b'UNITED STATES OF AMERICA\n\nFEDERAL TRADE COMMISSION\nWASHINGTON, D.C. 20580\n\nDivision of Enforcement\nBureau of Consumer Protection\n\nJune 26, 2012\n\nBrett Ian Hanis, Esq.\nPisani & Roll LLP\n1629 K StreetNW, Suite 300\nWashington, DC 20006\nDear Mr. Hanis:\nThis is in reply to your letter requesting a Staff Advisory Opinion on behalf of your\nclient, Naturally Advanced Technologies US Inc. ("NAT"). NAT seeks approval for use of the\ngeneric term "flax" for textile products manufactured from CRAiLAR\xc2\xae flax fibers and yarns.\nYour letter states that the CRAiLAR\xc2\xae process uses a decidedly different process to remove flax\nfibers from the flax plant than the process used to produce linen, resulting in a product with\ndistinct and different characteristics than traditional linen. Specifically, rather than extracting\nflax fibers from the bast primarily through the physical methods described in your letter (j.e.,\nthrough breaking, scutching, and heckling following a retting process), you state the\nCRAiLAR\xc2\xae process involves the use of an enzymatic treatment to obtain a much finer, shorter\nfiber with performance characteristics more akin to cotton than linen. Because products made\nwith CRAiLAR\xc2\xae fibers differ significantly from linen, you assert that describing products made\nfrom CRAiLAR\xc2\xae fibers as linen rather than flax would mislead and deceive consumers.\nIn particular, you state that products made from CRAiLAR\xc2\xae fibers differ from linen\nfabric, which is "smooth yet contains slubs (due to the length and lack of uniformity of the\nfibers), wrinkles easily, requires significaut ironing, and typically must be air-dried after washing\nor dry-cleaned." You also state that textile products manufactured from CRAiLAR\xc2\xae fibers are\nsoft and wear and wash like cotton, i.e., they do not need significant ironing and can be washed\nand dried with other laundry.\nIn addition, you argue that, while the CRAiLAR\xc2\xae process produces flax fibers with\nattributes that differ significantly from those of linen, the chemical composition of the\nCRAiLAR flax fibers remains readily identifiable as flax. You explain that the CRAiLAR\xc2\xae\nprocess does not chemically change the flax but instead involves the further separation of the\nindividual fibers to a degree not achievable through traditional linen manufacturing methods.\nBecause the CRAiLAR\xc2\xae process does not result in chemically "regenerated fibers," you contend\n\n\x0cthe fibers are not "manufactured fibers" addressed in Section 303.7 of the Rules and Regnlations\nUnder the Textile Fiber Products Identification Act ("Rules"), 16 C.F.R. \xc2\xa7 303.7, and that none\nof the fiber names established in this section (or the fiber names in ISO 2076: 1999(E) which\nSection 303.7 incorporates) describe CRAiLAR\xc2\xae fibers accurately.\nFinally, you note that describing CRAiLAR\xc2\xae fibers as flax rather than linen wonld be\nconsistent with international standards and practice. You explain that ISO 6938: 1984,\n"Textiles-Natural fibers-Generic names and Definitions," defines the term "natural fibers" as\n"fibers which occur in nature; they can be categorized according to their origin into animal,\nvegetable and mineral fibers." You add that, according to \xc2\xa7 3.2.2.6 of this ISO standard, the\nfiber name "flax" is recognized as a standard name for certain bast fibers - specifically, "[f]iber\nfrom the stems of flax Linum usitatissimum.,,1\nSection 303.l6(a)(I) of the Rules, 16 C.F.R. \xc2\xa7 303 .16(a)(I), requires that textile fiber\nproducts have labels disclosing the generic names and percentages by weight ofthe constituent\nfibers present in the product. Section 303.7 of the Rules, 16 C.F.R. \xc2\xa7 303.7, sets forth the\nofficial list of generic names for manufactured fibers, such as polyester, nylon, and rayon. The\nRnles do not provide a comprehensive list of natural fiber names, although 16 C.F.R. \xc2\xa7 303.6(a)\nidentifies cotton, silk, and linen as acceptable fiber names.\nBased on the information abont the CRAiLAR\xc2\xae process and the attributes of the fibers\nyou provide in your letter, we conclude that describing these fibers as flax on labels attached to\ntextile fiber products made from the fibers would comply with the Rnles. We also conclude that\ndescribing these fibers as linen rather than flax conld mislead or deceive consumers. We base\nthese conC!usions on your assertions that the CRAiLAR\xc2\xae process involves a manner of\nobtaining flax fibers that does not chemically alter them, that the attributes ofthe fibers differ\nfrom those of linen, and that international standards and practice as well as the U.S. government\nrecognize the use of the term "flax" to describe flax fibers that have not been chemically\nchanged.\nIn accordance with Section 1.3(c) of the Commission\'s Rules of Practice and Procedure,\n16 C.F.R. \xc2\xa7 1.3(c), this is a staff opinion only and has not been reviewed or approved by the\nCommission or by any individual Commissioner, and is given without prejudice to the right of\nthe Commission later to rescind the advice and, where appropriate, to commence an enforcement\naction. In accordance with Section 1.4 of the Commission\'s Rules of Practice and Procedure, 16\n\n1 You also note that the U.S. government uses "flax fiber" as the generic name for flax\nfibers. E.g., Chapter 62 and Section 53 of the 2010 Harmonized Tariff Schedule of the United\nStates, www.usitc.gov/publications/docs/tata/hts/bychapter/l 000c62.pdf and\nwww.usitc.gov/publications/docs/tata/bts/bychapterIl000C53.pdf. In addition, the United States\nDepartment of Agriculture, Agricultural Research Service ("USDA-ARS") established a flax\nfiber research facility named the "USDA Flax Fiber Pilot Plant" and in 2005 published an article\nin its monthly magazine, Agricultural Research, that was called, "Flax Fiber Offers Cotton Cool\nComfort." A copy of the USDA-ARS\'s 2005 Agricultural Research article can be found here:\nwww.ars.usda.gov/is/ARIarchive/nov05/fiber1105.htm.\n\n-2-\n\n\x0cC.F.R. \xc2\xa7 1.4, your request for advice, along with this response, will be placed on the public\nrecord.\n\nJa esA.Kohm\nAssociate Director\n\n-3-\n\n\x0cPISANI & ROLL LLP\nRobert J. Pisani*\nMichael E. Roll **\nBrett Harris***\n*Admitted in DC\n**Admitted in CA\n***Admitted in DC & NY\n\nAttorneys at Law\n\n1629 K Street NW, Suite 300\nWashington, DC 20006\n202.466.0960 (t)\n877.674.5789 (f)\nwww.worldtradelawyers.com\n\n1875 Century Park East, Suite 600\nLos Angeles, CA 90067\n310.826.4410 (t)\n877.674.5789 (f)\n\nBrett Ian Harris\nDirect Dial: (845) 255-1850\nbharris@worldtradelawyers.com\n\nMay 10, 2012\nBY E-MAIL AND FEDERAL EXPRESS\nFederal Trade Commission\n600 Pennsylvania Avenue, NW\nWashington, DC 20580\nAttention:\nRe:\n\nSecretary of the Commission\nUse of the Generic Term \xe2\x80\x9cFlax\xe2\x80\x9d For\nTextile Products Manufactured From\nCRAiLAR\xc2\xae Flax Fibers and Yarns\n\nTo Whom It May Concern:\nOn behalf of our client, Naturally Advanced Technologies US Inc. (\xe2\x80\x9cNAT\xe2\x80\x9d),\n696 McVey Avenue, Suite 202 Lake Oswego, OR 97034, we hereby request a Staff\nAdvisory Opinion pursuant to 16 CFR Part 1 concerning the use of the generic\nterm \xe2\x80\x9cflax\xe2\x80\x9d for textile products manufactured from CRAiLAR\xc2\xae flax fibers and\nyarns. We believe that this matter involves a substantial question of law and\nthere is no clear Commission or court precedent to guide decision of this issue,\nwhich is of significant public interest. Moreover, this is not a hypothetical\nquestion, as such products will soon be entering the U.S. marketplace (see, for\nexample, http://tinyurl.com/dymmezc). Therefore, a Staff Advisory Opinion in\nthis matter is warranted under the regulations.\nWe note that in an e-mail dated November 9, 2011, Mr. Steve Ecklund,\nInvestigator with the Division of Enforcement of the Federal Trade Commission,\ninformally agreed that the use of the generic term \xe2\x80\x9cflax\xe2\x80\x9d for textile products\nmanufactured from CRAiLAR\xc2\xae flax fibers and yarns was proper and consistent\nthe Textile Fiber Products Identification Act (\xe2\x80\x9cTFPIA\xe2\x80\x9d), 15 USC \xc2\xa7\xc2\xa770-70k. A copy\nof this e-mail correspondence is attached for your reference as Exhibit A.\n\n\x0cUse of the Generic Term \xe2\x80\x9cFlax\xe2\x80\x9d For\nTextile Products Manufactured From\nCRAiLAR\xc2\xae Flax Fibers and Yarns\nMay 10, 2012\nPage 2 of 7\nBACKGROUND\nI.\n\nNaturally Advanced Technologies US Inc.\n\nNAT develops renewable and environmentally sustainable biomass\nresources from flax, hemp and other bast fibers. The company, through its\nwholly owned subsidiary, CRAiLAR\xc2\xae Fiber Technologies Inc., has developed\nproprietary technologies for production of bast fibers, cellulose pulp, and their\nresulting by-products in collaboration with Canada\'s National Research Council.\nCRAiLAR\xc2\xae technology offers cost-effective and environmentally sustainable\nprocessing and production of natural, bast fibers resulting in increased\nperformance characteristics for use in textile, industrial, energy, medical and\ncomposite material applications.\nII.\n\nTraditional Flax Fiber Processing\n\nFlax fibers are collected from the phloem (the \xe2\x80\x9cinner bark\xe2\x80\x9d or the skin) or\nbast surrounding the stem of the flax plant. In the photograph below, bundles of\nthese fibers are represented by the green ovals, which are grouped together in the\nbast:\n\n\x0cUse of the Generic Term \xe2\x80\x9cFlax\xe2\x80\x9d For\nTextile Products Manufactured From\nCRAiLAR\xc2\xae Flax Fibers and Yarns\nMay 10, 2012\nPage 3 of 7\nTraditionally, the bundles of flax fibers used in the production of linen\n(represented by the green ovals above) are extracted from the bast using the\nfollowing procedures1:\n\xef\x82\xb7\n\nRetting \xe2\x80\x93 Retting is the process of rotting away the inner stalk of the\nflax plant, leaving the outer fibers in the bast intact. After this process,\nthe straw supported by long, coarse groupings of fiber bundles\n(represented by the red hexagons in the photograph above) remains.\n\n\xef\x82\xb7\n\nBreaking \xe2\x80\x93 Next, the straw is broken into short segments in order to\nhelp ease the removal of the outer straw from the stalk.\n\n\xef\x82\xb7\n\nScutching \xe2\x80\x93 The scutching process is the first attempt to remove the\nstraw and woody part of the stem from the flax fibers. Scutching can\nbe done either by hand or by machine in a scutching mill. Hand\nscutching is done with a wooden scutching knife and a small iron\nscraper. Machine scutching, on the other hand, usually involves\ncrushing the stalks between two metal rollers, which break the stalks so\nthat parts of the stalk can be separated from the fibers. The fiber is\nextracted from aligned straw by beaters and combs in the scutching\nmachine which removes shive and fiber which is not long enough for\nspinning on the linen system (known as \xe2\x80\x9ctow\xe2\x80\x99 fiber).\n\n\xef\x82\xb7\n\nHeckling \xe2\x80\x93 In this process, the fiber is pulled through various\ndifferent sized heckling combs or \xe2\x80\x9checkles.\xe2\x80\x9d A heckle is a bed of \xe2\x80\x9cnails\xe2\x80\x9d\n\xe2\x80\x93 sharp, long-tapered, tempered, polished steel pins driven into\nwooden blocks at regular spacing. The first few rows of heckles will\nremove the straw as the fiber is pulled through, while the last rows will\nsplit and polish the fibers.\n\nThe end result of this traditional flax extraction process is flax fibers that\nare relatively long (ranging from about 25 to 150 cm in length) and average 12-16\nmicrometers in diameter. These fibers have a relatively coarse texture due to\ntheir irregular polygonal shapes and the fact that the fiber bundles remain bound\ntogether with lignin. When spun into yarns for textile manufacture, flax fibers\nextracted using this process yield fabrics with the characteristic properties of\nlinen easily recognized by the public: linen fabric is smooth yet contains slubs\n(due to the length and lack of uniformity of the fibers), wrinkles easily, requires\nsignificant ironing, and typically must be air-dried after washing or dry-cleaned.\n\n1\n\nSee, generally, http://en.wikipedia.org/wiki/Flax.\n\n\x0cUse of the Generic Term \xe2\x80\x9cFlax\xe2\x80\x9d For\nTextile Products Manufactured From\nCRAiLAR\xc2\xae Flax Fibers and Yarns\nMay 10, 2012\nPage 4 of 7\nIII.\n\nCRAiLAR\xc2\xae Flax Fiber Processing\n\nThe CRAiLAR\xc2\xae process uses a decidedly different approach to removing\nflax fibers from the flax plant, resulting in an end product with distinct and\ndifferent characteristics than traditional linen. Rather than extracting flax fibers\nfrom the bast primarily through the physical methods described above (i.e.,\nthrough breaking, scutching and heckling following a retting process), the\nCRAiLAR\xc2\xae process involves enzymatic treatment of the bast to obtain a much\nfiner, shorter-length fiber with performance characteristics more akin to cotton\nthan linen.\nSpecifically, the CRAiLAR\xc2\xae process extracts flax fibers from decorticated\nflax bast skin by pre-treating the decorticated bast skin with an aqueous solution\ncontaining di-sodium citrate, tri-sodium citrate or a mixture thereof having a pH\nof from about 6-13 at temperature of about 90\xc2\xb0C or less. The recovered fiber is\nsubsequently treated with an enzyme. By removing the lignin binding the fibers\ntogether, this process permits the extraction of individual flax fibers (represented\nby the light-blue dots in the photograph below), rather than the bundles of such\nfibers that are the product of the traditional linen-making process described\nabove.\n\n\x0cUse of the Generic Term \xe2\x80\x9cFlax\xe2\x80\x9d For\nTextile Products Manufactured From\nCRAiLAR\xc2\xae Flax Fibers and Yarns\nMay 10, 2012\nPage 5 of 7\nImportantly, the chemical structure of the flax plant is not altered through\nthe CRAiLAR\xc2\xae process, and these flax fibers are not \xe2\x80\x9cregenerated fibers\xe2\x80\x9d as that\nterm is technically defined.2 The CRAiLAR\xc2\xae process, in other words, does not\ninvolve a chemical transformation of natural organic polymers (such as that\ninvolved in the manufacture of rayon), but rather a physical transformation of the\nflax plant \xe2\x80\x93 specifically, a physical separation of the individual flax fibers in the\nplant to a degree unattainable through traditional means.\nDISCUSSION\nI.\n\nTextile Fiber Products Identification Act Requirements\n\nThe Textile Fiber Products Identification Act (\xe2\x80\x9cTFPIA\xe2\x80\x9d), 15 USC \xc2\xa7\xc2\xa770-70k,\nrequires marketers to attach a label to each covered textile product disclosing: (1)\nthe generic names and percentages by weight of the constituent fibers in the\nproduct; (2) the name under which the manufacturer or other responsible\ncompany does business or, in lieu thereof, the registered identification number\n(\xe2\x80\x9cRN number\xe2\x80\x9d) of such company; and (3) the name of the country where the\nproduct was processed or manufactured.\nThe TFPIA regulations at 16 CFR \xc2\xa7303.6(a) provide that \xe2\x80\x9c[e]xcept where\nanother name is permitted under the Act and regulations, the respective generic\nnames of all fibers present in the amount of 5 per centum or more of the total\nfiber weight of the textile fiber product shall be used when naming fibers in the\nrequired information; as for example: \xe2\x80\x98cotton,\xe2\x80\x99 \xe2\x80\x98rayon,\xe2\x80\x99 \xe2\x80\x98silk,\xe2\x80\x99 \xe2\x80\x98linen,\xe2\x80\x99 \xe2\x80\x98nylon,\xe2\x80\x99 etc.\xe2\x80\x9d\nMoreover, while 16 CFR \xc2\xa7303.7 establishes generic names for certain\nmanufactured fibers, and recognizes as acceptable the generic names for\nmanufactured fibers, together with their respective definitions, set forth in\nInternational Organization for Standardization ISO 2076: 1999(E), \xe2\x80\x9cTextiles\xe2\x80\x94\nMan-made fibers\xe2\x80\x94Generic names,\xe2\x80\x9d there is no similar regulatory list or reference\nof acceptable natural fibers under the TFPIA.\nII.\n\nCRAiLAR\xc2\xae Flax Fibers Are Not Accurately Described\nBy The Generic Term \xe2\x80\x9cLinen\xe2\x80\x9d\n\nAs noted earlier, the performance characteristics of flax fibers extracted\nusing the CRAiLAR\xc2\xae process are different than those of flax fibers extracted with\n2 \xe2\x80\x9cA regenerated fiber is one formed when a natural polymer, or its chemical derivative, is dissolved\nand extruded as a continuous filament, and the chemical nature of the natural polymer is either\nretained or regenerated after the fiber formation process.\xe2\x80\x9d Kirk-Othmer Encyclopedia of Chemical\nTechnology, Volume 10, Fourth Edition (1994), p. 696.\n\n\x0cUse of the Generic Term \xe2\x80\x9cFlax\xe2\x80\x9d For\nTextile Products Manufactured From\nCRAiLAR\xc2\xae Flax Fibers and Yarns\nMay 10, 2012\nPage 6 of 7\ntraditional methods and used in the manufacture of linen. CRAiLAR\xc2\xae flax fibers\nhave the look and feel of cotton. Unlike linen, due to the finer, shorter-length\nfibers obtainable from the CRAiLAR\xc2\xae process, textile products manufactured\nfrom CRAiLAR\xc2\xae flax fibers are soft, and wear and wash like cotton3 \xe2\x80\x93 in other\nwords, CRAiLAR\xc2\xae flax fabrics do not need significant ironing and can be washed\nand dried with other regular laundry.\nThus, we believe that requiring textiles and textile products manufactured\nfrom CRAiLAR\xc2\xae flax to be labeled as \xe2\x80\x9clinen\xe2\x80\x9d under the TFPIA would be\nmisleading and deceptive to consumers. As recognized by consumers in the\nmarketplace, linen products are smooth but wrinkle easily and require significant\nironing; moreover, linen products must typically be air-dried after washing or\ndry-cleaned. Textile products manufactured from CRAiLAR\xc2\xae flax do not share\nthese performance characteristics, and thus it would be inaccurate to label such\nproducts as \xe2\x80\x9clinen\xe2\x80\x9d; indeed, to do so would surely constitute the very deceptive\nand unfair business practices that the FTC is charged to prevent.\nIII.\n\nCRAiLAR\xc2\xae Flax Fibers Are Accurately Described\nBy The Generic Term \xe2\x80\x9cFlax\xe2\x80\x9d\n\nAs explained above, while the performance characteristics of flax fibers\nextracted using the CRAiLAR\xc2\xae process are different than those of flax fibers used\nin the manufacture of linen, the chemical composition of CRAiLAR\xc2\xae flax fibers\nremains readily identifiable as that of flax. The CRAiLAR\xc2\xae manufacturing\nprocess does not involve a chemical change to the underlying flax fibers, but\nrather a physical change to the fiber groupings in the bast permitting further\nseparation of the individual fibers to a degree not achievable through traditional\nflax manufacturing methods. CRAiLAR\xc2\xae flax fiber manufacturing, in other\nwords, does not result in chemically \xe2\x80\x9cregenerated fibers,\xe2\x80\x9d and does not involve a\nchemical transformation of natural organic polymers.\nThus, CRAiLAR\xc2\xae flax fibers are not \xe2\x80\x9cmanufactured fibers\xe2\x80\x9d under the\nTFPIA, and none of the generic names set forth in 16 CFR \xc2\xa7303.7 or ISO 2076:\n1999(E) accurately describe them. In contrast, the generic term \xe2\x80\x9cflax\xe2\x80\x9d accurately\nand completely describes the fibers manufactured using the CRAiLAR\xc2\xae process.\nInternational Organization for Standardization ISO 6938: 1984, \xe2\x80\x9cTextiles\xe2\x80\x94\nNatural fibers\xe2\x80\x94Generic names and Definitions,\xe2\x80\x9d defines the term \xe2\x80\x9cnatural fibers\xe2\x80\x9d\nas \xe2\x80\x9cfibers which occur in nature; they can be categorized according to their origin\n3 In fact, CRAiLAR\xc2\xae flax\xe2\x80\x99s performance attributes exceed those of cotton. CRAiLAR\xc2\xae flax fiber\nshrinks less than cotton, absorbs moisture better (wicking), and has increased dye uptake, which\nmeans it requires fewer chemicals to achieve the same depth of color as cotton.\n\n\x0cUse of the Generic Term \xe2\x80\x9cFlax\xe2\x80\x9d For\nTextile Products Manufactured From\nCRAiLAR\xc2\xae Flax Fibers and Yarns\nMay 10, 2012\nPage 7 of 7\ninto animal, vegetable and mineral fibers.\xe2\x80\x9d According to \xc2\xa73.2.2.6 of this\nstandard, the fiber name \xe2\x80\x9cflax\xe2\x80\x9d is recognized as a standard name for certain bast\nfibers \xe2\x80\x93 specifically, \xe2\x80\x9c[f]iber from the stems of flax Linum usitatissimum.\xe2\x80\x9d\nCRAiLAR\xc2\xae flax fibers are fibers from the flax plant (Linum usitatissimum) that\nhave been physically isolated \xe2\x80\x93 but not chemically regenerated \xe2\x80\x93 using an\nenzymatic process. Thus, they are properly and accurately described as \xe2\x80\x9cflax\xe2\x80\x9d\nunder the accepted meaning of this generic term.\nIV.\n\nCONCLUSION\n\nCRAiLAR\xc2\xae flax fibers are \xe2\x80\x9cfibers from the stems of flax (Linum\nusitatissimum).\xe2\x80\x9d They are fibers from the flax plant that have been physically\nisolated and refined to a greater degree than previously possible. While there has\nbeen no chemical restructuring of the original flax fibers, the fine and short fiber\nresulting from CRAiLAR\xc2\xae process yields a product with performance and\nhandling characteristics distinctly different than traditional linen products \xe2\x80\x93 so\nmuch so that requiring textile products manufactured from CRAiLAR\xc2\xae flax fibers\nto be labeled as \xe2\x80\x9clinen\xe2\x80\x9d would be misleading and confusing to consumers of these\nproducts in the marketplace. Therefore, we believe that the generic term \xe2\x80\x9cflax\xe2\x80\x9d is\nthe most accurate description for textile products manufactured from CRAiLAR\xc2\xae\nflax fibers and yarns under the TFPIA. We ask that the Commission staff kindly\nconfirm this conclusion.\nIf the Commission staff disagrees with this conclusion, we respectfully\nrequest the opportunity to meet with the official(s) responsible for making this\ndecision before a final determination is rendered.\nPlease do not hesitate to contact Brett Harris at (845) 255-1850 if you have\nany questions or require additional information.\n\nSincerely,\n\nBrett Ian Harris\n\n\x0cEXHIBIT A\n\n\x0cBrett Harris\nSubject:\n\nRE: Response to Your Request for More Information Regarding "Flax Fiber"\n\nFrom: Ecklund, Stephen C. [mailto:SECKLUND@ftc.gov]\nSent: Wednesday, November 09, 2011 5:09 AM\nTo: Mike Heilbronner\nSubject: RE: Response to Your Request for More Information Regarding "Flax Fiber"\nDear Mr. Heilbronner:\nThank you for the information about Crailer\xc2\xae flax fiber.\nBased on the information you provided, it appears that the term \xe2\x80\x9cflax fiber\xe2\x80\x9d is an appropriate designation for NAT\xe2\x80\x99s\nCrailer\xc2\xae flax fiber. It is also staff\xe2\x80\x99s opinion that it would be inappropriate to refer to Crailar\xc2\xae flax fiber as \xe2\x80\x9clinen.\xe2\x80\x9d\nAs always, the views expressed in this email represent my views only and are not considered binding on the\nCommission. I cannot issue a ruling on this because I am not a Judge in Court and I am not the Commission in an official\nlaw enforcement action. The company remains responsible for compliance with the law regardless of anything stated or\nnot stated by Commission staff. My statements and views are not legal advice. The company may wish to discuss the\nmatter with a private law firm familiar with FTC labeling laws. Commission staff reserves the right to review this matter at\na later time.\nSincerely,\n\nSteve Ecklund, Investigator\nDivision of Enforcement\nFederal Trade Commission\n600 Pennsylvania Ave., NW\nWashington, DC 20580\nPhone: 202-326-2841\nFax: 202-326-2558\nEmail: secklund@ftc.gov\nFrom: Mike Heilbronner [mailto:mheilbronner@idealegal.com]\nSent: Monday, October 03, 2011 7:44 PM\nTo: Ecklund, Stephen C.\nSubject: Response to Your Request for More Information Regarding "Flax Fiber"\n\nDear Mr. Ecklund:\nThis email is in response to your request of September 26 for additional information regarding the use of \xe2\x80\x9cflax fiber\xe2\x80\x9d on\ncontent labels for NAT\xe2\x80\x99s Crailar flax fiber.\nIn your email of September 26, you asked for two types of additional information, namely, (1) information relating to\nflax as a natural fiber and the use of \xe2\x80\x9cflax fiber\xe2\x80\x9d as the appropriate generic designation; and (2) information about the\ndifferences between NAT\xe2\x80\x99s Crailar flax fiber and linen. Independently, you alerted me to the FTC\xe2\x80\x99s rulings and guidance\nregarding improper labeling of \xe2\x80\x9cbamboo\xe2\x80\x9d fiber.\nThe numbered items below respond in turn to these three subjects.\n1.\nInformation Relating to Flax as a Natural Fiber and the Use of \xe2\x80\x9cFlax Fiber\xe2\x80\x9d as the Appropriate Generic\nDesignation\n1\n\n\x0cAs demonstrated in my email of September 22, 2011, the ISO has determined that flax is a natural fiber with the generic\nname, \xe2\x80\x9cflax fiber.\xe2\x80\x9d While the FTC is not bound by the ISO\xe2\x80\x99s determination, the ISO is obviously a trusted, independent\nsource.\nMore importantly, the U.S. government itself uses \xe2\x80\x9cflax fiber\xe2\x80\x9d as the generic name for fibers derived from flax. By way of\nexample, Chapter 62 of the 2010 Harmonized Tariff Schedule of the United States uses the phrase \xe2\x80\x9cflax fibers\xe2\x80\x9d to\ndistinguish five separate tariff rates. See http://www.usitc.gov/publications/docs/tata/hts/bychapter/1000c62.pdf.\nIndependently Heading 5303 of Section 53 of the U.S. 2010 Harmonized Tariff Schedule clearly acknowledges that flax is\na \xe2\x80\x9ctextile based fiber.\xe2\x80\x9d See http://www.usitc.gov/publications/docs/tata/hts/bychapter/1000C53.pdf\nThe USDA Agricultural Research Service (\xe2\x80\x9cUSDA\xe2\x80\x90ARS\xe2\x80\x9d) also uses \xe2\x80\x9cflax fiber\xe2\x80\x9d as the generic name for flax. Most notably, in\n2004, the USDA\xe2\x80\x90ARS established a flax fiber research facility in Clemson, SC that was named the \xe2\x80\x9cUSDA Flax Fiber Pilot\nPlant.\xe2\x80\x9d Reporting on its own research at the \xe2\x80\x9cUSDA Flax Fiber Pilot Plant\xe2\x80\x9d in 2005, the USDA\xe2\x80\x90ARS published an article in\nits monthly magazine, Agricultural Research, that was called, \xe2\x80\x9cFlax Fiber Offers Cotton Cool Comfort.\xe2\x80\x9d A copy of the\nUSDA\xe2\x80\x90ARS\xe2\x80\x99s 2005 Agricultural Research article can be found here:\nhttp://www.ars.usda.gov/is/AR/archive/nov05/fiber1105.htm. Notably, in addition to the title of the article, the article\nis replete with other references to \xe2\x80\x9cflax fibers.\xe2\x80\x9d\nThe 2005 Agricultural Research article is about the USDA\xe2\x80\x90ARS\xe2\x80\x99s research into the use of flax fibers for flax\xe2\x80\x90based denim\nfabrics that could compete with cotton\xe2\x80\x90based blends. As detailed in discussion below under heading number 2, this goal\nis exactly what NAT has achieved with Crailar.\nNext, a 2008 article in the journal, BioResources (published by N.C. State University) discussed the USDA\xe2\x80\x90ARS\xe2\x80\x99s flax fiber\nresearch at the \xe2\x80\x9cUSDA Flax Fiber Pilot Plant\xe2\x80\x9d and specifically distinguished the USDA\xe2\x80\x90ARS\xe2\x80\x99s goals for flax from the typical\nuse of flax for linen, stating:\nThe objective of this work was, therefore, not long line fiber for traditional linen, but instead short staple fibers\nfor blending with cotton and other fibers. The requirements to maintain long fiber length and other restrictions\nnecessary for traditional linen could be avoided, and new methods could be explored to produce a total fiber\nproduct from diverse sources of flax.\nA copy of the 2008 BioResources article can be found here:\nhttp://www.ncsu.edu/bioresources/BioRes_03/BioRes_03_1_0155_Foulk_AD_PectinolyticEnzymes_Retting.pdf. The\nflax fiber research conducted by the USDA\xe2\x80\x90ARS at the USDA Flax Fiber Pilot Plant was also discussed in a research article\ncalled \xe2\x80\x9cPilot plant for processing flax fiber\xe2\x80\x9d that was published in the journal, International Crops and Products. A copy of\nthat article can be found here: http://ddr.nal.usda.gov/bitstream/10113/4310/1/IND43702115.pdf.\nAs detailed below in section 2, the \xe2\x80\x9cshort staple fibers\xe2\x80\x9d contemplated in the 2008 BioResources article (as distinguished\nfrom the long fibers used for linen) are precisely the raw materials NAT uses for its Crailar flax fiber.\nNotably, in January 2011, NAT and Hanesbrands (the well\xe2\x80\x90known global apparel leader) announced a joint research\npartnership with the USDA\xe2\x80\x90ARS to cultivate and evaluate the viability of various flax strains for producing Crailar. The\nproject is being carried out in South Carolina and has an initial term of one year, with a renewal option of two additional\nyears. You can read about the joint research of NAT, Hanesbrands, and the USDA\xe2\x80\x90ARS here:\nhttp://www.textileworld.com/Articles/2011/January/NAT_Hanesbrands_USDA_Team_To_Conduct_Flax_Growing_Trials\n.html\nThe U.S. government\xe2\x80\x99s regular use and reference to \xe2\x80\x9cflax fiber\xe2\x80\x9d as the generic name for a natural fiber is obviously\ncompelling, but perhaps the most interesting evidence that \xe2\x80\x9cflax fiber\xe2\x80\x9d is the generic name for a natural fiber comes\nfrom the website for the United Nations\xe2\x80\x99 \xe2\x80\x9cInternational Year of Natural Fibers\xe2\x80\x9d:\nhttp://www.naturalfibres2009.org/en/index.html. As shown by that website, the United Nations proactively proposed\nand developed the \xe2\x80\x9cInternational Year of Natural Fibers,\xe2\x80\x9d which was held in 2009. More information about the history of\n2\n\n\x0cthe \xe2\x80\x9cInternational Year of Natural Fibers\xe2\x80\x9d including its origins with the United Nations is discussed here:\nhttp://www.naturalfibres2009.org/en/iynf/background.html.\nThe website for the \xe2\x80\x9cInternational Year of Natural Fibers\xe2\x80\x9d has a dedicated page for flax as a natural fiber, and \xe2\x80\x9cflax fiber\xe2\x80\x9d\nappears several times on the page to generically designate the fiber from flax. Here is that dedicated flax page:\nhttp://www.naturalfibres2009.org/en/fibres/flax.html. As you can see from that page, not all flax textiles are linen. On\nthe contrary, the flax page notes that some flax is used for linen (specifically, \xe2\x80\x9cfine and long flax fibres\xe2\x80\x9d), but that page\nalso notes that \xe2\x80\x9cshorter flax fibers\xe2\x80\x9d are used for other textiles, including consumer products like towels, tents, canvas,\nfurniture fabric, and sails.\nAgain, NAT\xe2\x80\x99s Crailar flax fiber is comprised of these \xe2\x80\x9cshorter flax fibres\xe2\x80\x9d that are not used for linen. This important\ndistinction is one of the subjects of the next section.\n\n2.\n\nInformation about the Differences Between NAT\xe2\x80\x99s Crailar Flax Fiber and Linen\n\nThere are two ways to discuss the differences between NAT\xe2\x80\x99s Crailar flax fiber and linen.\nFirst, there are critical technical distinctions between the two materials. Rather than explain these differences in this\nemail, NAT has prepared the attached document, \xe2\x80\x9cNAT \xe2\x80\x93 Explanation of Linen v. Crailar Flax Fiber,\xe2\x80\x9d which consists of (i)\na text discussion of pertinent technical distinctions; and (ii) a chart with a point\xe2\x80\x90by\xe2\x80\x90point comparison of some of the\ndistinctions. Among others, the discussion and chart explain that NAT\xe2\x80\x99s Crailar flax fiber is comprised of short bast flax\nfibers washed in a natural, enzymatic bath. The basic properties of the original short flax fibers are not altered, and they\nare readily distinct from linen derived from long flax fibers.\nThe second way to discuss the differences between NAT\xe2\x80\x99s Crailar flax fiber and linen are the performance, market\xe2\x80\x90based\ndifferences. Here, the focus is on the differences consumers experience with the two materials. If you\xe2\x80\x99ve ever worn a\nlinen garment, then you will readily understand these differences.\nLinen has a relatively coarse texture. Linen wrinkles easily and requires significant ironing. Linen typically must be\ncarefully washed and then air\xe2\x80\x90dried, or it must be dry\xe2\x80\x90cleaned.\nIn stark contrast and in the simplest terms, NAT\xe2\x80\x99s Crailar flax fiber has the look, feel, and performance attributes of\ncotton. NAT\xe2\x80\x99s Crailar is soft and naturally white, and it wears and washes like cotton. In other words, it is comfortable,\ndoes not need significant ironing, and can be washed and dried with other regular laundry.\nIn short, calling Crailar flax fiber \xe2\x80\x9clinen\xe2\x80\x9d would mislead and deceive consumers in the same way that labeling a linen\ngarment as \xe2\x80\x9ccotton\xe2\x80\x9d would mislead and deceive consumers. By way of example, imagine that you bought a typical\nundershirt labeled \xe2\x80\x9ccotton\xe2\x80\x9d but, when you put on the undershirt, it had the look, feel, and performance traits of linen.\nYour expectation of a soft, user\xe2\x80\x90friendly garment would differ greatly from the uncomfortable and user\xe2\x80\x90unfriendly\nreality. Interestingly, Crailar\xe2\x80\x99s performance attributes actually exceed those of cotton. Crailar flax fiber shrinks less than\ncotton, absorbs moisture better (wicking), and has increased dye uptake, which means it more efficiently achieves the\nsame depth of color as cotton.\nThe cotton\xe2\x80\x90like performance attributes of Crailar flax fiber have not gone unnoticed in the marketplace, and NAT has\nsignificant purchase, development, and production agreements for Crailar flax fiber with some of the world\xe2\x80\x99s largest and\nmost well known apparel and textile manufacturers.\nBy way of example, the online magazine Smart Planet (owned by CBS Interactive), recently wrote about NAT\xe2\x80\x99s\nagreement with Levi Strauss & Co. (owner of the Levi\xe2\x80\x99s and Dockers brands) for the development of Crailar\xe2\x80\x90based\ndenim. Notably, the title of the article is, \xe2\x80\x9cLevi\xe2\x80\x99s eyes flax fiber for sustainable denim\xe2\x80\x9d (i.e., the title uses the generic \xe2\x80\x9cflax\n3\n\n\x0cfiber\xe2\x80\x9d to designate Crailar). A copy of the Smart Planet article can be found here:\nhttp://www.smartplanet.com/blog/smart\xe2\x80\x90takes/levis\xe2\x80\x90eyes\xe2\x80\x90flax\xe2\x80\x90fiber\xe2\x80\x90for\xe2\x80\x90sustainable\xe2\x80\x90denim/15522\nLikewise, earlier this year, Hanesbrands and NAT signed a 10\xe2\x80\x90year purchasing agreement for NAT\xe2\x80\x99s flax fiber. This\nagreement is different than the NAT/Hanes/USDA\xe2\x80\x90ARS research agreement discussed above in section 1. This\npurchasing deal was widely reported throughout the apparel industry. Here are just two examples: \xe2\x80\x9cHanes Replaces\nCostly Cotton\xe2\x80\x9d http://www.zacks.com/stock/news/51218/Hanes+Replaces+Costly+Cotton; and \xe2\x80\x9cFlax Fiber Goes\nMainstream through Major American Clothing Brand\xe2\x80\x9d http://www.wendmag.com/greenery/2011/03/flax\xe2\x80\x90fiber\xe2\x80\x90goes\xe2\x80\x90\nmainstream\xe2\x80\x90through\xe2\x80\x90major\xe2\x80\x90american\xe2\x80\x90clothing\xe2\x80\x90brand/. Please note the use of \xe2\x80\x9cflax fiber\xe2\x80\x9d in the title of the second\narticle.\nMost recently, NAT and Georgia\xe2\x80\x90Pacific Consumer Products entered into a 3\xe2\x80\x90year Crailar flax fiber supply agreement.\nThis agreement and a previous agreement with Georgia\xe2\x80\x90Pacific were also widely reported. Finally, NAT has also signed\nagreements involving Crailar flax fiber with several other global companies, including, Cintas Corporation, Ashland Inc.,\nWestex Inc., Carhartt, and Hong Kong\xe2\x80\x90based, Brilliant Global LTD. Details of these agreements can be found here:\nhttp://www.naturallyadvanced.com/s/PressReleases.asp\n3.\nWhether Designating NAT\xe2\x80\x99s Crailar as \xe2\x80\x9cFlax Fiber\xe2\x80\x9d Would Raise Issues Similar to the Problems with \xe2\x80\x9cBamboo\xe2\x80\x9d\nLabeling\nI have reviewed the FTC\xe2\x80\x99s ruling and guidance about the improper use of \xe2\x80\x9cbamboo\xe2\x80\x9d on labels for Rayon. That situation\ninvolved Rayon produced from reconstituted, pulped bamboo. As I am sure you are aware, Rayon can be produced from\na variety of raw materials, but the comprehensive chemical processing of the raw materials leaves no trace of them in\nthe final Rayon product. When Rayon is produced from bamboo, the basic properties of bamboo are destroyed, and the\nresulting fiber bears no resemblance to bamboo. For that reason, the \xe2\x80\x9cbamboo\xe2\x80\x9d label for Rayon was misleading.\nNAT\xe2\x80\x99s situation with Crailar has nothing in common with the reasons the \xe2\x80\x9cbamboo\xe2\x80\x9d label for Rayon was improper. The\nfinal Crailar product is fundamentally no different than the source raw materials, namely, short flax fiber raw materials.\nIn short, Crailar is made from flax fiber, and Crailar is flax fiber that has been washed in a natural enzymatic bath.\n\nIn conclusion, the FTC\xe2\x80\x99s rules require only that NAT use the generic name for a natural fibers. The FTC does not maintain\nan exclusive list of generic names for natural fibers. NAT\xe2\x80\x99s Crailar fibers are nothing more than processed short flax\nfibers, and flax is obviously a natural crop. Accordingly, NAT is unaware of any FTC rule or regulation indicating that\nNAT\xe2\x80\x99s Crailar product should be called anything other than \xe2\x80\x9cflax fiber,\xe2\x80\x9d and calling it \xe2\x80\x9clinen\xe2\x80\x9d would mislead and deceive\nconsumers.\nI would be happy to discuss this with you and/or other FTC personnel.\nI realize this is a long email, and I greatly appreciate your consideration.\nMike Heilbronner\nIdeaLegal, P.C.\nwww.IdeaLegal.com\nMHeilbronner@IdeaLegal.com\nPhone: (503) 449\xe2\x80\x909084\nFax: (503) 914\xe2\x80\x900301\n1631 NE Broadway, No. 443\nPortland, OR 97232\n\n4\n\n\x0c*** This email and any files transmitted with it are only for the intended recipient(s) and may be confidential and legally\nprivileged. 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b'UN ITED STATES OF AM ERICA\n\nFEDERAL TRADE COMMISSION\nW ASH IN GTO N , D .C. 20580\n\nO ffice of the Secretary\n\nMay 3, 2012\nJonathan Sheldon\nCarolyn Carter\nNational Consumer Law Center\n7 Winthrop Square\nBoston, Massachusetts 02110\nDear Mr. Sheldon and Ms. Carter:\nThis letter is in response to the National Consumer Law Center\xe2\x80\x99s request for a\nCommission advisory opinion regarding the Federal Trade Commission\xe2\x80\x99s Trade Regulation Rule\nConcerning Preservation of Consumers\xe2\x80\x99 Claims and Defenses, 16 C.F.R. \xc2\xa7 433, commonly\nknown as the Holder Rule.1 Specifically, you ask the Commission to affirm that the Holder Rule\ndoes not limit a consumer\xe2\x80\x99s right to an affirmative recovery to circumstances where the\nconsumer can legally rescind the transaction or where the goods or services sold to the consumer\nare worthless. Your letter states that even though the plain language of the Rule is clear\xe2\x80\x94which\nFTC staff confirmed in a 1999 opinion letter2\xe2\x80\x94some courts continue to bar consumers from\naffirmative recoveries unless rescission is warranted.3\n\n1\n\nYour letter requesting an advisory opinion is co-signed by representatives from Public\nCitizen, U.S. PIRG, the Center for Responsible Lending, and the National Association of\nConsumer Advocates.\n2\n\n3\n\nSee Attachment, FTC Staff Letter (Sept. 25, 1999).\n\nYour letter lists six cases that have been decided since the issuance of the 1999 FTC\nstaff opinion letter that have held that a consumer may only obtain an affirmative recovery\nagainst a creditor under the Holder Rule when the seller\xe2\x80\x99s breach is so substantial that rescission\nand restitution are justified or where the goods or services sold to the consumer are worthless:\nRollins v. Drive-1 of Norfolk, Inc., No. 2:06cv375, 2007 WL 602089 (E.D. Va. Feb. 21, 2007);\nPhillips v. Lithia Motors, Inc., No. 03-3109-HO, 2006 WL 1113608 (D. Or. Apr. 27, 2006);\nCosta v. Mauro Chevrolet, Inc., 390 F. Supp. 2d 720 (N.D. Ill. 2005); Comer v. Person Auto\nSales, Inc., 368 F. Supp. 2d 478 (M.D.N.C. 2005); Herrara v. North & Kimball Group, Inc., No.\n01C7349, 2002 U.S. Dist. LEXIS 2640 (N.D. Ill. Feb. 15, 2002); Bellik v. Bank of America, 869\nN.E.2d 1179 (Ill. App. Ct. 2007). You cite Comer as pointedly rejecting the FTC staff opinion\nletter. Comer notes that the staff letter is \xe2\x80\x9cnot binding on the Commission.\xe2\x80\x9d 368 F. Supp. 2d at\n490.\n\n\x0cJonathan Sheldon and Carolyn Carter -- Page 2\nThe Holder Rule protects consumers who enter into credit contracts with a seller of goods\nor services by preserving their right to assert claims and defenses against any holder of the\ncontract, even if the original seller subsequently assigns the contract to a third-party creditor. In\nparticular, the Holder Rule requires sellers that arrange for or offer credit to finance consumers\xe2\x80\x99\npurchases to include in their credit contracts the following Notice:\nANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS\nSUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE\nDEBTOR COULD ASSERT AGAINST THE SELLER OF\nGOODS OR SERVICES OBTAINED [PURSUANT HERETO\nOR] WITH THE PROCEEDS HEREOF. RECOVERY\nHEREUNDER BY THE DEBTOR SHALL NOT EXCEED\nAMOUNTS PAID BY THE DEBTOR HEREUNDER.\n16 C.F.R. \xc2\xa7 433.2.\nA creditor or assignee of the contract is thus subject to all claims or defenses that the\nconsumer could assert against the seller. The Holder Rule does not create any new claims or\ndefenses for the consumer; it simply protects the consumer\xe2\x80\x99s existing claims and defenses. The\nonly limitation included in the Rule is that a consumer\xe2\x80\x99s recovery \xe2\x80\x9cshall not exceed amounts\npaid\xe2\x80\x9d by the consumer under the contract.\nThus, the plain language of the Rule permits a consumer to assert a seller\xe2\x80\x99s misconduct\n(1) to defend against a creditor\xe2\x80\x99s lawsuit for amounts owed under the contract and/or (2) to\nmaintain a claim against the creditor for a refund of money the consumer has already paid under\nthe contract (i.e., an affirmative recovery). Despite the Rule\xe2\x80\x99s plain language, however, some\ncourts have imposed additional limitations on a consumer\xe2\x80\x99s right to affirmative recovery.\nBeginning with Ford Motor Credit Co. v. Morgan, 536 N.E.2d 587 (Mass. 1989),4 these courts\nhave allowed affirmative recovery only if the consumer is entitled to rescission or similar relief\nunder state law.5 Courts following the Morgan approach have not imposed any similar\nlimitation on a consumer\xe2\x80\x99s right to raise the seller\xe2\x80\x99s misconduct as a defense in a lawsuit.\n\n4\n\nIn Morgan, the court faced extensive consumer misconduct in connection with the\nfinancing of a car purchase. After experiencing problems with the car, the consumer concealed\nthe automobile, removed the battery, removed or deflated the tires, and surrendered the\nautomobile only after being found in contempt by the trial judge. He also delayed the sale of the\nautomobile, during which time it was extensively vandalized, resulting in a total loss that was\nnot recoverable due to the consumer\xe2\x80\x99s failure to obtain insurance. The creditor sued the\nconsumer for the balance due under the contract, and the consumer filed a counterclaim based on\nthe dealer\xe2\x80\x99s misrepresentations. Notably, in contravention of the one express limitation in the\nHolder Rule, the consumer sought recovery of an amount in excess of what the consumer had\npaid under the contract. The court ultimately held that the consumer was not entitled to any\naffirmative recovery, but he did not have to pay the remaining balance due. 536 N.E.2d at 588.\n5\n\nSee, e.g., n.3, supra.\n\n\x0cJonathan Sheldon and Carolyn Carter -- Page 3\nThe Commission affirms that the Rule is unambiguous, and its plain language should be\napplied.6 No additional limitations on a consumer\xe2\x80\x99s right to an affirmative recovery should be\nread into the Rule, especially since a consumer would not have notice of those limitations\nbecause they are not included in the credit contract. Had the Commission meant to limit\nrecovery to claims subject to rescission or similar remedy, it would have said so in the text of the\nRule and drafted the contractual provision accordingly. It remains the Commission\xe2\x80\x99s intent that\nthe plain language of the Rule be applied, which many courts have done.7\nThe purpose of the Holder Rule, as stated in the Rule\xe2\x80\x99s Statement of Basis and Purpose\n(\xe2\x80\x9cSBP\xe2\x80\x9d), supports this plain reading. The Commission adopted the Rule to provide recourse to\nconsumers who otherwise would be legally obligated to make full payment to a creditor despite\nbreach of warranty, misrepresentation, or even fraud on the part of the seller.8 The Commission\nfound that \xe2\x80\x9cthe creditor is always in a better position than the buyer to return seller misconduct\ncosts to sellers, the guilty party,\xe2\x80\x9d9 and therefore concluded that \xe2\x80\x9c[s]ellers and creditors will be\nresponsible for seller misconduct.\xe2\x80\x9d10 Moreover, the Commission considered, but firmly rejected,\na suggestion by industry representatives that the Rule be amended so that a consumer \xe2\x80\x9cmay\nassert his rights only as a matter of defense or setoff against a claim by the assignee or holder,\xe2\x80\x9d\n\n6\n\nSee Qwest Corp. v. Colorado Public Utilities Comm\xe2\x80\x99n, 656 F.3d 1093, 1099 (10th Cir.\n2011) (\xe2\x80\x9cWe begin with the plain language of the regulation. . . . If the regulation\xe2\x80\x99s language is\nclear, our analysis ends and we must apply its plain meaning.\xe2\x80\x9d) (internal citations and quotations\nomitted); Lozada v. Dale Baker Oldsmobile, Inc., 91 F. Supp. 2d 1087, 1095 (W.D. Mich. 2000)\n(\xe2\x80\x9cNo basis exists for referring to the commentary to understand the meaning of language that is\nunambiguous on its face.\xe2\x80\x9d).\n7\n\nSee, e.g., Lozada, 91 F. Supp. 2d at 1094-95; Simpson v. Anthony Auto Sales, Inc., 32\nF. Supp. 2d 405, 409 n.10 (W.D. La. 1998); Riggs v. Anthony Auto Sales, 32 F. Supp. 2d 411,\n416 n.13 (W.D. La. 1998); Beemus v. Interstate Nat\xe2\x80\x99l Dealer Servs., Inc., 823 A.2d 979, 984-85\n(Pa. Super. Ct. 2003); Jaramillo v. Gonzalez, 50 P.3d 554, 561 (N.M. Ct. App. 2002); Scott v.\nMayflower Home Improvement Corp., 831 A.2d 564, 573-74 (N.J. Super. Ct. Law Div. 2001).\n8\n\nSee 40 Fed. Reg. 53506, 53507 (Nov. 18, 1975) (\xe2\x80\x9cThe rule is directed at what the\nCommission believes to be an anomaly. . . . The creditor may assert his right to be paid by the\nconsumer despite misrepresentation, breach of warranty or contract, or even fraud on the part of\nthe seller, and despite the fact that the consumer\xe2\x80\x99s debt was generated by the sale.\xe2\x80\x9d)\n9\n\nId. at 53523 (emphasis added); see also id. at 53509 (\xe2\x80\x9cBetween an innocent consumer,\nwhose dealings with an unreliable seller are, at most, episodic, and a finance institution\nqualifying as \xe2\x80\x98a holder in due course,\xe2\x80\x99 the financer is in a better position both to protect itself and\nto assume the risk of a seller\xe2\x80\x99s reliability.\xe2\x80\x9d); id. at 53523 (\xe2\x80\x9cWe believe that a rule which compels\ncreditors to either absorb seller misconduct costs or return them to sellers, by denying sellers\naccess to cut-off devices, will discourage many of the predatory practices and schemes. . . . The\nmarket will be policed in this fashion and all parties will benefit accordingly.\xe2\x80\x9d).\n10\n\nId. at 53524.\n\n\x0cJonathan Sheldon and Carolyn Carter -- Page 4\nfinding instead that \xe2\x80\x9c[t]he practical and policy considerations which militate against such a\nlimitation on affirmative actions by consumers are far more persuasive.\xe2\x80\x9d11 For example, the\nCommission noted that some consumers may feel compelled to continue payments because of\nthe threat of negative credit reporting and that \xe2\x80\x9ca stronger potential consumer remedy will\nencourage greater policing of merchants by finance institutions.\xe2\x80\x9d12\nThus, to give full effect to the Commission\xe2\x80\x99s original intent to shift seller misconduct\ncosts away from consumers, consumers must have the right to recover funds already paid under\nthe contract if such recovery is necessary to fully compensate the consumer for the\nmisconduct\xe2\x80\x94even if rescission of the transaction is not warranted. Otherwise, whether a\nconsumer is able to be fully compensated would depend on how much the consumer paid under\nthe contract at the time of the dispute. For example, consider a consumer who finances the\npurchase of an automobile, later discovered to be defective, for $10,000 and is entitled to\ncompensation of $3,000 based on the seller\xe2\x80\x99s misrepresentations regarding the condition of the\nautomobile. If the consumer has paid $4,000 under the financing contract and still owes $6,000,\nthe consumer could withhold $3,000 of the balance due and be fully compensated\xe2\x80\x94a defensive\nposture sanctioned by Morgan. If, however, the consumer has paid $8,000 and owes $2,000, the\nMorgan approach would permit the consumer to withhold the remaining $2,000 payment, but\nnot affirmatively recover the additional $1,000 that would be necessary to make the consumer\nwhole.13 There is no basis under the plain language and the intent of the Rule for such an\nanomalous result.\nCourts that have followed the Morgan approach have misinterpreted two isolated\ncomments in the SBP that accompanies the Rule. In part, the SBP states that affirmative\nrecovery by the consumer \xe2\x80\x9cwill only be available where a seller\xe2\x80\x99s breach is so substantial that a\ncourt is persuaded that rescission and restitution are justified\xe2\x80\x9d14 and that consumers \xe2\x80\x9cwill not be\nin a position to obtain an affirmative recovery from a creditor, unless they have actually\ncommenced payments and received little or nothing of value from the seller.\xe2\x80\x9d15 However, when\nread in context of the entire SBP, including the SBP language highlighted above, the two SBP\ncomments cited by Morgan and its progeny do not undermine the plain language of the Rule. As\nexplained by one court that rejected the Morgan approach, \xe2\x80\x9c[w]here one or more parts of the\n[SBP] fully comport with the text of the rule while another, read in a particular way, is at odds\nwith the plain language of the regulation, there exists no basis for giving controlling weight to an\n\n11\n\nId. at 53526.\n\n12\n\nId. at 53527.\n\n13\n\nThis example is drawn from Michael Greenfield & Nina Ross, Limits on a Consumer\xe2\x80\x99s\nAbility to Assert Claims and Defenses Under the FTC\xe2\x80\x99s Holder in Due Course Rule, 46 Bus.\nLaw. 1135, 1140 (1991).\n14\n\n40 Fed. Reg. at 53524.\n\n15\n\nId. at 53527.\n\n\x0cJonathan Sheldon and Carolyn Carter -- Page 5\ninterpretation which narrows the language of the rule itself.\xe2\x80\x9d16 These statements should be read\nas practical observations or predictions, instead of as contradicting the Rule. In most instances\nwhere there is significant consumer injury associated with seller misconduct but rescission is not\nwarranted, the consumer is likely to find out about the injury shortly after the transaction is\nconsummated, and thus is likely to stop payments before the claim amount is larger than the\nbalance due. In other words, affirmative recoveries will be rare in cases where rescission is not\njustified because such recoveries occur only if the consumer\xe2\x80\x99s claim is larger than what the\nconsumer still owes on the loan.17 When read in this context, the two SBP comments do not\nconflict with the rest of the SBP and the plain language of the Rule.\nThus, the Commission affirms the plain language of the Holder Rule and the intent of the\nRule as discussed in the entire SBP. Specifically, the Rule places no limits on a consumer\xe2\x80\x99s\nright to an affirmative recovery other than limiting recovery to a refund of monies paid under the\ncontract. Further, the Rule does not limit affirmative recovery only to those circumstances\nwhere rescission is warranted or where the goods or services sold to the consumer are worthless.\nBy direction of the Commission.\n\nDonald S. Clark\nSecretary\n\n16\n\n17\n\nLozada, 91 F. Supp. 2d at 1096.\n\nSee id. at 1095 (noting that the SBP \xe2\x80\x9cis susceptible of being understood as a statement\nof agency prediction that affirmative recoveries will occur only when courts are persuaded that\nthe equities so require and when damages exceed the amount due on the account\xe2\x80\x9d); accord\nJaramillo, 50 P.3d at 561.\n\n\x0c'


b'UNITED STATES OF AMERICA\n\nFEDERAL TRADE COMMISSION\n600 PENNSYLVANIA AVENUE, NW\nWASHINGTON, D.C. 20580\n\nDivision of Enforcement\nBureau of Consumer Protection\nHampton Newsome\nAttorney\nDirect Dial:\n\n(202)326-2889\nFax:\n\n(202)326-2558\nNovember 28,2011\n\nRobert Babik, Director\nEnvironment, Energy & Safety Policy\nGeneral Motors Company\n300 Renaissance Center\nDetroit, Michigan 48265-3000\nDear Mr. Babik:\nThis staff opinion letter responds to your October 28, 2011, request on behalf of General\nMotors Company (GM). GM seeks to label its 2013 and later model dual-fueled vehicles with\nthe Environmental Protection Agency\'s (EPA\'s) new fuel economy label and to forego using the\nFTC\'s alternative fueled vehicle (AFV) label on those vehicles. As explained below, the FTC\nstaff will not recommend enforcement action if GM uses the EPA label, including the vehicle\'s\ndriving range, in lieu ofthe FTC label for these vehicles.\nCurrently, the FTC and EPA both require a label for dual-fueled vehicles which operate\non both conventional gasoline and alternative fuel (e.g., E85).I Though both labels inform\nconsumers about vehicle fuel performance, the recently-revised EPA label contains more\nvehicle-specific information than the FTC\'s. For example, the EPA label displays fuel economy\nin both miles per gallon (city and highway) and gallons per 100 miles, estimated yearly fuel cost,\nfuel savings or costs compared to an average vehicle, greenhouse gas iuformation, and smog\nratings. In addition, the EPA label allows, but does not require, the vehicle\'s driving range (i.e.,\nmiles traveled on a full tank) for gasoline and alternative fuel operation. Finally, the EPA label\ndirects consumers to wwwfueleconomy.gov which contains details about alternative fuels and\nAFVs. By comparison, the FTC label, required by the Alternative Fuels Rule CRule"), displays\na vehicle\'s cruising (i.e., driving) range but does not provide any other vehicle-specific\ninformation? Instead, it contains general consumer information about fuel type, operating cost,\n\nISee 16 C.F.R. Part 309 (FTC label) and 40 C.F.R. Part 600 (EPA label). Last summer,\nEPA issued new labeling requirements for these vehicles. 76 Fed. Reg. 39478 (July 6, 2011).\n216 C.F.R. Part 309. The Rule\'s full title is "Labeling Requirements for Alternative\nFuels and Alternative Fneled Vehicles."\n\n\x0cPage 2\nvehicle performance, energy security, and emissions. It also provides telephone numbers and\nwebsite addresses for additional information.\nTo avoid potential consumer confusion and reduce compliance costs, GM seeks to use\nonly the EPA label on its dual-fueled vehicles. It asks that the Commission, or the FTC staff,\nforbear enforcement ofthe FTC label as long as GM uses the EPA label including tbe vehicle\'s\ndriving range. In GM\'s view, use of both labels could cause confusion because tbe EPA and\nFTC labels present driving range information in different ways. The FTC requires two range\nnumbers: a lower number based on city fuel economy and an upper number based on highway\nfuel economy (e.g., 246-378 miles on one tank). Conversely, tbe EPA rule requires a single\nrange number (e.g., 300 miles on one tank) based on tbe combined city-highway fuel economy\nrating. Although the resulting numbers are similar and based on the same test procedures, GM is\nconcerned that the differences could confuse consumers. GM also explains that a single label\nwill save several hundred thousand dollars each model year in labeling-related costs.\nGM argues tbat its request is consistent with the Commission\'s recent policy to forbear\nenforcement of current FTC labeling requirements for electric vehicles given inconsistencies\nbetween tbe driving range on EPA and FTC labels for those vehicles. 3 Because a similar\ninconsistency exists between the EPA and FTC labels for 2013 dual-fueled models, GM requests\na similar approach.\nIn rcsponsc to your request, thc FTC staff will not recommend enforcement action ifGM\n(or another manufacturer) uses the EPA fuel economy label, with driving range information, in\nlieu of tbe FTC AFV label on dual-fueled vehicles. As your request explains, a single label will\navoid potential consumer confusion. The approach is also consistent with tbe Commission\'s\nrecent enforcement policy for electric vehicles. The Commission will provide final direction on\nthese issues when it completes its review of the Alternative Fuel Rule.\nThe views expressed in this letter are those of the staff assigned to enforce the\nCommission\'s Alternative Fuels Rule. In accordance with Section 1.3(c) of the Commission\'s\nRules of Practice and Procedure, 16 C.F.R. \xe0\xb8\xa2\xe0\xb8\x87 1.3(c), this is a staff opinion only and has not been\nreviewed or approved by the Commission or by an individual Commissioner. It is not binding\nupon the Commission and is given without prejudice to the right of the Commission later to\nrescind the advice and, when appropriate, to commence an enforcement proceeding. In\nconformance with Section 1.4 of the Commission\'s Rules of Practice, 16 C.F.R. \xe0\xb8\xa2\xe0\xb8\x87 1.4, this letter\nand GM\'s request, are being placed on the public record. If you have any further questions,\nplease contact me at (202) 326-2889.\n\nc"t?).\nSin erely,\n.~\n\n/\n\nHampton Newsome\nAttorney\n\n3See http://www.jic.gov/opa/20JJ/05/aJr.shtm; and 76 Fed. Reg. 31467 (June 1,2011).\n\n\x0c'


b'UNITED STATES OF AMERICA\n\nFEDERAL TRADE COMMISSION\nWASHINGTON, D.C. 20580\n\nBureau of Consumer Protection\nDivision of Enforcement\n\nNovember 17,2011\n\nVia Email and Overnight Mail\nL. Jean Noonan\nHudson Cook, LLP\n1020 19th Street, N. W., 7th Floor\nWashington, DC 20036\n\nDear Ms. Noonan,\nThis staff advisory opinion responds to your August 19,2011, letter seeking an\ninformal staff opinion regarding the application of the Restore Online Shoppers\'\nConfidence Act ("ROSCA"), 15 USC \xc2\xa7 840 I, et. seq., to the proposed online husiness\npractices of your client, the National Railroad Passenger Corporation (Amtrak). The\nviews expressed in this letter are those of the staff assigned to enforce ROSCA. In\naccordance with Section 1.3(c) of the Commission\'s Rules of Practice and Procedure, 16\nC.F.R. \xc2\xa7 1.3(c), this is a staff opinion only and has not been reviewed or approved by the\nCommission or by an individual Commissioner. It is not binding upon the Commission\nand is given without prejudice to the right of the Commission later to rescind the advice\nana, when appropriate, to commence an enforcement proceeding. In conformance with\nSection 1.4 of the Commission\'s Rules of Practice, 16 C.F.R. \xc2\xa7 1.4, this letter and\nAmtrak\'s request, are being placed on the public record. The opinions expressed in this\nletter are based on the factual scenario you described in your letter.\nAs described in your letter, Amtrak allows its customers to purchase train tickets\non its website. Prior to the enactment of ROSCA, Amtrak also offered travel-related\nproducts and services from trusted third party partners. When ROSCA went into effect,\nAmtrak ceased offering consumers the opportunity to purchase third party products and\nservices on Amtrak\'s website. The central issue raised in your letter is whether Amtrak\'s\nprior practice of offering third party products and services, with certain modifications,\nwould violate ROSCA. As described below, we conclude that under the specific factual\nscenario presented in your letter, staff would not recommend an enforcement action\nagainst Amtrak for violations ofROSCA.\n\n\x0cMs. Jean Noonan\nHudson Cook, LLP\nNovember l7,2011-Page2\n\nROSCA PROVISIONS\nSection 3(b) ofROSCA provides that "[i]t shall be unlawful for an initial\nmerchant to disclose a credit card, debit card, bank account, or other financial account\nnumber, or to disclose other billing information that is used to charge a customer of the\ninitial merchant, to any post-transaction third party seller for use in an Internet-based sale\nof any goods or services from that post-transaction third party seller." ROSCA \xc2\xa7 3(d)(I)\ndefines initial merchant as "a person that has obtained a consumer\'s billing information\ndirectly from the consumer through an Internet transaction initiated by the consumer." A\npost-transaction third party seller is "a person that (A) sells, or offers for sale, any good\nor service on the Internet; (B) solicits the purchase of such goods or services on the\nInternet through an initial merchant after the consumer has initiated a transaction with the\ninitial merchant; and (C) is not (i) the initial merchant; (ii) a subsidiary or corporate\naffiliate of the initial merchant; or (iii) a successor of an entity described in clause (i) or\n(ii)." ROSCA \xc2\xa7 3(d)(2).\n\nDISCUSSION\nAccording to your letter, when a consumer seeks to purchase a train ticket on\nAmtrak\'s website, the consumer must enter itinerary details, including the city to which\nthe consumer seeks to travel, the class of service desired, and the date(s) and time(s) of\ntravel. The consumer is then provided with ticket options. Once a ticket is selected, the\nconsumer must add the ticket to a "cart" that is clearly displayed on the side of the\nconsumer\'s computer screen as an itinerary. Prior to ROSCA, Amtrak would next offer\nconsumers travel-related products such as rental cars, hotels, and activities provided by\nthird party partners. The consumer could then decide whether to add third party products\nto their Amtrak shopping cart. The consumer could also proceed with the booking\nprocess without reviewing any other products by clicking the "Enter Passenger\nInformation" box located above the third party products. Only after the consumer\nfinished shopping for tickets and other travel-related products and services, was the\nconsumer sent to a passenger information page that asked the consumer to log in to\nAmtrak\'s website or enter passenger contact information. The consumer was then\ndirected to a payment information page where they could enter financial account\ninformation and finalize the purchase. Finally, consumers were sent to a purchase\nconfirmation page. Amtrak ultimately passed consumers\' financial data to the third party\npartners from whom a product or service was purchased.\nFor ROSCA to apply in these circumstances, Amtrak must be an "initial\nmerchant" under Section 3(d)(l) and Amtrak\'s third party partners must be "posttransaction third party seller[s]" under Section 3(d)(2). Because Amtrak obtains billing\ninformation directly from customers that initiate an Internet transaction on its website, it\nis an initial merchant. ROSCA \xc2\xa7 3(d)(I). If Amtrak\'s proposed third party partners meet\nthe three criteria set forth in Sections 3(d)(2)(A)-(C), they would be "post-transaction\nthird party seller[s]." Per your letter they clearly meet two of the criteria: the third party\n\n\x0cMs. Jean Noonan\nHudson Cook, LLP\nNovember 17, 2011 - Page 3\npartners sell goods or services over the Internet, Section 3(d)(2)(A), and are not the initial\nmerchant, Section \xc2\xa7 3(d)(2)(C).\nTherefore, the key issue is whether Amtrak\'s third party partners would solicit the\npurchase of goods or services after consumers have initiated a transaction with Amtrak\nunder Section 3(d)(2)(B). ROSCA does not define "initiate a transaction" and no courts\nhave addressed this issue. One interpretation of Section 3 is that a transaction is initiated\nafter a consumer proceeds to a website\'s checkout page. Under this interpretation,\nROSCA would not apply because the solicitation for third party products occurs before\nconsumers go to Amtrak\'s checkout or payment submission page. Another interpretation\nis that a transaction is initiated when a consumer places products or services in a\nwebsite\'s shopping cart. Under this interpretation, Amtrak\'s third party partners would\nbe "post-transaction third party seller[s]" and ROSCA would apply.\nEven if the second interpretation is correct, staff would not recommend an\nenforcement action because the business practices you describe are unlikely to result in\nconsumer confusion or injury and, therefore, staff would not recommend an enforcement\naction. There are four aspects of Amtrak\'s proposed marketing that should prevent any\nconsumer injury were Amtrak to resume offering third party products and services by\nway ofthe clear and conspicuous marketing described in your letter.\nFirst, consumers will be required to affirmatively select and add desired third\nparty products and services to their shopping cart. In stark contrast to the aggressive,\nmisleading tactics described in ROSCA \xc2\xa7 2 (4) that caused consumers to be charged for\nproducts that they do not want, Amtrak\'s proposed practices enable consumers to select\nonly the specific products and services they want. Likewise, Amtrak\'s proposed\npractices are designed to make consumers aware of what they are purchasing. Contra\nROSCA \xc2\xa7 2 (6) (millions of consumers were unaware that they had been enrolled in\nmembership clubs).\nSecond, when offering third party products, Amtrak will prominently display the\nnames and logos of its third party partners, including rental car companies and hotels.\nSuch clear and conspicuous disclosures make it unlikely that consumers will erroneously\nconclude that products are being offered by Amtrak itself or that the third party partners\nare affiliated with Amtrak. Contra ROSCA \xc2\xa7 2 (4) and (5).\nThird, Amtrak will clearly and conspicuously disclose the total cost of each third\nparty product. Thus, consumers will know exactly what products or services they are\npurchasing as well as how much they will be charged and by whom. Because Amtrak\'s\nproposed business practices do not obfuscate the existence or financial obligations ofthe\nthird party transactions, the concerns identified in ROSCA \xc2\xa7\xc2\xa7 2 (5) and (7) (that offers\nwere designed to make consumers think they were part of the initial purchase, rather than\na new transaction with a new seller, and that consumers do not expect to be charged when\nthey have not submitted their billing information) are minimized.\n\n\x0cMs. Jean Noonan\nHudson Cook, LLP\nNovember 17, 2011 - Page 4\n\nFinally, Amtrak will constantly display a shopping cart, which details the\nconsumer\'s entire itinerary and itemizes both train tickets and ancillary products. The\nwebsite will allow consumers to remove ancillary products from the shopping cart\nthrough a simple one-click mechanism, enabling consumers to reconsider whether to do\nbusiness with Amtrak\'s third party partners before completing the initial transaction. In\ncontrast to the findings ofROSCA \xc2\xa7 2 (8), Amtrak provides consumers with multiple\nopportunities to reject the third party transactions.\nAs discussed above, Amtrak\'s proposed marketing does not rely on the\nproblematic marketing tactics addressed in the ROSCA findings. Moreover, Amtrak\'s\nintended marketing will enable consumers to make informed purchasing decisions and\nminimize the risk of consumer harm. Accordingly, given your factual description of\nAmtrak\'s proposed marketing, we would not recommend an enforcement action under\nROSCA.\n\nIJ\nAssociate Director\nDivision of Enforcement\n\n\x0c'


b'UNITED STATES OF AMERICA\n\nFEDERAL TRADE COMMISSION\nWASHINGTON, D.C. 20580\n\nBureau of Competition\nMichael Bloom\nAssistant Director for Policy & Coordination\nDirect Dial\n(202) 326-2475\n\nAugust 15,2011\nMr. Alan L. Cohen\nVice President and General Counsel\nCouncil of Better Business Bureaus, Inc.\n4200 Wilson Boulevard, Suite 800\nArlington, VA 22203-1838\nDear Mr. Cohen:\nThis letter responds to the Council of Better Business Bureaus\' request for a Federal\nTrade Commission staff advisory opinion concerning the Council \' s proposed "accountability\nprogram." Under this program, the Council of Better Business Bureaus (the "CBBB") will hold\ncompanies engaged in online behavioral advertising ("OBA") accountable for compliance with\nthe "Self-Regulatory Principles for Online Behavioral Advertising" (the "Principles"), released\nin July 2009 by a coalition of industry associations and administered by the Digital Advertising\nAlliance ("DAA\',).l The CBBB wishes to know whether Federal Trade Commission ("FTC" or\n"Commission") staff is likely to recommend that the Commission bring an enforcement action\nchallenging as an anti competitive restraint of trade "any element of the proposed accountability\nprogram," if the CBBB proceeds to implement it.\nBased on the information provided in your letter of April 19, 2011 and in subsequent\ntelephone conversations between FTC staff and CBBB representatives and DAA representatives,\nFTC staff has no present intention of recommending that the Commission bring any such\nenforcement action. 2 In brief, the proposed accountability program is intended to increase\n\nLetter from Alan L. Cohen to Donald S. Clark, Secretary, Fed. Trade Comm\'n\n(April 19,2011) ("April 19 Letter"). The DAA is a "business league" established to govern an\nindustry self-regulatory program based on the Principles. The DAA was formed through funding\nand the cooperation of the American Association of Advertising Agencies, the American\nAdvertising Federation, the Association of National Advertisers, the Direct Marketing\nAssociation, and the Interactive Advertising Bureau. These associations and the DAA are\ndescribed in footnote one of the April 19 Letter. Representatives of these organizations, or some\nof them, are referred to herein as "Trade Association Representatives."\n2\nWe have determined that issuance of an FTC staff advisory opinion letter in this\nmatter is appropriate under Rule 1. 1(b) of the Commission\' s Rules of Practice, 16 C.F.R.\n\xc2\xa7 1.1 (b). FTC Staff has issued advisory opinions under similar circumstances, including\n\n\x0ctransparency and consumer control of OBA, which has the potential to increase consumer\nwelfare, and there appears to be little or no potential for competitive harm associated with the\nproposed accountability program.\nSignificantly, our conclusions are entirely dependent on the completeness and accuracy\nof the information provided to us concerning the proposed accountability program and its likely\neffects, and on our understanding of the pertinent facts, as described below. 3\nStatement of the Pertinent Facts\nThe CBBB is the national headquarters of the Better Business Bureau ("BBB") system.\nIn your April 19 Letter, you explained that the BBB system seeks to promote ethical business\nand advertising practices. Among its operations, the CBBB, in partnership with the National\nAdvertising Review Council, administers advertising industry self-regulation programs,\nincluding the National Advertising Division and the Children\'s Advertising Review Unit.\nIn February 2009, the Commission issued a Staff Report discussing principles for the\nregulation of OBA and calling on the advertising industry to adopt an appropriate self regulatory\nprogram. 4 Your April 19 letter states that in response to that call, a coalition of advertising\nindustry associations adopted the Principles described in "Self-Regulatory Principles for Online\nBehavioral Advertising"S in July 2009. The Principles are administered by the DAA, and their\nimplementation is ongoing.\nUnder the Principles, online behavioral advertising is defined as the practice of collecting\n"data from a particular computer or device regarding web viewing behaviors over time and\nacross non-affiliate Web sites for the purpose of using such data to predict user preferences or\n\nregarding proposed programs of the CBBB and the Direct Marketing Association, also a\nparticipant in the DAA. See Letter from Michael D. McNeely to Robert L. Sherman (Sept. 9,\n2011) (regarding Direct Marketing Association proposal pertaining to its Mail and Telephone\nPreference Services and related matters); Letter from Alden F. Abbott to Steven M. Mister (Dec.\n19, 2006) (regarding Council for Responsible Nutrition/CBBB proposal pertaining to monitoring\nand review of dietary supplement advertisements for truthfulness).\nStaffs opinion in this matter is limited to the competition law analysis requested\nby the CBBB. FTC staff did not review the Principles or their administration in any other\nrespect. Nothing contained herein should be construed as stating or implying any FTC staff\nopinion on the extent to which the Principles and their administration are adequate or\nappropriate.\n3\n\n4\nFTC Staff Report: Self-Regulatory Principles for Online Behavioral Advertising\n(Feb. 2009) ("2009 FTC Staff Report"), available at\nhttp://www.ftc.gov/os/2009/02/P085400behavadreport.pdf.\n5\n\nA copy of the Principles was appended to your April 19 Letter.\n\n2\n\n\x0cinterests to deliver advertising to that computer or device based on the preferences or interests\ninferred from such Web viewing behaviors.,,6\nAs described in your April 19 Letter, the Principles require companies engaging in OBA\nto provide:\n\xe2\x80\xa2\n\n\xe2\x80\xa2\n\n\xe2\x80\xa2\n\xe2\x80\xa2\n\n\xe2\x80\xa2\n\nTransparency about data collection and use practices associated with\nOBA, providing consumers with clear, meaningful and prominent notice\nthrough multiple mechanisms.\nConsumer Control over whether data is collected and used or transferred\nfor OBA purposes, provided through easy-to-use consumer choice\nmechanisms.\nAppropriate Data Security for, and limited retention of, data collected and\nused for OBA purposes.\nConsent to Material Changes in an entity\'s OBA data collection and use\npolicies for previously collected OBA information unless that change will\nresult in less collection or use of the consumer\'s data.\nLimitations on the collection of specified categories of Sensitive Data for\nOBA purposes. 7\n\nThe Principles also provide for the education of consumers and businesses about OBA\nand how consumer choice and control may be exercised. Finally, the Principles provide for the\nestablishment of accountability programs to monitor and seek compliance with the Principles by\nall companies engaged in OBA. The CBBB\'s April 19 Letter requesting an FTC staff advisory\nopinion relates to an accountability program that the CBBB proposes to implement.\nAccording to the April 19 Letter, the Principles require all "third party" OBA data\ncollectors and advertising networks to use the DAA\'s Advertising Option icon to indicate\ncompliance with the Principles and to timely inform consumers of and link them to a required\nweb site notice and mechanism by which consumers can exercise choice concerning receipt of\nOBA. 8 Third party collectors and advertising networks are encouraged to use the consumer\nchoice mechanism operated by the DAA, but may use an equally accessible alternative choice\nmechanism. If a third party does not provide the required notice and choice on a web site, the\nweb site operator must do so.\n\n6\n\nApril 19 Letter at 3.\n\nAs defined in the Principles, "Sensitive Data" includes personal information\ngathered from people known to be under the age of 13, and certain financial and health data.\n7\n\nA third party is defined under the Principles as "an entity ... to the extent that it\nengages in Online Behavioral Advertising on a non-affiliate\'s web site." It is distinguished from\na "first party," which owns or controls the web site with which the consumer interacts.\n\n3\n\n\x0cAs explained in the April 19 Letter, the DAA licenses use of the Advertising Option\nicon/link to assist companies in providing greater transparency to consumers for a fee of$5,000\nper year, or free of charge to publishers whose revenues from online advertising are less than $2\nmillion per year. In addition, for a fee of $1 0,000 per year, third party OBA data collectors and\nadvertising networks can be listed in the consumer choice system on the DAA web site\nAboutAds.info, http://www.aboutads.info. thereby providing a consumer choice mechanism as\nrequired by the Principles; or they can adopt an alternative consumer choice mechanism. Trade\nAssociation Representatives informed FTC staff that other costs of implementation of the\nPrinciples are expected to be modest and a function of the size of a given third party collector or\nadvertising network. In their view implementation costs should not affect the ability of\ncompanies to compete effectively in their markets.\nThe eBBB program will focus primarily on compliance with the Principles\' provisions\nseeking to ensure transparency and consumer control. Through a contracted vendor, the eBBB\nwill monitor companies reasonably believed to be engaged in OBA. When appropriate based on\nthat monitoring and other sources of information, the eBBB will make confidential inquiries\ninto a company\'s possible areas of non-compliance with the Principles. 9\nWhen initiating an inquiry, the eBBB will notify the company whose practices are under\nreview and seek its response, including information demonstrating its compliance with the\nPrinciples. If the eBBB finds that a company is not in compliance, the eBBB will recommend\nsteps to bring it into compliance, and will ask the company to agree to implement those steps.\nThe eBBB will publicly report incidents of non-compliance only if they go\nuncorrected,1O and these incidents "will be referred to the appropriate regulatory authorities."11\nFailure of a company to participate in a eBBB compliance inquiry or to provide the eBBB with\nrequested information similarly may result in public reporting and referral to regulatory\nauthorities. A finding of uncorrected non-compliance also may result in the company\'s loss of\nmembership in one or more of the trade associations that cooperated through the DAA to\nestablish and implement the Principles.\nTrade Association Representatives indicated in conversation with FTC staffthat public\ndisclosure that a company has declined to comply with the Principles could injure that\n\n9\nAccording to the April 19 Letter, other sources of information may include\nconsumer complaints and information from competitors, government agencies, and academic\nstudies.\n\n10\nPublic disclosure will be made through periodic reports published by the eBBB\nand on web sites of some participating trade associations.\n\nThe April 19 Letter specifies that instances of non-compliance "will" be referred\nto "the appropriate regulatory authorities," but does not specify the authorities in question. We\nnote that non-compliance with the Principles will not necessarily equate to a violation of a law or\nrule enforced by a regulatory authority or result in any regulatory agency action.\nII\n\n4\n\n\x0ccompany\'s business reputation - and perhaps its business - to the extent that other companies\nand consumers believe that non-compliance with the Principles reflects a failing of note.\nNeither public disclosure of non-compliance nor expulsion from a trade association would\notherwise impair that company\'s ability to compete effectively. In important part, the benefits of\ntrade association membership - such as access to training and networking opportunities - would\nremain available, though perhaps at somewhat greater non-member prices.\nCBBB representatives have indicated in conversation with FTC staff that neither the\nPrinciples nor the CBBB\' s proposed accountability program would impair the ability of\ncompanies to use alternative systems, including for example browser-based systems with "do not\ntrack" features,12 to provide consumer protections with respect to OBA, provided that the\ncompanies also satisfY the notice and choice provisions of the Principles. For example,\naccording to the CBBB, some companies have begun to provide consumers with more detailed\n"preference" choices than are required under the Principles.\nAnalysis of the Proposed OBA Accountability Pro~ram\nThe proposed CBBB accountability program appears similar to industry self-regulation\nto establish and seek industry-member compliance with an ethical code. The antitrust laws do\nnot prohibit professional or trade associations from adopting reasonable ethical codes to protect\nconsumers. As the Commission has stated, "[s]uch self-regulatory activity serves legitimate\npurposes, and in most cases can be expected to benefit, rather than to injure, competition and\nconsumer welfare.,,13 In some instances, however, particular ethical restrictions or compliance\nmechanisms can unreasonably restrain competition and harm consumers, thereby violating the\nantitrust laws. Accordingly, we consider the purpose and effects of the proposed accountability\nprogram.\nThe CBBB has explained that the purpose of the proposed accountability program is to\nenhance consumer understanding of OBA and to provide consumers with meaningful notice and\ncontrolofOBA. We rely on that representation, which finds support in the structure of the\nprogram itself, and tum to consideration of the program\'s likely competitive effects.\nAs a general matter, industry self-regulation to provide consumers with more useful\ninformation and increased choice promotes consumer welfare with little or no risk of\ndiminishing competition among complying businesses. But industry self-regulatory programs\ncan be designed or misused by competitors to limit competition among them, resulting in\n\n12\nSome browsers currently have "do not track" settings, by which the browser can\nalert web sites visited that the consumer does not want his or her browsing monitored by\ncompanies engaged in OBA.\n13\nAm. Academy of Ophthalmology, 101 F.T.C 1018 (1983) (advisory opinion); see\nalso Am. Med. Ass\'n, 117 F.T.C. 1091 (1994) (advisory opinion); Am. Med. Ass\'n, 94 F.T.C.\n701,1029 (1979), affd as modified, 638 F.2d 443 (2d Cir. 1980), affd by an equally divided\nCourt, 455 U.S. 676 (1982).\n\n5\n\n\x0cincreased prices, reduced consumer choice, lesser innovation, and other consumer harms. 14 In\naddition, industry self-regulatory programs can operate as agreements to exclude non-compliant\nproducts or companies from the market. 15 Thus, an agreement among competitors to impose on\nnon-complying companies sanctions that limit their ability to compete effectively would be of\nconcern to antitrust enforcement authorities. 16 In the context of OBA, for example, an agreement\namong competitors to deny advertising space to companies that do not comply with the\nPrinciples would be troubling.\nBecause industry self-regulation to increase transparency and consumer control has the\npotential to enhance consumer welfare, staff would analyze these and other potential concerns\nusing the "rule ofreason.,,17 Under the rule of reason, FTC staff weighs the potential for\ncompetitive harm arising from an agreement among competitors against any procompetitive\nbenefits arising from that agreement. If FTC staff concludes that the procompetitive benefits\nmore than offset the potential for competitive harm, staff will not recommend an enforcement\naction.\nGiven the pertinent facts relating to the CBBB\' s proposed accountability program as we\nunderstand them, FTC staff concludes that the program has little potential for competitive harm.\nWe base this conclusion on five points.\nFirst, the accountability program is intended to enhance consumers\' understanding and\ncontrol of OBA. All other things being equal, the enhancement of consumer understanding and\ncontrol has the potential to increase consumer welfare.\nSecond, information provided by the CBBB and Trade Association Representatives\n\n14\nE.g., Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 501 (1988)\n(manufacturers of steel electrical conduit that attempted to influence association\'s promulgation\nof electrical systems product standards to exclude plastic conduit by agreeing to "pack"\nstandard-setting meeting and vote as a bloc held not immune from federal antitrust liability);\nAccrediting Comm \'n on Career Schs. and Calls. a/Tech., 119 F.T.C. 977 (1995) (advisory\nopinion) (Commission declined to approve proposed accreditation standard that would define\nacceptable tuition levels, reasoning that adoption of standard would in effect be an agreement\namong members of accrediting body to charge no more than standard would permit).\n\n15\n\nId.\n\nSee, e.g., Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656\n(1961); Am. Soc\'y a/Sanitary Eng\'rs, 106 F.T.C. 324 (1985) (consent order).\n16\n\n17\nSee the analytical framework set out in the Federal Trade Commission!\nDepartment of Justice Guidelines for Collaborations Among Competitors, available at\nhttp://www.fic.gov/os/2000104/ficdojguidelines.pdf. See also the Commission\'s recent\napplication of the rule of reason in In the Matter 0/ Realcomp II Ltd., Docket No. 9320 (Oct. 30,\n2009), available at http://www.fic.gov/os/adjpro/d9320/091102realcompopinion.pdf.\n\n6\n\n\x0cindicates that the accountability program will impose only relatively minor burdens on\ncompanies participating in OBA. These consist principally of use of the Advertising Option\nicon/link to signal compliance with the Principles and provide consumers with a notice about\nOBA that will, in turn, link to and explain a consumer choice mechanism. Compliance does not\nimpose significant technical burdens or costs that would advantage some companies over others.\nA license to use the Advertising Option icon/link and the DAA\'s choice mechanism is available\nat a modest cost - one that it appears will not limit consumer choice of goods and services or\nexclude companies or prevent them from competing effectively.\nThird, the sanctions for non-compliance with the Principles contemplated under and in\nconjunction with the accountability program do not appear unreasonable. Those sanctions\ninclude public disclosure of non-compliance, referral of non-compliance to government\nregulatory authorities, and suspension of non-compliant companies from certain trade\nassociations. Based on the information available to us at this time, it does not appear likely that\nimposition of these sanctions would limit the ability of companies to compete effectively.\nCompanies may compete based on reputation, including reputation for ethical dealing.\nWe cannot assess the extent to which some companies or consumers may decide to limit or\navoid business dealings with companies that choose not to comply with the Principles. But if\nsome companies and consumers were to make unilateral decisions to limit or avoid business\ndealings with companies that do not comply with the Principles, the resulting effects would not\nflow from anticompetitive conduct, but from competition itself - competition based on\nreputation for protecting consumer privacy. 18 Such unilateral conduct is entirely consistent with\nthe antitrust laws. Further, referral of matters to governmental authorities may, in some\ninstances, aid those authorities in carrying out their responsibilities, and may, as well, be a lawful\nexercise of the right to petition the government for redress. 19\nThe last sanction contemplated by the CBBB for non-compliance with the Principles,\nexpulsion from certain trade associations, might be characterized as a group boycott of some\nkind. However, expulsion from a trade association does not always result in predominantly\nanticompetitive effects.20 Here, loss of trade association membership would result in the\n\nThat would contrast markedly with any agreement among companies to refuse to\ndeal with non-compliant companies, which would raise substantial antitrust concerns. See, e.g.,\nFashion Originators\' Guildv. FTC, 312 U.S. 668 (1941).\n18\n\nSee, e.g., United Mine Workers v. Pennington, 381 U.S. 657 (1965) (exempting\nfrom antitrust challenge concerted effort to influence administrative processes); Cal. Motor\nTransport Co. v. Trucking Unlimited, 404 U.S. 508 (1972) (exempting from antitrust challenge\nconcerted effort to influence adjudicatory processes).\n19\n\n20\nSee, e.g., NW Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co.,\n472 U.S. 284, 286 (1985) (expUlsion of retailer from purchasing cooperative by vote of\nmembership held not unlawful absent a showing that the cooperative had market power or\nunique access to an element of business necessary for effective competition).\n\n7\n\n\x0climitation or loss of certain trade association benefits such as access to certain training and\nnetworking opportunities at association member prices. Information provided to us by the\nCBBB and the Trade Association Representatives indicates that the loss of these benefits is not\nlikely to impair companies\' ability to compete effectively.\nAccordingly, we conclude based on the information provided to us by the CBBB and the\nTrade Association Representatives that the contemplated sanctions for non-compliance with the\nPrinciples are unlikely to adversely affect competition.\nThe fourth basis for our conclusion that the accountability program has little potential for\ncompetitive harm is this: the self-regulatory system envisioned by the Principles and the\naccountability program is broadly applicable across product categories, advertisers, and web site\noperators. Accordingly, its impacts are not focused on any specific market for goods or services.\nAs a result, the potential for adverse competitive impact in any specific market for goods or\nservices is further attenuated.\nFinally, adoption of the CBBB\'s proposed accountability program to foster compliance\nwith the Principles does not preclude adoption of, and poses little risk of "crowding out," other\nsystems for protecting consumers with respect to OBA. According to the CBBB and Trade\nAssociation Representatives, neither the Principles nor the accountability program preclude\ncompanies\' use of other systems, including browser-based "do not track" systems, for providing\nconsumers with transparency and control. Should it later appear, however, that collective\nadoption and enforcement of the Principles operates as an impediment to adoption of\ncomplementary or superior consumer protections, we might then reconsider this opinion.\nConclusion\nFor the reasons stated above, FTC staff believes that the CBBB\'s proposed OBA\naccountability program is unlikely unreasonably to restrain trade. Accordingly, we have no\npresent intention to recommend a challenge to the program.\nThis letter sets out the views of the staff of the Bureau of Competition, as authorized by\nRule 1. 1(b) of the Commission\'s Rules of Practice, 16 C.F.R. \xc2\xa7 1.1(b). Under Commission Rule\n1.3(c), 16 C.F.R. \xc2\xa7 1.3(c), the Commission is not bound by this staff advisory opinion and\nreserves the right to rescind it at a later time. In addition, FTC staff retains the right to\nreconsider this opinion, and, with notice to the requesting party, to rescind or revoke it if\nimplementation of the proposed accountability program appears to result in significant\nanticompetitive effects, if the program is used for improper purposes, if pertinent facts (or our\nunderstanding thereof) change significantly, or if it would be in the public interest to do so.\n\n//p!~yours\n\n!~~ael\n\nm\n\nAssistant Director for Policy & Coordination\n\n8\n\n\x0c'