to your September 14, and October 27, 2017, letters on behalf of Plirlin,\nLLC ("Ptirlin") requesting an opinion that Purlin\'s bedding is not a product intended for uses\nsubject to the Textile Products Identification Act, 15 U.S.C. \xc2\xa7 70 (the "Textile Act" or "Act"),\nand its implementing regulations, the Rules and Regulations Under the Textile Fiber Products\nIdentification Act, 16 C.F.R. Part 303 (the "Textile Rules" or "Rules"). You request\nconfirmation that the Textile Act and Rules do not require Ptirlin to attach labels to its recyclable\nbedding at the time it provides the bedding to institutions.\nAs discussed below, based on the facts provided by Ptirlin, staff opines that Ptirlin\'s\nrecyclable bedding does not fall within the definition of "household textile article" in Section\n70(g) of the Textile Act. Consequently, in our view, Ptirlin\'s recyclable bedding is not covered\nby the Textile Act or the Textile Rules, and Pfulin may provide its bedding to institutions\nwithout labels.\nAccording to your letters and statements to me, the issues present the following facts:\nPtirlin offers woven recyclable bedding (sheets and pillowcases) made from polyester fiber to\nhealthcare, hospitality, and similar institutions. It does not offer this product to individual\nconsumers. This bedding is not washed, but after one use is disposed of through recycling.\nPtirlin arranges for the bedding to be recycled into pellets, which are then extruded at high\ntemperatures into sterilized fibers to be woven into hygienic recyclable fabric. Prior to recycling,\nany labels on the bedding must be removed to prevent label ink from contaminating the fibers\nproduced through recycling. According to Ptirlin, consumer recycling facilities cannot recycle\nits bedding.\nThe Textile Act prohibits the introduction into commerce of any misbranded "textile fiber\nproduct," where such a product is "any household textile article made in whole or in part of yam\n\n\x0cor fabric," or fiber, yam, or fabric to be used in a household textile article. 1 The Act defines\n"household textile articles" as "articles of wearing apparel, ... beddings, and other textile goods\nof a type customarily used in a household regardless of where used in fact. " 2 A product is \xc2\xb7\nmisbranded if it is not labeled with required information prior to being produced in the form\nintended for sale, delivery to, or for use by the "ultimate consumer," 3 defined as "a person who\nobtains a textile fiber product by purchase or exchange with no intent to sell or exchange such\ntextile fiber product in any form. " 4\nMost bedding, such as cotton bedding, is of a type customarily used in a household and\nconsequently falls under the Textile Fiber Act, even when such bedding is used in an institution,\nsuch as a hospital. However, Pilrlin\'s recyclable bedding is offered exclusively to institutions,\nand only they have access to Ptirlin\'s recycling services. 5 Consequently, in our view, Pilrlin\'s\nrecyclable bedding is not a household textile article and therefore not covered by the Textile\nAct\'s or Rules\' labeling requirements.\nWe base this opinion on the specific facts. If, at any time, Ptirlin or any other entity,\noffers similar recyclable bedding for household use, its bedding would fall within the Textile\nAct\'s definition of a household textile product and must be labeled pursuant to the Textile Act\n\xc2\xb7\nand Textile Rules. 6\nIn accordance with Section 1.3(c) of the Commission\'s Rules of Practice and Procedure,\n16 C.F .R. \xc2\xa7 1.3(c), this is a staff opinion only and has not been reviewed or approved by the\nCommission or by any individual Commissioner, and is given without prejudice to the right of\nthe Commission later to rescind the advice and, where appropriate, to commence an enforcement\naction.\n\n15 U.S.C. \xc2\xa7 70(h). The definition excludes products covered by the Wool Products Labeling Act of 1939, 15\nU.S.C. 68 et seq.\n2 The Act covers such articles even where they are used outside of the house. For example, the Commission has\nrequired industrial work gloves and diving wetsuits to be labeled under the Textile Act. Magid Mfg. Co., Inc., 75\nF.T.C. 808 (1969); Dive N\' Surf, Inc., 114 F.T.C. 798 (1991).\n3 15 U.S.C. 70a(d)(5).\n4 15 U.S.C. 70(m). You also suggest that Ptirlin\'s bedding is not intended for sale, delivery, or for use by the\n" ultimate consumer," and therefore Ptirlin could comply with the Rules merely by disclosing required information in\nan invoice or other document, e.g., a package label, pursuant to Section 303.31. You assert that the institutions\nbuying Ptirlin\'s bedding are not "ultimate consumers" because, at the time they receive it, they intend to eventually\nexchange it for new bedding. We disagree with this interpretation. The Act implicitly defines " ultimate consumer"\nas a person who obtains a textile fiber product with no intent to sell or exchange it unused. Under the Act, for\nexample, a manufacturer can provide unlabeled textile fiber products to a wholesaler who intends to sell the\nproducts unused to retailers. Under Ptirlin\'s contention, however, stores could sell unlabeled garments to be worn\nby purchasers, as long as they intend to eventually sell or exchange the garments. This interpretation would obviate\nthe Act.\n5 In fact, because its recycling services are only available to Plirlin \'s institutional customers, it would be deceptive to\nrepresent its bedding as recyclable to consumers. See FTC v. AJM Packaging Corp., No. I: I 3-cv- 1510 (D.D.C. Oct.\n1, 2013); see Green Guides, I 6 C.F.R. \xc2\xa7 260.12 (stating it would be deceptive to advertise a product as recyclable\nwhen recycling facilit ies are unavailable to consumers or communities where the item is sold).\n6 Pi.irlin has represented that its woven recyclable bedding is a unique product, and that it has a patent pending for\nthis product.\n1\n\n\x0cIn accordance with Section 1.4 of the Commission\'s Rules of Practice and Procedure, 16\nC.F.R. \xc2\xa7 1.4, your request for advice, along with this response, will be placed on the public\nrecord.\n\n-y~\n\n~~\'(h~AA~\nJock Chungvv--\n\n\x0c'


b'UNITED STATES OF Al\\1ERICA\n\nFederal Trade Commission\nWASHINGTON, D.C. 20580\n\nDivision of Financial Practices\nBureau of Consumer Protection\n\nApril 7, 2016\n\nJeff Appel\nDeputy Under Secretary\nU.S. Department ofEducation\nOffice of the Under Secretary\n400 Maryland Ave, SW\nWashington, DC 20202\nDear Mr. Appel,\nThis letter is in response to your request for a staff advisory opinion regarding the\nFederal Trade Commission\' s Trade Regulation Rule Concerning Preservation of\nConsumers\' Claims and Defenses, 16 C.P.R. \xe0\xb8\xa2\xe0\xb8\x87 433, commonly known as the Holder\nRule. Specifically, you note that courts commonly allow consumers to assert time-barred\nclaims defensively, even if they would not be able to assert such claims in an affirmative\nlawsuit, and ask if such defensive claims would be permitted under the Holder Rule. As\nexplained below, the Holder Rule would permit the time-barred claims or defenses\nagainst the holder, if state law would permit the time-barred claims or defenses against\nthe seller.\nThe Holder Rule protects consumers who enter into credit contracts with a seller\nof goods or services by preserving their right to assert claims and defenses against any\nholder of the contract, even if the original seller subsequently assigns the contract to a\nthird-party creditor. In particular, the Holder Rule requires sellers that arrange for or\noffer credit to finance consumers\' purchases to include in their credit contracts the\nfollowing Notice:\nANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO\nALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT\nAGAINST THE SELLER OF GOODS OR SERVICES OBTAINED\n[PURSUANT HERETO OR] WITH THE PROCEEDS HEREOF. RECOVERY\nHEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID\nBY THE DEBTOR HEREUNDER.\n16 C.P.R. \xe0\xb8\xa2\xe0\xb8\x87 433.2.\nA creditor or assignee of the contract is thus subject to all claims or defenses that\nthe consumer could assert against the seller. As you note in your request, the Guidelines\nthat accompany the Holder Rule explain that "claims and defenses" are "not given any\nspecial definition by the Commission.. . . Appropriate statutes, decisions, and rules in\n\n\x0ceach jurisdiction will control, and the pertinent rules oflaw and equity, including rules of\nevidence, procedure, and statutes of limitations, will continue to apply." 1\nThus, the Rule protects consumers\' existing claims and defenses, and does not\ncreate any new claims or defenses for the consumer. Accordingly, if a statute of\nlimitations bars an affirmative lawsuit against a seller under state law, that law would\ncontinue to apply. If, however, other applicable state law would still permit the claim\nagainst the seller, then under the Holder Rule, the claim could be used as to subsequent\nholders of the contract. Further, if state law allows consumers to assert time-barred\nclaims as defenses against the seller, then the Holder Rule would allow consumers to\nassert such defenses against subsequent holders as well.\nPlease be advised that the views expressed in this letter are those of the FTC staff.\nThey have not been reviewed, approved, or adopted by the Commission, and they are not\nbinding upon the Commission. However, they do reflect the opinions of those staff\ncharged with enforcement of the Holder Rule.\n\nSincerely,\n\nSv~\nStephanie Rosenthal\nChief of Staff, Division of Financial Practices\nFederal Trade Commission\nBureau of Consumer Protection\n\n1\n\nFTC, Guidelines on Trade Regulation Rule Concerning Preservation ofConsumers\' Claims and\nDefenses, 41 Fed. Reg. 20022 (May 14, 1976), available at\nhttps://www.ftc.gov/system/files/documents/rules/holder-rule/760504hidcrule.pdf.\n\n2\n\n\x0c'


b'COWAN\nLIEBOW\nLA\'\n\nCowan, Liebowitz & Latman, P.c.\n1133 Avenue of the Americas\nNew Yorl<, NY 10036\n(212) 79~9200 Tel\n(212) 575-0671 Fax\nwww.cll.com\n\nCJ. Erickson\n(212) 790-9274\ncje@cU.com\n\nMay 29, 2012\n\nBY FEDERAL EXPRESS\n\nFederal Trade Commission\n6th Street and Pennsylvania Avenue, N.W.\nWashington, D.C. 20580\nAttention: Donald S. Clark, Esq., Secretary\nRe:\n\nAdvisory Opinion Request of MJJ Brilliaut Jewelers, Inc.\nMarking/Advertising of Precious Metal Jewelry\n\nDear Secretary Clark:\nOn behalf of our client MJJ BriJliant Jewelers, Inc., New York, New York ("MJJ" or the\n"Company"), and as discussed with Federal Trade Commission Counsel via telephone\nconference, [\n.J\nIn light of the expected solicitation of public comments governing proposed revisions to the\nJewelry Guides, the Company believes it will be more beneficial to address these general issues\nin concert with the comments of other interested parties. The Company does, however, seek\nguidance on its proposed marking and advertising of certain products to ensure that its\nprocedures are within the letter and intent of the existing Jewelry Guides. This request is\nappropriate under the Commission\'s Rules of Practice because the proposed marketing andlor\nadvertising claims involve a novel question of fact or law for which there is no clear Commission\nor court precedent.\nProduct\n\nthe escalating cost of precious metals, notably gold, coupled with increasing demand,\nhas resulted in an industry demand for more reasonably priced alternatives. MJJ has inve.sted\n\nJFK Aml"ORT\xc2\xb7OFF[ClI \xe2\x80\xa2 2016 LINDEN BIND. Surra 18, ELMONf, NY 11003 \xe2\x80\xa2 (212) 790-.9200\n\n\x0cCowan, Liebowitz & Latman, P.C.\nFTC Bureau of Consumer Protection\nMay 29, 2012\nPage 2\n\nsignificant resources in developing an alternative alloy formulation that preserves the appearance\nand functionality of gold at a more reasonable cost to consumers .. The proprietary alloy,\nidentified as [\nJ (hereinafter, the "MJJ Alloy"), and is\ncomposed of [ ]% gold (periodic IJlement Au), [ )% silver (periodic element Ag), [ ]%\n__ _palladi urn (neriodic elemenLP_a),_and_[_]O,-\'"-hase_metals.\n\nLaw\nThe issue herein is whether MJJ Brilliant\'s proposed use of the term "gold" as part of its\nattempt to accurately identify the specific composition of the MJJ Alloy in jewelry is proper\nunder Section 5 of the FTC Act, which declares \'\'unfair\'\' or "deceptive acts or practices"\nunlawful. The Cotrunission\'s Policy Statement on Deception! states that the Commission\nanalyzes deceptive business practices under the following rubric:\n1. There must be a representation, omission or practice that is likely to mislead the\nconsumer. This includes the "use of bait and switch techniques."\n2. The practice is examined from the perspective of a reasonable person in the\ncircumstances. If the practice "is directed primarily to a particular group," such as\nInternet users, "the Commission examines reasonableness from the perspective of that\ngroup."\n3. The representation, omission or practice must be a material one, i.e" it is likely to affect\nthe consumer\'s conduct or decision regarding the produce or service.\nThus, an advertisement is "deceptive" if it includes material information that is false or\nthat is likely to mislead a consumer acting reasonably under the circumstances. Likewise, an\nadvertisement is deceptive if it omits material information, and that omission is likely to mislead\na consumer acting reasonably under the circumstances. 2 Requiring accurate disclosure of\nmaterial terms allows consumers to compare sirhilar services offered by one or multiple\nproviders and weigh the different terms being offered in making decisions about what services to\npurchase.\nThe Commission has formulated guides for various industry products, which set forth the\nCommission\'s "current thinking" about claims for certain products. The Jewelry Guides, which\n!\n\nFederal Trade Comm\'n, Policy 8Mement on Deception (Oct. 14, 1983)\nAssocs" 103 F.T.C. at 175 (appending FTC Policy Statement on Deception).\n\n2 Cliffdale\n\n\x0cCowan, Liebowitz & Latman, P.c.\nFTC Bureau of Consumer Protection\nMay 29,2012\nPage 3\nare found at 19 C.F.R. Part 23 ("Jewelry Guides"), are administrative interpretations of Section 5\nof the FTC Act prohibiting "unfair or deceptive" statements or claims in a product\'s marketing if\nthat marketing misrepresents a product\'s true composition. The underlying intent of these policy\nstatements is to ensure that the representations in advertising "will put consumers on notice that\n____ ---.:th.e_p.I~t.Jl.<mtains..Jlertain-precious-metals,-thereb\xc2\xa5-putting_them-in-a-posith;>D-to-inquireof\'-th~---- - - jeweler as to the relevant value of the different metals and the overall value of the product.,,3\nSection 23.1 of the Jewelry Guides expressly states that "It is unfair or deceptive to\nmisrepresent the type, kind, grade, quality, quantity, metallic content, size, weight. .. or any other\nmaterial aspect of an industry product." Note 2 to \xc2\xa7 23.1 further provides that "To prevent\ndeception, any qualifications or disclosures ... should be sufficiently clear and prominent." The\nclear intent of the Jewelry Guides is to avoid deception of, or confusion among, consumer\npurchasers offmished articles of jewelry by prohibiting use of the term "gold" as an adjective for\nfinished jewelry. They cannot be read to preclude advertisers from using truthful and accurate\nstatements of product content, nor can they be interpreted in a way that prohibits the use of new\nmaterials developed and recognized throughout the industry subsequent to implementation of the\nJewelry Guides.\n\nIndustry Standard and Pra1:tice\nPrecious metal alloys have become common in the jewelry trade over the past several\nyears due to the escalating price of precious metals. The industry is replete with examples of\nadvertising, marketing and labeling to such an extent that consumers now require greater content\ndetail and clarification of the items they are purchasing. Attached are examples of current\nadvertisements that evidence this trend. None of these identify the finished item of jewelry as an\narticle of "gold," but rather provide content information to the consumer to avoid confusion and\ndeception. We believe the truthful, accurate and complete description of product contents not\nonly meets the requirements and intent of the Jewelry Guides, but is mandated by it. The failure\nto disclose this information is inherently deceptive as the broad range and use of precious metal\nalloys in the jewelry trade afford consumers no basis to assess the value of purchased\nmerchandise.\n\n3 Guides for the Jewelry, Precious Metals, and Pewter Industries, 62 Fed. Reg. 16,673,\n16,674 (Apr. 8, 1997).\n\n\x0cCowan, Liebowitz & Latman, P.C.\nFTC Bureau of Consumer Protection\nMay 29, 2012\nPage 4\nMoreover, many of these products are the same color as 10kt., 14kt. and 18kt. gold. The\nsimilar color, coupled with the high price point of these products, imply a precious metal content.\nProhibiting a truthful disclosure of the actual precious metal content serves only to exacerbate\nconsumer confusion by creating an inability to distinguish between gold alloys of between 1kt\n_ ancllQJ,<:t. This is clearl)l an unintended.Qonsequence,anda.violationof-atieast-the-intent-of-the----\xc2\xb7\nJewelry Guides.\nThe Jewelry Guides were originally designed, in part, to prevent consumer deception and\nconfusion when purchasing "finished articles of gold jewelry. A standard was implemented to\nprovide a threshold for which a consumer can be assured of obtaining a known value. The 10 kt.\nminimum standard was implemented as the basis for identifying a "finished product as "gold."\nProducts consisting of less than 10 kt. cannot, absent more, be identi"fied as gold. The Jewelry\nGuides do not, however, relate to, restrict or limit the use of gold in the construction of finished\njewelry. In fact, in light of the introduction of new alloys which appear indistinguishable to the\nconsumer in terms of look, color and feel, the Jewelry Guides must be read to permit accurate\nand truthful content information.\nIn addition, The FTC has previously acknowledged the value of harmonization of U.S.\nand Canadian regulations applicable to trading partners in both jurisdictions. This stems from\nFTC comments on the Canadian Guide to the Precious Metals Marking Act and Regulations.\nThe U.S. and Canadian Guides are strikingly similar, both prohibiting a dealer from selling,\nimporting or advertising any precious metal article in a manner which is false or misleading as to\nthe precious metal content. The Canadian Guides do not restrict the use of the term "gold," or\nprohibit providing an assay report to identify the contents of a gold alloy article, if used in a nondeceptive and non-misleading manner. We believe the U.S. jewelry guides can be read\nconsistently with the Canadian guides in allowing MJJ\'s proposed marketing and advertising, as\nset forth below.\nMJJ Proposed Marketing and Product Stamping\n\nMJJ is aware that it cannot stamp or market its gold alloy jewelry with the traditional\nkarat marking standard as the alloy is admittedly less than 10 karat fineness. The articles are,\nhowever, constructed of an alloy consisting of the precious metal elements gold, silver and\npalladium, with the appearance and feel of gold. Due to its unique new nlUlle and content, the\ncomposition of the MJJ Alloy is not yet nnderstood within the industry or the public based on\n\n\x0cCowan, Liebowitz & Latman, P.C.\nFTC Bureau of Consumer Protection\nMay 29,2012\nPage 5\n\nname alone, As with other trademarked or newly created products, market recognition and/or\ncustomer understanding of the product is based primarily upon information supplied by the\ntrademark/patent owner or producer of the goods, Without such efforts, the consumer would be\nunable to malee a well-informed decision as to the product. Our reading of the Jewelry Guides\n. mandate\xc2\xa3.thtLl:lcQurateJdentificationof ihe.specificcomposition of the\xc2\xb7precious and-nQn-preciQus\xc2\xb7\nmetals contained within the MJJ Alloy,\nAs discussed, MJJ proposes to market its gold alloy jewelry by fully declaring the\ncontents, By doing so it is not describing the item as a gold product, but identifying the contents\nin an accurate, truthful, non-deceptive manner. Specifically, MJJ proposes use of the following\nin advertising and marketing materials, and requests confirmation that each is acceptable:\n(1)\n\nuse of the term: consisting of a proprietary alloy of gold, silver, and platinum,\n\n(2)\n\na link to a third party assay report identifying the precious metal content of the\nfinished article. A representative report is attached.\n\n(3)\n\nidentification of the specific percentage content of all precious metals in the\nfinished article,\n\n(4)\n\nstamping its merchandise with the company\'s [\n\n1trademark.\n\nAll of the above are in compliance with the Jewelry Gnides as they do not misrepresent\nthe advertised articles as gold and non-deceptively describe the items in a way that enables\nconsumers to evaluate and compare the items against similar jewelry widely marketed and\ndistributed to the public. As set forth above, we believe the proposed language eliminates\nconsumer confusion,\nConclusion\n\nIn light of the Commission\'s clear jurisdiction and its enforcement activity in this area,\nMJJ has exercised due care in seeking advance direction from the Commission on proposed\nadvertising of its jewelry. Based on the foregoing, and in accordance with Section l.3(c) of the\nCommission\'s Rules of Practice and Procedure, 16 C,F.R, \xc2\xa7 1.3(c), we respectfully request that\nthe Commission of FTC Staff issue an advisory opinion confirming that the marketing language\nis in accordance with existing law, agency regulations and applicable guidelines governing\n\n\x0cCowan, Liebowitz & Latman, P,C.\nFTC BUl\'eau of Consumer Protection\nMay 29, 2012\nPage 6\n\nprecious metal jewelry, as the proposed qualifying statements are accurate, truthful, and\ncomplete, providing consumers with non\xc2\xb7deceptive information regarding the construction and\nvalue of our client\'s merchandise. Moreover, the proposed language does not mis-identify the\nwholesale and retail products as gold, nor does it in any way misrepresent the constituent\n__materials._\n----- ---- - - - - - - - - - Should you have any questions or require additional information, please do not hesitate to\ncontact our office.\nSincerely,\n\nC.J. Erickson\n\ncc:\n\nMJJ Brilliant Jewelers\n\n\x0c'


b'UNITED STATES OF AMERICA\n\nFEDERAL TRADE COMMISSION\nWASHINGTON, D.C. 20580\n\nDivision of Marketing Practices\n~\nCraig Tregillus\nctregillus@ftc.gov\n\nDirect Dial: (202) 326-2970\nFacsimile: (202) 326-3395\n\nDecember 21, 2011\nMs. Lynne Nelson, Compliance and Education Manager\nOregon Mortuary & Cemetery Board\n800 Oregon St., #430\nPortland, OR 97232\nDear Ms. Nelson:\nYou have asked whether the Funeral Rule permits a funeral home to include a nondeclinable charge on its General Price List and Statement of Funeral Goods and Services Selected\nfor disinfecting, washing and dressing remains in connection with an \xe2\x80\x9cidentification viewing\xe2\x80\x9d when\nstate law does not require such a viewing. The purpose of this viewing is for a family member to\nconfirm the identity of the deceased prior to direct cremation or immediate burial of the remains.\nSection 453.4(b)(1)(ii) of the Rule prohibits a funeral provider from charging \xe2\x80\x9cany fee as a\ncondition to furnishing any funeral goods or funeral services to a person arranging a funeral other\nthan the fees for (1) services of funeral director and staff, permitted by \xc2\xa7 453.2(b)(4)(iii)(C) (the\n\xe2\x80\x9cbasic services fee\xe2\x80\x9d); (2) other funeral services and funeral goods selected by the purchaser; and (3)\nother funeral goods or services required to be purchased, as explained on the itemized statement in\naccordance with \xc2\xa7 453.3(d)(2).\xe2\x80\x9d1 Section 453.2(b)(4)(iv) emphasizes that the basic services fee \xe2\x80\x9cis\nthe only funeral provider fee for services, facilities or unallocated overhead permitted by this part to\nbe non-declinable, unless otherwise required by law.\xe2\x80\x9d2\nSection 453.3(d)(2), in turn, requires a funeral provider to \xe2\x80\x9cidentify and briefly describe in\nwriting on the statement of funeral goods and services selected . . . any legal, cemetery, or\ncrematory requirement which the funeral provider represents to persons as compelling the purchase\nof funeral goods or funeral services for the funeral which that person is arranging.\xe2\x80\x9d3 This\naffirmative disclosure is required by the Rule to prevent any misrepresentation prohibited by\nSection 453.3(d)(1) \xe2\x80\x9cthat federal, state or local laws, or particular cemeteries or crematories, require\nthe purchase of any funeral goods or funeral services when such is not the case.\xe2\x80\x9d4\n\n1\n\n16 C.F.R. \xc2\xa7 453.4(b)(1)(ii).\n\n2\n\n16 C.F.R. \xc2\xa7 453.2(b)(4)(iv).\n\n3\n\n16 C.F.R. \xc2\xa7 453.3(d)(2).\n\n4\n\n16 C.F.R. \xc2\xa7 453.3(d)(1).\n\n\x0cMs. Lynne Nelson\nPage 2 of 3\n\nThese provisions clearly prohibit a second, non-declinable fee for any purpose, including\nan identification viewing, unless applicable law or the particular cemetery or crematory to be\nused imposes such a requirement.5 As we understand your inquiry, no such external requirement\nexists that would permit charges for disinfecting, washing and dressing remains in connection with\nan identification viewing before a direct cremation or immediate burial.6\nThe National Funeral Directors Association argues that a funeral provider should be able to\ncharge a non-declinable fee for disinfecting, washing and dressing remains in connection with an\nidentification viewing before a direct cremation or immediate burial because it is a \xe2\x80\x9cpractical\nnecessity\xe2\x80\x9d for funeral providers to protect themselves from liability for cremating or immediately\nburying the wrong body, or because it would be \xe2\x80\x9cexcessively burdensome\xe2\x80\x9d to be prevented from\ndoing so.7 We do not find these arguments persuasive given the ready availability of reasonable\nalternatives to such a requirement.8\nFor example, a funeral provider could protect itself from liability in a variety of ways\ndepending on the circumstances, including providing families with a digital photograph of the\ndeceased for identification purposes,9 requiring families to provide a recent photograph to permit\n\n5\n\nStaff has previously stated that a non-declinable charge for an identification viewing\nwould likely violate Section 453.4(b)(1) of the Rule if not required by law. Staff Opinion 97-4\n(Oct. 31, 1997) available at http://www.ftc.gov/ftc/funerals/opinions/opinion97-4.pdf.\n6\n\nThis opinion does not address the situation in many states and localities where a law,\nregulation, or requirement of a cemetery or crematory imposes a duty on the funeral provider to\nconduct an identification viewing.\n7\n\nSection 453.4(b)(2)(ii) states that a funeral provider may \xe2\x80\x9cfail[] to comply with a request\nfor a combination of goods or services which would be impossible, impractical, or excessively\nburdensome to provide.\xe2\x80\x9d16 C.F.R. \xc2\xa7 453.4(b)(2)(ii). The Final Staff Compliance Guidelines for the\noriginal Rule read this provision to allow a funeral provider to require and charge for embalming \xe2\x80\x93\neven in the absence of any state law embalming requirement \xe2\x80\x93 for a funeral with a formal public\nviewing in hot weather because such a viewing would be impractical absent the availability of\nreasonable alternatives, such as refrigeration or the use of a sealed casket. 50 Fed. Reg. 28062,\n28072-73 (July 9, 1985); see also FTC, Complying with the Funeral Rule (June 2004) 24, available\nat http://business.ftc.gov/documents/bus05-complying-funeral-rule.pdf.\n8\n\nAlthough the Rule does not address identification practices, the availability of a variety of\nreasonable identification alternatives is highly relevant to the issues of practical necessity and\nexcessive burden.\n9\n\nThe NFDA and other experts have acknowledged that a digital photograph of the decedent\nthat is positively identified by a family member is sufficient to protect a funeral provider from\nliability for negligence.\n\n\x0cMs. Lynne Nelson\nPage 3 of 3\nemployees to conduct and document the identification,10 or securing an identification waiver and\nindemnification from family members.11 The availability of such alternatives undermines any\nargument that disinfecting, washing and dressing remains in connection with an identification\nviewing before a direct cremation or immediate burial is a practical necessity. For the same reason,\nthe Rule prohibition of a separate non-declinable charge for those services cannot be excessively\nburdensome.12\nIt is therefore staff\xe2\x80\x99s opinion that under the Funeral Rule a funeral provider may not require\nand impose a separate special charge for disinfecting, washing and dressing remains in connection\nwith an identification viewing before a direct cremation or immediate burial absent a state law,\ncemetery or crematory requirement that is disclosed in writing on the provider\xe2\x80\x99s statement of\nfuneral goods and services selected. We note, however, that nothing in the Rule prevents a funeral\nprovider from offering and charging clients for services that go beyond an identification viewing,\nsuch as a private family viewing rather than a formal public viewing, so long as that service is\nentirely optional and listed on the provider\xe2\x80\x99s General Price List.\nAs you know, the views expressed in this letter are those of the FTC staff. They have not\nbeen reviewed, approved, or adopted by the Commission, and they are not binding on the\nCommission or any individual Commissioner. However, they do reflect the views of FTC staff\ncharged with enforcement of the Funeral Rule. Staff Funeral Rule opinions are now routinely\nposted on the FTC website at http://business.ftc.gov/content/funeral-rule-opinions.\nSincerely,\n/s/\nCraig Tregillus\nFuneral Rule Coordinator\n(Revised: 12/18/12)\n10\n\nThis alternative may suffice, for example, in cases where there are readily identifiable\ndistinguishing features such as scars or tattoos.\n11\n\nA waiver and indemnification may be sufficient whenever a family member is present\nwith the deceased at the time of removal.\n12\n\nNothing in the Rule prevents funeral providers from adding the cost of verifying and\ndocumenting the identity of the deceased before a direct cremation or immediate burial to the basic\nservices fee included in their prices for those two specialized services because identification is\nequally important to \xe2\x80\x9cvirtually all,\xe2\x80\x9d if not all, of those two services. See Staff Opinion 07-2 (Mar.\n21, 2007) at 2, available at http://www.ftc.gov/ftc/funerals/opinions/opinion07-2.pdf. Staff has\npreviously determined that providers may reduce their standard basic services fee for direct\ncremation and immediate burial to reflect the proportionate reduction for each of those services in\nthe actual professional services they provide and the accompanying overhead. Staff Opinion 09-6\n(Nov. 24, 2009), available at http://ftc.gov/bcp/edu/microsites/funerals/opinions/opinion09-6.pdf.\nThus, a funeral provider may recover its identification costs simply by adding them to the reduced\nbasic services fee that it includes in its prices for direct cremation and immediate burial.\n\n\x0c\x0c'


b"UNITED STATES OF AMERICA\n\nFEDERAL TRADE COMMISSION\nWASHINGTON, D.C. 20580\nBureau of Competition\nMichael Bloom\nAssistant Director for Policy & Coordination\nDirect Dial\n(202) 326-2475\n\nSeptember 15, 2010\nMs. Joanne Lewers\nDrinker Biddle & Reath LLP\n1500 K St. N.W.\nWashington, DC 20005\nDear Ms. Lewers:\nThis letter responds to your request for a staff Advisory Opinion on behalf of the Rx-360\nInternational Pharmaceutical Supply Chain Consortium (\xe2\x80\x9cRx-360\xe2\x80\x9d). 1 Rx-360 seeks guidance\nconcerning the law enforcement intentions of the Federal Trade Commission\xe2\x80\x99s Bureau of\nCompetition (\xe2\x80\x9cBC\xe2\x80\x9d) with respect to Rx-360\xe2\x80\x99s proposed implementation of two supplier audit\nprograms, the Rx-360 Audit Sharing Program and the Rx-360 Joint Auditing Program. Under\neach of these programs, pharmaceutical manufacturers will be able to share information about\nthe quality and safety of ingredients purchased from common suppliers (\xe2\x80\x9cauditees\xe2\x80\x9d). The\nRx-360 Joint Auditing Program additionally will permit manufacturers to share the costs of\nsponsoring quality and safety audits of common suppliers. Because it appears that the audit\nprograms (1) do not require exchanges of competitively significant information, (2) contain\nprotections to reduce Rx-360 members\xe2\x80\x99 ability to use the programs for anticompetitive ends, (3)\nprotect auditees from concerted misuse of the audit programs, and (4) are intended and likely to\npromote efficiency, quality, and safety, FTC staff has no present intention to recommend to the\nCommission that it challenge the implementation of either program.\nIn forming this intention, we relied entirely on a review of the written materials and other\nrepresentations you have given to FTC staff. Should there be information that we are unaware of\nthat qualifies, modifies, or contradicts any of these materials or representations or that calls in to\nquestion the conclusions we have drawn from them, or should the proposed activities materially\nchange in the future, we may change our law enforcement recommendation accordingly.\nSummary of Representations and Written Materials\nWe understand that Rx-360 is a not-for-profit international consortium created by\n\n1\n\nLetter from Joanne Lewers, Counsel to Rx-360, to Donald S. Clark, Secretary of the\nCommission, requesting an FTC staff Advisory Opinion (July 26, 2010).\n1\n\n\x0cmembers of the biotech and pharmaceutical industries and incorporated in the Commonwealth of\nPennsylvania. Its mission, as you describe it, is to protect patient safety by assuring the quality\nand safety of the supply chain, including the authenticity of materials within the supply chain.\nAccording to your request letter, globalization of distribution for both drug components\xe2\x80\x94\nsuch as raw materials, active pharmaceutical ingredients (\xe2\x80\x9cAPIs\xe2\x80\x9d), and excipient ingredients\xe2\x80\x94\nand finished products has provided opportunities for the introduction of counterfeited,\nadulterated, and contaminated materials. In turn, the growth and globalization of the\npharmaceutical supply chain presents a challenge for manufacturers to monitor the quality and\nsafety of production at their supplier sites, which for any given drug manufacturer may number in\nthe hundreds or even thousands around the world.\nYou state that FDA regulations and guidance require pharmaceutical manufacturers either\nto perform on-site audits of suppliers or to test all lots of components shipped to a manufacturer\nto ensure that suppliers meet the necessary standards for providing safe, high-quality materials.\nAudits may be performed by a pharmaceutical manufacturer\xe2\x80\x99s in-house auditors or by third-party\nauditors hired by the pharmaceutical manufacturer. These audits focus on the quality, safety, and\nauthenticity of ingredients in the pharmaceutical supply chain; they are not, and should be\ndistinguished from, financial audits.\nWe understand that primary responsibility for ensuring the quality and safety of\npharmaceutical components rests with the finished product manufacturers. In this regard, drug\nmanufacturers follow a risk-based approach to auditing, meaning that sites generally are audited\nonce every several years. Sites that are deemed a \xe2\x80\x9clow risk\xe2\x80\x9d may be audited less often. Some\nsuppliers, however, may receive a multitude of requests from finished product manufacturers to\nconduct audits, many of which may be duplicative. As a result, some suppliers may spend\nsignificant effort and resources making their facilities available for audits of facilities and\nprocesses that may have only recently been examined by other manufacturers.\nYou state that Rx-360 was formed in 2009 to provide a more cost-effective means of\nconducting audits and using audit data. You further state that membership in Rx-360 is open to\nany entity whose activities relate to the research, development, or manufacture of pharmaceutical\nor biotechnology products. These include research-based pharmaceutical companies, generic\npharmaceutical companies, biotechnology companies, and suppliers of ingredients, components,\nand services to the pharmaceutical and biotechnology industries. Auditors and consultants are\npermitted to participate in some Rx-360 Working Groups as \xe2\x80\x9cObservers,\xe2\x80\x9d assisting in the\ndevelopment of Rx-360 standards. To avoid conflicts of interest, they will not be permitted to\nparticipate in some other activities, such as the Auditor Qualification Working Group, which will\nselect auditors for assignments. 2\n\n2\n\nRepresentations made by Joanne Lewers, Counsel to Rx-360, via e-mail to Theodore\nGebhard (August 10, 2010).\n2\n\n\x0cAccording to your request letter, Rx-360 proposes to:\no Share publicly-available information on proposed or new legislation and\nregulation that impacts the pharmaceutical supply chain;\no Share publicly-available information on counterfeits, cargo thefts, and adulterated\nproducts in the pharmaceutical supply chain;\no Develop voluntary standards for assuring the quality, safety, and authenticity of\nsupplies and suppliers;\no Develop and implement audit standards and audit training and certification\nprograms;\no Create or obtain the infrastructure necessary to share data regarding quality,\nsafety, and authenticity of supplies and suppliers that could adversely impact\npatient health or welfare; and\no Fund the further development of new technologies for securing and detecting\nadulteration in the supply chain.\nYou state that these activities will require the sharing of information already within the\npublic domain. But you further state that the activities will also require the sharing of certain\nnon-public information\xe2\x80\x94subject to certain confidentiality obligations (summarized below).\nThus, Rx-360 will become a clearinghouse for both public and non-public information related to\nthe global pharmaceutical supply chain.\nThe Proposed Rx-360 Audit Programs\nRx-360 intends to implement two audit programs. The Rx-360 Audit Sharing Program\nwill allow Rx-360 members to share existing supplier quality and safety audits conducted by\nRx-360 members or on their behalf. The Rx-360 Joint Auditing Program will allow Rx-360\nmembers to conduct joint quality audits of pharmaceutical suppliers going forward.\n(1) Rx-360 Audit Sharing Program\nWe understand that participation in the Rx-360 Audit Sharing Program is entirely\nvoluntary. Existing audit reports will be shared only following submission of the audit report to\nRx-360 by the audit sponsor and with the consent of the audited supplier (the \xe2\x80\x9cauditee\xe2\x80\x9d).\nProgram participants will be required to execute a confidentiality agreement with Rx-360 to\nprotect each audited supplier from unwarranted disclosure of its confidential and proprietary\ninformation. You have included a copy of that agreement in Appendix C of your request letter.\nFurther, each existing audit report will be redacted by the auditee to protect trade secrets,\nconfidential business information, and other competitively sensitive information. Redaction will\nfollow the Rx-360 audit sharing redaction policy as set out in Appendix D to your request letter.\nThe redacted reports will then be provided to the Rx-360 Secretariat. Once the Secretariat\ndetermines that the report is appropriately redacted, the Secretariat will enter the audit report into\n3\n\n\x0ca secure database and set access permissions so that only Rx-360 members authorized by the\nauditee can view the report. The report will be blinded as to audit sponsor, and there will be no\nway for an Rx-360 member to identify which other members have been given access to the\nreport. Audit reports will remain accessible to authorized members for up to 48 months from the\ndate of the audit. At present, the duties of the Secretariat are performed by outside legal counsel.\nYou state that the redacted audit reports may be used by those permitted access to help\nmake unilateral decisions about which suppliers to select. This process is similar to what many\ncompanies now accomplish through use of vendor questionnaires.\n(2) Rx-360 Joint Auditing Program\nWe understand that under the Rx-360 Joint Auditing Program, one or more Rx-360\nmembers would be able to request that the Consortium sponsor the audit of a particular supplier.\nYou describe the procedures for development and execution of audit plans in your request letter\nand appendices, especially Appendices G and H, and other correspondence. In brief, you explain\nthat an audit includes meetings with auditee management and other pertinent personnel, on-site\nobservation of the auditee\xe2\x80\x99s facilities and operations, and review of the auditee\xe2\x80\x99s records and\nprocedures. You further state that an audit focuses on such things as materials controls and\nsupply chain security, calibration and validation of critical equipment, methods, and processes,\nmanufacturing processes, and documentation and records systems. 3\nYou state that the audit process begins when an individual Rx-360 member submits a\nrequest to the Secretariat for a particular audit to be conducted. The Secretariat then surveys the\nRx-360 membership to determine whether other members want to act as joint sponsors of the\naudit. The identity of the original requesting sponsor and other participating sponsors initially\nwould be known only to the Secretariat. The target supplier would then be contacted to request\nan audit. At that time, the names of the requesting firms would be disclosed to the supplier. The\nsupplier may either agree or decline to be audited. The supplier may also exclude any requesting\ncompany from participating as a joint sponsor.\nAccording to your letter, a third-party auditing firm would be engaged to conduct the\naudit. The third-party auditor will be selected on the basis of objective minimum requirements.\nThese selection standards would include, for example, an auditor\xe2\x80\x99s prior experience, knowledge\nof pertinent regulatory and best-practices requirements, and ability to communicate in written\nand spoken English. Other minimum criteria are set out in Appendix F. The services agreement\nwith the auditor will require that, among other things, the auditor maintain the confidentiality of\ninformation learned in the course of performing services. The identity of each member\ninterested in auditing a particular supplier would not be disclosed to other companies interested\nin auditing that supplier.\nWe understand that after conducting the audit, the auditor will categorize each of its\n\n3\n\nRepresentations made by Joanne Lewers, Counsel to Rx-360, via e-mail to Theodore\nGebhard (August 11, 2010).\n4\n\n\x0cobservations as either \xe2\x80\x9ccritical\xe2\x80\x9d or \xe2\x80\x9cother.\xe2\x80\x9d A critical observation, as defined by Rx-360,\nindicates a system failure that has produced or creates a significant risk of producing a product\nthat is harmful to consumers or that may adversely affect the safety, identity, strength, or purity\nof the product. You explain in your letter that critical observations require immediate corrective\naction by the supplier, and will be immediately reported to the auditee and the audit sponsors\xe2\x80\x94\neven prior to issuance of a draft audit report.\nFollowing an oral review of its findings with the supplier, the auditor will prepare a draft\naudit report for review by the audit sponsors. The auditor will send the draft audit report to the\nSecretariat, who in turn will forward a copy to each of the audit sponsors. You represent that to\nensure fairness, the auditee will be permitted to contest the accuracy of any observations in the\ndraft audit report, including critical observations. Resolution of disputes in this regard will be\nmade by a decision of the majority of the joint sponsors of the audit. Those decisions will also\ndetermine what is ultimately included in the final audit report and posted into the Rx-360\ndatabase.\nYou state that if the audit report identifies any critical observations, the Rx-360\nSecretariat will choose a \xe2\x80\x9clead sponsor\xe2\x80\x9d to follow-up on implementation of corrective actions\nwith the audited supplier. The lead sponsor will report its findings concerning corrective action\nto the Secretariat, who in turn will report them to each of the other sponsors. Notwithstanding\nthe above, Rx-360 will not approve or disqualify any supplier based on the findings of a joint\naudit. Instead, each Rx-360 member that participates in a joint audit will independently utilize\nthe audit findings. Each sponsor retains the right to decide on its own whether an observation\nhas been properly classified as \xe2\x80\x9ccritical.\xe2\x80\x9d And each individual sponsor will be free to pursue\ndirectly with the supplier any corrective actions it deems necessary.\nYou explain that, at all times, the auditee will determine which Rx-360 members may\nobtain access to the audit data. The auditee even may deny access to the audit report to one or\nmore of the joint sponsors\xe2\x80\x94an outcome considered unlikely except where the auditee\ndetermines that a joint sponsor is to some extent a competitor of the auditee. Once the final audit\nis completed and posted on the Rx-360 database, other members of Rx-360 will be able to\npurchase access to it, again provided the auditee agrees to allow access to such companies. We\nunderstand, however, that other suppliers will not have access to an audited supplier\xe2\x80\x99s report.\nYou also state that the Rx-360 programs are not the only means by which audits will be\nconducted going forward. Instead, the Rx-360 programs are merely options for manufacturers to\nconsider as part of their audit process. For example, members retain the option to conduct audits\noutside of the Rx-360 program framework.\nYou submit that none of the information that will be shared relates to costs or prices.\nFurthermore, as a safeguard to ensure that there is no sharing of competitively significant\ninformation, the Rx-360 Secretariat will review audit reports before they are shared to affirm that\nany information regarding costs, product specifications, quantities, and any other information\nthat may be considered competitively significant has been redacted from the report.\n\n5\n\n\x0cFinally, you state that the Rx-360 Joint Auditing Program is expected to enable\nmanufacturers and suppliers to achieve efficiencies by reducing costly, duplicative, and\ndisruptive audits at common suppliers. These efficiencies, in turn, will enable manufacturers to\nfocus their auditing resources on (1) other suppliers that produce product-specific components,\n(2) new suppliers, and (3) suppliers that the manufacturer may not have previously been able to\naudit in the past to the desired frequency. Suppliers also may enjoy cost savings insofar as the\nnumber of on-site audits of their facilities is reduced.\nAnalysis\nThe Rx-360 audit programs feature the sharing of information among members, some or\nall of whom may be competitors. 4 The exchange of competitively significant information among\ncompetitors may facilitate anticompetitive ends, such as improving the ability of rivals to reach a\nconsensus to limit competition. Group behavior by downstream firms, as here, also raises the\npossibility of anticompetitive concerted action on the part of manufacturers against one or more\nupstream suppliers. It is appropriate therefore to consider the risk that Rx-360\xe2\x80\x99s proposed audit\nprograms pose in respect to these possibilities. In so doing, we conclude that they do not raise\nsignificant risk.\nUnder the antitrust laws, the legality of information exchanges among competitors is\ngoverned by the rule of reason. The rule of reason balances the potential for competitive harm\nagainst efficiencies or other procompetitive effects, if any, that the information exchange\ngenerates. 5 Among other factors, a rule of reason analysis may inquire into market structure and\nthe nature of the exchanged information to assess whether the exchange is likely to reduce the\nvigor of competition. 6 A rule of reason analysis, however, need not always go so far as to\n\n4\n\nWithout first performing a formal market definition exercise it is not possible to know\nwhether or to what extent Rx-360 members are actual competitors in one or more relevant U.S.\nmarkets. For purposes of this analysis, we assume that the members are competitors, at least\nrespecting some relevant U.S. pharmaceutical markets.\n5\n\nUnited States v. United States Gypsum Co., 438 U.S. 422, 441 n.16 (1978) (information\nexchanges among competitors do not always produce anticompetitive effects, but can also have\nprocompetitive consequences by increasing efficiency. Thus, such exchanges\xe2\x80\x94when not\nevidence of actual agreements to limit competition\xe2\x80\x94should be subject to the rule of reason).\n6\n\nId. See also United States v. Container Corp., 393 U.S. 333 (1969), where the Supreme\nCourt condemned a price exchange agreement, without detailed proof of actual market effects,\nlargely because of the nature of the information exchanged, the structure of the market, and the\nabsence of a benign justification for the price information exchange.\nThe Bureau\xe2\x80\x99s analytical framework for evaluating agreements among competitors to\nachieve joint goals is set out in the FTC/DOJ Guidelines for Collaborations Among Competitors\n(2000). Specifically, except where an agreement among competitors is per se unlawful, the\nagencies ordinarily will not challenge collaborations where the effect is competitively benign or,\non balance, procompetitive.\n\n6\n\n\x0crequire a full scale market definition exercise. 7 Rather, as the Commission\xe2\x80\x99s Polygram opinion\nestablishes, under some circumstances it is appropriate to perform a \xe2\x80\x9ctruncated rule of reason\xe2\x80\x9d or\n\xe2\x80\x9cquick look\xe2\x80\x9d in which the Commission considers the capacity of the conduct at issue to facilitate\ncompetitive harm against its tendency or ability to further plausible and cognizable\nprocompetitive ends, such as reducing costs. 8\nBased on the information that you have provided us and as summarized above, it does not\nappear that the Rx-360 audit programs involve practices of the kind that appear likely, even\nabsent an efficiency justification, to restrict or facilitate restriction of competition and decrease\noutput in any relevant market. To the contrary, the shared information may permit Rx-360\nmembers to achieve cognizable efficiencies redounding to the public\xe2\x80\x99s benefit. Our assessment\nis based on a number of factors.\nFirst, the goals of the audit programs do not appear to be either directly or indirectly\nanticompetitive. Neither do they require exchanges of information about potentially\ncompetitively significant parameters such as price, output rates, costs, or capacity. 9 Given the\nabsence of information exchanges respecting a significant competitive parameter, Rx-360\nmember collaborative efforts are not likely to facilitate marketplace coordination that limits\ncompetitive vigor. 10\nSecond, your procedures appear to contain several safeguards that further lessen risks of\ncompetitive harm. For example, the identity of audit sponsors will be protected, even from each\nother; audit reports will be redacted to exclude trade secrets, confidential business information,\nand the audit sponsor\xe2\x80\x99s name; the Rx-360 database will contain only those audit reports that both\nthe audit sponsor(s) and the auditee have agreed to disclose to members on an individual basis;\neach Rx-360 member that participates in a joint audit will independently utilize the audit\nfindings; participation in Rx-360 is voluntary, and all members retain the option to sponsor\naudits of suppliers independently of Rx-360; and outside legal counsel to Rx-360 will monitor,\non an ongoing basis, members\xe2\x80\x99 compliance with Rx-360\xe2\x80\x99s antitrust \xe2\x80\x9cPolicy & Guidance,\xe2\x80\x9d a copy\nof which you have provided with your request in Appendix B. Each of these features cabins the\n\n7\n\nThe FTC/DOJ Horizontal Merger Guidelines provide a thorough description of a full\nscale market definition exercise. See Horizontal Merger Guidelines: U.S. Department of Justice\nand Federal Trade Commission (August 19, 2010),\nhttp://www.ftc.gov/os/2010/08/100819hmg.pdf\n8\n\nPolygram Holdings, Inc. 136 F.T.C. Decisions 310 (2003) (guided by the Supreme\nCourt\xe2\x80\x99s decision in California Dental Ass\xe2\x80\x99n v. FTC, 526 U.S. 756 (1999)).\n\n9\n\nYour request letter states that neither the Audit Sharing Program nor the Joint Audit\nProgram will require the obtaining or sharing of competitively significant data such as prices,\noutput rates, costs, or other dimensions on which Rx-360 members compete in the marketplace.\n10\n\nSee Section 3 of the Collaboration Guidelines, esp. section 3.31(b).\n7\n\n\x0caudit programs in ways that appear to reduce members\xe2\x80\x99 ability to use the programs for\nanticompetitive ends. 11\nThird, auditees appear to be protected from possible concerted misuse of the audit\nprograms. For example, as previously noted, audit reports are not accessible to any given\nRx-360 member from the Rx-360 database unless the auditee has provided its approval of release\nof the audit report to that member. Additionally, the audits themselves are conducted by thirdparty audit firms selected on the basis of objective standards related to an auditor\xe2\x80\x99s capacity to\nperform quality and safety audits. After an audit is completed, Rx-360 will have no role in\napproving or disqualifying any supplier based on an audit\xe2\x80\x99s results; rather, each Rx-360 member\nwill render its own judgment on the audit report and determine whether the auditee needs to\nmake adjustments in order to maintain a supply relationship with the member.\nFourth and finally, there appear to be cognizable cost-savings associated with the audit\nprograms, as well as consumer benefits. It appears that the Joint Audit Program will enable\nmanufacturers to reduce the costs of duplicative audits at common suppliers and more\nproductively allocate audit resources. For example, the Joint Audit Programs may allow\nindividual manufacturers to refocus their resources on suppliers that produce product-specific\ncomponents for those individual manufacturers. Suppliers too could enjoy cost savings by dint\nof fewer independently-sponsored on-site audits. These savings, or at least some portion of\nthem, may be passed through the pharmaceutical supply chain to consumers. In addition,\nconsumers might be better assured of the quality and safety of the components and processes\nused to manufacture pharmaceuticals.\nConclusion\nOn the basis of these features, FTC staff concludes that the Rx-360 audit programs likely\ndo not raise significant competitive concerns. Staff believes that the nature of the shared data is\nlikely competitively benign and, in any event, the programs are sufficiently cabined in other\nrespects to eliminate substantially any risk that the shared data would facilitate anticompetitive\neffects in either output or input markets. The programs appear, moreover, to have important,\ncognizable cost-saving and safety enhancing features. For these reasons, BC staff has no present\nintention to recommend that the Commission undertake an enforcement action against the\nRx-360 audit programs upon their implementation. This opinion of FTC staff is predicated on\nthe accuracy of the information that you have provided to us. In accordance with normal\npractice, the Bureau of Competition reserves the right to reconsider the questions involved and,\nwith notice to the requesting party, to rescind the opinion if actual conduct respecting the Rx-360\naudit programs proves to be anticompetitive in any purpose or effect or if facts change\nsignificantly in the future such that it would be in the public interest to bring an enforcement\naction.\n\n11\n\nFor example, retention of independent decision-making lessens concerns about the\npotential for competitive harm. See esp. section 3.34 of the Collaboration Guidelines.\n8\n\n\x0cThe views of FTC staff contained herein are provided as authorized by Rule 1.1(b) of the\nCommission's Rules of Practice, 16 C.F.R. ' 1.1(b). Under Commission Rule 1.3(c), 16 C.F.R. '\n1.3(c), the Commission is not bound by this staff opinion.\nSincerely,\n\nMichael Bloom\nAssistant Director for Policy & Coordination\nBureau of Competition\nFederal Trade Commission\n600 Pennsylvania Ave. N.W.\nWashington, D.C. 20580\n\n9\n\n\x0c"


b'UNITED STATES OF AMERICA\n\nFEDERAL TRADE COMMISSION\nWASHINGTON, D.C. 20580\n\nBureau of Competition\n\nAPR - 9 2010\n\nMichael Bloom\nAssistant Director for Policy & Coordination\nDirect Dial\n(202) 326-2475\n\nKelly Hnatt\nWillkie Farr & Gallagher LLP\n787 Seventh Ave.\nNew York, NY 10019-6069\nDear Ms. Hnatt:\nThis letter responds to your request for a staff Advisory Opinion concerning the law\nenforcement intentions of the Federal Trade Commission\'s ("FTC" or the "Commission")\nBureau of Competition ("BC") with respect to the American Institute of Certified Public\nAccountants\' ("AICPA") proposed expansion of its "independence rule."t For the reasons\ndiscussed below, FTC staffhas no present intention to recommend to the FTC that it challenge\nadoption of the expanded independence rule as it has been described to staff. This present\nintention relies entirely on a review of the written materials you have provided to FTC staff,\nother representations you have made, and an interview with Securities and Exchange\nCommission ("SEC") officials to whom you directed FTC staff. Should there be information\nthat we are unaware of that qualifies, modifies, or contradicts any of this information or calls in\nto question the conclusions we have drawn from it, or should the independence rule or its\nimplementation change in the future, we may change our law enforcement recommendation\naccordingly.\nSignificantly, we cannot conclude, on the facts before us, that competitive concerns with\nrespect to AICP A\'s expansion of its independence rule can be wholly ruled out. Application of\nthe expanded independence rule could, at least in principle, produce anticompetitive effects in\nsome geographic markets, and facts necessary to evaluate that possibility are lacking.\nNonetheless, we find that the aggregate benefits of the independence rule expansion are likely to\nbe substantial, while the anticompetitive consequences, if any, are speculative and likely to be\nlocalized. Thus, our present intention is not to recommend a challenge to the expansion of the\nindependence rule; however, we will be attentive to any customer complaints to the effect that\nimplementation of the expanded rule by a specific AICP A-member network has\nanticompetitively limited available supply of accounting services or otherwise caused\nanti competitive outcomes. Ifwe receive well-founded complaints of that kind, they could result\nin our recommendation to the Commission to challenge the lawfulness of specific AICP Amember networks or our reconsideration of our decision not to recommend that the Commission\nchallenge the expanded AICP A independence rule.\n\n1.\n\nLetter from Kelly M. Hnatt to Donald S. Clark requesting an FTC staff Advisory Opinion\n(April 2, 2010). ("Hnatt Letter")\n\n\x0cSummary of Representations and Written Materials\nBased on the representations you have made and the written materials you have provided,\nwe understand the following to be accurate:\n\xe2\x80\xa2\n\nAICPA is a national, professional organization of certified public accountants, with\napproximately 350,000 members.2 Nearly forty percent of AICPA\'s members perform\naudit services for clients. 3 Membership in AICPA is voluntary.4\n\n\xe2\x80\xa2\n\nAICP A has developed a Code of Professional Conduct ("Code") that governs all AICP A\nmembers. 5 The Code is interpreted and enforced by AICPA\'s Professional Ethics\nExecutive Committee ("PEEC"t A member\'s violation of the Code may result in\nexpulsion from the organization.?\n\n\xe2\x80\xa2\n\nThe Code addresses various ethics principles relevant to the accounting profession,\nincluding: independence, integrity, and objectivity; compliance with applicable\nstandards; responsibilities to clients; and other matters affecting the reputation of the\nprofession. 8\n\n\xe2\x80\xa2\n\nSome of AICPA\'s members have formed "networks.,,9 A network is a collaborative\nenterprise that, among other things, can assist small network member-firms to achieve\nsome efficiencies of size and scope. 10\n\n\xe2\x80\xa2\n\nAccounting networks exist in a variety of forms. 11 PEEC defines a network as an\nassociation of entities that includes one or more firms that cooperate for the purpose of\nenhancing the firms\' capabilities to provide professional services and whose members\npossess one or more of the following characteristics: common brand name; common\n\n2.\n\nHnatt Letter at 2.\n\n3.\n\nId.\n\n4.\n\nId.\n\n5.\n\nId.\n\n6.\n\nId.\n\n7.\n\nId.\n\n8.\n\nId.\n\n9.\n\nId. at 4.\n\n10.\n\nId.\n\nII.\n\nId.\n2\n\n\x0ccontrol; sharing of profits or costs; common business strategy; the sharing of significant\nprofessional resources; and common quality control policies and procedures. 12 The\nextent of economic integration across accounting networks can vary significantly. 13\n\xe2\x80\xa2\n\nThe business basis for the formation of networks is to enable AICPA members to\ncompete more effectively by enhancing their marketing efforts and allowing them to gain\naccess to new markets; improving the quality and efficiency of services by leveraging the\nprofessional skills of other firms; and providing a referral network for clients that need\nnon-attest services that their auditors cannot provide. 14 The formation of networks\npermits smaller and medium-sized firms to compete for the business of larger\ncompanies. 15 This business is currently dominated by the "Big Four" accounting firms. 16\n\n\xe2\x80\xa2\n\nUnder AICPA\'s Code, members are obligated to adhere to "independence" standards. 1?\nIndependence has two components: independence of mind (also referred to as\nindependence in fact), and independence in appearance. 18 The purpose of the\nindependence standard is to assure that a CPA performing an audit or other attest service\nacts with objectivity and professional skepticism when performing that service.\nIndependence is therefore fundamental to the reliability of auditors\' reports and to\ninvestors\' confidence in financial statements. 19 Reliable financial statements reduce\ninvestor, prospective creditor, and others\' risk with respect to evaluating the financial\nhealth of business entities. 20\n\n\xe2\x80\xa2\n\nAICPA members perform many professional services, including audit services. 21 An\naudit of a client\'s financial statements concludes with an opinion by the auditor on the\nfairness of the client\'s financial statements, in all material respects, with regard to the\nclient\'s financial position, results of operations, and cash flows. 22 The auditor opines\n\n12.\n\nPEEC Interpretation No. 101-17, "Networks and Network Firms." See Exhibit D.\n\n13.\n\nHnatt Letter at 4.\n\n14.\n\nId. at 4.\n\n15.\n\nId.\n\n16.\n\nId.\n\n17.\n\nId. at 2.\n\n18.\n\nId. at 3.\n\n19.\n\nId.\n\n20.\n\nId. at 9.\n\n21.\n\nId. at 4.\n\n22.\n\nId. at 3.\n\n3\n\n\x0cwhether the client\'s financial statements are presented in conformity with generally\naccepted accounting principles ("GAAP,,).23 Audits are conducted in accordance with\ngenerally accepted auditing standards ("GAAS,,).24\n\xe2\x80\xa2\n\nAICPA members also perform non-audit services. 25 Non-audit services may include,\namong other things, performing management functions; making management decisions;\npreparing source documents used to generate the client\'s financial statements;\nauthorizing, executing, or consummating transactions; exercising authority on behalf of\nthe client; having custody of client assets; serving as a director or officer of the client;\nbeing a lender to the client; supervising client employees; and performing tax,\nbookkeeping, payroll, or consulting services. 26\n\n\xe2\x80\xa2\n\nAdherence to AICPA\'s current independence rules generally requires that.a member\nperforming audit services for a given client not have performed certain non-audit services\nfor that client during the period covered by the financial statements and during the period\nof the professional engagement (e.g., when performing the audit).27 Prohibited non-audit\nservices include performing management functions or making management decisions for\nthe client; preparation or review of client financial statements or other documents that\nwould be inputs to a subsequent audit; authorizing, executing, or consummating\ntransactions on behalf of the client; exercising authority on behalf of the client; having\ncustody of client assets; serving as a director or officer of the client; being a non-financial\ninstitution lender to the client; and supervising client employees. 28\n\n\xe2\x80\xa2\n\nIn general, a failure of independence due to an auditor\'s furnishing prohibited non-audit\nservices to a client during the period covered by the financial statement or during the\naudit cannot be purged. 29 If, however, a failure of independence would result solely from\na prospective auditor having a financial interest in a client (e.g., where the prospective\nauditor is an investor in or creditor of the client), the independence rule would be\nsatisfied if the prospective auditor severed all financial interests in the client prior to\ncommencement of the audit. 30\n\n23.\n\nId. at 3.\n\n24.\n\nId.\n\n25.\n\nId. at 4.\n\n26.\n\nId.\n\n27.\n\nId. at 6.\n\n28.\n\nId. at 6-7.\n\n29.\n\nId. at 8.\n\n30.\n\nId.\n\n4\n\n\x0c\xe2\x80\xa2\n\nProvided that the auditor complies with certain general requirements, the auditor may,\nunder AICPA\'s independence rule, provide other non-audit services such as performing\ntax, bookkeeping, payroll, or consulting?!\n\n\xe2\x80\xa2\n\nAICP A intends to amend its Code so as to apply the independence rule to member\nnetworks. 32 As amended, the Code would require that each member firm of an\naccounting network be independent of financial statement audit and review clients of the\nother firms in the network. 33 Thus, a network member may provide audit or review\nservices for a client only insofar as other network members are not providing, and did not\nprovide, during the period covering the financial statements, related, prohibited non-audit\nservices for that client; and may provide prohibited non-audit services for a client only\ninsofar as no other network member is then providing audit or review services. 34 As\namended, the independence rule is intended to address an ethical issue arising from the\nincreasing prevalence of accounting networks, ensuring the public that a firm providing\nan audit or review of a client\'s financial statements will make required judgments in an\nobjective manner without regard to how its judgments will affect the other network\nmembers. 35\n\n\xe2\x80\xa2\n\nThe proposed amended AICPA independence rule does not restrict any network member\nfrom competing with any other network member in the offering of audit or review\nservices where no network member is providing, or recently has provided related,\nprohibited non-audit services to the same client; nor does it restrict any network member\nfrom competing with any other member in the offering of non-audit services where no\nnetwork member is then providing audit or review services. 36\n\n\xe2\x80\xa2\n\nBefore taking on an audit or review engagement, a network member would have to learn\nfrom other network members or the prospective client whether any other network\nmember has a prohibited relationship with the prospective client. 37 Thus, prior to\nproviding audit or review services to a new client, a network member would have to\n\n31.\n\nId. at 7-8.\n\n32.\n\nId. at 5.\n\n33.\n\nId.\n\n34.\nId. "Related prohibited non-audit services" refers to prohibited non-audit services upon\nwhich a provider of audit services would or might have to rely in the provision of audit services\nin accordance with GAAS.\n35.\n\nId.\n\n36.\n\nId. at 6-8.\n\n37.\n\n!d. at 8.\n\n5\n\n\x0cdetennine that no other network member was providing, or had recently provided related,\nprohibited non-audit services to that client; and prior to providing non-audit services to a\nnew client, a network member would have to detennine whether any other member was\nthen providing audit or review services to that client. 38\n\xe2\x80\xa2\n\nAICPA intends to issue guidance to its members urging them, in evaluating\nindependence, to seek needed infonnation from prospective clients to the greatest extent\nreasonably possible, and, where needed infonnation can be obtained only from other\nnetwork finns, to ask only whether the other network finns had potentially prohibited\nrelationships with, or provided potentially prohibited non-audit services to, the\nprospective client. 39 The rule would not require the exchange among potentially\ncompeting finns of any infonnation regarding a network member\'s bids, bidding\nstrategy, capacity to bid, pricing or pricing plans, or other competitively sensitive\ninfonnation. 40\n\n\xe2\x80\xa2\n\nThe SEC requires that publicly-traded companies file audited financial statements with\nthe agency that have been prepared by an accounting finn that adheres to SEC\nindependence rules. 41 The SEC also requires that broker/dealers submit audited\nstatements prepared by accounting finns that adhere to the SEC independence rules,\nregardless of whether the broker/dealer is publicly traded. 42\n\n\xe2\x80\xa2\n\nThe SEC has detennined that, to be effective, the audits filed with it must be independent\nboth in fact and in appearance. 43 The SEC independence rule thus extends to all offices\nof an individual accounting finn, any subordinate units, and any affiliated entities,\nincluding any joint ventures or networks, including networks as defined by PEEC, to\nwhich the accounting finn may belong. 44\n\n\xe2\x80\xa2\n\nAICP A seeks an opinion from FTC staff as to whether the application of the\nindependence rule to networks raises significant antitrust concerns or would result in a\n\n38.\n\nId.\n\n39.\n\nId. See also Exhibit F to Hnatt Letter.\n\n40.\n\nId. See also Exhibit F to Hnatt Letter.\n\n41.\n\nInterview with SEC officials, January 20,2010.\n\n42.\n\nId.\n\n43.\n\nId.\n\n44.\n\nId.\n6\n\n\x0cstaff recommendation to the Commission that the application of the rule in such a manner\nbe challenged. 45\n\nBureau of Competition Analysis\nThe amended Code is aimed at the preservation of independence in the performance of\naudit services by a network member. The antitrust risks, if any, that may arise from blanket\nimplementation of the amended Code across all AICP A member networks, regardless of the\ndegree of integration or limits on competition that may be inherent in any given individual\nnetwork, concern the degree to which the rule potentially further limits competition at the\nmargm.\nAICPA members are already subject to AICPA\'s independence rule on an individual\nbasis. They are also subject to compliance with the SEC\'s independence rule, both individually\nand as part of any networks, to the extent they perform audits for publically-traded companies\nand for broker/dealers that will be filed with the SEC. Thus, were AICPA to amend its\nindependence rule as proposed, the impact would be felt on accounting services for nonpublicly-traded businesses and other entities that are not required to file audited financial\nstatements with the SEC.\nFor these firms, application of the rule may reduce the number of AICPA members that\nwould be able to bid for contemporaneous audit and prohibited non-audit work. Specifically,\nonce the AICPA independence rule is expanded to cover networks, the individual members of\nthat network may not compete for the audit work of a business during the time surrounding the\nprovision of prohibited non-audit services to that same business by any single member of the\nnetwork; nor may the individual members compete for the prohibited non-audit work of a\nbusiness while any single member of the network is engaged to perform audit work for that same\nbusiness. Such a situation could potentially significantly reduce competition in localized\ngeographic markets in which there are few, if any, accounting competitors outside of the AICPA\nnetwork. As a result, some local privately-held businesses seeking both audit and prohibited\nnon-audit services could face higher bids because of the expanded independence rule.\nAs a general matter, the FTC recognizes that collaboration among competitors can be\npro competitive when it results in cost-saving efficiencies or creates a new competitor.\nCollaboration, however, also may be anticompetitive if it eliminates one or more competitors or\nreduces incentives to compete. The joint FTCIDOJ Antitrust Guidelines for Collaborations\nAmong Competitors provide the analytical framework for determining the net competitive\neffects of any given joint venture. 46\n\n45.\n\nHnatt Letter at 1.\n\n46.\nSee FTCIDOJ, Antitrust Guidelines for Collaboration Among Competitors (April 2000).\nSpecifically, except where an agreement among competitors is per se unlawful, the agencies\napply the "rule of reason" to assess competitor collaborations. In so doing, the agencies weigh\nany procompetitive effects of the collaboration against the potential for competitive harm. The\nagencies generally will not challenge collaborations where the net effect is competitively benign\nor procompetitive. Significantly, the Guidelines do not attempt to divide all collaborations into\n7\n\n\x0cEven assuming that existing AICPA member networks satisfy the "rule of reason" test,\nimplementation of the expanded independence rule may, at the margin, tip the balance in the\nother direction. On the facts provided, however, it is not possible to make that determination for\nall potentially affected geographic markets. The analysis would depend on the number and size\ndistribution of market participants, as well as on some measure of any integrative efficiencies\nappertaining to any given network of AICPA members.\nNonetheless, the potential for net competitive harm arising from expanding the AICPA\nindependence rule to AICPA networks appears, based on the information presently available, to\nbe small. 47 Audits of publically-traded companies are already covered by the stricter SEC\nindependence rule. In addition, significant benefits to the capital markets, even respecting\ninvestors in non-publicly-traded businesses, can be expected to arise from AICPA\'s adoption of\nan expanded independence rule to cover networks. Moreover, additional procompetitive benefits\ncan be expected to the extent that AICP A networks are better able to compete against larger\naccounting firms for the business of larger privately-held clients. By contrast, potential\nanticompetitive consequences are speculative, occurring, if at all, most likely in localized\ngeographic markets where there may be only a limited number of accounting firms available to\ncompete for the accounting work of local businesses.\nNetwork members seeking to comply with the expanded independence rule will need to\nobtain select information about recent and current engagements and activities of other network\n\nprocompetitive or anticompetitive lists. Rather,\nthe Agencies hope to assist businesses in assessing whether the Agencies will challenge a\ncompetitor collaboration or any of the agreements of which it is comprised. However,\nthese Guidelines cannot remove judgment and discretion in antitrust law enforcement.\nThe Agencies evaluate each case in light of its own facts and apply the analytical\nframework set forth in these Guidelines reasonable and flexibly.\nId. at 2 (citations omitted).\nIn California Dental Ass\'n v. F.T.C, 526 u.S. 756 (1999), the Court observed that, in the\n47.\ncontext of professional services where members of the public may not possess the specialized\nknowledge to evaluate the quality of provided services, the likelihood of net anti competitive\neffects arising from ethical codes that otherwise restrict competition is not "comparably\nobvious" relative to restrictions in non-professional services situations. Id. at 771-772. For this\nreason, the Court held that a "quick look" rule-of-reason analysis is inappropriate in these\ninstances. Id. at 780-781. On the one hand, the Court\'s opinion suggests that AICPA\'s\nexpansion of its independence rule to cover networks may be a proper stand-in for lenders\'\n(assumed) inability to evaluate the quality of an audit of a non-publicly-traded business, thus\nenhancing economic value. On the other hand, the Court\'s precise holding highlights the\ndifficulty presented here, namely our inability to do more than render a "quick look" judgment\nabout the likely competitive effects of the expansion of the independence rule, given the\nunavailability of facts required to assess the likely impact of the expanded independence rule on\nthe lawfulness of particular networks in specific localized geographic markets.\n\n8\n\n\x0cmembers, and they might seek this information from other network members that are their\npotential competitors. The exchange among competitors of some kinds of information could\nitself result in anti competitive outcomes in some markets, for example by reducing accounting\nfirms\' uncertainty as to the capacity or interest of other network members in competing for new\nclients. The reduction of uncertainty as to potential rivals\' bidding intentions may, where only\none or a few likely viable competitors remain, permit firms to increase bid prices for affected\naccounting services. The exchange of certain kinds of information among competitors may\ncause anti competitive outcomes through other mechanisms as well.\nCompliance with the expanded independence rule, however, will not require network\nmembers to seek from other network members any information about current or future capacity\nor bidding intentions. Moreover, in most instances a network member will be able to obtain the\nlimited information needed to determine whether it may provide audit or prohibited non-audit\nservices to a prospective client from the prospective client, with little or no risk to competition.\nAICP A intends to encourage the networks to do so, further reducing any risk of information\nsharing among network members that harms competition.\nOn balance, FTC staff has concluded that, although, in principle, there may be instances\nin which the expansion of the AICPA independence rule to networks reduces competition, the\nlikelihood that the expanded rule would significantly reduce competition does not appear to be\nhigh. By contrast, the countervailing benefits of that expansion-in enabling small- and mediumsized accounting firms to increase their effective size and scope to compete for additional\naccounting work while ensuring the public that their audit work is untainted by auditor selfinterest-appear substantial. On that basis, Commission staff has no present intention to\nrecommend an enforcement action were AICPA to adopt the expanded rule. Having reached this\nconclusion, however, we note that its basis rests on incomplete facts respecting the specific\ngeographic markets in which AICPA member networks do business. Therefore, although we do\nnot at present intend to pursue further investigation, we also do not intend this Advisory Opinion\nto be construed as a blanket assessment that the expansion of the rule to networks could not raise\ncompetition concerns sufficiently great to induce future agency action. If more complete facts\nabout individual networks come to light, or if the FTC receives specific complaints about higher\nbidding respecting individual AICPA networks because of the implementation of the expanded\nindependence rule, our conclusion may change. 48\n\nConclusion\nBased on the above, the Bureau does not intend to recommend a law enforcement action\nto the FTC at this time.\nThis letter expresses the current opinion of FTC staff, and is predicated on the accuracy\nof the information that you have provided to us. In accordance with normal practice, BC\nreserves the right to reconsider the questions involved and, with notice to the requesting party, to\nrescind the opinion if actual conduct in compliance with the Code proves to be anticompetitive\n\n48.\nAdditional facts, in this case, does not mean "changed" facts. It should also be\nunderstood that if known facts change, our conclusion could similarly be revised.\n9\n\n\x0cin any purpose or effect or if facts change significantly in the future such that it would be in the\npublic interest to bring an enforcement action.\nThe views of FTC staff contained herein are provided as authorized by Rule 1.1 (b) of the\nCommission\'s Rules of Practice, 16 C.F.R. \xc2\xa7 1.1 (b). Under Commission Rule 1.3(c), 16 c.F.R. \xc2\xa7\n1.3(c), the FTC is not bound by this staff opinion.\n\nAssistant Director for Policy & Coordination\nBureau of Competition\nFederal Trade Commission\n600 Pennsylvania Ave. N.W.\nWashington, D.C. 20580\n\n10\n\n\x0c'


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b'UN ITED STATES OF AM ERICA\n\nFEDERAL TRADE COMMISSION\nW ASH IN GTO N , D .C. 20580\n\nD ivision of M arketing Practices\n\nFebruary 4, 2010\nJoan Mullen\nCreative Compliance Consulting\n9505 Golf Course Lane\nElk Grove, CA 95758\nRequest for Advisory Opinion:\nTransfer of Consumer-Initiated Call to Prerecorded Message\nDear Ms. Mullen:\nYou have requested an informal staff opinion on the applicability of the recent\namendments to the Telemarketing Sales Rule (\xe2\x80\x9cTSR\xe2\x80\x9d) to calls that are transferred to a\nprerecorded solicitation. The amendments at issue impose new restrictions on the use of\nprerecorded messages in telemarketing. Specifically, these amendments, as of September 1,\n2009, generally prohibit initiating an outbound telephone call that delivers a prerecorded\nmessage to induce the purchase of any good or service unless the seller has obtained from the\nrecipient of the call an express agreement, in writing, that evidences the willingness of the\nrecipient of the call to receive calls that deliver prerecorded messages by or on behalf of that\nseller and includes such person\xe2\x80\x99s telephone number and signature. 16 C.F.R. \xc2\xa7 310.4(b)(1)(v)\n(2009); 73 Fed. Reg. 15204 (Aug. 29, 2008). Your letter asks whether this amendment prohibits\nuse of a prerecorded message in the follow scenario:\nA consumer calls in to [sic] a call center with a customer service need or to\npurchase something. At the conclusion of the primary purpose of the call the\nconsumer is advised by a live agent to \xe2\x80\x9chold the line[\xe2\x80\x9d] while the call is\ntransferred to a rewards center. The call is then transferred to an automated sales\nline and one or more [prerecorded] \xe2\x80\x9cpitches\xe2\x80\x9d are made. The consumer has no\nopportunity to give permission for the prerecorded pitches.\nThe staff of the Federal Trade Commission has concluded that 16 C.F.R.\n\xc2\xa7 310.4(b)(1)(v)(A) does not apply to the delivery of prerecorded messages in the manner\ndescribed in your letter. The provisions on prerecorded messages in 16 C.F.R. \xc2\xa7 310.4(b)(1)(v)\nrestrict initiating an \xe2\x80\x9coutbound telephone call\xe2\x80\x9d and such a call is defined as \xe2\x80\x9ca telephone call\ninitiated by a telemarketer to induce the purchase of goods or services or to solicit a charitable\ncontribution.\xe2\x80\x9d Id. \xc2\xa7 310.2(u) (italics added). In the circumstances described in your letter, the\ncustomer initiates the telephone call and the transfer of the call that is initiated by the call center\nis a continuation of the same telephone call. Because call was initiated by the consumer, and not\nby a seller or telemarketer, 16 C.F.R. \xc2\xa7 310.4(b)(1)(v)(A) does not apply to the call.\n\n\x0cJoan Mullen\nCreative Compliance Consulting\nRequest for Advisory Opinion\n\nJanuary 29,2010\nPage 2\n\nWe note that in 2002, the Commission proposed modifying the definition of "outbound\ntelephone call" in the Telemarketing Sales Rule so that the definition would include situations in\nwhich a telephone call is "transferred to a telemarketer other than the original telemarketer." 67\nFed. Reg. 4491, 4500, 4541 (2002). The Commission decided not to expand the Rule\'s\ndefinition of "outbound telephone call" by adding this language. 68 Fed. Reg. 4579, 4594-95\n(2003). After considering public comments on the proposal, the Commission observed that\nexpanding the definition in this manner would have unintended and undesirable consequences\nbecause it would make upselling transactions subject to all the provisions of the Telemarketing\nSales Rule relating to outbound calls, including the calling time restrictions and national "donot-call" provisions. Id. In the same document, the Commission explained that the definition of\n"outbound telephone call" includes situations in which the telemarketer disconnects or\n"abandons" a call answered by a person without delivering a sales pitch. "A telemarketer\ninitiates a telephone call," the Commission observed, "by causing the called consumer\'s\ntelephone to ring." 68 Fed. Reg. at 4643. These statements in the Statement of Basis and\nPurpose accompanying the Commission\'s adoption of the current definition of "outbound\ntelephone call" reinforce our conclusion that the situation described in your letter - in which the\ntelemarketer does not cause the consumer\'s telephone to ring but transfers a call initiated by the\nconsumer after the primary purpose of the call has been completed - is not an "outbound\ntelephone call" and, therefore, is not subject to 16 C.F.R. \xc2\xa7 31 O.4(b)(1 )(v).\nPlease be advised that this opinion is based exclusively on the information furnished in\nyour letter and applies only to the practice described in your letter. Moreover, this opinion only\naddresses the issue that you presented, namely the applicability of 16 C.F.R. \xc2\xa7 31O.4(b)(1 )(v).\nOther provisions ofthe Telemarketing Sales Rule that are not limited to outbound telephone\ncalls may apply to the situation that you describe. In particular, provisions of the TSR\nconcerning "upselling" would apply to the telephone call that you describe, even though the call\nis not an outbound telephone call. 16 C.F .R. \xc2\xa7 31 0.3(d).\nIn addition, please be advised that the views expressed in this letter are those of the FTC\nstaff. They have not been reviewed, approved, or adopted by the Commission, and they are not\nbinding upon the Commission. However, they do reflect the opinions of the staff members\ncharged with enforcement of the TSR. Staff opinions concerning the TSR are routinely posted\non the FTC website at http://www.ftc.gov/bcp/telemarketing/staffopinions.shtm.\n\n~~lY~\nLois Greisman\nAssociate Director\nDivision of Marketing Practices\n\n\x0c'