b'm\nE. I. du Pont de Nemours and Mohawk Industries, Inc.\nCompany\n\nPTT Poly Canada\n\nSeptember 7, 2006\nOffice of Secretary\nFederal Trade Commission\n600 W. Pennsylvania Ave., NW\nWashington, DC 20580\n\nRevised Petition To Establish A New Generic Subclass\nMohawk Industries, Inc.1 (Mohawk), E. I. du Pont de Nemours and Company2 (DuPont), and\nPTT Poly Canada3 (PTT Canada) (collectively \xe2\x80\x9cPetitioners\xe2\x80\x9d) hereby submit this Revised\nPetition to the Federal Trade Commission (the \xe2\x80\x9cCommission\xe2\x80\x9d) for the establishment of a new\ngeneric subclass within the existing polyester category for fibers made from poly(trimethylene\nterephthalate) (\xe2\x80\x9cPTT\xe2\x80\x9d) to restate and supplement the contents of the Petition dated February,\n21, 2006 in order to address certain questions raised by the Commission. Petitioners note the\nCommission\xe2\x80\x99s April 18, 2006 action taken in response to the February 21, 2006 Petition\nassigning the designation \xe2\x80\x9cPTT001\xe2\x80\x9d for PTT fiber for temporary use until a final\ndetermination is made by the Commission as to the merits of this Petition. Petitioners\npropose in order of preference the following names for a new generic subclass of polyester\nthat may be used with respect to PTT fibers: 1. triexta; 2. resisoft; and 3. durares.\n1\n\nMohawk was founded more than 120 years ago and today is the leading producer and distributor of flooring\nworldwide. Mohawk products serve all major flooring categories: carpet, rugs, hardwood, laminate, ceramic tile,\nand vinyl flooring. Mohawk has launched a line of carpets manufactured from PTT and sells such carpets under\nthe trademark SmartStrand.\n2\n\nFounded in 1802, DuPont is a science company operating in more than 70 countries. DuPont offers a wide\nrange of innovative products and services for markets including agriculture, nutrition, electronics,\ncommunications, safety and protection, home and construction, transportation and apparel. DuPont markets PTT\nunder the trademark Sorona\xc2\xae.\n3\n\nPTT Poly Canada is a 50 / 50 Limited Partnership between Shell Chemicals Canada LTD and SGF Chimie, a\nsubsidiary of Societe Generale de Financement du Quebec (SGF). PTT Poly Canada markets PTT under the\ntrademark Corterra\xc2\xae Polymers.\n\n\x0cSummary of Petition\nPetitioners seek to establish a generic subclass for fibers spun from PTT on the grounds that\nsuch fibers satisfy the three tests required by the Commission for the use of a generic\nsubclass.4 These tests are satisfied by fibers spun from PTT because:\n1. PTT fiber has the same general chemical composition as the Commission\xe2\x80\x99s established\npolyester generic fiber category.\n2. PTT fiber, while having the general chemical composition of polyester, has distinctive\nproperties of importance to the general public as a result of its unique chemistry,\nmolecular design, and fiber structure. These properties are durability, resilience,\nsoftness, and stretch with recovery.\nPTT fiber\xe2\x80\x99s distinctive features of durability, resilience, softness, and stretch with recovery\nmake PTT fiber suitable for uses which conventional polyester (PET) is significantly less well\nsuited. These features are as follows:\na) Carpet applications: Durability and softness.\nb) Apparel applications: Softness and stretch with recovery.\nFiber Attributes Of Importance In Markets Where PTT Fiber Is Used\nAn important issue in an application for a generic subclass is the requirement that the\ndistinctive features of any new polymer or fiber be important to the general public, and that\nsuch features make the fiber suitable for uses for which other fibers which fall under the\nestablished generic name are not suited, or would be significantly less well suited.\nSince the distinctive features of a fiber may differ from application to application, it is useful\nto first discuss the two fiber markets where fibers made from PTT are used so that the\nproperties of PTT can be compared to the properties of the other polyester that is used for\nfiber applications. These markets are apparel and residential carpet. In these markets, the\nform of polyester that is most widely used is poly(ethylene terephthalate) (\xe2\x80\x9cPET\xe2\x80\x9d).\nAccordingly, Petitioners will provide data comparing the chemistry and crystalline structure\n\n4\n\nThese factors were identified as follows by the Commission in its Notice of Proposed Rulemaking of February\n15, 2002 appearing at 67 FR 7104:\n\xe2\x80\x9cThus, a new generic fiber subclass may be appropriate in cases where the proposed subclass fiber: (1) Has the\nsame general chemical composition as an established generic fiber category; (2) has distinctive properties of\nimportance to the general public as a result of a new method of manufacture or substantially differentiated\nphysical characteristics, such as fiber structure; and (3) the distinctive feature(s) make the fiber suitable for uses\nfor which other fibers under the established generic name would not be suited, or would be significantly less well\nsuited.\xe2\x80\x9d\n\n2\n\n\x0cof PTT to PET and the performance of fibers made from these polymers in carpet and apparel\napplications.5\nResidential Carpet\nPrior to the launch of residential carpet made from PTT by Mohawk Industries, Inc. and Shaw\nIndustries, Inc. (the two largest United States suppliers of carpet for the residential market),\nthe four principal types of man-made fiber used to manufacture carpet were nylon, PET\npolyester, and polypropylene. Of these four materials, nylon carpet offered the broadest range\nof attributes most highly valued by consumers. As a result, for comparable carpet\nconstructions, nylon carpet has commanded the highest price. Carpet made from PET has\nbeen less highly regarded because PET fiber lacks the durability and resilience of nylon and\nbecause, compared to many recent nylon carpet constructions, PET fibers were less flexible\nand not as soft as some nylon constructions.\nWith the launch of carpet based on PTT, consumers have a choice of a fiber that has stain\nresistance properties superior to nylon, together with durability, resilience and softness that\nmatches the highest quality constructions of nylon residential carpet.\nIn a 2004 study of consumer purchasing preferences6, 1600 consumers between 25 and 64\nyears of age who shopped for carpet in the past were asked questions pertaining to carpet fiber\nperformance and preferences. A list of those carpet attributes that relate to fiber performance\nand the percentages of consumers who rated the attribute as very important is in Table 1\nbelow. The attributes where PTT fiber has a significant performance advantage in residential\napplications over PET fiber because of its physical and chemical properties are highlighted in\nbold italics.\nTable 1: Consumer preferences in carpets\nAttribute\n\nPercentage Rating Attribute As Very Important\n\nCommon spills and pet accidents can be removed 69%\neasily even after they have dried\nThe carpet will stand up to years of foot traffic 67%\nwithout matting down\nDirt and soil can be removed easily from the carpet 66%\nwith regular vacuuming\nAreas where spills have been cleaned will not be 64%\nvisible\n\n5\n\nIn addition, Petitioners will provide data comparing the performance of PTT in carpet applications to the\nperformance of nylon carpet because nylon currently has the largest market share in residential carpet.\nAccordingly, the properties of nylon fibers are a useful reference to define those features of PTT carpet fibers\nthat are of importance to the general public.\n6\n\nData taken from a August 23, 2004 study titled Carpet Fiber Performance and Preferences prepared for\nMohawk Industries by the Brandware Group.\n\n3\n\n\x0cStain resistant properties will not diminish over the 63%\nlife of the carpet\nSoil resistance properties will not diminish over the\nlife of the carpet\nThe pile of the carpet stays tight and will stand up\nlike new after normal vacuuming\nThe color of the carpet will stay the same year after\nyear and never fade, even in direct sunlight\nHeavy soil and most stains can be removed from\nthe carpet with just plain water\nThe carpet pile will not shed or fuzz\nThe carpet is soft and comfortable to sit on or lie\non\nThe carpet can be professionally cleaned as often\nas you want\nThe carpet never shows tracks from footprints or\nvacuuming\nThe carpet will never produce static shock, even if\nyou walk on it in wool socks\n\n61%\n58%\n56%\n53%\n53%\n49%\n36%\n27%\n24%\n\nApparel\nThere are many man-made fibers used in the apparel industry, and the supply chain is far\nmore complex than in the carpet industry. However, it is still possible to obtain market\nrequirements information thru a carefully designed \xe2\x80\x9cvoice of customer\xe2\x80\x9d process by\ninterviewing fabric buyers and brand managers in the apparel industry. These steps in the\nsupply chain determine what fabrics are made into garments for the consumer public. Fabric\nbuyers and brand managers understand the downstream requirements and must match that\ndemand to the supply of fabrics and in turn what polymers and fibers are used in those fabrics.\nIn order to understand these preferences, DuPont conducted a survey7 of downstream\nparticipants in the supply chain to determine preferences in the apparel supply chain where\ndifferences in fabric fiber content were important and discernable. Table 2 lists the\ncompanies that were surveyed in the countries which are the major sources of fabrics made\nfrom man-made fibers. The purpose of the survey was to determine the attributes of fabrics\nthat are of greatest importance to consumers.\n\n7\n\nThis study was conducted by DuPont employees in the first and second quarter of 2004.\n\n4\n\n\x0cTable 2: Apparel fabric preferences survey participants\nCountry\nKorea\n\nFabric Producer or Purchaser\nLi & Fung, C&A/Mondial, Sears, SAE-A\nTrading Company, Mastex, Liz Claiborne,\nMast Industries\nEsquel, Levi, TAL, Adidas, Li & Fung,\nNike, Puma, Eddie Bauer\nBurringtex, Liz Claiborne, Federated, May\nCo., Mast, Newtimes Jones (Jones New\nYork)\n\nTaiwan\nChina\n\nSurvey participants were asked to rate the following attributes on a scale of 0 to 5. The results\nare shown in Figure 1 with the mean denoted by the small square and the range denoted by\nthe box. The average of the responses is the horizontal line.\n1.\n2.\n3.\n4.\n5.\n6.\n7.\n8.\n\nStretch\nSoftness (also referred to as \xe2\x80\x9cDrape\xe2\x80\x9d)\nEasy Dye\nEasy Care\nMade from renewable resources\nStain resistance\nResilience\nPrintability\n\nFrom this list of eight attributes, the three which had the greatest importance were easy care,\nsoftness (hand or drape), and stretch with recovery. PTT fiber is superior to PET fiber with\nFigure 1: Fabric survey results \xe2\x80\x93 Box represents 95% of questionnaire responses;\nof Importan\nby responses;\nAttribut\nred dot equals the Boxplots\nnumerical\naverage of\nhorizontal line equals the mean of\n(means are\nindicated\nby solid\ncircles)\nthe responses; and vertical\nline\nequals\nhigh\nand low ranges of responses.\n5\n\nImportance\n\n4\n\n3\n\n2\n\n1\n\nStretch\n\nStain Res.\n\nSoft\n\n5\n\nResilience\n\nPrints\n\nGreen\n\nDye\n\nAttribute\n\nCare\n\n0\n\n\x0crespect to two of these three attributes: softness and stretch with recovery.\n\nDiscussion of Factors Needed For The Designation Of A New Generic\nSubclass For Fibers Spun From PTT Polymer\nSection 1. PTT polymer and fibers spun from PTT have the same general chemical\ncomposition as the FTC\xe2\x80\x99s established polyester generic fiber category.\nRule 7(c) defines "polyester" as "[a] manufactured fiber in which the fiber-forming substance\nis any long chain synthetic polymer composed of at least 85% by weight of an ester of a\nsubstituted aromatic carboxylic acid, including but not restricted to substituted terephthalate\nunits, [formula omitted] and para substituted hydroxy-benzoate units, [formula omitted]." 16\nCFR 303.7(c).\nPTT polymer is made by reacting (a) dimethyl terephthalate (DMT) or terephthalic acid\n(TPA), both of which are substituted aromatic carboxylic compounds, and (b) 1,3-propanediol\n(PDO) to form a long chain synthetic polymer consisting of more than 85% of substituted\nterephthalate esters. Accordingly, fiber made from PTT polymer has the same chemical\ncomposition as is described by Rule 7(c).\nSection 2. PTT fiber, while having a chemical composition which causes it to fall within\nthe definition provided for polyester set forth in 16 CFR 303.7(c), has distinctive\nproperties of importance to the general public as a result of its unique chemistry,\nmolecular design, and fiber structure.\nThe generic class of aromatic polyesters today consists of several different chemical\nformulations including poly(ethylene terephthalate) (PET) and PTT. The type of polyester\nthat is familiar to consumers because of its use in carpet and apparel applications is PET.\nHowever, the molecular differences between PET and PTT are quite profound, and result in\nsignificantly different physical properties of fibers.\nThese properties are (a)\ndurability/resilience for carpet applications, (b) softness for both consumer carpet and apparel\napplications, and (c) stretch and recovery for apparel applications.\na) Durability/Resilience\nFiber durability, which in carpet applications is measured by the resiliency of the fiber and its\nability to recover from compression, is together with stain resistance the most important\nproperty that consumers look to when selecting a residential carpet as shown in the consumer\nsurvey results set forth above. This property is inherently better in fibers made from PTT vs.\nPET because of PTT\xe2\x80\x99s chemistry and molecular design. PET and PTT crystallize into triclinic\nunit cells during fiber formation. However, the glycol portion of their chemical chains\ncrystallizes into different conformations. The two methylene units in the glycol portion of\nPET are arranged trans to each other, whereas the three methylene units in PTT are arranged\nin a gauche-gauche conformation as shown in Figure 2 below:\n\n6\n\n\x0cFigure 2. PTT molecule showing gauche-gauche Conformation (ref. 1)\n\nBecause of the methylene diol\xe2\x80\x99s conformations, PTT chains are contracted by 24.7% while\nthe PET chain is fully extended. Also the benzene ring of the terephthalic ester groups of\nPET are oriented parallel to each other in every chemical repeating unit. However, the\norientation of PTT\xe2\x80\x99s benzene ring in the successive terephthalic ester units is at an angle to\neach other), thus PTT molecular chain forms a 2/1 helix, which is made up of two repeating\nunits per turn which introduces a zigzag shape to the polymer chain. This difference is\nillustrated in Figure 3 which compares the molecular structures of PET and PTT. As a result\nof this structure, compressive forces translate at the molecular level to bending and twisting of\nbonds, rather than just stretching. The molecular structure of PTT is more like a coil spring\ncompared to a straight wire structure in the case of PET polyester.8 Therefore, PTT fiber can\ntake an additional level of applied strain and recover completely.\n\n8\n\nThis property of PTT polymer has also been confirmed through study of x-ray diffraction patterns which occur\nwhen fibers of PTT are subjected to stress. See Crystal Deformation in Aromatic Polyester, Journal of Polymer\nScience, Vol. 13, 799-813 (1975) ref 2.\n\n7\n\n\x0cFigure 3: Structural differences between PET and PTT (ref 3)\n\nError!\n(a)\n\n(b)\n\nArrangement of PET (a) and PTT (b) crystalline molecular chains. Arrow indicates\nthe alignment direction of the benzene ring.\nAccordingly, when a PET fiber is subjected to compression forces in carpet applications (e.g.,\nwhen carpet is walked on or subjected to carpet industry tests that simulate foot traffic), the\nmolecular chain structure of PET changes and develops a larger permanent set or crystal\ndeformation which is not completely recoverable. This causes consumer carpet made from\nPET polyester to develop a crushed appearance where the carpet fibers do not continue to\nstand up as they did when the PET carpet was new.\nIn the case of PTT, compression forces in carpet applications cause the molecular chain\nstructure to deform. However, the crystalline structure is able to recover without developing a\npermanent set. The carpet fibers continue to stand up and appear new for a significantly\nlonger period of time. The basis for this performance difference is the molecular structure of\nthe two polymers, extended to larger physical properties differences such as crimp retention\nas shown in Figure 4 below:\n\n8\n\n\x0cFigure 4: Crimp recovery of PET and PTT BCF yarns (Shell internal study)\n100\n\n% Crimp Recovery\n\n80\n\nPTT\n\n60\n\n40\n\nPET\n\n20\n\n0\n0.00\n\n0.50\n\n1.00\n\n1.50\n\nTension, g/den.\nb) Softness\nSoftness is important to the consumer for both carpet and apparel applications. Consumers\njudge the softness of a residential carpet by touching or walking on the upright twisted fibers\nor yarns. The ease with which the yarns bend over is a measure of softness. Consumers\njudge the softness of a fabric by assessing its hand or drape (the ease with which conforms to\nthe shape of the body). The degree of softness in both cases is proportional to the amount of\nforce required to bend the fiber. The laboratory measurement of the amount of force required\nto bend a fiber is know as fiber modulus, which can also ascertain the relative softness of the\nresulting fabric or article.\nThe lower modulus of PTT fibers over PET fibers is explained on a molecular level by the\nlower crystalline modulus of PTT. The odd number of carbon atoms in the tri-methylene\nconstituent of PTT results in different chain conformations for PTT as compared to PET.\nPTT conformation is more helical or spring like, whereas PET is straighter like a wire.\nNaturally, more force is needed to deform a straight wire while very little force is required to\ndeform a coil spring to the same extent, therefore, PTT with coil spring structure has a very\nlow crystal modulus, 2.5 GPa vs. 107 GPa (ref 5) for PTT and PET crystals, respectively.\nAs a result, the crystals of PTT are relatively weaker and easier to bend compared to PET, and\nthe fiber made from this polymer has lower modulus.\n\n9\n\n\x0cEvidence of this different crystalline modulus caused by molecular structure differences is\napparent also in the higher glass transition temperatures (Tg) and crystalline melting\ntemperatures (Tm) of PET vs. PTT. These higher temperatures generally correspond to stiffer\nmolecular structures. See Table 3 below:\nTable 3: Differences in physical properties of PTT and PET (ref. 4)\n\nPhysical properties of PTT vs. PET\nPTT\n\nPET\n\nTm (\xc2\xb0C)\n\n228\n\n255\n\nTg (\xc2\xb0 C)\n\n50\n\n75\n\nYoung\xe2\x80\x99s modulus is yet another measure of the relative hardness of a material, and from the\ndata in Figure 5 it is readily apparent that PTT has far lower modulus than PET.\nFigure 5. Young\xe2\x80\x99s modulus of PET and PTT fibers (ref 5)\n\nFinally, Figure 6 shows a stress (force) vs. strain (fiber deformation) comparison of fibers\nmade from PET, nylon 66, and PTT. This graph shows that the properties of PTT polymer\nresult in fibers of PTT which have lower modulus than fibers made from either PET or nylon\n66.\n\n10\n\n\x0cFigure 6. Modulus of PET and PTT Fibers vs. Nylon 6,6 (ref 5)\n\nStress g/den.\n\n6\nPET\n\n5\n\nN66\n\n4\n3\n\nPTT\n\n2\n1\n0\n0\n\n10\n\n20\n30\nStrain, %\n\n40\n\n50\n\nAs a result of the lower modulus of the PTT fibers, carpets made from PTT fibers are\nperceived to be softer, and apparel fabrics made from PTT fibers have greater softness and\nsuperior \xe2\x80\x9chand\xe2\x80\x9d.\n(c) Stretch with Recovery\nStretch and recovery of fiber is important in apparel applications in order to improve the\ncomfort of garments and increase their ability to retain their shape and appearance.\nElastic recovery is measured by first extending the fiber in a tensile tester to a given strain\n(percent of extension) and then holding the fiber at that position for a given time, after which\ntime the strain is completely released. After a fixed period of relaxation time, the fiber is reextended and released to measure its recovery again. The difference between these two\nextensions and recoveries represents the immediate recoverability of the fiber and the\npermanent set. More elastic fibers recover immediately with lower permanent set. The\nterms are further defined in Figure 7.\n\n11\n\n\x0cFigure 7. Elastic extension and recovery terminology (ref 5)\n\nAs shown in Section 2(a) above, the crystalline region of the PET polymer will absorb only a\nlimited amount of strain. Strain beyond that point will cause the fiber to deform irreversibly.\nIn the case of PTT, the strain is absorbed by the crystal structure uncoiling like a spring.\nWhen the strain is released, the crystalline structure recovers. This difference is shown in\nFigure 8 which compares the stretch and recovery performance of PET and PTT fibers. The\ndata indicates that PTT fiber can be stretched with total recovery more than five times the\nstretch after which PET fails to recover.\n\n12\n\n\x0cFigure\n\n8.\n\nStretch\n\nwith\n\nrecovery\n\nof\n\nPET\n\nand\n\nPTT\n\nfibers\n\n(ref\n\n5)\n\nPET\nPTT\n\nSection 3. The properties of fibers made from PTT described in Section 2 above cause\nPTT fibers to be suitable for carpet and apparel applications for which other fibers\nmarketed under the established generic name polyester would be significantly less well\nsuited.\nAs discussed above, the attributes of durability/resilience and softness are of greater\nimportance to consumers when purchasing residential carpet. For apparel applications,\nsoftness and stretch with recovery are among the most important attributes of any fabric. The\ntest results set forth below illustrate the improved performance of PTT fibers over PET fibers\nwith respect to these attributes. Each test is preceded by a description of the protocol, and the\nidentity of the company performing the test.\na) Durability/Resilience\nCarpet durability and resilience can be measured by a number of standard tests. For example,\nthere are simple floor walking tests, where a sample of carpet is placed in a high traffic\nlocation and the number of walkers is simply counted using an electric eye trigger. Another\n13\n\n\x0ctest, called the Hexapod Wear Test is an appearance retention test endorsed by the Carpet and\nRug Institute (CRI). It follows a defined accelerated fatigue process developed through\nstudies conducted by CRI\xe2\x80\x99s Performance Standards Committee which simulates the most\naggressive parts of a walking action. These samples\xe2\x80\x99 appearance retention is then assessed\naccording to a defined protocol vs. its "newness" look, where 5 = no change and 1 = severe\nchange.\nSet forth in Figures 9, 10 and 11 below are the results of the Hexapod Wear Test conducted\nby Mohawk at its industry certified lab in Lyerly, Georgia on three carpet samples consisting\nof carpets of identical constructions9 made from nylon fiber, PET fiber, and PTT fiber. Tests\nwere performed after 12K cycles, 24K cycles, and 36K cycles. These tests reveal that carpet\nmade from PTT fibers perform better than carpet made from PET fibers. The performance of\nPTT is equal to the performance of nylon, which has been the performance standard for\nconsumer carpet prior to the introduction of PTT. Such performance continues over time as\ndemonstrated by this industry standard accelerated wear test.\nFigure 9:\n\nHexapod Wear Test (12K Cycles)\nIndividual Value Plot of Hex. 12K vs Carpet\n\n4.5\n\nHex. 12K\n\n4.0\n\n3.5\n\n3.0\n\n2.5\nNylon\n\nPET\nCarpet\n\nSorona\n\nPTT\n\nThere are statistically significant differences between PET, and both PTT and nylon. PTT\xe2\x80\x99s\nperformance continues to be like nylon, rather than PET polyester. The differences\nbetween PTT and nylon are not statistically significant.\n\n9\n\nSee appendix for test carpet constructions\n\n14\n\n\x0cFigure 10:\n\nHexapod Wear Test (24K Cycles)\n\nIndividual Value Plot of Hex. 24K vs Carpet\n4.5\n4.0\n\nHex. 24K\n\n3.5\n3.0\n2.5\n2.0\n1.5\nNylon\n\nPET\nCarpet\n\nSorona\n\nPTT\n\nAfter 24K cycles, there continue to be statistically significant differences between PET,\nand both PTT and nylon. PTT\xe2\x80\x99s performance continues to be like nylon. The differences\nbetween PTT and nylon are not statistically significant.\n\nFigure 11:\n\nHexapod Wear Test (36K Cycles)\nIndividual Value Plot of Hex. 36K vs Carpet\n\n4.0\n3.5\n\nHex. 36K\n\n3.0\n2.5\n2.0\n1.5\n1.0\nNylon\n\nPET\nCarpet\n\nSorona\nPTT\n\nAfter 36K cycles, statistically significant differences continue between PET, and both PTT\nand nylon. PTT\xe2\x80\x99s performance remains like nylon. The differences between PTT and\nnylon are not statistically significant.\n\nWhile hexapod test data simulates wear through a mechanical device, PTT\xe2\x80\x99s advantages over\nPET are equally apparent when carpet is walked on by human subjects. The performance of\nnylon, PET, and PTT carpet in this test is compared by measuring the appearance of carpet\nafter a certain numbers of cycles (human footsteps on carpet). Results of this test conducted\nat an industry certified testing lab operated by Mohawk at Lyerly, Georgia after 20 thousand,\n15\n\n\x0c40 thousand and 60 thousand cycles are set forth below in Figures 12, 13, and 14. Consistent\nwith the results from the hexapod test, the performance of PTT carpet was much better than\nthe performance of PET carpet and was comparable to the performance of nylon carpet.\n\nFigure 12:\n\nPerformance Appearance Rating (20K Cycles)\n\nIndividual Value Plot of PAR 20K vs Carpet\n4.5\n\nPAR 20K\n\n4.0\n\n3.5\n\n3.0\n\n2.5\n\n2.0\nNylon\n\nPET\nCarpet\n\nSorona\nPTT\n\nThere are statistically significant differences between PET, and both PTT and nylon.\nIn other words, PTT\xe2\x80\x99s performance in this test is like nylon, rather than polyester. The\ndifferences between PTT and nylon are not statistically significant.\n\n16\n\n\x0cPerformance Appearance Rating (40K Cycles)\n\nFigure 13:\n\nIndividual Value Plot of PAR 40K vs Carpet\n4.0\n\nPAR 40K\n\n3.5\n\n3.0\n\n2.5\n\n2.0\n\n1.5\nNylon\n\nPET\nCarpet\n\nSorona\n\nPTT\n\nAfter\n40K\ncycles,\nthere\nalso\nstatistically\nsignificant\ndifferences\nbetween\nPET,\nboth\nAfter\n40K\ncycles,\nthere\nareare\nalso\nstatistically\nsignificant\ndifferences\nbetween\nPET,\nandand\nboth\nPTT and\nand\nnylon.\nAgain, Sorona\n\xe2\x80\x99s test\nperformance\nin this\ntestthan\nis like\nnylon, rather\nnylon.Sorona\nAgain,\nPTT\xe2\x80\x99s\nperformance\nin this\nis like nylon,\nrather\npolyester.\nThe than\ndifference\nbetween\nPTT and\nnylon\nare not statistically\nsignificant.\npolyester.\nThe\ndifferences\nbetween Sorona\nand nylon are not statistically significant.\n\nFigure 14:\n\nPerformance Appearance Rating (60K Cycles)\n\nIndividual Value Plot of PAR 60K vs Carpet\n4.0\n\nPAR 60K\n\n3.5\n\n3.0\n\n2.5\n\n2.0\n\n1.5\nNylon\n\nPET\nCarpet\n\nS orona\n\nPTT\n\nAfter\n60K\ncycles,\nthere\nareare\nalso\nstatistically\nsignificant\nAfter\n60K\ncycles,\nthere\nalso\nstatistically\nsignificantdifferences\ndifferencesbetween\nbetweenPET,\nPET, and\nand both\nboth\nnylon and PTT. PTT\xe2\x80\x99s performance continues to be like nylon, rather than polyester. The\nSorona\nand\nnylon.\nSorona\xe2\x80\x99s\nperformance\ncontinues\nto\nbe\nlike\nnylon,\nrather\nthan\ndifferences between PTT and nylon are not statistically significant.\npolyester. The differences between Sorona and nylon are not statistically significant.\n\nThe data in Figures 15(a) and 15(b) is provided as additional confirmation of the superior\ndurability and resiliency of even low denier per filament (dpf), soft PTT fiber as compared to\n17\n\n\x0cidentical PET fiber. Shell Chemical LP, acting under contract as the marketing and technical\nservice provider to PTT Canada, arranged to have identical PTT and PET carpets made and\ntested. The bulked continuous filament (BCF) yarns were made on a commercial extruder at\nCAF Extrusion, Inc. in Calhoun, Georgia. The same spinneret with 120 holes was used for\nboth yarns resulting in 12 dpf PTT and PET yarns. These yarns were then each twisted at 5\nturns-per-inch (TPI), Superba heat-set, and converted into carpet. Durability and resiliency\ntesting was conducted at the certified laboratory of Independent Textile Testing Service, Inc.\n(ITTS) in Dalton, Georgia. The carpet specifications are shown in Table 4 below; each point\nis the average of three \xe2\x80\x98raters\xe2\x80\x99.\nTable 4: Head-to-head comparison of PTT vs PET carpets\nCarpet Construction Details\nGauge\nPile Height (inches)\nStitches per Inch (SPI)\n\n25-ounce per square\nyard\nPTT\nPET\n5/32\n5/32\n13/32\n13/32\n10\n10\n\n35-ounce\nyard\nPTT\n3/16\n3/4\n10\n\nWear Performance\n20 K Cycle Walk Test\n12 K Cycle Hexapod\n\n3.5\n3.4\n\n3.9\n4.0\n\n2.7\n1.8\n\nper\n\nsquare\n\nPET\n3/16\n3/4\n10\n3.0\n3.2\n\nFigure 15(a) : Hexapod Wear Test \xe2\x80\x93 25 Oz Per SqYd (opsy) carpet, 12K cycles\n\n18\n\n\x0cFigure 15(b) : Hexapod Wear Test \xe2\x80\x93 35-Oz Per SqYd (opsy) carpet, 12K cycles\n\nb) Softness\nSoftness is an aesthetic that is valued particularly for apparel fabrics, where skin contact is\nprevalent. Softness in carpet, on the other hand, is not associated with direct skin contact. In\nboth cases, softness is impacted by the ease in which yarns can bend. While fabric and carpet\nconstruction differences can vary widely, articles constructed similarly from different fibers\nor yarns have softness values that reflect the differences in their constituent polymers. A\nvery useful measure of this difference in yarn softness is the force or stress required to deflect\nor strain the fiber a given distance. Therefore the stress vs. strain curves for fibers made from\ndifferent polymers correlates well with expected fabric softness aesthetics. Figure 16 (as\nshown on the following two pages) represents first the stress vs. strain performance of PET\nand PTT fibers as compared to nylon 66 using 56 dtex yarns, and second a measure of relative\nsoftness by showing a comparison of the force to deflect these same yarns a given distance.\n\n19\n\n\x0cFigure 16: Stress vs. Strain and Softness measurements (cn/dtex and gms force) of\nPET,\nN6,6\nand\nPTT\nyarns\n(ref\nhttp://www.solotex.co.jp/en/soft.html)\n\nPET\nNylon 66\nPTT\n\n20\n\n\x0cPTT\n\nPET\n\nNylon 66\n\n21\n\n\x0cc) Stretch with recovery\nThe superior stretch and recovery properties of fabrics knitted or woven from PTT compared\nto fabrics made with PET is demonstrated by the following tests conducted for PTT Canada\nby Shell Chemical:\nKnitted Fabrics\nKnitted fabrics with identical constructions made from draw-textured PET and PTT yarns\nwere dyed and heat-set according to widely used industry protocols. 76/32 PET yarns were\ncompared to 78/32 PTT yarns. The PTT was disperse dyed at atmospheric boil and finished at\n150\xc2\xb0C while the PET fabric was dyed at 130\xc2\xb0C and finished at 180\xc2\xb0C. The two knitted\nfabrics were also softened with equal amount of silicone softener.\nFigure 17 (a) shows the % fabric elongation at 10 N force and Figure 17 (b) show the %\npermanent deformation after one cycle loading. Even though the PET fabric has slightly\nhigher elongation characteristics (an artifact of the fabric construction as explained below) the\nPTT fabric has better recover and thus lower set than the PET fabric.\nFigure 17: (a) % Elongation performance for fabrics @ 10 N force; (b) % Permanent\nset for fabrics after elongation @ 10 N force (ref 6)\n% Permanent Set\n\n% Elongation\n\n190\n180\n170\n160\n150\n140\n130\nPTT\n\n78/32\n\n10\n8\n6\n4\n2\n0\n\nPET\n\nPTT\n\n76/32\n\n78/32\n\nPET\n\n76/32\n\nWoven Fabrics\nThe PET and PTT yarns used for comparing woven fabrics were 72/36 and 78/22\nrespectively. The number of picks/cm used for the PTT fabric was 40 while only 31\npicks/cm were used for the PET fabric, which explains the slightly higher elongation.\nBoth fabrics were woven with a 2/1 construction. Since commercial PET draw-textured\nyarns were used in the woven fabrics evaluation, there were some differences in the yarn\ncounts, which must be taken into account when comparing the stretch and recovery of the\nfabrics.\nFigure 18 shows the % stretch of these fabrics in the weft direction with 10 N load, and\nthe permanent set after one cycle loading. The PTT woven fabric has high stretch of 22.5\ncompared to the 8% stretch of the PET fabric. Both fabrics have <5% permanent set after\none cycle loading.\n\n22\n\n\x0cFigure 18: % Elongation in the weft direction of PET and PTT woven fabrics (ref 6)\n\n% Elongation\n\n40\n30\n20\n10\n0\nPET\n\nPTT\n\nOther Information Relevant To This Petition\nSubclass Definition\nApplicants propose the following definition for a new subclass of polyester at 16 C.F.R.\n303.7(c):\n"[a] manufactured fiber in which the fiber-forming substance is any long chain\nsynthetic polymer composed of at least 85% by weight of an ester of a substituted\naromatic carboxylic acid, including but not restricted to substituted terephthalate units,\n[formula omitted] and para substituted hydroxy-benzoate units, [formula omitted] and\nwhere specifically the glycol used to form the ester consists of at least ninety mole\npercent 1,3-propanediol."\nThis definition is appropriate because if a polymer manufacturer uses the above proportions of\nstarting materials, the resultant polymer will exhibit a molecular or crystalline structure that\nwill permit fiber extruded from such polymer to exhibit the properties described in this\npetition.\nExtent of Commercialization of PTT Fibers\nPTT has been commercialized by E. I. du Pont de Nemours and Company and PTT Canada.\nCarpet fiber spun from PTT has been commercialized by Mohawk Industries (including Lees\nCarpets), Shaw Industries and CAF Extrusions. Apparel fibers spun from PTT have been\ncommercialized by the following firms mills grouped according to apparel type:\n\n23\n\n\x0cPTT apparel fiber mills grouped by apparel type\n\xe2\x80\xa2\n\nSwimwear\nO-Sung, Houndey, Haitian\n\n\xe2\x80\xa2\n\nActive Sportswear\nEverest, Favis, Yon-Il K, FETL, Shanghai Challenge\n\n\xe2\x80\xa2\n\nCasual Shirts and Pants\nAkore, Huvis, Visionland, Chia Her, Wujiang Jili\n\n\xe2\x80\xa2\n\nCasual Shirts\nO-Sung, Samil\n\n\xe2\x80\xa2\n\nJackets and Pants\nSaehan, Ulhwa\n\n\xe2\x80\xa2\n\nReady to Wear\nNew Wide, True Way, Haitian, Fountain Set\n\n\xe2\x80\xa2\n\nLuggage/Backpacks\nRueyhwa, Tay Shin\n\nSuggested Names For A New Subclass of Polyester Fiber Than May Be Used With\nRespect To Fibers Spun From PTT\nAs indicated above, Petitioners propose in order of preference:\n1. triexta; 2. resisoft; and 3. durares.\nas possible generic names for a new subclass of PTT fibers.\nPetitioners have done word searches for each of these proposed generic subclass names and\nhave found no confusingly similar use of these names by any other company either as a\ntrademark or product name.\nPetitioners note the Commission\xe2\x80\x99s choice of \xe2\x80\x9cPTT001\xe2\x80\x9d as a temporary designation.\n\nRecycling Properties\nRecycling of man-made fibers, while of secondary importance for consumers in the United\nStates at this time, will assume increasing importance as consumers increasingly adopt\npreferences for sustainable products. To the extent that PET and PTT are included in the\nsame pool of polymer to be recycled because they are currently both classified as polyester,\nmixing of the two types of polyester could have adverse effects on the properties of the\nrecycled polymer (melt temperature and tenacity) and will require different safe handling\n\n24\n\n\x0cprocedures during processing. For this reason, the use of a different generic that would\nfacilitate the separation of the polymers during recyling is an important consideration.\nFigure 20: impact of mixing waste PET and PTT on melting temperature of the polymer\n(ref7)\n300\n\nMelting Point, oC\n\n250\n200\n150\n100\n50\n0\n0\n\n20\n\n40\n\n60\n\n80\n\n100\n\nMole % PTT\n\nFigure 21: tenacity of PET fibers melt blended with PTT(ref8)\n45\n\nTenacity (cN/tex)\n\n40\n35\n30\n25\n20\n15\n10\n5\n0\n0\n\n20\n\n40\n\n60\n\n80\n\n% PTT\n\n25\n\n100\n\n\x0cFinally, the major byproduct produced during the processing of PET is acetaldehyde. The\nmajor byproduct produced during the processing of PTT is acrolein. These gases have\ndifferent properties and quite different OSHA 8 hour personal exposure limits and short-term\nexposure limits. Since firms involved in recycling articles made from PET vs. PTT should be\naware of these differences, a new generic name for PTT is appropriate.\nQuestions regarding this petition may be addressed to:\nCarl G. Bartholomaus, Corporate Counsel\nDuPont Company\nBuilding 23-2128\nBarley Mill Plaza\nWilmington, DE 19880-0023\n302-992-3207\nCarl.G.Bartholomaus@usa.dupont.com\n\nRespectfully submitted:\nMohawk Industries, Inc.\nBy _____________________________\nPTT Poly Canada\nBy _____________________________\nE. I. du Pont de Nemours and Company\nBy _____________________________\n\n26\n\n\x0cReferences\n1. I. J. Desborough, I. H. Hall, and J. Z. Neisser, The Structure of Poly(trimethylene\nterephthalate), Polymer, 20, 545 (1979)\n2. R. Jakeways, I. M. Ward, and M. A. Wildings, Crystal Deformation in Aromatic Polyesters, J.\nPolym. Sci., Phys. Ed., 12, 799 (1975)\n3. H.H. Chuah, Synthesis, Properties and Applications of Poly(Trimethylene Terephthalate)\nin Schiers, J. and Long, T.E. ed., Modern Polyesters: Chemistry and Technology of\nPolyesters and Copolyesters, Chapter 11, pp. 361-391, John Wiley, 2003.\n\n4. I. Goodman, \xe2\x80\x9cEncyclopedia of Polymer Science\xe2\x80\x9d, Vol. 11, New York: J. Wiley and Sons,\n1969\n5. I.M. Ward, M.A. Wilding and H. Brody, The Mechanical Properties and Structure of Poly\n(m-methylene Terephthalate) Fibers, J. Polym. Sci., Polym. Phys. Ed., 14, 263 (1976).\n6. M. Moerman and G. Hess, Corterra Polymers, Value Proposition in TextileApparel\nApplications, Technical Bulletin, SC-3014-00, Shell Chemical-Company, 2000.\n7. E. Punusamy and T. Balakrishnan, Macromol. Sci., Chem., A22(3), 373(1985).\n8. W. Opperman, P. Hirt and C. Fritz, Chem. Fibers Int., 49, 33\n\n27\n\n\x0cAppendixFOR\nA: Carpets\nused for performanceTESTS\ntests\nCARPETS USED\nPERFORMANCE\n\nwt.\noz/yd2\n\ngauge\n\ndenier\n\ndpf\n\npolymer\n\nply twist\n\ntpi\n\nStain Blocker\n\n35\n45\n55\n50\n40\n60\n32\n42\n52\n42\n32\n52\n32\n\n3/16\n3/16\n3/16\n1/8\n1/8\n1/8\n3/16\n3/16\n3/16\n3/16\n3/16\n3/16\n3/16\n\n1480\n1480\n1480\n1480\n1480\n1480\n1480\n1480\n1480\n1480\n1480\n1480\n1480\n\n18\n18\n18\n18\n18\n18\n18\n18\n18\n18\n18\n18\n18\n\nPTT\nPTT\nPTT\nPTT\nPTT\nPTT\nPTT\nPTT\nPTT\nPTT\nPTT\nPTT\nPTT\n\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n\n5.5\n5.5\n5.5\n5.5\n5.5\n5.5\n5.5\n5.5\n5.5\n5.5\n5.5\n5.5\n5.5\n\nNo\nNo\nNo\nNo\nNo\nNo\nNo\nNo\nNo\nNo\nNo\nNo\nNo\n\n35\n40\n50\n35\n52\n38\n35\n38\n35\n55\n46\n35\n65\n46\n\n3/16\n3/16\n3/16\n3/16\n3/16\n3/16\n3/16\n3/16\n3/16\n1/10\n1/8\n1/8\n1/10\n5/32\n\n995\n995\n995\n995\n995\n995\n995\n995\n995\n1045\n1045\n1045\n1045\n1045\n\n12\n12\n12\n12\n12\n12\n12\n12\n12\n12\n12\n12\n12\n12\n\nNylon\nNylon\nNylon\nNylon\nNylon\nNylon\nNylon\nNylon\nNylon\nNylon\nNylon\nNylon\nNylon\nNylon\n\n2x2\n2x2\n2x2\n2x2\n2x2\n2x2\n2x2\n2x2\n2x2\n1x1\n1x1\n1x1\n1x1\n1x1\n\n6.5 x 1\n6.5 x 1\n6.5 x 1\n6.5 x 1\n6.5 x 1\n6.5 x 1\n6.5 x 1\n6.5 x 1\n6.5 x 1\n6.5\n5.25\n5.5\n6.5\n6.5\n\nYes\nYes\nYes\nYes\nYes\nYes\nYes\nYes\nYes\nYes\nYes\nYes\nYes\nYes\n\n34\n40\n51\n51\n40\n32\n40\n52\n42\n35\n58\n\n3/16\n3/16\n3/16\n3/16\n3/16\n3/16\n3/16\n1/8\n1/8\n3/16\n5/32\n\n1460\n1460\n1460\n1460\n1460\n1460\n1459\n3.0 cc\n3.0 cc\n3.15 cc\n3.0 cc\n\n15\n15\n15\n15\n15\n15\n15\n15\n15\n15\n15\n\nPET\nPET\nPET\nPET\nPET\nPET\nPET\nPET Staple\nPET Staple\nPET Staple\nPET Staple\n\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n1x1\n\n5.5\n5.5\n5.5\n5.5\n5.5\n5.5\n5.5\n4.8 x 4.0\n4.8 x 4.0\n5.3 x 6.4\n4.8 x 4.0\n\nNo\nNo\nNo\nNo\nNo\nNo\nNo\nNo\nNo\nNo\nNo\n\n28\n\n\x0c'


b'UNITED STATES OF AMERICA\n\nFEDERAL TRADE COMMISSION\nWASHINGTON, D.C. 20580\n\nThomas P. Rowan\nAttorney\n600 Pennsylvania Ave., N.W., Room 286\nWashington, D.C. 20580\ntrowan@ftc.gov\n202-326-3302\n\nJuly 19, 2006\nMichael Goodman, Esq.\nHudson Cook, LLP\n1020 19th Street, N.W., 7th Floor\nWashington, D.C. 20036\nRe:\n\nRequest for Informal Advisory Opinion Concerning the Application of the Telemarketing\nSales Rule\xe2\x80\x99s \xe2\x80\x9cEstablished Business Relationship\xe2\x80\x9d Exemption to an Internet-based Lead\nGeneration Mechanism\n\nDear Mr. Goodman:\nThis staff advisory opinion responds to your letter of April 3, 2006, seeking an informal\nopinion letter regarding the application of the Telemarketing Sales Rule\xe2\x80\x99s (\xe2\x80\x9cTSR\xe2\x80\x99s\xe2\x80\x9d or the\n\xe2\x80\x9cRule\xe2\x80\x99s\xe2\x80\x9d) established business relationship (\xe2\x80\x9cEBR\xe2\x80\x9d) exemption to an Internet-based lead\ngeneration mechanism. The central issue your letter presents is whether the exemption applies to\na lender that initiates a telephone call to a consumer based on contact information the lender\nobtains from a lead generator.\nOur conclusion is that, under a strict reading of the language of the Rule, the lender does\nnot have an EBR with a consumer who responds to a lead generator\xe2\x80\x99s solicitation, and therefore\nwould not normally be entitled to claim the EBR exemption. However, FTC staff would not\nrecommend a Do Not Call enforcement action against a lender that calls consumers who have\nresponded to a lead generator\xe2\x80\x99s solicitation if, as described more fully below, the lead generator\nmakes full and adequate prior disclosure of certain material facts about the consequences of\nresponding to such solicitations. The opinions expressed in the following discussion of the basis\nfor this conclusion are those of Commission staff only and are not attributable to, nor binding on,\nthe Commission itself or any individual Commissioner.\nRule Provisions\nSection 310.4(b)(1)(iii) of the TSR provides, among other things, that it is a violation of\nthe Rule to initiate any outbound telemarketing call to a person when that person\xe2\x80\x99s telephone\nnumber is on the National Do Not Call Registry unless the seller has an EBR with such person.\nSee 16 C.F.R. \xc2\xa7 310.4(b)(1)(iii). The Rule defines an EBR as:\n\n\x0cMichael Goodman, Esq.\nHudson Cook, LLP\nJuly 19, 2006 - Page 2\na relationship between a seller and a consumer based on:\n(1) the consumer\xe2\x80\x99s purchase, rental, or lease of the seller\xe2\x80\x99s goods or\nservices or a financial transaction between the consumer and seller,\nwithin eighteen (18) months immediately preceding the date of a\ntelemarketing call; or\n(2) the consumer\xe2\x80\x99s inquiry or application regarding a product or\nservice offered by the seller, within the three (3) months\nimmediately preceding the date of a telemarketing call.\n16 C.F.R. \xc2\xa7 310.2(n).\nDiscussion\nYour letter discusses an Internet-based mechanism that generates leads for lenders. It\ndescribes the mechanism in the following way:\n[The] consumer visits a website that offers to arrange for several\nlenders to compete for the consumer\xe2\x80\x99s business. Before the\nconsumer submits an inquiry, the website may disclose\napproximately how many lenders are likely to respond. The names\nof those lenders are not disclosed at that point, however, because\nthey have not yet been determined. The website may have a\nnetwork of dozens or even hundreds of lenders who may be asked\nto respond to a consumer\xe2\x80\x99s inquiry with proposed lending\nterms. . . . The lenders\xe2\x80\x99 names are disclosed to the consumer when\nthe lenders contact the consumer to present lending terms.\nThe consumer is asked to submit contact information with her\ninquiry. Typically, this includes an email address and telephone\nnumber. Some websites may expressly disclose that contact\ninformation is collected so that lenders can respond to the\nconsumer.\nFTC staff\xe2\x80\x99s opinion is that a lender who receives a consumer\xe2\x80\x99s contact information from\nsuch a lead generation mechanism generally does not have an EBR with the consumer.1 The\n\n1\n\nFor the purposes of this advisory opinion, we presume that the lenders described\nin your letter are \xe2\x80\x9cpersons, partnerships, or corporations\xe2\x80\x9d under Sections 5(a)(2) and 19(a) of the\nFederal Trade Commission Act, 15 U.S.C. \xc2\xa7\xc2\xa7 45(a)(2) and 57b(a), and meet the definition of a\n\xe2\x80\x9cseller\xe2\x80\x9d under Section 310.2(z) of the TSR, 16 C.F.R. \xc2\xa7 310.2(z).\n\n\x0cMichael Goodman, Esq.\nHudson Cook, LLP\nJuly 19, 2006 - Page 3\nRule provides that, for the EBR exemption to apply, the seller must itself have a relationship with\nthe consumer. See 16 C.F.R. \xc2\xa7\xc2\xa7 310.4(b)(1)(iii)(B)(ii) and 310.2(n). In the scenario your letter\ndescribes, it is the lead generator, not the seller, that has an inquiry-based established business\nrelationship with the consumer.\nHowever, we agree with your letter\xe2\x80\x99s assertion that the consumer\xe2\x80\x99s reasonable\nexpectations regarding the lender must be considered. In the Statement of Basis and Purpose\n(\xe2\x80\x9cSBP\xe2\x80\x9d) accompanying the Rule, the Commission states: \xe2\x80\x9cThe consumer\xe2\x80\x99s expectations of\nreceiving the call are the measure against which the breadth of the [EBR] exemption must be\njudged.\xe2\x80\x9d SBP, 68 Fed. Reg. 4594, Jan. 29, 2003. The SBP does not discuss consumer\nexpectations specifically in the context of lender-clients of a lead generator. However, it does\ndiscuss them in a related context, i.e., with regard to the affiliates of a corporate seller:\nIf consumers received a call from a company that is an affiliate or\nsubsidiary of a company with whom they have a relationship,\nwould consumers likely be surprised by that call and find it\ninconsistent with having placed their telephone number on the\nnational \xe2\x80\x9cdo-not-call\xe2\x80\x9d registry?\nId.\nThus, the question is whether the consumer in the scenario your letter describes has a\nreasonable expectation of receiving calls from lenders who receive her name and telephone\nnumber from a lead generator. We believe that the consumer\xe2\x80\x99s expectation of privacy is such\nthat, if she receives (1) calls from lenders when she does not expect to receive such calls, (2)\ncalls from an infinite number of lenders when she only expects to receive calls from a few, or (3)\ncalls from lenders whose identities are not linked in her mind to her online inquiry, she will be\nsurprised, and find these calls invasive of her privacy and contrary to the promised protection of\nthe National Do Not Call Registry. However, we also agree with your letter\xe2\x80\x99s basic assertion that\nthe consumer expects to receive some calls as a result of her visit to the website. In addition, we\nbelieve the lead generation mechanism your letter describes offers the consumer a true benefit,\ni.e., the ability to quickly and easily obtain multiple credit offers based on her unique financial\nsituation.\nIn view of these considerations, FTC staff believes that the Commission should exercise\ndiscretion in evaluating the use of lead generators by lenders, as described in your letter. As long\nas the lead generator provides the consumer with certain material disclosures, staff likely would\nnot recommend filing a Do Not Call enforcement action against the lender. Specifically, staff\nlikely would not recommend taking such action if the lead generator clearly and conspicuously\ndiscloses to the consumer, before the consumer divulges her telephone number, both that the\nconsumer may receive telemarketing calls as a consequence of submitting her telephone number,\nand the maximum number of entities from which the consumer may receive these calls.\n\n\x0cMichael Goodman, Esq.\nHudson Cook, LLP\nJuly 19, 2006 - Page 4\nIn addition, FTC staff\xe2\x80\x99s opinion is that the consumer should, if possible, be informed of\nthe identities of the lenders who may call the consumer before the consumer receives any such\ncalls.2 This disclosure should be made in a manner likely to be seen and understood by the\nconsumer, in light of the medium used to induce the consumer to submit her information to the\nlead generator.3 We note that, as a practical matter, notifying the consumer in this way about\nwhich specific lenders may be calling makes good business sense. The consumer is more likely\nto accept a telemarketing call from a lender when she is expecting that particular lender to call.\nShe may reject a call from a lender she does not recognize and instruct the lender not to make\nfurther telemarketing calls to her, thereby asserting her rights under the TSR\xe2\x80\x99s entity specific Do\nNot Call provision. See 16 C.F.R. \xc2\xa7 310.4(b)(1)(iii)(A). Of course, consistent with Section\n310.2(n)(2) of the TSR, 16 C.F.R. \xc2\xa7 310.2(n)(2), the lender may only initiate an outbound call to\nthe consumer within three months of the date of the consumer\xe2\x80\x99s inquiry to the lead generator. In\nthe staff\xe2\x80\x99s opinion, fulfilling the above conditions ensures that the use of lead generators is\nconsistent with the privacy expectations of a consumer who has placed her number on the\nRegistry.\nI hope this discussion is helpful to you. If you have any further questions, please do not\nhesitate to contact me.\nSincerely,\n\nThomas P. Rowan\n\n2\n\nThe lead generator should not refer the consumer to a lengthy list of hundreds or\nthousands of lenders that may contact the consumer. Rather, it should inform the consumer of\nthe identities of the lenders with which it has \xe2\x80\x9cmatched\xe2\x80\x9d the consumer.\n3\n\nIf contact between the lead generator and the consumer occurred online, these\ndisclosures appropriately could be made via email. Conventional mail disclosures likely would\nnot be adequate where the initial exchange took place online. Nothing in this letter should be\nconstrued to mean that such electronic message need not comply with the CAN-SPAM Act, 15\nU.S.C. \xc2\xa7\xc2\xa7 7701 - 7713. Note, however, that the email likely would constitute a \xe2\x80\x9ctransactional or\nrelationship message,\xe2\x80\x9d and would therefore not be subject to many of the CAN-SPAM Act\xe2\x80\x99s\nrequirements. See 15 U.S.C. \xc2\xa7 7702(17).\n\n\x0c'


b'UNITED STATES OF AMERICA\n\nFEDERAL TRADE COMMISSION\nWASHINGTON, D.C. 20580\n\nThomas P. Rowan\nAttorney\n600 Pennsylvania Ave., N.W., Room 286\nWashington, D.C. 20580\ntrowan@ftc.gov\n202-326-3302\n\nMay 31, 2006\nMr. Jerry Cerasale\nSenior Vice President\nGovernment Affairs\nDirect Marketing Association\n1111 19th Street, N.W., Suite 1100\nWashington, D.C. 20036-3603\nRe:\n\nRequest for Advisory Opinion Concerning Upselling and Certain Exemptions to the\nTelemarketing Sales Rule\n\nDear Mr. Cerasale:\nThis staff advisory opinion responds to your letter of April 3, 2006, seeking informal\nclarification of whether the telemarketing program it describes (\xe2\x80\x9cmarketing program\xe2\x80\x9d or\n\xe2\x80\x9cprogram\xe2\x80\x9d) constitutes \xe2\x80\x9cupselling\xe2\x80\x9d under the Telemarketing Sales Rule (\xe2\x80\x9cTSR\xe2\x80\x9d or \xe2\x80\x9cthe Rule\xe2\x80\x9d),\n16 C.F.R. Part 310. As you noted in your letter, if the program does not constitute upselling,\ncalls made as part of the program may be exempt from the Rule under Sections 310.6(b)(4) and\n(5), 16 C.F.R. \xc2\xa7\xc2\xa7 310.6(b)(4) and (5).\nBased on your description, our conclusion is that the program does constitute upselling\nand is not exempt from the Rule. The opinions expressed in the following discussion of the basis\nfor this conclusion are those of Commission staff only and are not attributable to, nor binding on,\nthe Commission itself or any individual Commissioner.\nRule Provisions\nThe TSR defines \xe2\x80\x9cupselling\xe2\x80\x9d to mean:\nsoliciting the purchase of goods or services following an initial\ntransaction during a single phone call. The upsell is a separate\ntelemarketing transaction, not a continuation of the initial\ntransaction. An \xe2\x80\x9cexternal upsell\xe2\x80\x9d is a solicitation made by or on\nbehalf of a seller different from the seller in the initial transaction.\nAn \xe2\x80\x9cinternal upsell\xe2\x80\x9d is a solicitation made by or on behalf of the\nsame seller as in the initial transaction, regardless of whether the\n\n\x0cMr. Jerry Cerasale\nDirect Marketing Association\nMay 31, 2006 - Page 2\ninitial transaction and subsequent solicitation are made by the\nsame telemarketer.\n16 C.F.R. \xc2\xa7 310.2(dd). Upselling is the \xe2\x80\x9cdirect solicitation for a product or service other than\nthat for which the consumer initiated the call.\xe2\x80\x9d Statement of Basis and Purpose (\xe2\x80\x9cSBP\xe2\x80\x9d)\naccompanying the amended Rule, 68 Fed. Reg. 4656, Jan. 29, 2003. Upselling is subject to each\nof the Rule\xe2\x80\x99s requirements except the Do Not Call provisions, 16 C.F.R. \xc2\xa7 310.4(b)(1)(iii), and\ncalling time restrictions, 16 C.F.R. \xc2\xa7 310.4(c). SBP, 68 Fed. Reg. 4596.\nCertain types of calls are exempt from the Rule. See 16 C.F.R. 310.6. These include:\ntelephone calls initiated by a customer or donor \xe2\x80\x9cthat are not the result of any solicitation by a\nseller, charitable organization, or telemarketer . . .\xe2\x80\x9d or that are \xe2\x80\x9cin response to an advertisement\nthrough any medium other than direct mail solicitation . . ..\xe2\x80\x9d 16 C.F.R. \xc2\xa7\xc2\xa7 310.6(b)(4) and (5).\nThese exemptions do not apply \xe2\x80\x9cto any instances of upselling included in such telephone\ncalls.\xe2\x80\x9d Id.\nDiscussion\nThe program you describe in your letter is one whereby DMA members market products\nthrough relationships with financial institutions, such as banks and mortgage companies.\nSpecifically, you state:\nThe marketing program involves an inbound call from a customer\nof the . . . [financial institution] to the . . . [financial institution]\nwhere the customer requests account, transaction, balance and/or\npayment information. After responding to the customer\xe2\x80\x99s request,\nthe . . . [financial institution] highlights a service offering and asks\nthe customer if he/she would like to hear more about it. If the\ncustomer says yes, the call is transferred to the Member. The\ncustomer\xe2\x80\x99s call initially might be answered and transferred to the\nMember via an individual or a voice response unit.\nFTC staff\xe2\x80\x99s opinion is that the member in this scenario is engaged in upselling. The\nmember is soliciting the purchase of goods or services following an initial transaction during a\nsingle phone call. See 16 C.F.R. \xc2\xa7 310.2(dd). The initial transaction involves an inbound call to\na financial institution by a customer seeking account or other similar information. The\nCommission contemplated such a transaction as a precursor to an upsell. The Commission stated\nin the SBP: \xe2\x80\x9cThe term \xe2\x80\x98initial transaction\xe2\x80\x99 is intended to describe any sort of exchange between\na consumer and a seller or telemarketer, including but not limited to . . . customer service calls\ninitiated by . . . the consumer . . ..\xe2\x80\x9d SBP, 68 Fed. Reg. 4596.1\n\n1\n\nSee SBP, 68 Fed. Reg. 4597 n.180 (\xe2\x80\x9c\xe2\x80\x98The upsell can follow either a sales call or a\ncall related to customer service, such as a call about an account payment or product repair\n\n\x0cMr. Jerry Cerasale\nDirect Marketing Association\nMay 31, 2006 - Page 3\nDMA argues that the member is not engaged in upselling because the initial transaction\ndoes not involve a \xe2\x80\x9cseller\xe2\x80\x9d as that term is defined in the Rule. We disagree with this assertion.\nWhile the upselling definition includes language describing two types of upsells in which the\ninitial transaction involves a seller, the first sentence of the definition \xe2\x80\x93 \xe2\x80\x9c[u]pselling means\nsoliciting the purchase of goods or services following an initial transaction during a single\ntelephone call\xe2\x80\x9d \xe2\x80\x93 is sufficiently broad to include other scenarios. See 16 C.F.R. \xc2\xa7 310.2(dd). In\nour view, the meaning of the term \xe2\x80\x9cinitial transaction\xe2\x80\x9d is not narrowly restricted to sales or the\nconsummation of other types of contracts, but instead, as indicated by the SBP, broadly reaches\nto include such exchanges as completed customer service calls. Therefore, we believe that the\nscenario described in the DMA letter constitutes \xe2\x80\x9cupselling\xe2\x80\x9d under Section 310.2(dd).\nIn addition, we believe that DMA\xe2\x80\x99s interpretation of the TSR\xe2\x80\x99s upselling provisions is\ninconsistent with the provisions\xe2\x80\x99 underlying purpose: \xe2\x80\x9cto ensure that consumers in upselling\ntransactions receive the same information and protections as consumers in other telemarketing\ntransactions subject to the Rule.\xe2\x80\x9d See SBP, 68 Fed. Reg. 4596. From the consumer\xe2\x80\x99s standpoint,\nthere is little or no material difference between an upsell and an outbound telemarketing call:\n[T]he consumer is hearing the terms of the upsell offer for the first\ntime on the telephone. The consumer has not had an opportunity\nto review and consider the terms of the offer in a direct mail piece,\nor to view an advertisement and gather information on pricing or\nquality of the particular good or service before determining to\nmake the purchase.\nId at 4597.\nThe consumer encountering the marketing program described in your letter is in this\nposition. The consumer receives the offer by phone and has not had the opportunity to review\nthe terms of the offer in writing or to gather information on the pricing or quality of the good or\nservice. In addition, because the member may have access to the consumer\xe2\x80\x99s financial\ninformation through its relationship with the financial institution, the consumer is particularly\nvulnerable to financial injury. As the Commission noted in the SBP: \xe2\x80\x9c[l]aw enforcement\nexperience indicates that the fact that the consumer has already provided or authorized use of his\nor her billing information in an initial transaction may actually result in greater risk or abuse\nduring the second transaction.\xe2\x80\x9d Id. at 4597-98 n.192.\nThe TSR provides important protections for the consumer presented with the described\nmarketing program. Among other things, the Rule requires disclosure of all information material\nto the consumer\xe2\x80\x99s decision to accept the offer before the consumer authorizes payment for the\npurchase. See 16 C.F.R. \xc2\xa7\xc2\xa7 310.3(a)(1) and 310.4(d). It also requires the member to obtain\n\n. . ..\xe2\x80\x99\xe2\x80\x9d)(quoting the National Association of Attorneys General Comment on the January 30, 2002\nNotice of Proposed Rulemaking accompanying the proposed amended TSR).\n\n\x0cMr. Jerry Cerasale\nDirect Marketing Association\nMay 31, 2006 - Page 4\nexpress, informed consent before submitting the consumer\xe2\x80\x99s billing information for payment.\nSee 16 C.F.R. \xc2\xa7 310.4(a)(6). In our view, the Rule cannot be interpreted in a manner that would\nresult in the removal of these protections for consumers confronted by marketing scenarios like\nthe one described in your letter. Moreover, TSR coverage of upsells in the scenario you describe\nrequires no more than basic fair dealing with consumers, and imposes no undue burden on the\nupseller.\nConclusion\nFTC staff\xe2\x80\x99s opinion is that the described marketing program constitutes upselling and is\nnot exempt from the TSR. The member is soliciting the purchase of goods or services following\nan initial transaction during a single phone call. The term \xe2\x80\x9cinitial transaction\xe2\x80\x9d includes\ncompleted customer service calls. Moreover, the purpose of the upselling provisions is to cover\nthe type of marketing program described in your letter. The TSR makes clear that, absent any\nother safeguards, the Rule\xe2\x80\x99s most basic protections apply to consumers who are initially solicited\nto purchase goods and services over the telephone. As the consumers in the marketing program\nyou describe fall into this category, they should receive the Rule\xe2\x80\x99s protections.\nI hope this discussion is helpful to you and to DMA\xe2\x80\x99s members. If you have any further\nquestions, please do not hesitate to contact me.\nSincerely,\n\nThomas P. Rowan\nStaff Attorney\n\n\x0c'


b"Federal Trade Commission\n\nSTATEMENT OF\nDEBORAH PLATT MAJORAS\n\n1\n\nCHAIRMAN, FEDERAL TRADE COMMISSION,\nBEFORE THE\nANTITRUST MODERNIZATION COMMISSION\nMARCH 21, 2006\n\nThank you for inviting me to participate in this hearing. I appreciate the opportunity to\nshare my views on some of the important issues that the Antitrust Modernization Commission is\nconsidering, and I am privileged to appear with my colleague and friend, Assistant Attorney\nGeneral, Tom Barnett.\nAs I understand it, the AMC is charged with determining whether the antitrust laws,\nsome of which are more than a century old, should be \xe2\x80\x9cmodernized\xe2\x80\x9d so that they function\nproperly in our post-industrial economy. In my view, to the extent that any of the antitrust laws\nneed to be \xe2\x80\x9cmodernized,\xe2\x80\x9d it is to bring them in line with modern antitrust thinking, not to change\nthem to fit particular industries.\nFundamentally, we do not need to make substantive changes to the primary federal\nantitrust laws. Nearly 120 years of experience in the interpretation and enforcement of these\nlaws have established that the nation\xe2\x80\x99s antitrust laws, subjected to rigorous judicial\n\n1\n\nThe views expressed herein are my own and do not necessarily reflect the views of the Federal\nTrade Commission or of any other individual Commissioner.\n\n\x0cinterpretation, as well as scrutiny by practioners and scholars, are highly effective in protecting\nand preserving the nation\xe2\x80\x99s free market system.\nThis does not mean that no changes are needed. Over time, the reach of the antitrust laws\nhas been narrowed by a large number of formal statutory exemptions and immunities. Most of\nthese \xe2\x80\x9cexceptions\xe2\x80\x9d to the antitrust laws may have had sound policy justifications when they were\nenacted, but advancements in technology and the increased mobility of capital likely have\nrendered many of them inconsistent with the core principles underlying our nation\xe2\x80\x99s economic\npolicy. Technological changes and globalization also require the modernization of some of the\nprocedures that we use to apply our antitrust laws, particularly with respect to merger review, but\nthat should be done internally at the agencies. Finally, the spread of free markets and the\nproliferation of competition authorities require that, as U.S. antitrust practioners, we seek to\nimprove our interaction and coordination with competition practioners throughout the world.\n1.\n\nSubstantive Antitrust Laws\n\nThe broadly worded language in Sections 1 and 2 of the Sherman Act, as well as the\nClayton and Federal Trade Commission Acts, permits the courts, enforcement agencies, and\npractitioners to apply the antitrust laws in ever-more-sophisticated and flexible ways, as legal\nand economic learning evolve and our understanding of markets improves. Although I (like the\nmembers of the AMC) may not agree with the decision in every antitrust case, questionable\ndecisions do not flow from deficiencies in the statutory language; rather, they reflect flaws in\nlegal and economic thinking. Moreover, history has shown that flawed decisions usually are\nremedied through the corrective mechanisms of litigation and the steady intellectual\ndevelopment of the courts, the agencies, practitioners, and academics.\n\n2\n\n\x0cConsider Section 7 of the Clayton Act and merger practice. The statute has proven\nsufficiently flexible over the past half century to accommodate substantial changes in antitrust\nmerger jurisprudence. The courts and enforcement agencies historically relied almost\nexclusively on market shares and other structural presumptions to determine whether a\ntransaction violated the antitrust laws. Although structural analysis retains a place in current\nmerger practice, a progression of judicial decisions, agency guidelines, and academic work has\nchanged merger practice, such that nearly all practitioners rely heavily on direct analyses of\ncompetitive effects.\nThere has been a similar evolution in the treatment of efficiencies in merger analysis.\nThroughout the 1960s, the Supreme Court held that efficiencies were not an appropriate factor to\nconsider in the antitrust review of mergers.2 Shortly thereafter, however, there began changes in\nthe thinking of the courts, the enforcement agencies, private practioners, and academics that\nresulted in efficiencies assuming a central role in merger analysis.3\n\n2\n\nSee FTC v. Procter & Gamble Co., 386 U.S. 568, 980 (1967) (\xe2\x80\x9cPossible economies cannot be\nused as a defense to illegality. Congress was aware that some mergers which lessen competition\nmay also result in economies but it struck the balance in favor of protecting competition.\xe2\x80\x9d); U.S.\nv. Philadelphia Nat'l Bank, 374 U.S. 321, 371 (1963) (\xe2\x80\x9ca merger the effect of which may be\nsubstantially to lessen competition is not saved because, on some ultimate reckoning of social or\neconomic debits and credits, it may be deemed beneficial\xe2\x80\x9d) (citations and quotations omitted);\nBrown Shoe Co. v. U.S., 370 U.S. 294, 344 (1962) (\xe2\x80\x9cWe cannot fail to recognize Congress\xe2\x80\x99\ndesire to promote competition, through the protection of viable, small, locally owned business.\nCongress appreciated that occasional higher costs and prices might result from the maintenance\nof fragmented industries and markets. It resolved these competing considerations in favor of\ndecentralization.\xe2\x80\x9d).\n3\n\nSee FTC v. H.J. Heinz Co., 246 F.3d 708, 720 (D.C. Cir. 2001) (\xe2\x80\x9cthe trend among lower courts\nis to recognize the [efficiencies] defense\xe2\x80\x9d); FTC v. University Health, Inc., 938 F.2d 1206, 1222\n(11th Cir. 1991) (\xe2\x80\x9can efficiency defense to the government\xe2\x80\x99s prima facie case in section 7\nchallenges is appropriate in certain circumstances.\xe2\x80\x9d); U.S. Dep't of Justice & Federal Trade\nComm'n, Horizontal Merger Guidelines \xc2\xa7 4 (as amended Apr. 8, 1997).\n3\n\n\x0cSignificantly, neither of these substantial changes in substantive merger law, nor shifts of\ncomparable magnitude in the treatment of vertical restraints, resulted from or generated statutory\namendments to the antitrust laws. Rather, they arose out of advances in the knowledge and\nexperience of the courts, practitioners, and scholars. The clear lesson is that the antitrust laws\nare sufficiently flexible to support and sustain significant changes in their interpretation and\napplication, driven by litigation, changed enforcement policies, and new scholarship. The\nSupreme Court made precisely this point in State Oil Co. v. Khan, where it held that vertical\nmaximum price fixing was not per se unlawful, overruling prior cases:\n[T]he general presumption that legislative changes should be left to Congress has\nless force with respect to the Sherman Act in light of the accepted view that\nCongress expected the courts to give shape to the statute's broad mandate by\ndrawing on common-law tradition . . . [T]his Court has reconsidered its decisions\nconstruing the Sherman Act when the theoretical underpinnings of those decisions\nare called into serious question . . . Although we do not lightly assume that the\neconomic realities underlying earlier decisions have changed, or that earlier\njudicial perceptions of those realities were in error, we have noted that different\nsorts of agreements may amount to restraints of trade in varying times and\ncircumstances, and it would make no sense to create out of the single term\nrestraint of trade a chronologically schizoid statute, in which a rule of reason\nevolves with new circumstances and new wisdom, but a line of per se illegality\nremains forever fixed where it was.4\nMy inclination against substantive statutory changes extends to proposals to modify the\nantitrust laws to address specific circumstances in particular sectors of the economy. A virtue of\nthe U.S. antitrust laws and legal system is that the courts and enforcement agencies generally\nhave applied the same criteria flexibly to an enormous array of industries. The result has been a\nconsistent competition policy that gives firms a reasonable degree of certainty and transparency.\nThus, I disagree with those who maintain that the antitrust laws are not well-suited for today\xe2\x80\x99s\n\n4\n\n522 U.S. 3, 20-21 (1997) (citations and quotations omitted).\n4\n\n\x0crapidly-changing high-technology industries, such as software and pharmaceuticals. Over the\npast two decades, the antitrust community has developed and emphasized doctrines that enable\nthe sound application of our antitrust laws to even the fastest-moving sectors of our economy.\nFor example, advancement in theories relating to entry and the contestability of markets has\ngreatly informed agency and judicial decisions about the competitive effects of mergers and\nother conduct in high-technology industries.\nThere is one significant caveat to my reluctance to make substantive changes to the\nantitrust laws. The Commission should seriously consider recommending the repeal of the\nRobinson-Patman Act, the overall purpose of which stands in contrast to the recognized goals of\nmodern antitrust law \xe2\x80\x93 the protection and enhancement of consumer welfare. Legal and\neconomic scholarship has persuasively demonstrated that, on balance, the statute is more harmful\nthan beneficial to consumers. Admittedly, recent cases such as Volvo Trucks North America,\nInc. v. Reeder-Simco GMC, Inc.5 demonstrate judicial appreciation of the need to interpret the\nAct narrowly and consistently with the contemporary thrust of antitrust law \xe2\x80\x93 protecting\ncompetition rather than competitors. But this interpretation lends support to the view that any\nprice discrimination that is anticompetitive in the sense that it harms consumers can be addressed\nunder the Sherman Act. Further, while the Volvo decision lent a welcome, modern antitrust\ninterpretation to the statute, it does not, in my view, sufficiently negate the costs of complying\nwith the Act or its potential to deter aggressive price-cutting that benefits consumers. And even\nif Congress were ultimately to decide that the protection provided by the Act is still desirable, it\nwould be useful to have that decision made in the political process today. Finally, there is no\n\n5\n\n126 S. Ct. 860 (2006).\n5\n\n\x0cquestion that, as we work with new competition agencies around the globe and they look to the\nUnited States as an example of an antitrust regime with consumer welfare as its centerpiece, the\nAct stands out as representing contrasting policy goals and the protection of special interests \xe2\x80\x93\nsomething against which we repeatedly caution our counterparts.\n2.\n\nStatutory Exemptions\n\nEven as the antitrust laws have evolved to make greater use of economics and to focus\nprimarily on consumer welfare, the number of statutory exemptions that shield competitors from\nthe antitrust laws remains high. Exemptions covering a substantial volume of commerce that are\ndecades old remain on the books. I recommend that the AMC evaluate some of these\nexemptions and urge Congress and the President to consider their elimination.\nFundamentally, antitrust exemptions typically are inconsistent with a central premise of\nU.S. economic policy \xe2\x80\x93 that vigorous competition in a free market, protected by the sound\napplication of the antitrust laws, is the best approach to promote consumer welfare and\nefficiency. Thus, the potential for antitrust exemptions to harm consumers and the economy is\nsubstantial. Indeed, standard economic theory predicts that unless certain conditions of market\nfailure are present, government limits on competition can produce higher prices, reduced output,\nand less innovation. Moreover, this is not simply a matter of theory. The successful experience\nof deregulation in various sectors of the American economy over the past three decades teaches\nvaluable lessons. Numerous studies show that the removal of government limits on competition\nhas resulted in greater economic efficiency and produced significant benefits for consumers.6\n\n6\n\nFor surveys, see, e.g., Clifford Winston, Economic Deregulation: Days of Reckoning for\nMicroeconomists, 31 J. Econ. Lit. 1263 (1993); Clifford Winston, U.S. Industry Adjustment to\nEconomic Deregulation, 12:3 J. Econ. Perspectives 89, 98-102 (1998). See also Elizabeth E.\n6\n\n\x0cTo be sure, circumstances that make restrictions on competition necessary to generate\nsubstantial efficiencies may arise, and thus warrant a departure from a free market economic\nmodel. It is important, however, that the Congress make certain that those conditions truly exist,\nand that consumers rather than competitors will benefit from statutory exemptions from the\nantitrust laws. If there is one thing that modern antitrust thinking recognizes, it is that markets\nare not static. Yet, many exemptions are several decades old and likely were based on market or\nregulatory justifications that probably no longer are valid. Innovations in communications and\ntransportation and other technologies have improved capital markets and increased the ability of\nconsumers and business customers to evaluate competitive alternatives without the assistance of\ngovernment regulation. Consequently, some exemptions that were needed to correct market\nfailures when enacted likely no longer serve consumers and the economy.\nThere also probably are less restrictive ways than antitrust immunity to allow efficiencyenhancing collaborations among competitors in some of the industries to which the exemptions\napply. Over the past three decades, antitrust analysis has been refined to incorporate economic\nprinciples that allow for procompetitive joint ventures and other forms of cooperation. These\nprinciples are reflected in antitrust case law and the guidelines promulgated by the antitrust\nenforcement agencies. For example, the FTC/DOJ Statements of Antitrust Enforcement Policy in\nHealth Care7 provide that the agencies usually will not challenge forms of collaboration among\nhealth care providers if the collaborative efforts are reasonably necessary to achieve efficiencies\n\nBailey, Price and Productivity Change Following Deregulation: The US Experience, 96 Econ. J.\n1 (1986).\n7\n\nAvailable at http://www.ftc.gov/reports/hlth3s.htm.\n7\n\n\x0cthat benefit consumers. The FTC/DOJ Antitrust Guidelines for Collaborations Among\nCompetitors8 similarly allow efficient forms of collaboration among competitors. Assuming that\nthere still are economically efficient forms of collaboration in some of the industries that\ncurrently enjoy antitrust exemptions, it is likely that the antitrust laws are sufficiently flexible to\npermit the collaboration without the need for formal antitrust immunity.\nFinally, statutory exemptions from the U.S. antitrust laws can significantly hinder the\nability of the United States to promote sound competition policies abroad. The health of the\nUnited States economy has become increasingly affected by the competition policies of other\ncountries. The United States has been and remains at the forefront in advocating for the\nadoption of competition laws that reflect free market economic principles. Our ability to do so\neffectively is reduced, however, when we do not practice what we preach. The United States\xe2\x80\x99\ncompetition policies and practices will be imitated only to the extent that they are worth\nemulating. A critical review by the AMC of the U.S. antitrust exemptions will assist all of our\nefforts to advocate for competition policies that promote vibrant consumer-oriented competition\nboth in the United States and abroad.\n3.\n\nPatent Reform\n\nA comprehensive review of our antitrust laws requires cognizance of other statutory\nregimes that regularly interact with the antitrust laws in ways that significantly affect\ncompetition and consumers. Today, the patent system is the area of law that perhaps looms the\nlargest in its impact on the antitrust laws and competition policy. Patents are, of course, critical\nto promoting investment and innovation. By preventing competing rival firms from free riding\n\n8\n\nAvailable at http://www.ftc.gov/os/2000/04/ftcdojguidelines.pdf.\n8\n\n\x0con discoveries, patents allow firms to recoup their often substantial capital investments in\ndeveloping new products. Indeed, the patent and antitrust laws share the same goal of promoting\ninvestment and competition, so it should come as no surprise that the two systems typically work\nwell together. Moreover, most patents do not yield market power that can impair competition,\nand even when they do, if a patent is properly granted under appropriate standards, the incentives\nand other advantages it provides typically outweigh possible market power concerns.\nIf improperly administered or misused, however, the patent system can harm innovation\nand competition. Dubious patents can slow innovation by discouraging firms from conducting\nresearch and development out of fear of patent infringement and can result in the payment of\nunnecessary royalties, which are passed on to consumers.\nThe FTC\xe2\x80\x99s recent attention to patent issues dates from a series of hearings in 2002 that\nled to issuance of a major report in October 2003, \xe2\x80\x9cTo Promote Innovation: The Proper Balance\nof Competition and Patent Law and Policy.\xe2\x80\x9d9 One of the chief recommendations in the FTC\nReport is that Congress enact legislation establishing procedures for post-grant review by the\nPatent and Trademark Office. This recommendation seconded a proposal in the PTO\xe2\x80\x99s own 21st\nCentury Strategic Plan. The Report reasons that some questionable patents inevitably will slip\nthrough the examination system. Litigation weeds out invalid patents only slowly and at great\ncost; challengers cannot seek declaratory judgments until imminently threatened with suit.\nCollectively, these considerations suggest that some unwarranted patents will be issued and will\nremain factors in the market for a considerable time, which may create unnecessary market\npower and transaction costs and infect markets with risk, uncertainty, and distorted business\n\n9\n\nAvailable at http://www.ftc.gov/os/2003/10/innovationrpt.pdf.\n9\n\n\x0cplanning. An improved post-grant opposition system could offer a quicker, less costly means for\nresolving validity issues. The Report recommended a system that provides an early and effective\nreview beneficial to competition and rational business planning, while sheltering patentees from\nharassment and impairment of legitimate patent rights. I urge the AMC to support this and other\nrecommendations for patent reform, which currently are under Congressional review.\n4.\n\nMerger Review Process\n\nModern advances in merger analysis, and advances in the technology of document and\ndata creation and retention, have led to increased costs and burdens in the agencies\xe2\x80\x99 merger\nreview process. The process must be updated to meet new realities, as I recognized when I\nrecently introduced significant reforms to our process at the FTC. The needed reforms, however,\nare best developed and implemented by the enforcement agencies, working in concert with the\nbar and the business community, rather than through new legislation. To improve the merger\nreview process requires reforms that are durable and firm, but also that are sufficiently flexible to\nsupport a wide variety of merger reviews across a wide range of industries. The agencies can\nimplement such flexible revisions readily through changes to their internal procedures. In\ncontrast, crafting the revisions through more static legislation presents substantial challenges\nbecause changes in technology continually affect how the agencies review mergers.\nLast month, I introduced a series of substantial reforms to the procedures that the FTC\nuses to review all transactions that are reported under the Hart-Scott-Rodino Act.10 The reforms\nare the product of study by our Merger Process Task Force, which was charged with conducting\n\n10\n\nReforms to the Merger Review Process (Feb. 16, 2006), available at\nhttp://www.ftc.gov/os/2006/02/mergerreviewprocess.pdf.\n10\n\n\x0ca top-to-bottom review of the FTC\xe2\x80\x99s merger review process. The central purpose of the reforms\nis to lower the costs of merger investigations for the FTC and the parties by reducing the volume\nof materials that parties must preserve and produce to respond to a second request, while\npreserving the FTC\xe2\x80\x99s ability to conduct thorough merger investigations. Particularly significant\nis that the reforms place substantial restrictions on the number of custodians that a party will be\nrequired to search \xe2\x80\x93 one of the most important factors (if not the most important factor) in the\nsize and cost of second request productions. The limits on the number of custodians in second\nrequest search groups constitutes the first time that a U.S. antitrust enforcement agency ever has\nimposed such a limitation on itself.\nThe reforms contain four core presumptions:\n1. a party will not be required to search the files of more than 35 of its employees when\nresponding to a second request, if the party complies with specified timing conditions;\n2. a party will not be required to produce responsive documents that were created more\nthan two years prior to the issuance of the second request (a reduction from the current threeyear period);\n3. a party will be required to preserve backup tapes for only two calender days identified\nby FTC staff; and\n4. a party will be entitled to produce a limited partial privilege log, rather than a \xe2\x80\x9cfull\xe2\x80\x9d\nlog, for most of the custodians in the second request search group.11\n\n11\n\nThe reforms also contain modifications to the instructions and the specifications of the second\nrequest that are designed to reduce the burdens on the parties.\n11\n\n\x0cOne thing made clear by the FTC\xe2\x80\x99s internal review process was that meaningful reform\nrequires the participation of all components of the agency, not only the staff. Consequently, in\naddition to implementing presumptive limitations on the size of second requests, the reforms\nincrease the responsibility of the senior management of the Bureaus of Competition and\nEconomics for ensuring that second requests do not impose undue burdens on the parties. For\nexample, the agency may require a party to search the files of more than 35 employees only if\nthe Bureau of Competition Director approves the larger search group. Parties are entitled to\nmeet or confer with the BC Director before the Director decides whether to authorize a larger\nsearch group, and I highly encourage them to do so. Similarly, because requests for empirical\ndata also have contributed to higher costs, the reforms provide that a party will be entitled to\nmeet or confer with a Director or a Deputy Director from both the Bureau of Competition and\nthe Bureau of Economics if the party believes that the data requests are unnecessarily broad. We\nalso are requiring that an FTC lawyer with substantial experience participate in all second\nrequest negotiations with the parties.\nMoreover, as I stated when I released the reforms, they represent the start rather than the\nend of the FTC\xe2\x80\x99s efforts to improve the merger review process. For example, we will continue\nto work to reduce the burden of requests for empirical data. The merger process reforms contain\nprovisions that should reduce the costs of data requests, but further work and experience are\nneeded to ensure that the FTC obtains the data it needs to analyze the competitive effects of\ntransactions, while minimizing the costs on the parties. I encourage all members of the antitrust\ncommunity to work with the FTC in this effort.\n\n12\n\n\x0cI also intend to devote significant resources to improving the technologies that the FTC\nuses in merger investigations, particularly the hardware and software for processing and\nreviewing electronic documents and data. Such improvements will benefit everyone \xe2\x80\x93 the\nagencies, the parties, the bar, and, most important, U.S. consumers. Currently, FTC staff,\noutside counsel, and the parties devote far too much time during many merger investigations to\nresolving technical issues related to the format and methods used to produce electronic\ndocuments. I hope to develop a set of more standardized options for parties to use when they\nproduce electronic documents in response to a second request, which will free up valuable\nresources to further the agency\xe2\x80\x99s core mission in merger analysis \xe2\x80\x93 determining whether the\ntransaction is likely substantially to harm consumers.\nAs I stated, despite the need for significant improvements to the merger review process, I\ndo not believe that formal statutory or regulatory changes are warranted. The reforms that I\nissued last month address the primary sources of the growing costs of the merger review process\n\xe2\x80\x93 the size of the search groups, the time period for which parties are required to produce\ndocuments, the preservation of backup tapes, and the production of privilege logs. Further, I\nurge the AMC to exercise significant caution about recommending modifications to the merger\nreview process that assign direct responsibility to other components of the government, such as\nthe courts. Experience shows that adding more procedural requirements to merger investigations\ngenerally decreases the ability of the agencies and the parties to resolve matters expeditiously,\nand increases the cost and overall burdens imposed on all involved.\n5.\n\nTwo Antitrust Agencies\n\n13\n\n\x0cThe question whether a \xe2\x80\x9cmodern\xe2\x80\x9d U.S. antitrust regime should include two agencies with\nlargely overlapping jurisdiction has threaded through your mandate since the AMC\xe2\x80\x99s formation.\nAnd given that I have held senior positions in both agencies within the last five years, I often am\nasked for my opinion on whether we really need two agencies and about the strengths and\nweaknesses of each. My answer is unlikely to surprise you. There is no point in the AMC\xe2\x80\x99s\nconsidering how to create an antitrust regime from scratch and whether that means creating two\nagencies, because you are not starting from scratch. You have before you two strong agencies,\nwith overlapping and also differing strengths. To change the current system would come at a\ncost that would not be offset by countervailing benefits.\nFor example, the Federal Trade Commission was formed, in part, to study markets and\ncompetition issues in depth, and that responsibility comprises a significant part of what we do.\nDivorced from actual enforcement experience, however, that research and policy work would be\nfar less effective and informed. And to maximize consistency between the two agencies in civil\nantitrust analysis, in recent years, the FTC has involved the Antitrust Division in its major policy\nhearings and projects. Further, the FTC\xe2\x80\x99s antitrust analysis benefits from input from the\nconsumer protection work we perform, and vice-versa.\nIn addition, one should not assume that combining all of the strengths and talents in one\nlarge agency would be more efficient and therefore better. I am in no way convinced that bigger\nis better in government agencies. Indeed, the relatively small size of the FTC enables us to react\nrelatively nimbly and responsively to market issues as they arise. Further, as a champion of the\nidea that competition is a driver of greatness, I do not mind admitting that healthy competition\n\n14\n\n\x0cbetween the two agencies drives them toward greater effectiveness and responsiveness to the\nneeds of our public.\nConversely, I do not see public harm from having two agencies. We avoid duplication in\ninvestigations, so that is not an issue. To the extent that some parties claim that their treatment\nmay vary as between agencies, I see no more variance between agencies than I see among\ndifferent staff even within the same agency \xe2\x80\x93 something that we are taking concrete steps to\nminimize both within the FTC and between agencies. The clearance process works effectively in\nmore than 90% of matters, and we are actively working together to make the process faster and\nsmoother. Still, not only do I recognize the warts in the clearance process, but I disdain the\nconflicts that develop in a handful of matters. As the AMC is well aware, the two agencies\nendeavored to improve the clearance process in 2002, but were forced to abandon the reforms\nunder Congressional pressure. Should the AMC determine that improvements to the clearance\nprocess are warranted, I would not object to the AMC\xe2\x80\x99s making such a recommendation.\n6.\n\nInternational Competition Policy\n\nFinally, no modern antitrust regime can be effective without a strong international\ncomponent. As champions of market-based economies, we are highly encouraged by the large\nnumber of nations that slowly have been shifting away from government-based economies over\nthe last 15 years. Nonetheless, concern over the fact that multiple antitrust agencies around the\nglobe may make their own decisions about the same merger or conduct has prompted questions\nabout the desirability of additional procedures to promote greater comity in the application of\nantitrust laws.\n\n15\n\n\x0cThe FTC, together with the Antitrust Division, devotes substantial resources to\nparticipating in international competition fora, maintaining strong bilateral relationships, and\npromoting convergence with competition agencies throughout the world. U.S. consumers\nstrongly benefit from these efforts. Increasingly our investigations overlap with those of nonU.S. agencies. Maintaining reliable channels of communication and working to promote\ncomparable standards assist in avoiding substantive conflicts. In those very few circumstances\nwhere we cannot avoid substantive conflict, the agencies still benefit from gaining a better\nunderstanding of the areas of difference, and possibly avoid future conflict. The divergent\nresults reached by the Antitrust Division and the European Commission on the GE/Honeywell\ntransaction, for example, led our two jurisdictions to increase our communication and\nunderstanding on the issues of conglomerate mergers and portfolio effects.\nThe U.S. agencies have incorporated comity into their Guidelines for International\nOperations,12 and the United States\xe2\x80\x99 bilateral antitrust cooperation agreements provide for the\napplication of comity and list the factors that the parties should take into account in applying it to\nparticular cases.13 The bilateral agreements also provide for \xe2\x80\x9cpositive comity\xe2\x80\x9d mechanisms,\nwhich enable a competition agency to request that another competition agency investigate and\nenforce action with respect to anticompetitive conduct that is illegal in the requested jurisdiction\n\n12\n\nU.S. Department of Justice and FTC Antitrust Enforcement Guidelines for International\nOperations \xc2\xa7 3.2 (April 1995), available at\nhttp://www.usdoj.gov/atr/public/guidelines/internat.htm.\n13\n\nE.g., US-EC agreement, Article VI,\nhttp://www.ftc.gov/bc/international/docs/agree_eurocomm.pdf.\n16\n\n\x0cand also adversely affects the interests of the requesting jurisdiction. In addition, the U.S.\nSupreme Court recently recognized and applied comity principles in its Empagran decision.14\nStill, as the AMC has observed, there remains considerable interest in the United States\nin determining whether it is possible to develop additional bilateral and multilateral procedures\nto enhance international antitrust comity. While I am unaware of any international consensus on,\nfor example, an approach that would assign exclusive, or even primary, enforcement\nresponsibility to a jurisdiction most affected by the merger or conduct at issue, I am open to\nconsidering new ways of implementing comity principles, consistent with my responsibility to\nprotect competition in the United States.\nCurrently, however, we are not without meaningful options to further the objectives of\ncomity, irrespective of the presence or lack of written agreements. Our job as enforcers is to\nprotect competition, and doing so effectively requires understanding and accounting for what\nother jurisdictions do or may do. This is because any meaningful action taken by a competition\nauthority will impact the market in question. Thus, another agency\xe2\x80\x99s regulatory intervention\nshould be considered as another market fact (just as a regulatory scheme or another U.S.\nagency\xe2\x80\x99s action is taken into account). Nowhere is this more important than in the imposition of\nremedies, because a company\xe2\x80\x99s divestiture or a company\xe2\x80\x99s actions taken (or not taken but rather\nforbidden) pursuant to an order entered outside of the United States can cause effects in the U.S.\nmarket.\n\n14\n\nF. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004).\n17\n\n\x0cTo further reduce the likelihood of inconsistent results and unnecessarily redundant\ninvestigations, the U.S. enforcement agencies, in cooperation with the bar, will continue actively\nto engage our foreign counterparts on the major substantive antitrust issues. For example, next\nweek, the FTC and the Antitrust Division will co-host a program on merger investigations for\nmembers of the International Competition Network. In two weeks, I will travel to Asia to\ndiscuss, among other topics, the development of China\xe2\x80\x99s competition law. This year, both the\nFTC and the Antitrust Division will continue our active participation in the Organization for\nEconomic Cooperation and Development and ICN meetings and working groups.\nExperience shows that these and related efforts bear fruit. Indeed, since the uranium and\nother conflicts of a generation ago, policies designed to protect competitors at the expense of\nconsumers in many nations have been weakened, and even disappeared. State tolerance of\ncartels also has declined. At the same time, it is clear that our active engagement with other\ncompetition agencies has resulted in those agencies adopting policies that favor prudent restraint\nin the application of their competition laws in circumstances where they did not always do so. In\nparticular, there has been a substantial increase in many foreign competition agencies\xe2\x80\x99 use of\neconomic principles that focus competition law where it should be, on the welfare of consumers.\nI look forward to working with the AMC and all members of the antitrust community to continue\nour efforts to promote healthy convergence and comity among competition authorities.\nThank you again for the opportunity to appear before the AMC today. I look forward to\nanswering your questions.\n\n-18\n\n\x0c"


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