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The FTC in 2006: Committed to 

Consumers and Competition


Federal Trade Commission
Deborah Platt Majoras, Chairman

Pamela Jones Harbour, Commissioner

Jon Leibowitz, Commissioner

William E. Kovacic, Commissioner

J. Thomas Rosch, Commissioner


About the Cover
The cover depicts stonework located over each entrance door to the historic Federal Trade
Commission Building at 600 Pennsylvania Avenue, NW, Washington, D.C. 20580. The bas relief works
represent agriculture, foreign trade, industry, and shipping. Photos and cover design by Jonathan
Morgan.

Federal Trade Commission


Table of Contents

Letter from the Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Chapter 1 – Competition Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

A. Guidance, Transparency, and Process Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1. Guidance/Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2. Process Improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

B. Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

1. Energy Industry Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2. Health Care Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3. Other Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

4. Enforcing Compliance with the HSR Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

C. Nonmerger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1. Appellate Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

2. Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3. Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

4. Other Nonmerger Enforcement Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Chapter 2 – Consumer Protection Law Enforcement and Rulemaking . . . . . . . . . . . . . . . . 19

A. Fraud and Deception. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

1. Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2. Tools to Identify Fraud and Deception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

B. Consumer Privacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

1. Data Security Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

2. Do Not Call Registry Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

C. High Tech Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

D. Consumer Privacy and High Tech Rulemaking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Chapter 3 – Policy Tools to Complement Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . 31

A. Competition Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

1. Research and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

2. Hearings and Workshops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

3. Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

4. Amicus Briefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

5. Testimony to Antitrust Modernization Commission . . . . . . . . . . . . . . . . . . . . . . . . 38

B. Consumer Protection Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

1. Reports and Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

2. Hearings and Workshops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

3. Advocacy and Amicus Briefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

4. Consumer and Business Education and Outreach . . . . . . . . . . . . . . . . . . . . . . . . . 42


Federal Trade Commission


Chapter 4 – International Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

A. Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

1. Promoting Cooperation and Convergence Through Bilateral Relationships . . . . . 45

2. Promoting Convergence Through Multilateral Competition Fora . . . . . . . . . . . . 46

3. Promoting Competition Policy Through Trade Fora . . . . . . . . . . . . . . . . . . . . . . . 47

B. Consumer Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

1. Cross-Border Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

2. Promoting Market-Oriented Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

C. International Technical Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51


Federal Trade Commission


Letter from the Chairman
The Federal Trade Commission is committed to working for consumers
and championing competition in a world characterized by dynamic change. I
am pleased to present an account of the agency’s achievements and projects
in this Annual Report. As the report shows, we have continued to use all
of our available resources, creativity, talent, and determination to protect
consumers and preserve competition.
The past twelve months have seen the departure from the Commission
of two distinguished and respected colleagues, former Commissioners
Thomas B. Leary and Orson G. Swindle, III. Both of these outstanding
individuals left a lasting imprint on the agency. Commissioners Harbour and Leibowitz and I, along
with FTC staff, were delighted, however, to welcome back to the agency our two newest Commissioners,
Commissioner William E. Kovacic and Commissioner J. Thomas Rosch.
With a full complement of Commissioners this year, the FTC remains steady towards its goal – to
enhance consumer welfare. Competition is the ultimate consumer protection. Yet, through its work,
the FTC has learned that there are always those who oppose competition and view it as an inappropriate
means of “organizing” the production and distribution of goods and services. More dangerous are
those who profess to favor competition but want to chip away at it when it does not produce a particular
result. While it would be optimal if the agency could convert all skeptics and opportunists, the agency
must, regardless of its success, continue its commitment to consumer interests and to market-based
competition, both at home and abroad. Although the outcomes of competition may sometimes seem harsh
on incumbent firms, as stated so aptly in a recent opinion piece, “Living with competition is hard. Living
without it would be harder.” (Robert J. Samuelson, Competition’s Anxious Victory, The Washington Post,
Feb. 2, 2005, at A-23.) Thus, we strive to foster a culture that embraces the benefits of the competition
marketplace – a culture in which federal and state policymakers, the courts, and the public understand and
support competition as the best way to protect consumers and promote economic growth.
When competition alone cannot deter those who would use deception or unfair practices, we
remain steadfast in our commitment to protect consumers. Our challenge is to protect them in a time of
tremendous technological change, which is fast bringing the global marketplace to the doorstep of each
and every consumer.
While technology is bringing vast benefits to consumers, it likewise is presenting new privacy and
fraud issues that range from identity theft to spyware. And even as we use law enforcement, consumer
research, and education to attack these new problems, we still must actively battle “low tech” frauds, like
deceptive lending practices, business opportunity scams, and deceptive health and weight loss claims. In
addition to prosecuting these “fraudsters” aggressively and returning millions of dollars to consumers,
we are seeking new ways to educate consumers about the dangers of unscrupulous marketers and privacy
invaders. An educated consumer is an empowered consumer, and thus a “self-protected” consumer.
Confronting these challenges, the FTC remains committed to consumers and competition. We
remain dedicated to maintaining excellence and improving our effectiveness for another year of
achievement on behalf of American consumers.

Deborah Platt Majoras
Chairman


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Federal Trade Commission


Introduction
To be effective in service to the public, a government agency must constantly take stock of
its activities and goals: What is its core mission? What must it do to adapt – and readapt – to
make sure it is performing that mission effectively in a constantly changing world?
The Federal Trade Commission (FTC) is committed to a process of continuous reassessment
in performing its mission to enhance consumer welfare. It is well aware of the need to be alert
and nimble as it deflects and combats the new schemes and arrangements that distort the fair and
efficient operation of the global market. During the past year and in the years ahead, the FTC
has made specific commitments in the performance of its mission to ensure that the agency is
working at the highest level for the consumers it serves. The FTC is committed to:
•

	 nforcement. The primary job of the FTC is to enforce competition and consumer
E
protection laws to promote a free and vigorous marketplace. The Commission
continued an active enforcement agenda in 2005, including issuing opinions in three
adjudicative matters. In Kentucky Movers and in North Texas Specialty Physicians,
the Commission found that the parties had engaged in anticompetitive conduct, and in
Telebrands, the Commission found that advertising claims were false and deceptive.
During the year, the Commission had as many as nine different competition cases
pending at some stage of administrative litigation. In addition, the FTC took action
to protect competition and consumers in close to a dozen proposed mergers in a wide
range of economic sectors; filed one complaint in federal court and approved consent
orders in seven anticompetitive conduct cases; and pursued two cases to enforce
compliance with the Hart-Scott-Rodino Premerger Notification Act’s (HSR) regulations.
On the consumer protection side, the FTC scored major victories for consumer privacy.
It reached one settlement for more than $5 million in civil penalties for alleged
violations of the Do Not Call Rule, and another for a total of $15 million in redress
and penalties for alleged failures to take reasonable steps to protect sensitive consumer
information. The agency also brought 60 actions in federal district court to protect
consumers against unfair and deceptive trade practices, with allegations ranging from
bogus weight loss claims to advance fee credit card scams.

•

	 ducation. Another essential mission of the FTC is to educate consumers, businesses,
E
and its staff on rights, responsibilities, and the changing marketplace. The past year’s
major consumer education initiatives included protection against identity theft (reaching
over 7 million consumers), safe Internet surfing (launching the “OnGuard Online”
campaign), and an ambitious outreach program to the nation’s Hispanic population. The
FTC also has continued its efforts to advance knowledge of challenging legal issues.
Critical areas examined in reports or workshops included competition in the real estate
brokerage industry, the interface between antitrust and patent law and possible patent
reforms, and the factors affecting retail gasoline prices. Upcoming projects include
hearings with the Department of Justice (DOJ) to examine anticompetitive conduct
under Section 2 of the Sherman Act, and hearings to explore the impact of technology
and globalization on consumer protection issues.

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•

	 fficiency. The FTC currently is actively examining its administrative procedures
E
to ensure it is working efficiently in the public interest, always asking the question:
Do these processes benefit consumers without unduly burdening legitimate business
activity? One major focus during the past year has been on mergers. In February
2006, the FTC announced reforms to the merger review process, intended to streamline
“second requests” under the HSR Act by instituting best practices. These reforms
should allow the FTC to serve consumers and taxpayers better by reducing waste and
inefficiency in the process. In addition, focusing on merger analysis, an FTC task force
has been working with DOJ to bring greater transparency to the competitive analysis
of proposed mergers and thus greater certainty to businesses and their legal advisors.
In March 2006, the Agencies jointly published a Commentary on the Horizontal
Merger Guidelines to explain their analytical approach and enhance the quality of
communications between the government and merging parties during the merger review
process.

• 	 Evolving Technology and Markets. In these first years of the 21st Century,
technological and market changes are occurring rapidly, and the FTC is committed
to keeping pace. Competition investigations increasingly focus on high technology
sectors of the economy. In pharmaceuticals, for example, the FTC has initiated a study
on the circumstances in which innovator companies launch authorized generic drugs.
High tech consumer spying in the form of spyware and other computer “badware”
also continue to be a major focus and concern at the agency – during the past year, the
FTC issued a major report on spyware and brought law enforcement actions to stop
marketers who loaded unwanted and risky software onto consumers’ computers without
their knowledge or consent.
•

	 ngagement Worldwide. The FTC has stepped up its work with both competition and
E
consumer protection agencies around the world. International cooperation not only can
lead to more effective law enforcement against global scam artists but also can ease
burdens on legitimate businesses that operate on a global basis. On the competition
side, the FTC is working with international bodies, such as the Organisation for
Economic Co-operation and Development and the International Competition Network,
to strengthen and increase areas of policy agreement. The FTC continues to develop
new enforcement partnerships and to strengthen existing ones. On the consumer
protection side, the FTC continues its global focus, keenly aware that online fraud is not
subject to national boundaries and can injure consumers on a global scale. Among other
activities, the FTC co-chairs the London Action Plan, which includes representatives
from approximately two dozen countries around the world, to promote international
cooperation on spam enforcement.

• 	 Electronic Government. The FTC continues to be a leader in the use of technology
and the Internet to inform and interact with consumers and businesses. Starting in the
mid-1990s, the FTC began building interlinked public consumer protection websites,
many in connection with other domestic or foreign law enforcement agencies, to
educate consumers and to collect and analyze data on a broad range of consumer
protection issues, including high tech fraud and identity theft. During the past few

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years, the agency has relied on electronic means for more efficient communication with
its stakeholders, adding electronic filing for administrative litigation and for public
comments on proposed rulemakings. The next electronic addition will be E-Premerger,
expected in Spring 2006, which will permit electronic filing of all information about
proposed mergers required under the HSR Act.
•

Excellence. The FTC is proud of its reputation as both a premier federal government
	
agency and a leader in the world community of competition and consumer protection
agencies. Only by continuing to elicit excellence from its staff can the FTC do the
best for the consumers it serves. During the past year, the agency invested significant
resources in staff training and development. For example, the FTC held its first
agency-wide new attorney and economist training program with skills workshops and
substantive presentations on competition, consumer protection, and economics, as well
as government ethics and professionalism.

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Chapter 1 – Competition Law Enforcement
Competition provides the foundation for a thriving economy. When rival businesses vie
with one another to win consumer patronage, they seek out efficiencies to lower their costs and
innovations to improve or expand their product offerings. This creative process – driven by
competition – serves consumers by resulting in lower prices, goods and services of superior
quality, and a broad array of choices.
The goal of the FTC’s competition mission is to remove the obstacles that impede
competition and prevent its benefits from flowing to consumers. The FTC has adopted
fundamental strategies to maximize the impact of its competition mission. Elements of that
strategy include:
• 	 Focusing efforts on sectors of the economy that have the greatest impact on consumers,
such as energy and health care.
• 	 Facilitating cooperation and voluntary compliance with the law by promoting
transparency in enforcement standards, policies, and decision-making processes.
• 	 Improving the processes and institutions through which competition policy is developed
and applied.
• 	 Emphasizing education and outreach and making full use of the broad range of policy
instruments that Congress has provided to the agency.
• 	 Working cooperatively with international colleagues to promote cohesive and sound
competition policies worldwide.
The competition mission continues to be highly productive. In addition to pursuing a broad
range of merger and nonmerger enforcement actions, the agency made a significant contribution
to providing guidance and improving its processes.

A. Guidance, Transparency, and Process Improvements
The FTC seeks to be efficient as well as effective in its law enforcement activities.
Efficiency includes both using agency resources effectively and minimizing the burdens that law
enforcement necessarily imposes on businesses. While the FTC has implemented a number of
procedural improvements in recent years, it has made a concerted effort during the past year to
do even more to streamline its processes.
Uncertainty is perhaps the primary enemy of efficiency in law enforcement. Ambiguous
legal standards increase the likelihood that businesses either will forego activities that are
both legal and procompetitive, or engage in questionable activities that lead to investigations
or litigation, imposing substantial costs on both the business community and the government.
Consequently, the FTC has worked to increase the clarity of the legal standards it enforces by
providing explicit guidance to the business community and the bar and by explaining its policies
and decisions as fully as possible.

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In the past year, the FTC’s ongoing efforts to enhance the guidance it provides and the
transparency of its policies and decisions, and also to streamline its processes, have resulted in
several noteworthy achievements.

1. Guidance/Transparency
Commentary on the Merger Guidelines. In March 2006, the FTC, jointly with DOJ,
issued a Commentary on the Horizontal Merger Guidelines. The Agencies first issued the
Horizontal Merger Guidelines in 1992, and then revised them in 1997 to add a section on
the treatment of efficiencies in merger
analysis. The new Commentary provides
Box 1
further guidance to the antitrust bar and
Guidance / Transparency / Efficiency
business community by explaining how
In the past year, FTC competition
the government actually has applied the
enforcement has added greater guidance and
particular provisions of the Guidelines 	
transparency to decisionmaking and streamlined
concerning market definition and
processes, including:
concentration, competitive effects (including
• Commentary on the Horizontal Merger Guidelines
coordinated interaction and unilateral 	
• Reforms to the merger review process
• Explanations of investigation outcomes
effects), entry conditions, and efficiencies.
• Testimony before the Antitrust Modernization Commission
The Commentary includes short summaries 	
• More electronic HSR process
• Improved litigation capability
of actual past investigations that enhance
• Post-hurricane expedited review of business collaborations
understanding of particular points under 	
discussion in the narrative. A major point
made by the Commentary is that Guidelines analysis is not invariably a linear, step-by-step
progression that commences with market definition and concludes with efficiencies, but rather is
an integrated process centered on determining a transaction’s likely competitive effects.
Expedited Antitrust Review Procedure and Guidance for Post-Hurricane Relief
Efforts. The FTC and DOJ immediately recognized the urgency of relief efforts for
communities affected by Hurricanes Katrina and Rita, and took action to help. In September
2005, the agencies announced an expedited procedure for providing antitrust guidance on the
legality of collaborations of businesses working to rebuild those communities. Under these
special procedures, the Agencies review proposed joint business activities relating to the relief
effort, and decide whether the planned collaboration would warrant an antitrust challenge. The
expedited procedure allows affected businesses to proceed promptly to aid those in need without
the distraction of uncertain antitrust implications. The Agencies also emphasized their resolve
to prevent unscrupulous competitors from preying on hurricane victims by fixing prices or
allocating markets.
Explanations of Investigation Outcomes. The FTC has sought over the past several
years to make its decisions not to challenge a particular merger or type of business conduct as
transparent as its decisions to proceed with enforcement action by issuing statements explaining
why it declined to act:
•

	 mnicare/NeighborCare. In June 2005, the Commission issued a unanimous
O
statement explaining its decision not to challenge a merger of the largest and likely
second-largest institutional pharmacies (IPs), which provide pharmacy and related

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products and consulting services to skilled nursing facilities (SNFs). The Commission
concluded that the merger was unlikely to harm consumers for several reasons. First,
even though in some areas Omnicare had or would have had 50 percent or more of
SNFs under contract, most of the remaining SNFs have three or more independent
IPs within 100 miles that do compete for their business. Second, entry into the IP
marketplace is relatively easy. Third, the Medicare Modernization Act would change
payment structures for prescription drugs and related products, making it unlikely that
the merged firm could extract above-market rates.
• 	 Federated/May Department Stores. In August 2005, the Commission issued a
statement explaining why it determined not to oppose the creation of the largest chain
of traditional department stores in the United States. The Commission explained that its
extensive, six-month investigation showed that Federated Department Stores, Inc.’s $17
billion acquisition of the May Department Stores Company would not adversely affect
consumers because of the breadth of the relevant product and geographic markets. The
Commission noted that American retail markets have evolved to a point where other
retailers’ price and product selection decisions regularly affect those of the department
stores. Conventional department stores are not a distinct market because these stores
face competition from multiple retail formats for the merchandise they sell. Moreover,
Federated, May, and other department stores set uniform prices for their stores
throughout broad geographic areas, unlike the differing prices from one city to another
that helped to establish the “office superstore” market in the FTC’s Staples/Office Depot
case. In concluding that the transaction posed no threat to consumers generally, the
Commission noted that the ongoing separate investigations by several state antitrust
agencies, together with the parties’ announced plans to divest 75 stores, provided an
appropriate vehicle for addressing any unique consequences based on local conditions.
•

	 omcast/Time Warner/Adelphia. In January 2006, the FTC closed its investigation
C
into the acquisition by Comcast Corporation and Time Warner Cable Inc. (TWC) of the
cable assets of Adelphia Communications Corporation, and into related transactions
in which Comcast and TWC swapped various cable systems. Chairman Majoras and
Commissioners Kovacic and Rosch issued a statement that explained that they agreed
with the staff’s decision to close the investigation because the evidence did not suggest
that the proposed transactions were likely to lessen competition substantially in any
geographic region in the United States. Commissioners Leibowitz and Harbour issued
a separate statement explaining that they would have preferred for the Commission to
have sought to require the parties’ agreement to conditions concerning other cable and
satellite companies’ access to regional sports networks before allowing the transactions
to proceed.

•

	 hell Refinery Closure. Because of the strong public interest in petroleum-related
S
matters, the Commission issued a statement in May 2005, explaining the results of
its comprehensive investigation into the decision by Shell Oil Products US to close
its oil refinery in Bakersfield, California. The investigation focused on whether the
stated rationale for the closure, declining profitability, was a pretext intended to mask
an anticompetitive arrangement to reduce refining capacity and raise gasoline prices in

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California. The staff reviewed confidential Shell documents, obtained sworn testimony
from representatives of Shell and other refiners, interviewed crude oil suppliers and
firms that had considered acquiring the refinery, and analyzed voluminous financial
data. Based on the investigation, the Commission unanimously concluded that the
evidence supported Shell’s explanation for the closure, and that no evidence supported
a conclusion either that Shell had obtained or exercised market power or that it had
colluded with any other firm to close the facility. Shell has since sold the refinery to a
subsidiary of Flying J, Inc., which intends to keep it operational.
Box 2

2. Process Improvements

Recent Reforms to the
Merger Review Process

Merger Process Task Force. In February
2006, the Chairman announced a series of
The goal is to streamline the process by
substantial reforms to the merger review process.
instituting well-defined best practices to
A central goal of the reforms is to lower the costs
reduce costs for both the FTC and the
parties by reducing the volume of materials
of merger investigations for both the FTC and the
produced in response to a second request.
parties by reducing the volume of materials that
The reforms establish presumptions that:
the parties must produce to respond to a second
request. The reforms also are designed to permit
• Limit search to files of 35 emloyees, providing the
staff and the parties to identify more rapidly
party complies with specified timing requirements;
• Reduce time period for responsive documents from
the relevant substantive issues and focus more
three to two years;
quickly and effectively on the relevant documents
• Require preservation of backup tapes for only
two days when documents have other accessible
and data. In recent years, the costs of complying
sources; and
with second requests have grown substantially,
• Allow for signficantly reduced information to be
supplied on privilege logs.
due in large part to the increase in the volume of
electronic documents generated by companies
and requested by the FTC and DOJ and the reduced reliance by the Agencies on structural
presumptions in favor of direct analyses of competitive effects. The reforms provide that the
FTC will establish presumptions that it will (1) require a party to search the files of no more than
35 of its employees when responding to a second request, provided that the party complies with
specified timing conditions; (2) reduce the time period for which a party is required to search
for documents from three to two years; (3) require a party to preserve backup tapes for only two
calendar days, when responsive documents are available through more accessible sources; and
(4) allow parties to provide significantly reduced amounts of information on their privilege logs.
Electronic HSR Filings. The FTC is adapting the HSR filing process to the era of egovernment. Final amendments to the HSR Rules, announced in December 2005, will allow
filers to provide an Internet address linking to electronic copies of certain documents required
as part of the HSR reporting form, in lieu of providing paper copies. The agency also has
developed instructions and specifications tailored to electronic productions. Furthermore, as
part of the overall movement to make government more accessible electronically, the FTC
will announce this spring the implementation of a sophisticated electronic system for filing
HSR premerger notifications. The agency has made substantial investments in software and
other resources to enable it to handle electronic data submitted by merger parties in a variety
of different formats. E-filing should reduce substantially the burdens for both businesses and
government involved in premerger notification.

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Improved Litigation Capability. The FTC recently established a task force composed of
talented antitrust litigators, whose mission is twofold: (1) to provide an experienced, guiding
hand on those matters that go to litigation, and (2) more broadly, to provide training to improve
the agency’s capacity to litigate competition matters when necessary. This investment paid
dividends in the past year, contributing meaningfully to litigation successes and settlements.
Enhanced Communication with DOJ. In April 2005, the FTC’s Chairman and her
competition advisors, the Director of the Bureau of Competition, the Deputy Directors, and the
Assistant Directors joined their counterparts from DOJ’s Antitrust Division at an off-site retreat.
The event provided an opportunity for enhanced communication and sharing of best practices
between the two agencies, which join in the common goal of enforcing the antitrust laws where
necessary to protect competition. Together, the agencies are taking concrete steps to improve
effectiveness and responsiveness to the needs of the public, and to minimize variance in the
treatment of parties whose matters are subject to antitrust review.

B. Merger Enforcement
Reviewing proposed merger transactions, investigating those that may threaten consumer
interests, and taking action to prevent competitive harms comprise the largest segment of the
FTC’s competition mission. The agency’s merger enforcement workload continued to expand
in the past year, with the value of merger transactions reported under HSR jumping from $630
billion in FY 2004 to $1.1 trillion in FY 2005, accompanied by a greater than 25 percent increase
in the number of mergers requiring investigation. The agency anticipates that the merger review
workload in FYs 2006 and 2007 also will be demanding.

1. Energy Industry Merger Enforcement
The petroleum industry occupies a crucial and highly visible role in the U.S. economy,
affecting consumers both directly and indirectly. Consumers feel the impact directly when they
pay their monthly fuel oil bills or fill their gasoline tanks. They are well aware of the price of
gasoline – reports on gas prices fill the media almost daily, and gas prices loom in giant numerals
on seemingly every street corner. Consumers also feel the impact indirectly in the prices they
pay for travel or shipping when companies pass their higher fuel costs along to their customers.
Transportation costs are not the whole story: natural gas fuels a major portion of electricity
generation and residential heating. And when businesses incur higher utility costs, these
costs are likely to ripple through the economy in the form of higher consumer prices. Finally,
petroleum price increases also can have an impact beyond the energy sphere, because petroleum
is a feedstock in the production of many products, such as plastics.
Given this central place in consumers’ lives, the petroleum industry receives the highest
level of scrutiny from the FTC. Since 1981, the FTC has taken action in 20 large petroleum
industry mergers, curing antitrust concerns in hundreds of individual markets, mostly through
divestitures, including the divestitures in Exxon/Mobil of over 2,000 retail stations and a refinery,
the largest single divestiture order in FTC history. The agency has sought relief in petroleum
mergers at significantly lower levels of concentration than have existed in other industries with
mergers under review. Despite some increases over time, concentration for most markets of

9


Federal Trade Commission


the U.S. petroleum industry has remained low to moderate. During the past year, the FTC took
enforcement action in three matters.
Box 3
	 hevron/Unocal. In June
C
Consumers Feel the Impact of Higher
2005, the Commission
Heating Oil and Gasoline Prices
acted to save California
$3.00
consumers hundreds
Gasoline
Heating Oil
of millions of dollars
$2.50
in higher gasoline 

$2.00
prices by accepting 

$1.50
two consent orders to 

resolve the Commission’s

$1.00
administrative
$0.50
Heating Oil data is available for
monopolization complaint
October to March of each year.
$0.00
against Union Oil
Company of California
Source: Energy Information Administration, U.S. Dept of Energy, U.S. Gasoline Midgrade Retail Sales by All Sellers (Cents
(Unocal) and antitrust
per Gallon) available at http://tonto.eia.doe.gov/dnav/pet/hist/d140600002M.htm; U.S. No. 2 Heating Oil Residential Price
(Cents per Gallon Excluding Taxes) available at http://tonto.eia.doe.gov/dnav/pet/hist/mhoreus4m.htm.
concerns arising from
Chevron’s proposed $18
billion acquisition of Unocal. While the settlements focused primarily on resolving
allegations of monopolization through anticompetitive abuses of the regulatory process
related to California reformulated gasoline in connection with certain Unocal patents,
the merger also raised concerns that Chevron could use information obtained through
patent licenses to facilitate coordinated interaction among itself and other refiners and
marketers leading to higher prices for reformulated gasoline. By the terms of the order,
the combined firm agreed not to enforce its relevant patents or collect royalties on those
patents.
Nov-05

Jul-05

Sep-05

May-05

Jan-05

Mar-05

Nov-04

Jul-04

Sep-04

May-04

Jan-04

Mar-04

Nov-03

Jul-03

Sep-03

May-03

Jan-03

Mar-03

Jul-02

Nov-02

Sep-02

May-02

Jan-02

Mar-02

Nov-01

Jul-01

Sep-01

May-01

Jan-01

Mar-01

Price Per Gallon

•

• 	 Valero/Kaneb Services and Pipe Line Partners. In July 2005, the Commission
approved a final settlement requiring, among other terms, that Valero divest several oil
terminals and a pipeline system to preserve competition in petroleum transportation and
terminaling in Northern California, Pennsylvania, and Colorado. The settlement should
protect consumers from anticompetitive price increases for gasoline and diesel fuel.
•

	 loha Petroleum/Trustreet Properties. Also in July 2005, the Commission
A
authorized its staff to seek a preliminary injunction to block Aloha Petroleum’s
proposed acquisition of Trustreet Properties’ half interest in import-capable terminal
and retail gasoline assets in Hawaii. The FTC, in conjunction with the Hawaii Attorney
General, filed the complaint in federal court in Hawaii. The proposed acquisition
allegedly would have reduced from five to four the overall number of island gasoline
marketers that had guaranteed access to supply, and from three to two the number
of suppliers selling to unintegrated retailers. After Aloha subsequently announced a
long-term agreement with a third party, Mid Pac Petroleum, that would give Mid Pac
substantial rights to use the terminal to import gasoline into Hawaii, the court dismissed
the FTC’s complaint in response to the agency’s request.

10


Federal Trade Commission


2. Health Care Merger Enforcement
Health care is a perennial FTC priority because of its huge impact on the American
economy. Annual health care expenditures are approaching $2 trillion, and now represent about
one of every six dollars of GDP. Health care costs have been growing faster than the rate of
inflation for decades: health care expenditures as a share of GDP have nearly doubled in the past
30 years. During the past year, the FTC devoted resources to seven significant proposed merger
matters in the health care sector.
• 	 Evanston/Highland Park. In an Initial Decision issued in October 2005, an
Administrative Law Judge (ALJ) found that Evanston Northwestern Healthcare
Corporation’s completed acquisition of an important competitor, Highland Park
Hospital, resulted in higher prices and substantially lessened competition for acute
care inpatient services in parts of Chicago’s northern suburbs. The hospital’s appeal
of the ALJ’s decision and order requiring divestiture of Highland Park Hospital is now
pending before the Commission.
• 	 Novartis/Eon Labs. Competition from generic pharmaceuticals is a key factor in
controlling escalating health care costs. The Commission acted to preserve competition
for three pharmaceutical products by requiring the parties to divest three generic drugs
that competed with Novartis’ branded products before permitting a proposed $1.72
billion acquisition of Eon Labs, Inc. to go forward in July 2005. The medications
involved in the settlement include a tricyclic antidepressant, a muscle relaxant, and a
drug used to treat tuberculosis, the branded versions of which account for $30 million in
annual sales. The selling price of the generic equivalents of these drugs – less than half
that of the branded products – reflects the importance to consumers of preserving this
competitive factor.
•

	 eva/IVAX. In a consent order finalized in March 2006, the Commission ordered Teva
T
Pharmaceutical Industries and IVAX Corporation to divest 15 generic pharmaceutical
products before allowing Teva’s $7.4 billion acquisition of IVAX to proceed. Among
the drugs to be divested were forms of generic amoxicillin. The divestitures should
protect consumers from higher prices that allegedly would have resulted from this
merger by restoring competition in these markets.

• 	 Johnson & Johnson/Guidant Corp. The Commission intervened on behalf of
coronary artery disease patients in December 2005, by ordering divestitures to preserve
competition for three life-saving medical devices used in coronary bypass surgery and
implantation of medicated stents to open clogged arteries. The remedial provisions
of the Commission’s final consent order, approved in December 2005, would have
alleviated the threats to competition posed by Johnson & Johnson’s proposed $25.4
billion acquisition of Guidant Corporation. (Johnson & Johnson later abandoned
its bid for Guidant after being outbid by Boston Scientific.) This case, in which the
FTC worked closely with its counterparts in the European Commission, Canada, and
other countries, illustrates the valuable international collaboration that serves both the
immediate and long-term public interest.

11


Federal Trade Commission


•

	 aVita/Gambro Healthcare. In November 2005, the Commission ordered divestitures
D
to protect patients who require regular outpatient dialysis services from higher prices
and reduced quality or service. Under the consent order, DaVita, Inc. will divest 69
dialysis clinics in 35 markets across the United States as a condition to proceeding with
its $3.1 billion acquisition of Gambro Healthcare Inc. The two firms were the second
and third largest providers of dialysis services in the nation, and the divestitures would
restore competition to localized markets that allegedly otherwise would have been lost
in the merger.

•

	 edicis/Inamed. In
M
Box 4
March 2005, Medicis
and Inamed announced a
planned merger of these
two marketers of dermal
products used to treat facial
wrinkles. As announced by
the parties, the Commission
issued a second request to
investigate the potential
Annual health
overlapping products. In
care expenditures are
December 2005, Medicis
approaching $2 trillion:
representing about oneand Inamed terminated
sixth of every dollar of the
their merger agreement,
Gross Domestic Product.
and Inamed entered into
a merger agreement with
Allergan, Inc. At the time,
Inamed’s board said that
Allergan’s offer was superior to Medicis’ offer, and Allergan’s Chairman and CEO told
Inamed’s board members and shareholders that he expected easier FTC approval of the
Allergan/Inamed deal because Allergan would agree immediately to give up Inamed’s
license to an overlapping wrinkle treatment product. Following Allergan’s bid, Medicis
announced that it would not raise its offer for Inamed, and the Medicis/Inamed deal was
terminated.

•

	 llergan/Inamed. The Commission announced, in March 2006, a settlement requiring
A
the return of development and distribution rights to a botulinum toxin product to its
manufacturer before allowing Allergan’s $3.2 billion acquisition of Inamed. Allergan
markets Botox, a botulinum toxin used by many consumers as a non-surgical treatment
for wrinkles and lines that appear on a person’s forehead. Inamed held the rights to
Reloxin, a product in Phase III Clinical Trials with the Food and Drug Administration
and the expected first competitor to Botox. Under the terms of the order, Inamed will
return its development and marketing rights to Ipsen, the manufacturer of Reloxin.

12

Federal Trade Commission


3. Other Merger Enforcement
The FTC also investigated and took enforcement action, where necessary, in three other
proposed mergers in a range of economic sectors during the past year.
• 	 Procter & Gamble/Gillette. In September 2005, the Commission acted to ensure
continued competition for a number of consumer personal care products by conditioning
The Procter & Gamble Company’s $57 billion acquisition of rival consumer products
manufacturer, The Gillette Company, on divestitures to cure allegedly anticompetitive
overlaps. The affected product markets included at-home teeth whitening products,
adult battery-powered toothbrushes, rechargeable toothbrushes, and men’s
antiperspirant/deodorant products.
• 	 Occidental Chemical/Vulcan Chemical. In July 2005, the Commission approved
a final consent order to preserve competition in markets for three chemical products
used to make potassium inputs for food additives and nutritional supplements, and
in the manufacture of televisions and computer monitors. The Commission allowed
Occidental Chemical Company to purchase the chemical assets of Vulcan Materials
Company, provided that it promptly divest a Vulcan facility to cure the antitrust
concern.
• 	 Penn National Gaming/Argosy Gaming. The Commission challenged an allegedly
anticompetitive acquisition in the market for casino services in Baton Rouge, Louisiana.
The consent order required Penn National to divest Argosy Gaming’s river boat casino
in Baton Rouge before proceeding with its $2.2 billion acquisition of Argosy Gaming.
Penn and Argosy operated the only two casinos in the Baton Rouge market.

4. 	 Enforcing Compliance with the HSR Rules
The HSR merger investigation process involves mutual obligations for the FTC and the
merging parties. While the agency seeks to be flexible in order to minimize burdens on the
parties and facilitate resolution of any issues, it will stand firm when necessary to obtain the
information needed to review mergers and to protect the integrity of the HSR process.
•

	 ollywood/Blockbuster. In Spring 2005, the Commission authorized its staff to file
H
an action under Section 7A(g)(2) of the Clayton Act, requesting the court to enjoin the
Hollywood/Blockbuster merger because the parties allegedly had not “substantially
complied” with the second request. This is only the second time in the FTC’s history
that it filed such an action. According to the complaint, Blockbuster, which sought
to acquire Hollywood Entertainment, had failed to respond fully to the agency’s
request for pricing data. Because the missing material was important to the FTC’s
investigation, the agency filed suit to block consummation of the transaction. The
parties resolved the issues before the court ruled on the merits, with Blockbuster
agreeing to an extension of the HSR waiting period. Subsequently, the merging parties
abandoned their proposed transaction before the FTC completed its investigation.

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Federal Trade Commission


• 	 Durus Life Sciences Fund. In September 2005, DOJ, at the request of the FTC,
sued a hedge fund manager for allegedly failing to report under HSR several large
stock purchases before they were made. Scott Sacane, the manager of the Durus Life
Sciences Master Fund, agreed to pay a $350,000 civil penalty to settle the government’s
charges.

C. Nonmerger Enforcement
The past year has seen significant developments in agency nonmerger enforcement in the
form of consent agreements, Commission administrative adjudications, and appellate court
actions.

1. Appellate Decisions
Federal courts reviewed two of the agency’s recent adjudicative decisions in the past year,
with one resolved favorably for the agency, and the other still pending in the appellate process.
•

	 hree Tenors. In July 2005, the U.S. Court of Appeals for the District of Columbia
T
Circuit affirmed the Commission’s decision in Polygram Holding Inc. (known as “the
Three Tenors” case), validating the Commission’s approach in analyzing horizontal
conduct among competitors. The D.C. Circuit agreed with the Commission that
although not a per se violation of antitrust law, the agreement among these horizontal
competitors was presumptively unlawful and Polygram failed to rebut that presumption.

•

	 chering-Plough. Pending before the U.S. Supreme Court is a petition for certiorari
S
filed by the Commission in August 2005, asking for review of the Eleventh Circuit’s
decision in Schering-Plough. The case arose out of 1995 applications by Upsher-Smith
Laboratories, Inc. and ESI Lederle, Inc. for approval of generic versions of a potassium
supplement product, along with their certifications that the products they intended
to market were non-infringing generic substitutes. Schering brought patent actions
against ESI and Upsher, but later entered into settlement agreements with both. The
Commission issued an administrative complaint charging that, under these agreements,
Schering made monetary payments to both firms in exchange for their agreement to
delay generic entry, in violation of Section 5 of the FTC Act. ESI entered into a consent
agreement with the Commission in April 2002, but Schering and Upsher proceeded
to trial. In December 2003, the Commission ruled that Schering’s agreements with
Upsher and ESI were unlawful, concluding that the agreements amounted to payments
to exclude generic competition to a greater extent than could have been done simply
by relying upon the strength of the patent claims, and that Schering had shown no
competitive justification for the resulting harm to consumers. The Eleventh Circuit
reversed the Commission’s decision, holding (incorrectly, in the Commission’s view)
that Schering’s patent provided it with the legal right to exclude Upsher and ESI from
the market until they proved either that the patent was invalid or that their products did
not infringe upon the patent. The full Eleventh Circuit denied the FTC’s petition for
rehearing en banc.

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Federal Trade Commission


2. Health Care
The FTC pursued several nonmerger matters involving health care to complement its merger
enforcement work in this important industry. Notably, during the past year, the Commission
filed a complaint against pharmaceutical manufacturers for allegedly delaying generic drug entry,
approved consent orders in six cases requiring physician groups to stop fixing prices, and issued
a decision in a seventh physician case, finding that the activity at issue amounted to unlawful
price fixing.
• 	 Warner Chilcott/Barr Laboratories. In November 2005, the FTC filed a complaint
in federal district court seeking a permanent injunction to end an agreement between
Warner Chilcott and Barr Laboratories that allegedly would eliminate beneficial
generic competition for Warner Chilcott’s oral contraceptive drug, Ovcon. The FTC’s
complaint alleges that the two firms agreed that, after Barr received final FDA approval
for its generic version of Ovcon, Warner Chilcott would have the option of paying Barr
$20 million in return for Barr’s agreement not to compete in the United States for five
years. Also filing complaints in federal court challenging the Warner Chilcott-Barr
agreement were 21 states and the District of Columbia.
•

	 vanston Northwestern Healthcare. The FTC announced a partial settlement of this
E
administrative proceeding in April 2005, resolving Count III of the complaint, which
alleged illegal collusion among approximately 900 doctors in Cook and Lake Counties,
Illinois. The doctors agreed to cease and desist from any illegal collective conduct.

• 	 Partners Health Network, Inc. In September 2005, the FTC approved a final
settlement with this physician-hospital group, including about 225 physicians practicing
in the Pickens County, South Carolina area.
• 	 Preferred Health Services. In another matter involving a South Carolina physicianhospital group, the Commission, in April 2005, approved a final consent order with a
group of about 100 doctors, comprising approximately 70 percent of the independently
practicing physicians in the vicinity of Seneca, South Carolina.
• 	 San Juan IPA. This final consent order, approved in May 2005, involves 120
physicians who make up about 80 percent of the doctors practicing independently in the
area of Farmington, New Mexico.
• 	 New Millennium Orthopaedics. In May 2005, the FTC settled charges with two
small groups of orthopaedic physicians (with 22 and 10 members, respectively) in the
Cincinnati area that had formed an independent practice association (IPA). In addition
to prohibitions on joint negotiations, the Commission’s order disbanded the IPA.
• 	 Health Care Alliance of Laredo. In the sixth physician consent agreement of the
past year, the Commission approved an agreement with a group of about 80 physicians
practicing in a multi-specialty group in the Laredo, Texas area in February 2006.
• 	 North Texas Specialty Physicians. In a seventh physician case, the Commission
issued a unanimous decision in December 2005, upholding the allegations that a
physician group, known as North Texas Specialty Physicians (NTSP), had negotiated

15


Federal Trade Commission


agreements among participating physicians on price and other terms, refused to
negotiate with payors except on terms agreed to among its members, and refused to
submit payor offers to members if the terms did not satisfy the group’s demands. The
Commission concluded that the group’s contracting activities with payors “amount
to unlawful horizontal price fixing.” Following the methodology of the Polygram
Holdings, Inc. case, as recently upheld by the D.C. Circuit Court of Appeals, the
Commission considered the respondents’ proffered justifications, but found that they
were neither legitimate nor supported by evidence to justify NTSP’s inherently suspect
conduct. The physicians have appealed the decision to the U.S. Court of Appeals for
the Fifth Circuit.

3. Energy
The FTC considers the energy industry to be among its highest priority targets for antitrust
law enforcement. To protect consumers from anticompetitive practices, the agency devotes
substantial resources to policing the petroleum and natural gas industries, including investigating
potentially anticompetitive conduct and, when warranted, bringing law enforcement actions
against such conduct. In addition to the panoply of investigative tools that the Commission
would apply to any industry, the FTC’s law enforcement arsenal in the energy industry
includes the continuous monitoring of wholesale and retail gasoline and diesel fuel prices
around the country. Thus, the FTC and its staff are in a state of high alert for any evidence of
anticompetitive behavior among energy companies.
•

	 hevron/Unocal. As previously discussed, in June 2005, the Commission announced
C
two consent orders to resolve an administrative proceeding alleging monopolization
by Unocal, as well as any antitrust concerns arising from Chevron Corporation’s thenproposed $18 billion acquisition of Unocal. In both orders, the combined firm agreed
not to enforce certain Unocal patents that could have raised the price of gasoline for
California consumers by over $500 million per year.

• 	 Gasoline and Diesel Price Monitoring. In a project launched in 2002, the FTC
continues to monitor retail gasoline and diesel prices in 360 cities and wholesale
prices in 20 major metropolitan areas to identify unusual price movements that might
indicate illegal activity. If the staff detects unusual price movements in an area, it
researches the possible causes, including, where appropriate, through consultation with
the state attorneys general, state energy agencies, and the Federal Energy Information
Administration. The staff has not uncovered any evidence of antitrust violations
through this project to date.
• 	 Gasoline Pricing Investigations. In two separate laws, Congress directed the FTC
to conduct an investigation to examine gasoline pricing. Section 1809 of the Energy
Policy Act of 2005 directs the agency to investigate whether the price of gasoline is
being artificially manipulated through refinery capacity reductions, price gouging, or
“any other form of market manipulation.” Section 632 of the Science, State, Justice,
Commerce, and Related Agencies Appropriations Act directs the agency to investigate
gasoline prices in the wake of Hurricane Katrina, and specifically requires the FTC to:
(1) look for evidence of gasoline price gouging by any wholesaler or retailer of certain

16


Federal Trade Commission


sizes; (2) compare these companies’ profits in pre- and post-hurricane time periods; (3)
provide a summary of the “tax expenditures” to which the oil companies are entitled;
(4) assess the impact of increased gasoline prices or price gouging on economic activity
in the United States; and (5) gauge the overall cost of increased gasoline prices and
price gouging on the economy, including the impact on consumers’ purchasing power.
The Commission has informed the Congress that it will take swift and decisive law
enforcement action against any firm or individual shown by the investigation to have
violated any law the agency enforces.

4. Other Nonmerger Enforcement Activity
During the year, the Commission took action against alleged anticompetitive conduct in
other sectors of the economy. Two cases proceeded through administrative litigation; a third is
being resolved through a consent order.
• 	 Kentucky Household Movers. In June 2005, the Commission upheld an Initial
Decision that found that the Kentucky Household Goods Carriers Association, Inc.,
consisting of competing firms, engaged in illegal price-fixing by jointly filing tariffs
containing collective rates on behalf of its members, and that the association was not
entitled to the state action defense against antitrust liability. The Commission ruled the
state’s role fell “far short of the active supervision required by [Supreme Court cases],”
and thus the state action doctrine did not apply. Although the Kentucky Transportation
Cabinet (KTC) is responsible for ensuring that carriers’ rates are just and reasonable,
the Commission found that there was no formula or methodology for making that
determination, the KTC did not obtain basic data that would permit an assessment,
and procedural elements consistent with active supervision were absent. In addressing
whether the Kentucky Association’s rate-making conduct, if not shielded by the state
action doctrine, violated antitrust laws, the FTC concluded that the association’s
members had engaged voluntarily in collective tariff filings.
•

	 ambus. FTC staff’s appeal of an ALJ’s dismissal of the complaint in an
R
administrative proceeding against Rambus, Inc. remains pending before the
Commission. The June 2002 complaint charged that Rambus violated the antitrust laws
by violating a requirement that it disclose its relevant intellectual property holdings
to a standards-setting organization in which Rambus was a participant. In dismissing
the complaint, the ALJ concluded that complaint counsel did not prove that Rambus
violated the antitrust laws because its conduct did not violate Rambus’ duties and was
not exclusionary. Following issuance of the Initial Decision, the Commission reopened
the record to admit relevant materials from two related court proceedings. Complaint
counsel’s appeal remains under consideration by the Commission.

• 	 Valassis Communications. In March 2006, the Commission announced a consent
order against Valassis Communications, Inc., settling charges that Valassis had invited
its competitor to collude and eliminate price competition in violation of the FTC Act.
According to the Commission’s complaint, Valassis and News America Marketing are
competitors in the American market for free-standing newspaper inserts, the multi-page
booklets found in newspapers containing discount coupons for various products. The

17


Federal Trade Commission


Commission alleged that in a July 2004 public call with security analysts, Valassis
invited News America Marketing to join a scheme to allocate customers and fix prices,
thereby ending an ongoing price war between the two competitors and raising prices
for the inserts. News America Marketing did not accept the offer. The Commission’s
consent order prohibits Valassis from inviting collusion and from actually entering into
or implementing a collusive scheme.

18


Federal Trade Commission


Chapter 2 – Consumer Protection Law Enforcement and
Rulemaking
The FTC protects consumers throughout the nation against deceptive and unfair practices
in the marketplace. The cornerstone of this mission is aggressive law enforcement. During the
past 12 months, the agency focused on issues of critical importance to American consumers,
including telemarketing fraud, business opportunity schemes, credit-related scams, deceptive
health claims, data security, spam,
and spyware. Additionally, the FTC’s
Box 5
Criminal Liaison Unit works closely
“Visible Presence” to Promote Compliance
with criminal law enforcement partners
with the Law in Critical Sectors
to build cases and prosecute the worst
offenders.
During his nomination hearing before the Senate
The FTC’s law enforcement
efforts are complemented and informed
by sophisticated information gathering
tools that help the agency stay at the
forefront of emerging technologies and
rapidly evolving fraudulent schemes.
The FTC’s tools include domestic and
international databases, workshops,
reports, and civil investigative
demands. Using these tools, the
FTC enforces the law, explores
developing trends, and educates itself,
industry, and consumers to promote
a marketplace in which fraud and
deception cannot easily flourish.

Committee on Commerce, Science and Transportation,
Commissioner Tom Rosch discussed his perspective
on the Commission’s likely priorities over the next few
years. In identifying energy, health care, and high
tech (including biotech) as possible priority areas,
he observed, “[t]o begin with, those three sectors
collectively account for a huge share of this nation’s
economy. Second, there are unique challenges to
effective law enforcement in those sectors. That said,
there is a unifying principle, and that principle is visible
presence.” By way of example, Commissioner Rosch
mentioned the important role played by the highway
patrol in monitoring the roadways and encouraging
motorists to drive cautiously. He went on to note that
“it’s equally critical to effective law enforcement for the
Commission to have a visible presence in these (as well
as other) sectors.”

A. Fraud and Deception
Fighting fraud and deception is one of the FTC’s highest priorities because these practices
bilk consumers out of billions of dollars each year. The FTC wages this battle through targeted
law enforcement and the careful monitoring and analysis of trends. The FTC focuses on
deceptive and unfair practices in which consumer economic losses are greatest and its actions
can have the greatest impact.

1. Law Enforcement
The FTC pursues a vigorous law enforcement program that combats a wide range of
fraudulent and deceptive practices. From April 2005, through February 2006, the FTC filed
60 actions in federal district court and obtained 66 judgments ordering defendants to pay $590
million in redress to consumers. In many of these cases, the FTC worked with local, state,
federal, and international law enforcement partners.

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Federal Trade Commission


Criminal Liaison Unit.
Working with criminal law
enforcers remains a priority
for the FTC, and the FTC’s
Criminal Liaison Unit facilitates
prosecution of consumer fraud by
coordinating with law enforcement
authorities. From April 2005 to
March 2006, the FTC assisted in
criminal prosecutions of 117 FTC
defendants or their associates.
Significant criminal referrals arose
from these FTC matters:

Box 6

Significant Redress Orders – $590 Million
April 2005 – February 2006
Stewart Finance Co.,
$10.5m
Call Center Express Corp.,
$13.9m
Electronic Products Distribution, L.L.C.,
$43.5m
National Consumer Council, Inc.,
$84.3m
AmeriDebt, Inc.,
$170.0m
NorVergence, Inc.,
$181.7m
$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

(in millions)

• 	 Project “Biz Opp Flop.”
The DOJ’s Office of Consumer Litigation and two FTC attorneys designated as Special
Assistant U.S. Attorneys charged 32 business opportunity scam artists with felonies,
including mail and wire fraud. Thus far, 18 defendants have pled guilty, and 13 of these
have been sentenced to prison for terms ranging from 24 to 135 months.
•

	 hoenix Avatar. As a result of a criminal referral from this FTC case, the first
P
defendant prosecuted under the criminal provisions of the CAN-SPAM Act pled guilty
to three felony counts.

• 	 The Crescent Publishing Group. In another referral, six defendants in an organized
crime prosecution arising from this fraudulent credit card billing case pled guilty and
received sentences ranging from 15 to 108 months.
Box 7

Significant Civil Penalty Cases
April 2005 - March 2006
ChoicePoint
DirecTV, Inc.
K B Home
NBTY, Inc.

$10.0 million
$5.3 million
$2.0 million
$2.0 million

Deceptive Lending Practices and Other
Credit Schemes. The FTC pursues unscrupulous
lenders who deceive consumers about loan terms,
rates, and fees. The FTC also takes action against
bogus organizations that target consumers with bad
credit or significant debt, promising to help them
obtain credit or manage their debt. These deceptive
transactions can have a financially devastating
impact on consumers who often face high-cost
mortgage loans, ruined credit histories, foreclosure,
or bankruptcy as a result.

• 	 Deceptive Credit Counseling Services. In January 2006, the FTC settled its action
against Andris Pukke, the founder of defendants AmeriDebt and DebtWorks, and the
other remaining defendants. The FTC settlements shut down the corporate defendants,
permanently banned Pukke from the credit counseling business, and imposed a $172
million suspended judgment. In addition, Pukke agreed to relinquish virtually all of his
assets for consumer redress, a fund that could ultimately total $35 million.

20


Federal Trade Commission


• 	 Deceptive Mortgage Lending. In November 2005, the FTC announced a settlement
with the Stewart Finance Company and seven related companies. The defendants
allegedly deceived tens of thousands of consumers by packing optional products, such
as accidental death and dismemberment insurance, into the small consumer loans
they financed. The settlement shut down the companies and imposed a $10.5 million
judgment.
• 	 Mortgages Para Hispanos.Com. In January 2006, the FTC filed a complaint in federal
district court against defendant Mortgages Para Hispanos.Com and its principal, Daniel
Moises Goldberg, for allegedly making oral misrepresentations of key loan terms in
Spanish while providing mortgage loans written in English to borrowers with little or no
English proficiency. Borrowers were unable to read English-language loan documents
that contained loan terms substantially different from what was promised.
• 	 Debt Collection. In July 2005, the FTC won a $10.2 million summary judgment
against National Check Control and its principals, the largest award obtained by the
FTC for violations of the Fair Debt Collection Practices Act. The FTC alleged that the
defendants illegally harassed and falsely threatened consumers with criminal charges
if they did not pay the debts. The judgment is currently on appeal to the U.S. Third
Circuit Court of Appeals.
• 	 Deceptive Credit Repair Services. In February 2006, the FTC announced Project
Credit Despair, a sweep of cases against 20 different credit repair operations by the
FTC, DOJ, U.S. Postal Inspection Service (USPIS), and eight state regulators. These
actions targeted companies allegedly charging consumers in advance for credit repair
services in violation of the Credit Repair Organizations Act and misrepresenting their
services by, for example, claiming the companies could remove any and all bad items
from consumers’ credit histories, regardless of accuracy or timeliness.
Health, Safety, and Weight-Loss Claims. Truthful and substantiated health benefit claims
in advertising can be an important source of information for consumers. For that reason, the
FTC’s enforcement program focuses on combating deceptive health claims, particularly weightloss and serious disease-prevention claims. From March 2005 through February 2006, the FTC
brought or settled 31 law enforcement actions in this area, including the following:
•

	 ropicana. In June 2005, Tropicana Products, Inc. settled charges that it made
T
unsubstantiated claims about the health benefits of its “Healthy Heart” orange juice.
The FTC challenged claims that drinking two to three glasses of juice a day would
produce specific and dramatic effects on blood pressure, cholesterol, and homocysteine
levels, thereby reducing the risk of heart disease and stroke. The settlement prohibits
the company from making these or other false or unsubstantiated claims.

•

Myfreemedicine.com. Many prescription drug companies offer free or low-cost
	
drugs to people who do not have prescription drug coverage, cannot afford to pay for
medication out of pocket, or have exhausted their insurance plan’s annual allowance.
In September 2005, the FTC alleged that Myfreemedicine.com, LLC and its principal
lured low-income consumers with no insurance into spending $199 each by falsely
claiming that they would receive free prescription medication.

21


Federal Trade Commission


•

	 ero Vita Health Products. The FTC settled a federal district court case alleging that
G
A. Glenn Braswell, Chase Revel, seven affiliated companies, two expert endorsers,
and one additional individual sold dietary supplements to elderly consumers through
deceptive ads masquerading as scientific journals. The FTC alleged that these
defendants made false claims that their Gero Vita products could cure, prevent, or treat
a number of serious conditions such as emphysema, diabetes, and Alzheimer’s disease.
The settlement with Braswell bans him from direct response marketing of any foods,
unapproved drugs, or dietary supplements, and requires him to turn over $4.5 million in
cash and other assets.

Project Scofflaw. As part of its law enforcement tools, the FTC secures orders against
companies that allegedly have violated various consumer protection laws to protect consumers
from any further fraud and deception. If these orders are violated, the FTC deploys the full range
of powers available to stop repeat offenders and to deter other defendants from ignoring order
provisions.
•

	 rochnow. A federal district court entered findings that awarded the government
P
$5.45 million in civil penalties and $1.68 million in disgorgement against Richard
Prochnow for his alleged violations of a 1996 FTC order and the Telemarketing Sales
Rule (TSR) in connection with
Box 8
deceptive marketing of magazine
Project Scofflaw - 2005
subscriptions and buying club
Criminal Prosecutions
memberships.
•

7 defendants sentenced

• 	 NBTY, Inc. A leading
• 47 years total confinement
manufacturer and distributor of
• $1.1 million total criminal restitution ordered
dietary supplements agreed to a
$2 million civil penalty to settle
charges that it violated the terms of a 1995 FTC order by making false and misleading
health claims about two products.
Hispanic Law Enforcement Initiative. The FTC’s 2004 Consumer Fraud Survey
found that Hispanic consumers are victimized disproportionately by fraud. In response, the
FTC launched an Hispanic Law Enforcement and Outreach Initiative and announced 34 law
enforcement actions involving Spanish-language frauds. Eleven new cases were filed in the past
year that include alleged scams involving disease cures, weight loss products, discount health
cards, advance-fee credit cards, mortgage lending, business opportunity schemes, and prize
promotions.

2. 	 Tools to Identify Fraud and Deception
Over the past year, the FTC continued to improve its methods for identifying fraud and
deception. These methods, which involve the collection and analysis of information about
consumer experiences in the global marketplace, assist the agency in formulating and advancing
its consumer protection agenda.
Consumer Response Center. The Consumer Response Center (CRC) remains a vital
resource for both consumers and law enforcement. Each week, the CRC handles more than

22


Federal Trade Commission


30,000 contacts from consumers and businesses.
These contacts come via the FTC’s toll-free
numbers (1-877-FTC-HELP and 1-877-IDTHEFT), the FTC’s website, and the U.S. mail.
The CRC also supports the efforts of other law
enforcement agencies. For example, the CRC acts
as the primary response center for USPIS’s recent
Internet fraud and cross-border fraud consumer
education campaigns and for the Hurricane
Katrina Fraud Taskforce.

Box 9

FTC Call Center Ranked #1
Annually, the American Customer
Satisfaction Index ranks U.S. Federal
Government call center services based
upon the results of consumer satisfaction
surveys gathered during the year. This
year, the FTC’s call center services on the
FTC Help and ID Theft lines were ranked
#1 among all federal call centers providing
similar services.

Consumer Sentinel. Consumer Sentinel,
the FTC’s fraud and identity theft complaint database, now houses nearly 3 million complaint
records. Sentinel provides about 1,500 law enforcement agencies across the globe with
immediate access to these complaints. Sentinel also provides law enforcers worldwide with
cybertools to share information, coordinate investigations, and pursue leads.
Identity Theft Tools. Identity theft continues to be the top consumer fraud complaint
received by the FTC. Consumers file complaints and receive helpful information concerning
identity theft from the FTC’s toll-free hotline and website. In 2005, the FTC entered into an
agreement with The Identity
Theft Assistance Center (ITAC),
Box 10
Top Consumer Fraud Complaints
a cooperative initiative of the
Calendar Year 2005
financial services industry, under
which ITAC provides its identity
theft complaint data to the FTC.
Nearly 1,400 law enforcement
agencies have access to this
searchable database of complaints.
The FTC also coordinates ID theft
law enforcement training for state
and local law enforcers. To date,
the FTC, in cooperation with its
partners, has conducted 20 training
seminars attended by more than
2,880 officers from more than
1,000 agencies.
Advance-Fee Loans
and Credit Protection

2%


Telephone Services
2%

Other
17%

Business Opportunities

and Work-at-Home

Plans

2%

Internet Services and

Computers

5%


Identity Theft
37%

Prizes, Sweepstakes
and Lotteries

7%


Shop-at-Home and 

Catalog Sales

8%


Foreign Money Offers
8%

Internet Auctions
12%

Spam Database. “Spam,” the popular name for unsolicited commercial email, is a major
concern for all Internet users. Since 1998, the FTC has maintained an electronic mailbox to
which the agency encourages consumers and businesses to forward spam (spam@uce.gov).
This mailbox now receives more than 300,000 pieces of spam daily. The total number of spam
received by the FTC has grown by more than 100 million in the past year to more than 300
million. The database is instrumental in the development of the FTC’s CAN-SPAM enforcement
actions as well as cases brought by other state and federal agencies. For example, the DOJ’s
Child Exploitation and Obscenity Section used evidence from the spam database to obtain

23


Federal Trade Commission


federal grand jury indictments against three individuals on charges of violating the CAN-SPAM
Act, along with federal obscenity, money laundering, and conspiracy charges.
Cross-Border Fraud Website. The FTC hosts www.econsumer.gov – a joint project of
consumer protection enforcement agencies from 20 countries. Through this site, consumers
around the world can file cross-border complaints
Box 11
that can be accessed by the participating
Privacy Is a Global Consumer Concern
government agencies. The FTC and its
international partners use the complaint data to
“Durante más de una década, una
identify cross-border consumer fraud trends.

B. Consumer Privacy	
Consumers’ privacy and data security
continue to be important national and international
consumer concerns, and protecting them is a key
part of the FTC’s consumer protection mission.
In 2006, the FTC established a new Division
of Privacy and Identity Protection. The new
division – which consists of over 30 staff with
expertise in privacy, data security, and identity
theft – addresses cutting-edge consumer privacy
matters through aggressive enforcement, as well
as rulemaking, policy development, and outreach
to consumers and businesses.

de nuestras prioridades fundamentales
ha sido la de proteger la privacidad de
los consumidores estadounidenses. La
privacidad, que continúa siendo un tema
importante, se ha convertido en un asunto
de significativa preocupación para los
consumidores en la era informática.”

Chairman Deborah Platt Majoras
addressing the issue of consumer privacy
and security on February 1, 2006, in Mexico
City, Mexico.
[“For more than a decade, one of our top
priorities has been protecting the privacy of
American consumers. Privacy, while always
important, has become an issue of significant
concern to consumers in an information age.”]

1. 	 Data Security Law Enforcement
Concerns about data security have spiked with recent press reports about breaches of
data security. The FTC has an active law enforcement program to address such breaches and
encourage appropriate security. Over the past 12 months, the FTC expanded this program,
deploying the agency’s full arsenal of statutory tools to bring cases against companies that failed
to implement reasonable measures to protect sensitive consumer information. The FTC has
challenged security practices as unfair and deceptive in violation of the FTC Act. The agency
has also challenged these practices as violations of the Fair Credit Reporting Act (FCRA) and the
Gramm-Leach-Bliley Act (GLBA).
•

	 hoicePoint. In January 2006, the FTC announced a settlement with consumer data
C
broker ChoicePoint, Inc., resolving allegations related to a security breach a year
earlier. According to the complaint, the data of over 160,000 consumers had been
compromised, including Social Security numbers and nearly 10,000 consumer reports.
The FTC alleged that ChoicePoint’s failure to employ reasonable procedures to protect
sensitive consumer information was an unfair practice. The FTC further alleged
that ChoicePoint violated the FCRA by not taking reasonable steps to ensure that the
customers to whom they were selling consumer report information had a permissible
purpose for obtaining it. The settlement includes a $10 million civil penalty for the

24


Federal Trade Commission


alleged FCRA violations – the largest civil penalty in FTC history – and $5 million in
redress for consumers who suffered identity theft as a result of the breach.
• 	 BJ’s Wholesale Club. In June 2005, retailer BJ’s Wholesale Club settled charges that
it engaged in an unfair practice by failing to employ reasonable measures to secure
sensitive consumer information. According to the FTC’s complaint, credit and debit
card information stored on BJ’s computers was used by an unauthorized person to make
millions of dollars of fraudulent purchases. The FTC charged that BJ’s engaged in a
number of practices which, taken together, failed to provide reasonable security for this
sensitive data. The settlement requires BJ’s to implement a comprehensive information
security program and obtain third party audits of the program for 20 years.
•

	 SW. In December 2005, shoe discounter DSW Inc. settled FTC charges that it
D
failed to take reasonable security measures to protect sensitive customer data. The
complaint alleged that DSW’s data-security failure allowed hackers to gain access to
the sensitive credit card, debit card, and checking account information of more than 1.4
million customers. The consent order provides for strong injunctive relief similar to the
requirements in the BJ’s settlement.

• 	 CardSystems Solutions, Inc. In February 2006, the FTC announced its first case to
address alleged security failures by a credit and debit card processor. According to
the complaint, CardSystems’ breach involved up to 40 million credit and debit cards.
Like the previous settlements in this area, CardSystems is required to implement a
comprehensive information security program and obtain audits to show compliance.
• 	 Superior Mortgage Corp. In September 2005, the FTC settled allegations that
Superior Mortgage Corp. violated the GLBA Safeguards Rule. The FTC alleged that
the broker failed to establish an information security program, as required by the Rule,
and misrepresented that sensitive mortgage application information was encrypted
before being sent by email. The order prohibits future violations and requires an
information security program and third party audits. This is the third case to enforce the
requirements of the Safeguards Rule and is part of the FTC’s ongoing efforts to ensure
compliance with the Rule.

2. 	 Do Not Call Registry Law Enforcement
The FTC’s National Do Not Call (DNC) Registry protects consumer privacy by prohibiting
commercial telemarketing calls to consumers who register their telephone numbers. Since
2003, more than 122 million telephone numbers have been registered with the National Do Not
Call Registry. Compliance with this law has been high and the Registry has been a significant
success. Yahoo! ranked the launch of the FTC’s Do Not Call website as one of the top 100
moments on the web over the last 10 years. The success of the DNC Registry has also caught the
attention of the international community. Encouraged by the success of the Registry, Canadian
and Mexican agencies have consulted with the FTC in developing their own do not call registry
frameworks.
The FTC collects and aggressively monitors Registry-related complaints, which are shared
with other federal and state law enforcers through Consumer Sentinel. Since October 2003,

25


Federal Trade Commission


the agency has filed 19
enforcement actions
against 102 individual
and corporate defendants,
alleging that they had
called consumers whose
numbers were on the DNC
Registry. In 12 of those
cases, the FTC obtained
settlements with orders
requiring payment in the
aggregate of more than $6
million in civil penalties
and more than $5 million
in consumer redress.
•

Box 12

National Impact of the Do Not Call Registry
Harris Interactive® Survey, released Jan. 12, 2006

����

Three-quarters of all U.S. adults have signed up for the registry.
Findings:
• 94% of all adults have heard of the Registry.

• 76% of adults say that they have signed up for the Registry. 

• 91% of those who have registered report receiving fewer telemarketing 

calls, including —

• 18% who report they have received none,
	 irecTV. In
D
• 61% who report they have received some but far less than before, and
December
• 12% who report they have received some, but a little less than before.
2005, the FTC
announced the
Source: http://www.harrisinteractive.com/harris_poll/index.asp?PID=627
largest civil
penalty to date in
a Do Not Call matter when it filed a complaint and stipulated order against DirecTV and
several telemarketing firms. The complaint alleged that the telemarketers, calling on
behalf of DirecTV, contacted consumers on the Registry. The complaint further alleged
that DirecTV provided substantial support to one of the telemarketers, even though it
knew (or consciously avoided knowing) that the company was violating the TSR. The
settlement with DirecTV called for $5.3 million in civil penalties. The orders against
two of the telemarketers required them to pay civil penalties of $25,000 and $50,000.

• 	 The Broadcast Team. The DOJ filed a civil penalty action, on the FTC’s behalf,
against The Broadcast Team (TBT), a Florida telemarketer. The complaint alleges
that TBT called telephone numbers on the Registry to deliver prerecorded charitable
solicitations, and also violated the “call abandonment” provisions of the TSR, which
limit telemarketers’ use of recorded messages by requiring that calls answered by a
person be connected to a live representative within two seconds. The complaint alleges
that TBT called more than one million Registry-protected numbers and caused more
than 64 million abandoned calls.

C. High Tech Law Enforcement
Increasingly sophisticated cyberscammers continue to wreak havoc over the Internet, using
a range of technological tools to defraud consumers, steal their information, and invade their
privacy. The FTC has taken the lead to protect consumers from technology-driven threats to the
security of their personal data and information, personal computers, and email inboxes.

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Federal Trade Commission


Spam. Spam, a frequent source of fraudulent and deceptive sales pitches, now increasingly
is used to deliver “spyware” and download viruses onto consumers’ computers, and often
represents an unwanted intrusion into their privacy. To date, the FTC has filed 85 law
enforcement actions targeting spam, including 22 cases since the enactment of the CAN-SPAM
Act. These 85 cases targeted 237 defendants, and resulted in final orders requiring payment of an
aggregate of nearly $17 million in redress or disgorgement and $1.1 million in civil penalties.
•

	 utton Pusher Sweep. In 2005, the FTC spearheaded a cross-border law enforcement
B
initiative targeting spammers – “button pushers” – who allegedly hijacked consumers’
computers and turned them into spamming machines that relayed the illegal spam while
concealing the real sender. This CAN-SPAM sweep involved eight law enforcement
actions: the FTC filed three actions halting alleged spam operations; the Canadian
Competition Bureau settled two cases; and state agencies filed complaints seeking to
block the alleged illegal spamming of three more operations.

•

	 et Everyone. In January
N
2006, the FTC sued three
individuals doing business as
Net Everyone – a company
using so-called “botnets” to
send pornographic spam, in
violation of the CAN-SPAM
Act and the FTC’s Adult
Labeling Rule under the
Act. A “botnet” consists of a
multitude of spam zombies,
often used to conceal the
source of spam. A federal
court issued an ex parte
temporary restraining order
halting the unlawful activities
and freezing the defendants’
assets.

Box 13

Fulfilling the Promise of the Internet
Commissioner Jon Leibowitz continues to play an
active role in promoting initiatives to ensure the promise
of the Internet and to safeguard online consumer
commerce and privacy. Commissioner Leibowitz is
particularly concerned about the substantial harm to
consumers caused by spyware and nuisance adware
that is downloaded onto Internet users’ computers
without their knowledge or consent. In October 2005,
Commissioner Leibowitz spoke about spyware and
adware at a Direct Marketing Association Conference
and pressed marketers to adopt “best practices” to
promote responsible and ethical electronic marketing.
Similarly, on competition issues, Commissioner
Leibowitz has expressed strong interest in promoting
and ensuring fair competition in markets affecting
consumer access to the Internet. He has spoken out
against efforts by incumbent cable and phone providers
to enact state laws that prevent municipalities from
providing broadband service to their residents.

• 	 Adult Labeling Rule
Crackdown. In summer 2005, the FTC charged seven companies in a sweep enforcing
the Adult Labeling Rule and the CAN-SPAM requirements to include warning labels on
email that contains sexually-explicit content. Settlements in four of the cases require
payment of an aggregate of $1.1 million in civil penalties and impose strong injunctions
that prohibit future law violations and require the defendants to monitor closely the
activities of so-called “affiliates,” who send spam on their behalf to draw visitors to the
defendants’ websites. The other three cases are still in litigation.
Spyware. Over the past 12 months, the FTC expanded its enforcement against “spyware”
and “adware” programs that are installed on consumers’ computers without their knowledge or
consent and are used to monitor their computer use, take control of or damage their computer,
or send them a blizzard of advertising. Since April 2005, the FTC filed four new cases focused

27


Federal Trade Commission


on preserving consumers’ rights to decide which software programs to install and retain on
their computers and preventing substantial harm from software programs installed or remaining
against their wishes. On February 9, 2005, Chairman Majoras delivered the keynote address
to the Anti-Spyware Coalition’s first public workshop: Defining the Problem, Developing
Solutions. During her remarks, the Chairman explained that the FTC’s law enforcement actions
reaffirm three key principles about spyware: (1) a consumer’s computer belongs to him or
her, not to the software distributor; (2) buried disclosures do not work, just as they have never
worked in more traditional areas of commerce; and (3) if a distributor puts a program on a
consumer’s computer that the consumer does not want, the consumer must be able to uninstall or
disable it.
•

	 nternet Media. In November 2005, the FTC filed a complaint alleging that the
E
defendants, including Enternet Media, Inc., duped consumers into downloading and
installing their exploitive software code by disguising it as innocuous, free software.
The FTC obtained a preliminary injunction prohibiting the defendants from continuing
their illegal spyware distribution and freezing over $2 million in personal and corporate
assets.

•

	 rustsoft. In June 2005, the FTC filed a complaint challenging allegedly bogus claims
T
that the defendants’ anti-spyware products removed all spyware from consumers’
computers. Under a final settlement reached in January 2006, the defendants agreed to
pay approximately $1.9 million and to abide by a permanent injunction.

•

	 dvertising.com. In September 2005, Advertising.com, Inc., settled FTC charges
A
that it failed to disclose adequately that its Spyblast Internet security program included
adware in violation of the FTC Act. The complaint alleged that the respondents
offered consumers a free security software program, but disclosed only in the End User
License Agreement (EULA) that the program was bundled with software that tracked
consumers’ Internet browsing and delivered pop-up advertising. The settlement requires
that the company clearly and prominently disclose adware bundled with software
advertised to enhance security or privacy.

• 	 Odysseus Marketing. In September 2005, the FTC filed a complaint alleging that the
defendants failed to disclose adequately to consumers that their anonymizer program
also installed other, harmful programs. The complaint alleges that the existence of those
additional programs was disclosed only in the middle of the EULA. The complaint also
alleges that consumers could not remove the harmful software through any reasonable
means. The defendants currently are subject to a preliminary injunction.

D. Consumer Privacy and High Tech Rulemaking
In addition to aggressive law enforcement efforts, the FTC has an active rulemaking
program to implement provisions of the Fair and Accurate Credit Transactions Act of 2003
(the FACT Act) and enhance compliance with the CAN-SPAM Act. The FTC’s objective is
to promulgate rules that carry out the intent of Congress – protect consumers’ data and reduce
unwanted intrusions in consumers’ personal lives.

28


Federal Trade Commission


The FACT Act. The FACT Act provides important tools to protect consumer privacy,
enhance the accuracy of credit report information, increase consumer access to such information,
help prevent identity theft, and help assist identity theft victims. The Act required the FTC
to promulgate 18 rules, in some cases alone and in others in consultation or jointly with other
federal agencies. In 2005, the FTC issued a final rule requiring businesses that make firm offers
of credit or insurance to consumers (often called “prescreened offers”) to provide enhanced
disclosures of consumers’ right to opt out of receiving such offers. In addition, the FTC’s
Disposal Rule, which requires entities to take reasonable steps to protect against unauthorized
access to or use of consumer report information in connection with its disposal, became effective
in June 2005.
The FACT Act also gave consumers the right to a free
annual credit report from each of the three national consumer
reporting agencies. After the completion of the program’s
rollout in September 2005, the FTC launched an initiative
against “imposter” websites that mimic the free annual report
website. This initiative included warning letters to about 130
such sites, a new consumer education campaign, and the filing of
a complaint and settlement with Consumerinfo.com, a company that offered “free” credit reports
in conjunction with a credit monitoring service. The settlement requires Consumerinfo.com to
make prominent disclosures about the terms of the offer and the fact that it is not associated with
the FACT Act free report program. The company also agreed to pay refunds to consumers who
may have been deceived by the offer.
CAN-SPAM Discretionary Rulemaking. In May 2005, the FTC issued a Notice of
Proposed Rulemaking (NPRM) on a number of issues designed to enhance compliance with the
CAN-SPAM Act of 2003. The NPRM contained proposals and clarifications affecting certain
definitions under the Act, including those of “sender” and “valid physical postal address.”
Among other things, the NPRM proposed shortening the deadline for senders to effectuate a
recipient’s opt-out request, and clarifying that a recipient may not be required to do more than
send a reply email message or visit a single Internet web page to submit a valid opt-out request.

29


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30

Federal Trade Commission


Chapter 3 – Policy Tools to Complement Law Enforcement
As a complement to its law enforcement actions, the FTC promotes competition and
advocates on behalf of consumer interests through a wide variety of activities, such as research
and reports, workshops, advocacy filings, amicus briefs, and educational outreach to consumers
and businesses. Through these activities, the FTC educates itself about emerging issues and
shares information with other policymakers, business leaders, the bar, and the general public,
providing intellectual leadership on important issues within its jurisdiction. These activities also
provide the FTC with unique opportunities to communicate the essential role of competition in
the marketplace and to provide analysis on a wide variety of consumer protection issues.

A. Competition Policy
A vigorous policy agenda in the competition mission is especially critical to enable the FTC
to monitor and often lead new developments in antitrust and economics scholarship and stay
abreast of marketplace trends.

1. 	 Research and Reports
The FTC continues its historic role of performing research and issuing reports on a range
of topics relevant to competition and the marketplace. These topics are of ongoing interest and
importance to the economy, such as energy and health care.
• 	 Report on Ethanol Market Concentration. This year, in response to a mandate of
Congress, the FTC performed a market concentration analysis of the ethanol industry.
The agency’s analysis, which was submitted to Congress and the Environmental
Protection Agency in accordance with the Energy Policy Act of 2005, concluded that
national ethanol production is not currently concentrated to a level that would raise
antitrust concerns. The analysis also concluded that the likelihood of anticompetitive
conduct in the future is low because barriers to entry are low and significant new
entry in ethanol production and marketing is expected in the next year and is likely to
continue for several more years.
• 	 Electricity Task Force. Also in response to a directive of Congress, the Chairman
appointed a staff member to the five-member interagency Electric Energy Market
Competition Task Force. The Energy Policy Act of 2005 requires the task force to
“conduct a study and analysis of competition within the wholesale and retail market
for electric energy in the United States.” The task force has sought public comment on
the critical elements for effective wholesale and retail competition, the status of each
element, any impediments, and suggestions for overcoming such impediments.
• 	 Gasoline Price Changes Report. In July 2005, the agency issued a report examining
the wide range of factors that cause fluctuations in the prices that American consumers
pay for gasoline. The report concluded that over the past 20 years, changes in the price
of crude oil have led to the vast majority of the changes in the retail price of gasoline
in the United States. Other important factors include increasing demand at both the

31


Federal Trade Commission


national and international 

Box 14
Figure ??
Comparison of the National Average Price of Gasoline
levels; supply 

and the Price of West Texas Intermediate Crude (1984-2005)
restrictions resulting 

from circumstances such 

as political instability, 

refinery fires, or 

hurricanes; federal, state, 

and local regulations, 

such as “clean fuel” 

requirements; and taxes. 

The report provides 

real-world examples of 

how short supplies can 

increase prices, which in 

Source: Energy Information Administration, U.S. Dept. of Energy
turn moderate demand 

and prompt the influx of 

additional supplies, which then act to ease prices.

$60

$2.00

National Gasoline Average (Excluding Taxes)
West Texas Intermediate Crude

$50

$1.60

Price Per Gallon

$1.40

$40

$1.20

$30

$1.00
$0.80

Price per Barrel

$1.80

$20

$0.60

$0.40

$10

$0.20

-0
5

Ja
n

-0
2

-0
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-0
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-9
9

-9
8

-9
7

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$0

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$0.00

PBM Conflicts of Interest Study. At the direction of Congress, the FTC considered
whether ownership of mail-order pharmacies by pharmacy benefit managers (PBMs)
creates a conflict of interest. The FTC
Box 15
used its compulsory process authority
Improving the Institutional Foundations for
under Section 6(b) of the FTC Act to
Competition Policy and Consumer Protection
gather detailed information and data.
In September 2005, the Commission
Competition and consumer protection laws
issued its report entitled, “Pharmacy
are only as effective as the institutions entrusted
with implementing them. Since joining the FTC,
Benefit Managers: Ownership of MailCommissioner William E. Kovacic has emphasized
Order Pharmacies: A Federal Trade
the need to strengthen the institutional arrangements
Commission Report,” concluding that,
through which the FTC carries out its duties,
in 2002 and 2003, prescription drug plan
especially if it is to continue to enjoy standing and
sponsors generally paid lower prices for
influence in the global community. Current efforts
include:
drugs purchased through PBM-owned
mail-order pharmacies than for drugs
• 	 Ex Post Evaluations. The FTC is continuing
purchased through mail-order or retail
efforts to assess the impact of FTC merger policy
pharmacies not owned by PBMs.
in the petroleum industry and to refine techniques
•

for conducting ex post review.
• 	 Process Improvements. The FTC recently
announced reforms to curb the cost and time to
review proposed mergers.
• 	 Better Cooperation in Enforcement. The FTC
is striving to enhance its cooperation with law
enforcement agencies at home and abroad, such
as by supporting enactment of the US SAFE WEB
Act.
• 	 Investing in Knowledge. The FTC and DOJ have
announced joint hearings to consider issues
dealing with dominant firm behavior.

32


2. Hearings and Workshops
Hearings and workshops are
among the FTC’s most powerful policy
“research and development” tools. They
allow the agency to assemble experts
from the business, government, legal,
and academic communities to engage
in an in-depth analysis of important and
often contentious issues. These hearings

Federal Trade Commission


and workshops can lead to significant advances in cutting-edge knowledge of competition policy
issues.
• 	 Workshop on Competition Policy and the Real Estate Industry. Prompted by the
substantial changes taking place in the real estate industry, as well as by consumers’
interest in a competitive real estate marketplace, the FTC and DOJ co-hosted a public
workshop in October 2005. The workshop provided an opportunity to hear from all
sides on the many issues facing the industry, including, among others, the effect of
various state regulations and private actions on emerging, nontraditional business
models, such as Internet sales; the use of the Internet as an efficiency-enhancing
tool; and empirical evidence on the state of competition in the real estate industry. In
attendance were representatives from several real estate trade associations, real estate
commissions from across the United States and Canada, and several different types of
brokerage firms, including traditional, discount, and fee-for-service brokerage firms.
• 	 Workshop on Patent Reform. Together with the National Academies’ Board on
Science, Technology, and Economic Policy, and the American Intellectual Property
Law Association, the FTC co-sponsored several patent reform workshops, structured in
a town meeting format. The final workshop addressed draft patent reform legislation,
still under consideration in the House of Representatives, that would direct the
implementation of a post-grant opposition system and modify the doctrine of willful
infringement, as recommended in the FTC’s 2003 report, “To Promote Innovation: The
Proper Balance of Competition and Patent Law and Policy.”
• 	 Looking Ahead – Hearings on Conduct Under Section 2 of the Sherman Act. In
November 2005, the FTC and DOJ announced that they will hold a series of public
hearings designed to examine the antitrust implications of certain exclusionary conduct
under the antitrust laws. The primary goal of the hearings is to examine whether and
when specific types of single-firm conduct are pro-competitive or benign, and whether
and when they may harm consumers. The hearings will examine and analyze a wide
range of legal and economic issues to help define the boundaries between legal and
illegal conduct under Section 2.

3. Advocacy
An important complement to the FTC’s efforts to prevent or eliminate private restrictions
on competition are efforts to prevent or eliminate public impediments to competition that
may reduce consumer welfare. Government-imposed impediments can be among the most
durable and effective restraints on competition. Thus, in response to requests, the FTC advises
state and federal entities, as well as the courts, on the potential competitive impact of pending
governmental actions, focusing on the same critical economic sectors that receive emphasis in
FTC law enforcement: energy, health care, and others that have a major impact on consumers’
wallets.
•

Electricity. The FTC filed two comments with the Federal Energy Regulatory
	
Commission (FERC) in August 2005, concerning electricity transmission. In the first
comment, FTC staff emphasized the importance of FERC’s initiatives to reduce entry

33


Federal Trade Commission


impediments that stem from risks in obtaining transmission services in wholesale
electricity markets. In the second comment, the FTC staff focused on methods
of calculating the amount of available capacity and ways to prevent transmission
discrimination within the electricity industry. The FTC staff filed an additional
comment with FERC in January 2006, regarding economically sound ways to assess
market power at the generation level in wholesale electricity markets.
•

	 harmacy Benefit Managers. Concerned about likely cost increases in pharmaceutical
P
markets, the FTC staff submitted a comment regarding the potential effects of
legislation in North Dakota that would regulate PBM contracts with pharmacies. The
comment explained that such regulation would prevent health plans from designing
benefit plans to encourage participants to use network pharmacies that provide
drugs at a lower cost than other network pharmacies, and also explained that the
drug-substitution provisions of the bill likely would make safe and price-reducing
substitutions less common, thereby likely increasing the price of drugs and health
insurance premiums and reducing the availability of drug insurance coverage for
consumers.

•

	 harmaceuticals. Concerned that a proposed interpretation of FDA regulations would
P
have significant negative implications for competition in the pharmaceutical industry
to the detriment of consumers, the FTC submitted a response to a citizen petition filed
with the FDA by IVAX Pharmaceuticals in connection with its attempt to gain approval
for a generic version of the cholesterol drug, Zocor. The FTC argued against an
interpretation of relevant FDA regulations relating to the approval of generic drugs that
would restrict choices for consumers.

• 	 Optometrist Services. In March 2005, the FTC staff submitted comments regarding
the potential effects of three different eye care bills under consideration in the Virginia
Assembly. Two of the bills would prohibit an optometrist from working in any
location that provides direct access to a commercial establishment. The comments
argued that such a prohibition would impair competition between commercial and
independent optometrists, and likely would cause consumers to pay higher prices for
eye examinations and optical goods without providing any countervailing benefits
in the form of higher quality eye care. The third bill, conversely, would ease current
restrictions in this area by eliminating prohibitions on optometrists working in a
commercial establishment, likely benefitting consumers with lower prices without
reducing the quality of eye care.
• 	 Real Estate Minimum-Service Requirements. In 2005, the FTC and DOJ jointly
advocated against the passage of laws and regulations in Michigan, Missouri, Alabama,
and Texas that would have imposed minimum-service requirements on real estate
brokers in those states. Under the proposed legislation, real estate brokers would have
to provide certain services – including negotiation, assistance in closing, and advice on
pricing – to consumers, regardless of whether consumers actually wanted such services.
The agencies argued that the proposed legislation would restrict consumer choice and
reduce competition between limited-service brokers, who typically offer consumers the
option of purchasing only those services that they want for fixed fees, and traditional,

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Federal Trade Commission


full-service brokers, who typically provide consumers with a full range of services in
exchange for a commission on the sale price of the home.
•

	 ranchising. During 2005, the FTC continued to analyze restrictions on the vertical
F
relationships between alcoholic beverage producers and distributors. FTC staff
provided a comment on proposed legislation regarding wine sales in Ohio. The
proposed legislation, the staff noted, likely would increase wholesalers’ incentives to
lower prices and to undertake efforts to increase demand for wine suppliers’ brands,
thereby likely decreasing the costs of wine distribution and increasing competition
among both suppliers and wholesalers of wine in Ohio. The staff also commented on
proposed legislation that would prohibit California brewers from terminating, refusing
to renew, or refusing to enter into agreements with wholesalers “except for good
cause and good faith.” The comments stated that the legislation likely would reduce
wholesalers’ incentives to provide important demand-enhancing services and to reduce
competition among wholesalers to carry brewers’ brands, to the ultimate detriment of
California consumers.

4. Amicus Briefs
This year, the FTC has continued to be active in providing amicus briefs to help courts
resolve competition policy questions. During the past year, the FTC filed amicus briefs on issues
concerning competition in the pharmaceutical industry, the proper antitrust analysis of joint
ventures, the relationship between patents and market power, the analysis of alleged secondary
line price discrimination in a commercial context where dealers are not in head-to-head
competition for the same sales, and the applicability of American antitrust laws to transactions in
foreign countries.
• 	 In re Tamoxifen Citrate Antitrust Litigation. In this brief, the FTC supported
plaintiffs’ petition for a panel rehearing and rehearing en banc, in a case in which a
divided panel of the U.S. Court of Appeals for the Second Circuit upheld the dismissal
of an antitrust challenge to a patent settlement between the manufacturer of a branded
drug and an FDA applicant for a generic counterpart. The FTC argued that the panel
did not properly consider the Hatch-Waxman Act, which encourages challenges to
pharmaceutical patents to facilitate the early entry of generic drugs, and that, if not
corrected, the panel decision would permit the holder of a challenged drug patent
substantially to harm competition, and thus consumers, by impermissibly paying
a would-be generic rival to stay off the market. The court of appeals subsequently
took the unusual step of directing the defendants to respond not only to the rehearing
petition, but to the arguments of amici, including the FTC.
• 	 Texaco, Inc. v. Dagher. After the U.S. Court of Appeals for the Ninth Circuit ruled that
an agreement between the parents of a joint venture regarding the pricing of products
sold by the venture could amount to a per se violation of the antitrust laws, the FTC and
DOJ filed an amicus brief in support of the petition for certiorari, and later an amicus
brief on the merits in support of reversal. The briefs argued that the pricing agreement
did not qualify for per se condemnation because it did not eliminate any competition
between petitioners in the sale of their respective brands of gasoline. The briefs

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Federal Trade Commission


explained that the Ninth Circuit’s ruling failed to recognize that the formation of the
joint venture had effectively merged the affected operations and terminated petitioners’
prior competition. Accordingly, the briefs argued, petitioners’ agreement was not “price
fixing” in the antitrust sense, because it did not eliminate any competition that otherwise
would have existed. On February 28, 2006, the Supreme Court unanimously reversed,
in keeping with the position taken in the agencies’ brief.
• 	 Illinois Tool Works v. Independent Ink. In this case involving the alleged tying of a
non-patented product (printer ink) to a patented product (printhead system), the U.S.
Court of Appeals for the Federal Circuit ruled that, under its reading of two older
Supreme Court cases, a patent is presumed to confer the necessary market power to
establish a violation of Section 1 of the Sherman Act. The FTC and DOJ filed an
amicus brief urging the Supreme Court to reverse, arguing that there is no economic
basis for inferring any amount of market power from the mere fact that the defendant
holds a valid patent, copyright, trademark, or other intellectual property right. The
brief explained that a patented product, no matter how novel or unique for purposes of
patent law, may – and often does – face competition from other products that consumers
would substitute for the patented invention. The brief urged the Court to resolve any
remaining doubt on the issue by squarely rejecting the presumption. On March 1, 2006,
the Court unanimously reversed, in keeping with the position taken in the Agencies’
brief.
• 	 Volvo Trucks North America v. Reeder-Simco GMC, Inc. The FTC and DOJ filed an
amicus brief in this case, in which plaintiff alleged that Volvo violated Section 2(a) of
the Robinson-Patman Act by failing to sell trucks to plaintiff on the same terms as it
sold such trucks to other Volvo dealers. The record failed to show any episode in which
Volvo discriminated against the dealer when it was competing for a sale against another
Volvo dealer, and it failed to show any instance in which both plaintiff and a competing
Volvo dealer actually purchased trucks at different prices for resale in direct competition
with each other. The Supreme Court agreed with the government’s brief, and held that
a manufacturer may not be held liable for secondary-line price discrimination in the
absence of a showing that the manufacturer discriminated between dealers competing to
resell its product to the same retail customer.
• 	 Empagran v. F. Hoffmann-Laroche. The FTC and DOJ have filed several amicus
briefs in this case, in which foreign purchasers of vitamins alleged to have been the
subject of a worldwide price-fixing conspiracy sought damages under American
antitrust laws. In 2004, the Supreme Court, in agreement with the government’s
position, ruled that the Foreign Trade Antitrust Improvements Act of 1982 does not
permit a plaintiff to maintain an American antitrust action based on an “independent
foreign effect” of alleged unlawful actions, even if those same actions also had domestic
effects. The Supreme Court remanded to the court of appeals, however, to address
plaintiffs’ alternative theory that its injuries were in fact inextricably linked to the
domestic effects of the conspiracy. On remand, the agencies again filed an amicus brief
in the court of appeals, disputing plaintiffs’ alternative theory. As the brief pointed
out, acceptance of that theory – based on the notion that vitamins are fungible and

36


Federal Trade Commission


easily transported, so that maintenance of high cartel prices in the United States was an
essential prerequisite to maintaining the high foreign prices they paid – would vastly
expand application of U.S. law to wholly foreign transactions, contrary to the reasoning
of the Supreme Court. On June 28, 2005, the U.S. Court of Appeals for the D.C. Circuit
agreed with the government’s position and dismissed the action.

The FTC’s Integrated Approach to Competition Policy

Box 16

The FTC uses a variety of tools to achieve its policy goals,
such as promoting competition in the health care industry to lower prices and increase options.
TOOL: Administrative Litigation
• In the Matter of North Texas Specialty Physicians,
Docket No. 9312 (Nov. 29, 2005)
• Schering-Plough Corp. v. FTC, 402 F.3d 1056
(11th Cir. 2005), petition for cert. filed,
(Aug. 29, 2005) (No. 05-273)

TOOL: Advocacy
• Use of pharmacy benefit managers
(North Dakota)
• Competition for optometrist services
(Virginia)
• Interpretation of regulations affecting
approval of generic drugs (FDA)

TOOL: Law Enforcement
• Novartis/Eon (merger involving generic drugs)
• Johnson & Johnson/Guidant (merger involving
medical devices)
• DaVita/Gambro (merger involving dialysis
services)
• Physician price fixing cases (6 cases)
• Warner Chilcott/Barr (nonmerger case involving
oral contraceptives)

GOAL:
Promoting competition for
lower prices and increased
options for better health care.

TOOL: Congressional Testimony

TOOL: Reports

• Effects on competition of entry by singlespecialty hospitals

• PBM Conflicts of Interest Study

TOOL: Amicus Briefs

TOOL: Staff Advisory Opinions

• In re Tamoxifen Citrate Antitrust Litigation
• Empagran v. F. Hoffmann-Laroche

• Stevens Hospital (cost of pharmaceuticals under
Non-Profit Institutions Act (NPIA))
• North Mississippi Health Services (proposed
pricing of pharmaceuticals under NPIA)

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Federal Trade Commission


5. 	 Testimony to Antitrust Modernization Commission
During the past year, the Chairman and FTC senior staff members have testified on a wide
range of subjects before the Antitrust Modernization Commission (AMC), which is charged with
examining how the antitrust laws can or should be modernized to benefit the American economy.
Among the diverse topics addressed were: (1) civil remedies available to the FTC in antitrust
cases; (2) federal merger enforcement, including the merger review process generally, the role of
efficiencies in merger review, and the standards for preliminary injunctions in merger cases; (3)
patent law reform and the relationship between competition and patent law; (4) the state action
doctrine; (5) statutory immunities and exemptions; and (6) international issues, including the
enhanced use of international antitrust comity, possible amendments to international antitrust
statutes, and the authority of both the FTC and DOJ to fund technical assistance programs
abroad.

B. Consumer Protection Policy
In similar fashion, the FTC applied its distinctive mix of policy tools to complement its
consumer protection enforcement. Working with other law enforcement agencies, industry, the
media, and the public, the FTC distributed extensive information on preventing and remedying
identity theft, developed even greater expertise in technological and legal issues related to spam,
and provided important data and analysis on a variety of consumer protection issues.

1. 	 Reports and Research
In addition to using electronic databases and websites to track consumer fraud, the FTC
conducts research of marketplace issues affecting consumers and publishes its findings in reports.
During the past year, the FTC continued to analyze compliance and other issues relating to the
CAN-SPAM Act, as well as issues raised by the use of peer-to-peer file-sharing technology.
• 	 CAN-SPAM Act Reports to Congress. The CAN-SPAM Act required the FTC to
submit four reports to Congress. In 2005, the FTC completed the third and fourth
reports. The Report on Subject Line Labeling as a Weapon against Spam concluded
that such labeling would not be an effective way to curb spam. The Report on the
Effectiveness and Enforcement of the CAN-SPAM Act concluded that, while the Act has
helped to deliver some improvements, passage of the US SAFE WEB Act to improve
the FTC’s ability to trace spammers and sellers who operate outside the United States,
as well as continued education efforts and improvements in anti-spam technology, are
also needed to provide more effective protection for consumers.
• 	 Spam Studies. The FTC staff conducted two spam studies in 2005. The Top Etailers’
Compliance With CAN-SPAM’s Opt-Out Provisions report assessed the opt-out practices
of 100 top e-tailers – those who make significant use of the Internet to market their
goods or services. This group demonstrated a high rate of compliance with CAN­
SPAM’s opt-out provisions. The Email Address Harvesting and the Effectiveness of
Anti-Spam Filters study explored address harvesting – the automated collection of
email addresses from public areas of the Internet, the effectiveness of spam filtering by

38


Federal Trade Commission


Internet Service Providers, and the effectiveness of using “masked” email addresses
as a technique to prevent the harvesting of email addresses. The study concluded that
spammers continue to harvest email addresses posted on websites, but email addresses
posted elsewhere (e.g., in chat rooms or on message boards), were unlikely to be
harvested.
• 	 Peer-to-Peer (P2P) File-Sharing Report. In June 2005, FTC staff issued a report
on Peer-to-Peer File-Sharing Technology: Consumer Protection and Competition
Issues, which analyzes the consumer protection, competition, and intellectual property
issues inherent in the use of P2P technology. The report urges industry to decrease the
consumer protection risks associated with P2P use through technological innovation
and self-regulation. The report also recommends that government continue to bring law
enforcement actions where appropriate, and to work with industry on self-regulatory
and consumer education
Box 17
initiatives. Finally, the report
generally concludes that
Encouraging Effective Industry Self-Regulation
policymakers should balance
In presentations during 2005, Commissioner
the protection of intellectual 	
Pamela Jones Harbour emphasized that self-regulation
property and the freedom to
– when done properly and effectively – benefits both
advance new technologies,
consumers and businesses, because consumers
thereby encouraging the
are more likely to buy products from firms they trust.
Companies should adopt “best practices” wherever
creation of new artistic
possible, such as: 

works, as well as economic
growth and enhanced business 
 • marketing healthier food choices to children;
efficiency.	
• ensuring that recommended high adult audience
•

standards are met or even exceeded when

	 eight-Loss Advertising
W
advertising or showing alcohol in media;
Survey. In April 2005, FTC
• providing nationwide notification to victims of data
staff issued the results of the
security breaches when identity theft is a risk, even
without a Congressional mandate; and
2004 Weight-Loss Advertising
• maximizing the accuracy of consumer data collected
Survey, comparing certain
for any purpose.
weight-loss claims found 	
in advertisements in major
Commissioner Harbour warned that, where industry
media outlets from January
self-regulation does not go far enough, consumers may
lose faith in the marketplace, and/or Congress may
to May 2004, with ads
decide to legislate.
appearing during the same
period in 2001. The report
evaluated the effect of the FTC’s “Red Flag” initiative, which encouraged the media
to stop accepting advertisements that contained any of seven facially false weightloss advertising claims. In general, the survey suggested that the incidence of the
Red Flag false weight-loss claims declined significantly in television, radio, and print
advertisements. Specifically, while nearly half of the comparable ads reviewed from the
2001 survey contained at least one Red Flag claim, only 15 percent of the 2004 weightloss ads made one or more Red Flag claims.

39


Federal Trade Commission


2. 	 Hearings and Workshops
As new developments arise in the marketplace, the FTC holds hearings and workshops to
study emerging issues and to learn from the experiences of consumers, businesses, academia,
other government agency representatives, and a host of other experts in various fields.
• 	 Food Marketing to Children. In July 2005, the FTC hosted a two-day public
workshop with the Department of Health and Human Services (HHS) on Perspectives
on Marketing, Self-Regulation, and Childhood Obesity. The workshop brought together
stakeholders from government, academia, consumer groups, the food industry, and
the media to explore the private sector’s role in addressing the public health crisis of
Box 18

The FTC’s Integrated Approach to Consumer Protection Policy
The FTC uses a variety of tools to achieve its policy goals,
such as combating rising obesity rates, especially among children
TOOL: Law Enforcement
(weight-loss related cases since April 2005)
• 10 new cases filed
• Civil penalties ordered for $2 million
• Consumer redress ordered for $31 million

TOOL: Conferences and Workshop

TOOL: International Cooperation

• FTC/HHS Marketing, Self-Regulation and
Childhood Obesity Workshop (July 2005).

• Staff speeches to the TransAtlantic
Consumer Dialog on FTC aproach to selfregulation (May and December 2005).

TOOL: Consumer and
Business Education
• Eight brochures on weight
loss programs, diet, and
fitness, as well as public
service announcements,
and Internet “micro” sites
and “teaser” sites.
• “Red Flag: Bogus Weight
Loss Claims” guide for
media screening of false
weight loss advertising
claims.

GOAL: Combat rising
obesity rates,
especially among children.

TOOL: Consumer Protection Advocacy
• Comments to FDA on information for better
nutrition.
• Chairman’s speeches to industry
- Obesity Liability Conference (May 2005)
- Council of Better Business Bureaus (April 2005)
- Consumer Federation of America (March 2005).

40


TOOL: Reports and
Studies
• Weight Loss Advertising
Survey (April 2005).
• Bureau of Economics
Study on children’s
exposure to television food
advertising (Preliminary
results released July
2005).
• Food Industry Marketing
Practices to Children
and Adolescents Study
(Federal Register Notice,
February 2006).

Federal Trade Commission


childhood obesity. Discussion focused on industry self-regulatory efforts to ensure that
foods are marketed responsibly to children, with an emphasis on the self-regulatory
program of the Children’s Advertising Review Unit of the Council of Better Business
Bureaus. The workshop also examined efforts that individual companies are making,
through product and packaging changes, advertising, and other marketing and outreach
initiatives, to improve the diets and health of children.
• 	 Dispute Resolution and Redress. The FTC has often provided redress to foreign
victims of fraud perpetrated by U.S. businesses. Few other government agencies,
however, can obtain redress for victims of fraud, much less obtain redress on behalf of
foreign consumers. American consumers are often victimized by scammers abroad,
and the FTC has encouraged other countries to provide redress mechanisms for these
consumers. To this end, in April 2005, the FTC hosted a workshop sponsored by the
OECD on Dispute Resolution and Redress for Consumers. Industry, government,
consumer groups, and academics from all over the world participated. Panelists
discussed various mechanisms through which consumers could obtain compensation
for economic losses arising from transactions with businesses, particularly cross-border
transactions.
• 	 Looking Ahead – Hearings on Global Marketing and Technology. In 1995, the FTC
held hearings for government policymakers to consider the risks presented by rapidly
evolving technologies, such as the Internet, and to formulate policies to address these
risks. In February 2006, the agency announced that in November 2006, the FTC will
bring together experts from the business, government, and technology sectors, as well as
consumer advocates, academicians, and law enforcement officials to explore the ways
in which convergence and the globalization of commerce impact consumer protection.
The upcoming hearings will examine changes that have occurred in marketing and
technology, and garner experts’ views on emerging challenges and opportunities for
consumers, businesses, and government.

3. 	 Advocacy and Amicus Briefs
Advocacy continues to be an important way to enhance consumer welfare. A key element
in promoting competition and preserving consumer choice is fostering the free flow of truthful
and non-misleading information and avoiding unduly burdensome restrictions that might keep
useful information from consumers. Through its enforcement against deceptive health-related
advertising, the FTC has developed substantial experience in policy issues related to food and
drug advertising and labeling, and staff has filed comments with the FDA on these topics. The
FTC also has intervened in court proceedings when important issues affecting consumers are at
stake.
•

Qualified Health Claims. In January 2006, FTC staff filed a comment with the
	
FDA regarding consumer perceptions of health claims made for foods and dietary
supplements. The comment analyzed the available research on consumer perceptions
of health claims supported by limited scientific evidence and concluded that the FDA’s
current approach of using a series of pre-determined, “language only” qualifiers does
not effectively differentiate among varying levels of scientific certainty. The comment

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Federal Trade Commission


suggests that it may be possible to craft more effective “language only” qualifiers, and
that other visual scoring formats (such as a report card format) should be explored. The
comment encourages additional consumer research in this area.
• 	 Alcohol Labeling. In September 2005, FTC staff filed a comment on the proposal by
the Alcohol and Tobacco, Tax, and Trade Bureau (TTB) of the Treasury Department, to
modify its labeling rules for alcoholic beverage products. The comment recommended
that the TTB require that alcohol labels disclose alcohol and nutrient content per
serving, because such information would help consumers select beverages consistent
with their preferences and public health recommendations, and would encourage
manufacturers to compete based on the nutritional attributes of their beverages. The
comment also recommended that the TTB consult with public health agencies to resolve
uncertainty about the quantity of alcohol in a standard “drink,” as described in public
health guidelines, and allow marketers the option of making truthful, non-misleading
representations comparing the amount of alcohol in a serving of their beverage to a
standard drink or to dietary guideline recommendations.
• 	 Illinois Bill Establishing a Child Protection Registry. In October 2005, FTC staff
filed a comment regarding Illinois HB 0572, a bill designed to protect minors from
unwanted commercial e-mails (spam) that advertise products or services they are
prohibited from buying or that contain adult advertising or links to adult content.
The bill would establish a Child Protection Registry and make it illegal to send such
messages to registrants. The FTC staff’s comment noted that the registry could easily
be abused by online child predators; that publishing a list of verified email addresses
could unintentionally increase the amount of spam received by registrants; and that
the bill’s substantial compliance costs could hamper Internet competition and prevent
consumers from receiving legitimate and wanted information.
• 	 Chavez v. Netflix. The FTC filed an amicus brief recommending that the court reject a
proposed class action settlement in Chavez v. Netflix. The proposed settlement offered
current customers one month of upgraded service and former members one free month
of service. Class members who accept the settlement, however, would be obligated
to pay for the expanded or new service on a monthly basis after the conclusion of the
free month, unless or until they cancel the service. The FTC’s objection focused on
this “negative option” feature, arguing that it would be disclosed inadequately and
would serve more as a marketing vehicle than as a redress mechanism. The parties
subsequently restructured their settlement agreement, eliminating this negative option
feature.

4. 	 Consumer and Business Education and Outreach
Education enhances law enforcement efforts, empowers consumers, and ultimately,
improves the quality and choice of goods and services in the marketplace. To promote consumer
confidence, the FTC integrates its education and enforcement missions, delivering “news
people can use” in conjunction with “news of the day” announcements about enforcement and
policy issues. Since April 2005, consumers and businesses have ordered some 6 million print
publications from the FTC, and have logged 35 million visits to www.ftc.gov.

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Federal Trade Commission


• 	 OnGuard Online. The Internet provides access
to countless services, but it also can create
vulnerabilities, if consumers are not careful with
their information and their computers. The FTC,
other law enforcement agencies, the technology
industry, and nonprofit partners together launched
OnGuard Online (onguardonline.gov), an
interactive, multi-media resource for information,
quizzes, and up-to-the minute tools on how to
recognize Internet fraud, avoid hackers and viruses,
shop securely online, and deal with identity theft,
spam, phishing, and file-sharing. OnGuard Online
modules are available in English and Spanish
(AlertaenLinea.gov). The success of this initiative
can be seen in the United States and beyond – a
number of consumer protection agencies from
other countries have adapted the OnGuard Online
materials for their own use, even translating the
materials for their own consumers.

Box 19

STOP. THINK. CLICK.

• 	 Hispanic Outreach. Ever since the FTC’s
benchmark consumer fraud survey showed that
PARE. PIENSE. HAGA CLIC.
Hispanics are twice as likely as non-Hispanic whites
to be victims of consumer fraud, the agency has
placed a priority on outreach to Spanish speakers. During 2005, the FTC held its first­
ever Spanish-only press conference for the launch of AlertaenLinea.gov. The FTC also
launched ¡Ojo!, a bilingual newsletter for Hispanic community-based organizations, and
co-hosted a series of outreach and enforcement workshops with the USPIS. These oneday workshops brought together federal and local law enforcers, community leaders,
and local media to discuss new ways to work together. In addition, the FTC promoted
widely Estableciendo Crédito (Getting Credit), the FTC’s credit website and booklet
that is aimed at Spanish-speaking young adults. As of March 2006, the FTC’s library
of Spanish-language publications for consumers and businesses includes more than 100
publications.
• 	 Hurricane Relief. The FTC’s consumer education program provided a quick response
to protect consumers made vulnerable by Hurricanes Katrina and Rita. The agency
offered consumer education in print, on its website, and through broadcast public
service announcements to prevent victims from being injured by the frauds and scams
that proliferate following such disasters. Beyond the immediate need to prevent fraud
and deception, the FTC also offered materials to assist hurricane victims in rebuilding
their financial lives.
•

	 nergy. Whether trying to save money at the pump or buy the most energy-efficient
E
appliances, consumers want guidance on how to lower their energy bills. A new
website, www.ftc.gov/energysavings, and a booklet, Saving Starts @ Home: The Inside

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Federal Trade Commission


Story on Conserving Energy, compile the FTC’s most recent information on energy
efficiency, making it easier for consumers to access the information.
•

	 dentity Theft. A new educational campaign on identity theft is showing consumers
I
how to minimize their risk of falling victim to identity theft. The campaign encourages
consumers to “Deter, Detect, and Defend” against identity theft by taking steps to
reduce their risk, keep a close eye on their personal information, and move quickly to
minimize the damage if identity theft occurs. Since 2000, the agency has distributed
nearly 5 million paper copies of its two main identity theft publications, including its
new and improved identity theft booklet, and recorded more than 3 million visits to the
web versions of these publications.

• 	 Outreach to Business. Through speeches, presentations, articles in industry
newsletters and magazines, and the Business Briefcase, a handy new business cardsized CD with 67 of the agency’s most important compliance publications, the FTC
is reaching business people – and their attorneys – in large numbers. For example,
the very popular Green Lights/Red Flags symposia, held in cooperation with local
Better Business Bureaus and bar associations, explain the “science of compliance” to
attorneys, marketing executives, and business owners.

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Chapter 4 – International Activities
The FTC works to promote cooperation and convergence toward best practices with
competition and consumer protection agencies around the world. The FTC has built a strong
network of cooperative relationships with its counterparts abroad, and plays a lead role in key
multilateral fora. The growth of communication media and electronic commerce presents new
challenges to law enforcement – fraud and deception now know no borders. The FTC works
with other nations to protect American consumers who can be harmed by anticompetitive
conduct and frauds perpetrated outside the United States. The FTC also actively assists
new democracies moving toward market-based economies with developing competition and
consumer protection laws and policies.

A. Competition
1. 	 Promoting Cooperation and Convergence Through Bilateral
Relationships
The FTC’s cooperation with competition agencies around the world is a vital component
of its enforcement program, facilitating its ability to collaborate on cross-border cases and to
promote convergence toward sound consumer welfare-based competition policies. During the
past year, the FTC participated in consultations in Washington and in foreign capitals with top
officials of, among others, the European Commission (EC), the Japan Fair Trade Commission
(JFTC), and the Russian Federal Anti-Monopoly Service, and, for the first time, in November
2005, held a joint consultation with the Canadian Competition Bureau and the Mexican Federal
Competition Commission.
FTC staff routinely coordinate with colleagues in foreign agencies, promoting efficient and
effective review of mutijurisdictional mergers and conduct. Recent illustrative matters include:
• 	 Procter & Gamble/Gillette. Procter & Gamble’s $57 billion acquisition of Gillette
raised competition concerns regarding many consumer products, including tooth
whiteners and antiperspirants. FTC staff worked closely with several foreign
competition authorities, including the EC, the Canadian Competition Bureau, and
the Mexican Federal Competition Commission. The FTC and the EC coordinated
compatible remedies in oral health care products. Their decisions also addressed
whether the merger would increase the merged firm’s ability, when acting as a
“category manager,” to obtain premium retailer shelf space and exclude or disadvantage
competitors in several brand categories. Canada determined that the divestitures
obtained by the FTC and the EC would resolve its competition concerns, while Mexico
and other authorities authorized the transaction.
• 	 Johnson & Johnson/Guidant. Johnson & Johnson’s proposed $25 billion bid to take
over Guidant raised concerns in several medical device markets, particularly stents
and other devices used to treat vascular diseases. The FTC coordinated its review with
the EC, the Canadian Competition Bureau, and the JFTC. The competitive situation

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– and likely effects of the proposed merger – varied among jurisdictions, requiring
close cooperation in the investigation and the negotiation of remedies. Pursuant to
confidentiality waivers from the parties, EC staff participated in joint meetings with
FTC staff, the parties, and third parties. In light of subsequent developments, the
FTC and other agencies are monitoring the potential acquisition of Guidant by Boston
Scientific.
The FTC promotes policy convergence through formal and informal working arrangements
with other agencies, many of which seek the FTC’s views in connection with developing new
policy initiatives. For example, during the past year, the FTC consulted with:
• 	 the EC regarding several aspects of merger policy, including the EC’s review of its
remedies policies and the EC’s discussion paper on its policies regarding abuse of
dominance;
• 	 several EU Member States on competition in health care markets;
• 	 the United Kingdom regarding synergies between competition and consumer protection
policy;
• 	 the Canadian Competition Bureau on cross-border information sharing policies; and
• 	 the JFTC on exclusionary conduct and administrative procedures and remedies, and
submitted comments on proposed JFTC Guidelines on Standardization and Patent Pool
Arrangements.
The FTC had other productive contacts with foreign counterparts over the past year. It
participated in working groups with the EC on mergers and the intellectual property issues
related to competition policy, and with Japan, Korea, and Taiwan on intellectual property issues.
The agency also places a high priority on maintaining a dialogue with officials involved in
developing the first comprehensive competition law in China – FTC senior staff made several
trips to China and, with the Antitrust Division, has been providing valuable input into the
drafting process. Chairman Majoras met with members of the Mexican Senate responsible for
considering revisions to that country’s competition law and spoke with Mexican judges about the
American experience in applying its antitrust laws. Finally, the FTC benefits from the views of
its foreign counterparts on U.S. policies.

2. 	 Promoting Convergence Through Multilateral Competition Fora
Multilateral competition fora provide important opportunities for competition agencies to
enhance mutual understanding and promote cooperation and convergence. The FTC participates
actively in, among others, the International Competition Network (ICN) and the Organisation for
Economic Cooperation and Development (OECD).
ICN. The ICN, which includes 95 competition agencies from 84 jurisdictions, is an
important venue for antitrust officials worldwide to work towards procedural and substantive
convergence on best practices in antitrust enforcement and policy. In June 2005, the ICN hosted
its fourth annual conference. Based on recommendations by the Merger Procedures Subgroup
that the FTC chairs, the ICN adopted two new Recommended Practices for Merger Notification

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and Review Procedures, one dealing with remedies and one with competition agency powers.
These complement the 11 Recommended Practices and eight Guiding Principles for Merger
Notification and Review that the ICN had previously adopted. The ICN also adopted a model
form for waivers of confidentiality. In March 2006, the FTC co-sponsored with DOJ a successful
workshop for competition officials around the world to promote greater understanding and
further implementation of the Recommended Practices. The FTC also plays a lead role in
the ICN’s working group on Competition Policy Implementation, which helps new agencies
strengthen their institutional capacity and performance. The agency looks forward to serving as
a co-chair of a likely new working group on unilateral conduct.
OECD. The OECD Competition Committee is an important forum for competition officials
from developed countries to share experiences and promote best practices. During the past
year, the FTC has participated actively in the OECD’s work on, among other topics, competition
on the merits, barriers to entry, ex-post evaluation of competition initiatives, below-cost sales,
regulatory reform, and the interface between trade and competition policy. The FTC has helped
lead OECD initiatives exploring the synergies between competition and consumer protection
policy through joint roundtables, and participates in the Global Forum on Competition, which
includes representatives from many developing countries.

3. Promoting Competition Policy Through Trade Fora
Trade agreements increasingly involve competition issues. The FTC participates in U.S.
delegations that negotiate competition chapters of free trade agreements, including during the last
year in connection with negotiations with Peru and other Andean countries and with Thailand.
The FTC also participates in the competition forum of the United Nations Conference on Trade
and Development, which focuses on competition issues facing developing countries.

B. Consumer Protection
In an era of increased globalization, the FTC has developed an increasingly international
market-based approach to consumer protection that focuses on protecting consumers while
maximizing economic benefit and consumer choice. The FTC has built an international network
for cooperation to combat cross-border fraud and has promoted market-oriented consumer
protection and privacy policies. In doing so, FTC staff met with over 200 foreign visitors to
Washington on consumer protection issues in 2005. In addition, staff met with hundreds more
foreign government representatives during official visits to 20 countries over the past 12 months.

1. Cross-Border Fraud
Spammers, spyware operators, fraudulent telemarketers, and other scam artists know no
national boundaries, and can strike quickly on a global scale. Not surprisingly, an increasing
number of complaints the FTC receives involve cross-border transactions, and an increasing
number of law enforcement investigations the FTC undertakes involve some cross-border
component. As a result, over the last few years, the Commission has launched a comprehensive
program to combat cross-border fraud. Some highlights of the FTC’s recent and ongoing efforts
include the following.

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Legislative Proposals. Last
Box 20
Consumer Sentinel Fraud Complaints
June, the FTC submitted a report
by Calendar Year
to Congress recommending
legislation called the US SAFE
500,000
434,525
450,000
WEB Act – Undertaking Spam,
406,209
400,000
Spyware, and Fraud Enforcement
327,503
350,000
80%
with Enforcers across Borders.
300,000
84%
241,474
The proposed legislation would
250,000
86%
200,000
enable the FTC to share key
86%
134,136
150,000
information with foreign partners,
88%
100,000
assisting international law
50,000
14%
16%
12%
14%
20%
enforcers in pursuing fraudulent
0
2001
2002
2003
2004
2005
conduct in their countries that
Cross-Border
Non Cross-Border
impacts U.S. consumers. The
Percentages are based on the total number of Consumer Sentinel fraud complaints by calendar year. These figures exclude
“Identity Theft” and “Do Not Call” registry complaints.
legislation, among other things,
would help the FTC fight deceptive
spam and spyware by allowing the agency to investigate more fully messages transmitted
through facilities outside the United States. On March 16, 2006, the Senate passed the US SAFE
WEB Act.
348,135

341,412

280,811

208,723

117,797

16,339

32,751

46,692

64,797

86,390

International Law Enforcement Cooperation. The FTC continues to expand its
partnerships with consumer protection law enforcers throughout the world. The FTC co-chairs
the London Action Plan on international spam enforcement cooperation, which in 2005 added
agencies and private sector representatives from India, China, Nigeria, Malaysia, Taiwan,
Latvia, and Hungary as new members. In March 2006, the FTC signed a Memorandum of
Understanding with the Costa Rican Ministry of Economy, Industry and Commerce (MEIC),
which provides for enhanced cooperation and information-sharing between staff of the FTC
and MEIC on consumer protection matters. The FTC also has invested significant resources
expanding partnerships with Canadian regional entities to fight telemarketing fraud by Canadians
targeting U.S. and Canadian Consumers, e.g., it helped establish a new partnership based in the
Atlantic provinces and joined a Montreal-based partnership to combat cross-border telemarketing
fraud. These efforts add to the successful four cross-border regional partnerships in which the
FTC already participates, such as the Vancouver-based Project Emptor and the Toronto Strategic
Partnership. These partnerships have resulted in productive cross-border enforcement. For
example, in 2005, the Toronto Strategic Partnership activities led to 131 arrests, 107 criminal
charges, and 56 court orders.
Cross-Border Cases. In 2005, the FTC’s Bureau of Consumer Protection filed 14 new
cases with a significant international component in the federal courts and continued to litigate
and investigate dozens of other matters involving foreign defendants, witnesses, and evidence.
The FTC contacted and received assistance from agencies in approximately 20 countries in these
cases and investigations.

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2. Promoting Market-Oriented Policies
The FTC promotes consumer protection policies abroad to help ensure that consumer
protection rules focus on practices that distort consumer choice and threaten the proper
functioning of markets. The American approach to consumer protection generally involves
flexible, market-oriented standards backed by aggressive enforcement. This approach helps
reduce compliance costs that would be passed on to consumers while at the same time provides
a high level of consumer protection focused on preventing acts or practices that cause injury to
consumers. Some examples of the FTC’s work in this area over the past year include:
Privacy and Emerging Technologies. The FTC has undertaken a number of steps to
strengthen international cooperation on privacy and security issues. For example, FTC staff is
working with other U.S. agencies to implement a privacy framework endorsed by Ministers of
the Asia-Pacific Economic Cooperation forum. FTC staff also is supporting work in the OECD
to build international cooperation to enforce privacy laws. With respect to high tech scams, FTC
staff is working on an OECD Toolkit to Combat Spam, a comprehensive report for developing
countries that focuses on legislation, enforcement, education, technology, and public-private
partnerships to combat spam.
Economic Underpinnings of Consumer Protection. FTC staff has led efforts within the
OECD Committee on Consumer Policy to encourage countries to adopt an economics-based
approach to consumer protection. Through this work, FTC staff has advocated that policymakers
should weigh the costs and benefits of any proposed consumer protection measure. Last fall,
several FTC staff participated in an OECD roundtable on this subject. Closely related to this
work is FTC staff advocacy concerning the critical intersection between competition and
consumer protection policies. Last year, FTC staff provided advice on this subject in a variety
of venues. For example, it advised German authorities concerning effective consumer protection
policies, commented on a U.K. government proposal to split competition and consumer
protection functions into two distinct agencies, and sent comments to the United Nations
Commission on Trade and Development on a draft consumer protection manual for developing
countries.

C. International Technical Assistance
Last year was a peak time in recent years for the FTC’s international technical assistance
program, which provides training and other education to developing nations. These activities,
funded mostly by the United States Agency for International Development, included 28 missions
to 18 countries, involving 35 different FTC staff experts. In addition, FTC staff maintained a
resident advisor in Jakarta, Indonesia, assisting the member states of the ten-nation ASEAN
organization. The FTC works in close cooperation with DOJ’s Antitrust Division in conducting
its antitrust activities in this program.
Since its inception in the early 1990s, the program has conducted hundreds of training
missions in developing nations, employing the diverse expertise of agency lawyers and
economists. In more recent years, the program has extended into consumer protection, where
the legal and economic standards employed by the Commission have been embraced by several
aid recipients. From 2005 to the present, the Commission has been most active in the five-nation

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Andean Community, the ten-nation ASEAN community, India, Russia, Azerbaijan, South Africa,
Egypt, Jordan, and Mexico. In a typical training mission, a lawyer and economist team conduct
a three or four day interactive case simulation containing substantive and procedural issues
likely to be encountered in a real investigation. Students are from the staffs of newly created
enforcement entities unlikely to have real life experience investigating and building cases.
Witnesses and documents are available for class participants to interview and examine, with
students playing the roles of witnesses, interrogators, advocates, and analysts. Often the classes
are divided into teams that ultimately argue for and against bringing an enforcement action, with
the U.S. team playing the role of judges (or Commissioners).

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Conclusion
The FTC’s varied accomplishments over the past 12 months foreshadow some of the
agency’s future undertakings and challenges in fulfilling its ongoing commitment to consumers
and competition. The FTC will review thousands of proposed mergers to ensure they are not
likely to harm competition and will continue to monitor, review, and investigate hundreds of
arrangements, schemes, scams, and outright frauds to determine if they violate Section 5 of the
FTC Act. In appropriate cases, these investigations will conclude in law enforcement actions
with suitable remedies. But even when hours of investigative activity do not conclude in
enforcement actions, the FTC still will be serving consumers by deterring possible fraud and
anticompetitive behavior through its ever-watchful presence in the marketplace.
In addition to law enforcement, the agency will continue to monitor marketplace changes
to keep abreast of new products, services, and ways of doing business – both legitimate and
illegitimate. Hearings, studies, and workshops on a wide range of topics are planned. As always,
the FTC will remain alert to both the opportunities and the threats that abound in our increasingly
electronic and global marketplace, as we work to protect consumers and promote competition.

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Principal Contributors to Report
Judith Bailey and Shira Pavis Minton, Chairs
Dawne E. Holz, Graphics and Design
Marc M. Groman, Consumer Protection
James M. Giffin, Competition — In Special Remembrance (1951-2006)
Contributing staff members also include Jeanine Balbach, Jeffrey Brennan, Marian Bruno,
William Cohen, John Daly, Russell W. Damtoft, Rachel Miller Dawson, Elizabeth Delaney,
Susan DeSanti, Mark Eichorn, James C. Hamill, Brian Huseman, Maryanne Kane, Daniel
Kaufman, Gail Levine, Gregory Luib, Erin Malick, Sarah Mathias, Deborah Marrone, Jonathan
Morgan, John Parisi, Sara Razi, Stefano Sciolli, John Seesel, Joshua Soven, Randy Tritell, and
Beth Arvan Wiggins.

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Senior Staff of the Federal Trade Commission
Chief of Staff

Maryanne S. Kane

Executive Director
Deputy Executive Director

Charles Schneider
Judith Bailey

Director, Bureau of Competition

Jeffrey Schmidt

Director, Bureau of Consumer Protection
Deputy Directors

Lydia B. Parnes
C. Lee Peeler
Eileen Harrington

Director, Bureau of Economics
Deputy Directors

Michael Salinger
Paul A. Pautler
Mark Frankena

General Counsel
Principal Deputy General Counsel

William Blumethal
John D. Graubert

Director, Office of Congressional Relations Anna H. Davis
Director, Office of Public Affairs

Nancy Ness Judy

Director, Office of Policy Planning

Maureen K. Ohlhausen

Secretary of the Commission

Donald S. Clark

Chief Administrative Law Judge

Stephen J. McGuire

Inspector General

Howard L. Sribnick

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Federal Trade Commission Annual Awards
October 2005
Chairman’s Award 	

Randolph Tritell

Louis D. Brandeis Award 	

Michael Bloom

Janet D. Steiger Outstanding Team Award 	

Hispanic Outreach Team
Oil and Gas Studies Team
US SAFE WEB Team

Richard C. Foster Award 	

Judy Burnam
Mary Rushen
Michael Verne

James M. Mead Award 	

Charles Clayborne
Ethel Fischman
Jonathan Morgan

Paul Rand Dixon Award 	

Sana Coleman
Jeanne Crouse
Philip Eisenstat
Lisa Harrison
Charles Pidano

Mary Gardiner Jones Award 	

Wilhelmina Thorpe

Award for Excellence in Supervision 	

C. Steven Baker
Jeffrey Nakrin
Geoffrey Oliver
Thomas Pahl

Otis B. Johnson Award 	

Mary Draper Connelly
Regina Duarte
Jeffrey Smith
Nathaniel Wood

Excellence in Economics Award 	

Joel Schrag

Outstanding Scholarship Award 	

James Cooper

Stephen Nye Award 	

Shibani Baksi
Albert Kim
Kathryn Ratte

Leon Higginbotham, Jr. Award 	

BCP Hiring Team

Eleanor F. Greasley Award 	

Duane Fink
Virginia Smith

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