View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

The FTC in 2005: Standing Up for
Consumers and Competition

Federal Trade Commission
Deborah Platt Majoras, Chairman
Orson Swindle, Commissioner
Thomas B. Leary, Commissioner
Pamela Jones Harbour, Commissioner
Jon Leibowitz, Commissioner

Federal Trade Commission

Table of Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Chapter 1 – Competition Law Enforcement And Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A. Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1. Merger Review Process – Improvements and Greater Transparency . . . . . . . . . . . . 6
2. Administrative Adjudication of Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Energy Industry Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. Health Care and Pharmaceutical Industry Merger Enforcement. . . . . . . . . . . . . . . 10
5. Other Merger Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6. Ensuring Compliance with Rules and Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
B. Nonmerger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1. Continued Emphasis on Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2. Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3. Other Nonmerger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Chapter 2 – Consumer Protection Law Enforcement and Rulemaking . . . . . . . . . . . . . . . . 17
A. Fraud and Deception. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1. Law Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2. Tools to Identify Fraud and Deception. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
B. Consumer Privacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
1. Law Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2. Rulemaking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Chapter 3 – Policy Tools to Complement Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . 27
A. Competition Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
1. Research and Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2. Hearings and Workshops. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3. Advocacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4. Amicus Briefs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
B. Consumer Protection Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
1. Reports and Research. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2. Hearings and Workshops. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3. Advocacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4. Amicus Briefs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5. Consumer and Business Education and Outreach. . . . . . . . . . . . . . . . . . . . . . . . . . 35

Federal Trade Commission
Chapter 4 – International Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
A. Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
1. Cooperation in Enforcement and Policy Development. . . . . . . . . . . . . . . . . . . . . . 38
2. Multilateral Competition Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3. Trade/Competition Fora. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
B. Consumer Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
1. Cross-Border Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2. Promoting Market-Oriented Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
C. International Technical Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Federal Trade Commission

Introduction
The Federal Trade Commission’s (FTC) vital mission is to stand up for America’s free
market process and for its consumers, who benefit from competitive markets in which truthful
information flows. Accordingly, the agency strives to develop and implement policies that
recognize the remarkable consumer benefits inherent in our largely decentralized economic
organization. Emphasizing the mutuality inherent in the relationship between consumers and
business, the FTC’s central aim is to make discriminating judgments that permit the agency
to channel its resources toward preventing and halting private and public measures that injure
consumers.
In September 2004, the FTC celebrated its 90th anniversary with a symposium, dinner,
and other events. While the anniversary offered the opportunity to celebrate achievements and
reflect on past work, its aim was emphatically forward-looking. New challenges to our economy
abound: spam, spyware, and threats to information security; mergers that combine intellectual
property; rising energy and health care costs; valuable innovations that present new consumer
issues; and the proliferation of new laws overseas, to name a handful. While these challenges
could not have been contemplated 90 years ago, the wealth of experience gained since that time
teaches lessons that are valuable today.
One lesson is that the FTC functions at its highest level when it promotes both symmetry
and synergy between its competition and consumer protection missions. Two parts of a greater
whole, these missions complement each other in maximizing benefits for consumers – accurate
information and consumer trust in the marketplace facilitate free and healthy competition.
Emphasizing one to the exclusion of the other would produce a less efficient or robust market
than consumers expect and deserve.
A second lesson is that a strong institution takes nothing for granted, save the need to
improve. It works best when it continually evaluates its existing programs and enhances its
capacity to perform effectively. Some examples of these efforts during the past year include the
commitment to examine and improve the agency’s process for reviewing mergers and its efforts
to improve the international framework for implementing competition and consumer protection
policy. Additional examples include public conferences to explore economic or legal issues
or mechanisms that significantly affect consumers and businesses, such as the methodologies
for assessing the accuracy of credit reports and possible ways to reform our patent system, and
workshops to assess the impact of emerging technologies, such as peer-to-peer file-sharing
software, email authentication, spyware, and radio frequency identification.
A third lesson is that institutions improve by explaining more fully the foundations for
their policy and law enforcement choices. Providing a window on how the agency makes and
implements its decisions is the mark of good public policy, and it also provides the basis for
better-informed enforcement decisions. During the past year, for example, the FTC released
a significant amount of merger enforcement data; developed a report on mergers, structural
change, and antitrust enforcement in the petroleum industry; convened a conference to consider
the effects of petroleum industry mergers on gasoline prices; and issued closing statements
explaining the reasons why it had declined to take enforcement action in some merger
investigations.
1

Federal Trade Commission
A fourth lesson is that the Commission functions best when it works cooperatively
with organizations whose missions overlap and complement the FTC’s. The FTC and the
Department of Justice (DOJ) confer on an ongoing basis on competition enforcement questions,
and the two agencies issued a report this past year on competition in the health care sector. In
addition, the FTC has collaborated with a number of federal, state, and local law enforcement
agencies in enforcement sweeps to address serious fraud, particularly scams involving business
opportunities. One key dimension of this effort has been to engage criminal law enforcement
agencies in prosecuting serious fraud as a crime. Using its Criminal Liaison Unit, the FTC has
provided practical assistance to criminal law enforcers in developing criminal prosecutions. The
agency also continues to work cooperatively with the Food and Drug Administration (FDA) in
investigating false and deceptive claims for dietary supplements, and has worked closely with
the federal bank regulators to develop rules and studies under the Fair and Accurate Credit
Transactions Act.
This annual report reviews the latest chapter in the FTC’s work, covering its activities and
accomplishments during the last 12 months. More than a mere list of cases, conferences, and
studies, the report aims to explain the basis for the FTC’s choice of initiatives and to describe the
policies and priorities that motivate the use of its resources. Many activities are ongoing and set
forth much of the agenda that the FTC will pursue in the coming years.

Highlights of Recent Accomplishments
As in past years, the FTC has continued to apply its array of law enforcement and policy
tools to address critical consumer concerns. Among the many accomplishments in the past 12
months, the FTC has concentrated on:
•

Increasing the Focus on Mergers. The FTC received 40 percent more merger filings
compared to the previous year, with a commensurate increase in the number of mergers
requiring investigation. As part of this increased attention on mergers, the FTC and the
DOJ are currently working on a Commentary on the Horizontal Merger Guidelines. A
three-day workshop, jointly sponsored with the DOJ, designed to assess the practical
efficacy of the 1992 Merger Guidelines in light of 12 years of experience, revealed a
strong consensus that the Guidelines work well and require no significant revision, but
that further explanation of how the agencies apply the Guidelines would be helpful.
The Commentary should bring greater transparency to the agencies’ merger analysis.

•

Improving the Merger Review Process. FTC Chairman Majoras has established a
task force to recommend further improvements to the merger review process. While the
FTC has implemented some improvements in the merger review process in recent years,
the agency expects to adopt further improvements to ease the burden on affected parties
and increase internal efficiency. The further improvements include seeking methods
to identify relevant materials stored electronically, improving the agency’s ability to
receive electronic productions, developing instructions and specifications for electronic
productions, and taking further steps to improve the timeliness and efficiency of the
review process.

2

Federal Trade Commission
•

Addressing Significant Issues in Part 3 Commission Opinions. The Commission has
issued three adjudicative opinions during the past year that address difficult competition
policy issues. These opinions, Union Oil of California (Unocal), South Carolina Board
of Dentistry, and Chicago Bridge & Iron/Pitt-Des Moines, contain detailed antitrust
analyses and provide guidance to businesses and the public on how the Commission
reviews mergers, potentially anticompetitive conduct, and antitrust defenses.

•

Enforcing the Do Not Call Program. As of March 2005, consumers had registered
more than 85 million phone numbers with the FTC. The national Do Not Call
(DNC) Registry continues to be one of the government’s most popular and effective
consumer protection programs. The Registry protects consumer privacy by prohibiting
commercial telemarketing to consumers who have listed their telephone numbers. Thus
far, the FTC has filed five enforcement actions alleging calls to telephone numbers
listed on the Registry, and the DOJ has filed two additional cases on the FTC’s behalf.
Although compliance with the program has been high, the FTC actively investigates and
prosecutes violators.

•

Targeting Credit Reporting Problems and Identity Theft. Identity theft was the
number one topic of complaints to the FTC in 2004. The FTC completed 10 rules under
The Fair and Accurate Credit Transactions Act of 2003 (FACT Act), proposed two
additional rules, and published five studies during the year to combat identity theft and
improve the accuracy of consumers’ credit records. The FTC also oversaw the rollout
of the free credit report program under the FACT Act.

•

Fostering Global Competition and Protection of Consumers. The FTC has worked
with competition agencies worldwide to promote best practices and minimize policy
divergences to ease burdens on firms that operate across the globe. Two key venues
for competition officials to work toward greater consensus are the Organization for
Economic Coordination and Development (OECD) and the International Competition
Network (ICN), a group launched two years ago by the FTC, the DOJ, and 13 other
competition agencies that now numbers almost 90 member agencies. The FTC
also promotes market-oriented policies. The FTC’s goal is to ensure that consumer
protection rules outside the U.S. focus on practices that distort consumer choice and
raise a serious threat to the proper functioning of markets. The FTC also advocates
discussion of linkages between competition and consumer policy around the world
and has participated in two such discussions last year – a joint meeting of the OECD’s
competition and consumer policy committees and an academic roundtable that included
heads of agencies with responsibilities for both competition and consumer protection
issues.

•

Implementing the Hispanic Initiative. In 2004, after releasing a consumer fraud
survey that found that Hispanic consumers are disproportionately victimized by fraud,
the FTC launched an Hispanic Law Enforcement and Outreach Initiative that has
had immediate results. In May 2004, the FTC’s national Hispanic Outreach and Law
Enforcement Workshop brought together law enforcers, educators, and communitybased organizations to develop strategies for effective consumer education and law
enforcement collaborations to combat fraud against Hispanics. One outcome was a
3

Federal Trade Commission
Spanish-language fraud awareness campaign of print, online, and radio communications
aimed at the Hispanic community in 11 media markets. The FTC also has brought 21
enforcement matters targeting Spanish-language fraud and has produced nearly 100
consumer and business education pieces in Spanish.
•

Promoting Competition in the Petroleum Industry. In Fiscal Year (FY) 2004,
the Commission reversed an Administrative Law Judge’s (ALJ) dismissal of charges
against Union Oil of California (Unocal) for actions that allegedly could cost California
consumers hundreds of millions of dollars in higher gasoline prices. The Commission
also took enforcement action in three petroleum industry mergers. In addition, the
FTC released a landmark staff report on the petroleum industry, which studied 20
years of FTC investigations and industry structural changes, and concluded that FTC
enforcement actions have helped to avoid potential anticompetitive harm.

•

Attacking Spam and Spyware. To date, the FTC has filed 68 spam-related cases
against 198 individuals and companies including cases against two spammers charged
with clogging the Internet with millions of deceptive messages and generating nearly
one million consumer complaints to the FTC. In FY 2004, the FTC issued two rules
aimed at attacking spam. The first required spammers to identify sexually explicit
content in the subject line of email, and the second established criteria to determine
whether the email’s primary purpose is commercial and therefore covered by the
Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003
(CAN-SPAM Act). Pursuant to the CAN-SPAM Act, the FTC also issued two reports
to Congress in FY 2004: the National Do Not Email Report to Congress and A CANSPAM Informant Reward System Report to Congress. More recently the Commission
has filed two cases attacking alleged spyware. In April 2004, the FTC held a public
workshop to learn more about spyware and on March 7, 2005, the agency released a
staff workshop report, Monitoring Software on Your PC: Spyware, Adware, and Other
Software.

The chapters below describe these and other accomplishments more fully. With fewer than
1100 staff members, the FTC has reason to be proud of these extensive achievements. Each is a
tribute to the vision of the agency’s five Commissioners and the hard work of its dedicated and
talented staff.

4

Federal Trade Commission

Chapter 1 – Competition Law Enforcement And Guidance
Competition is the ultimate consumer protection. The work of the FTC’s competition
mission protects and strengthens the free and open markets that are the cornerstones of a vibrant
economy. Robust competition promotes lower prices, higher quality products and services, and
greater innovation – all of which benefit consumers. The FTC operates within a broad consensus
about the proper role of antitrust. The three primary principles are that antitrust enforcement
should protect consumers, be guided by economic analysis, and focus particularly on possible
problems arising from horizontal arrangements.
In addition to these core principles, the FTC has adopted fundamental strategies to maximize
the impact of its competition enforcement activities. Elements of that strategy include:
•

Make full use of the broad range of tools available to the agency, including law
enforcement, hearings, conferences, workshops, research and reporting, and advocacy.

•

Use a systematic approach to identify and address serious misconduct, providing special
attention to harmful behavior in key economic sectors.

•

Increase transparency by clarifying policies and enforcement standards; recognizing
that it is a small agency with a large mission, the FTC encourages the cooperation of
business to comply with legal standards.

•

Facilitate cooperation among competition authorities worldwide to improve the quality
and consistency of multilateral enforcement efforts.

•

Improve the processes and institutions through which competition policy is developed
and applied.

A. Merger
Enforcement

Mergers on the Increase
3000
2500

Number of Filings

The FTC’s merger
enforcement program
benefits consumers by
preventing anticompetitive
mergers that result in
higher prices, while not
stopping procompetitive
mergers that might produce
lower prices and other
market improvements.
Determining the likely
effects of a proposed
merger is a complex
and demanding task to
which the agency devotes

Figure 1

2000
1500
1000
500
0
1994

1995

1996

1997

1998

1999

2000

Adjusted Filings*

2001

2002

2003

2004

Average

* Based on the number of transactions that would have been subject to the filing requirement under the thresholds
established in 2001.

5

2005
(proj)

Federal Trade Commission
significant resources. Increases in the number of Hart-Scott-Rodino Act (HSR) merger filings
submitted during FY 2004, and in economic activity generally, foreshadow the beginning of a
trend toward a higher volume of FTC merger enforcement work. During FY 2004, the number
of merger filings required under HSR increased by more than 40 percent over the previous year,
with a commensurate increase in the number of mergers requiring investigation by the FTC
or the DOJ. The total dollar value of merger transactions reported under HSR also increased
substantially over the FY 2003 level, rising by about 54 percent.

1. Merger Review Process – Improvements and Greater
Transparency
The FTC has implemented a number of improvements in the merger review process in
recent years to increase the effectiveness of the agency’s law enforcement efforts to promote
competition. To make further improvements, the agency is pursuing several initiatives both
to ease the burden on affected parties and to increase internal efficiency. In addition, the
Commission has continued its ongoing efforts to provide greater transparency in what it does in
antitrust enforcement. Transparency serves the FTC’s objectives because a full understanding
of the kinds of transactions or conduct the FTC is likely to challenge, and why, enables the
business and legal communities to make more informed and better judgments about the legal
consequences of proposed business decisions. The FTC’s initiative to promote transparency has
proceeded on several fronts:
Data on Merger Investigations and Challenges. This past year, the FTC released two
reports designed to give the public a clearer picture of its enforcement policies and standards.
With the DOJ, the FTC released a report that summarized market concentration data sorted by
market for both agencies’ merger challenges over a five-year period (1999-2003). In February
2004, the FTC released a report that provided data on consumer complaints or “hot” documents
(i.e., those revealing a party’s expectation of decreased competition following the merger) for a
total of 151 FTC merger investigations over eight years. In August 2004, the FTC supplemented
that information with data on ease of entry. In February 2005, the FTC released an econometric
analysis of the merger investigations data that showed, inter alia, that no structural shift in
enforcement patterns had occurred over the eight years covered by the study.
Merger Enforcement Workshop Follow-Up. The FTC and the DOJ held a three-day
workshop in February 2004, to assess the practical efficacy of the 1992 Horizontal Merger
Guidelines in light of 12 years of experience. The workshop provided a forum for two-way
information exchange – from the agencies to the public on application of the Guidelines, and
from the public to the agencies on the strengths and weaknesses in the Guidelines and areas for
clarification. Participants analyzed and discussed all sections of the Guidelines with a focus on
whether their analytical framework (1) leads to accurate assessments about the likely effects of
proposed mergers, and (2) provides adequate guidance to the business and legal communities.
Following the workshop, the FTC analyzed the testimony and public comments and published
these findings on its website. What emerged from this review was a consensus among antitrust
practitioners that the analytical framework underlying the Guidelines was functioning effectively,
but that some further explanation of the agencies’ practical application of the Guidelines would
be beneficial.
6

Federal Trade Commission
Commentary on the Merger Guidelines. Based on the results of the Merger Enforcement
Workshop, FTC Chairman Majoras announced in November 2004 that the FTC, along with the
DOJ, would develop a Commentary on the Merger Guidelines to bring greater transparency to
the agencies’ application of the Guidelines to merger analysis. The Commentary would clarify
how the agencies apply the Guidelines in practice and would enhance the dialogue between the
agencies, businesses, legal advisers, and the public.
Explanations of Merger Investigation Outcomes. In some cases, the FTC conducts
an extensive investigation of a proposed merger before declining to take enforcement action.
Explaining why the FTC decides not to take action in a particular case can provide useful
information and guidance to the public.
•

RJR/Brown & Williamson. In June 2004, the Commission outlined three reasons for
its conclusions that the merger of these two firms was unlikely to harm competition
in the U.S. cigarette market. It explained, first, that Brown & Williamson plays an
increasingly minor role in the market, with that trend expected to continue. Second,
the investigation found no markets in which the two firms are each other’s closest
competitors. Third, a majority of the Commissioners had reason to believe that the
evidence indicated that the transaction was unlikely to facilitate or enhance coordination
among the major U.S. cigarette manufacturers.

•

Victory/St. Therese. In July 2004, FTC Commissioners issued two statements
explaining their differing assessments of evidence obtained in an investigation of a
consummated merger of Victory and St. Therese hospitals in the Waukegan, Illinois
area, leading to a 3-2 vote to close the matter. The majority emphasized that the merged
hospital had not had success in renegotiating contracts with payors, indicating a lack
of market power, that post-merger price increases were no greater than those found at
similar hospitals, and that the two hospitals had been steadily losing market share before
the merger. Commissioners Thompson and Harbour dissented, stating that the empirical
evidence on post-merger price increases was inconclusive, and that the totality of the
evidence, including documents and testimony, supported an enforcement challenge.

Model Second Request for Retail Industries. This past year, the FTC continued to refine
and improve the HSR investigation process. The agency, for example, published a Model
Second Request specifically adapted for transactions involving retail industries.
Electronic Discovery. The FTC is working to improve its ability to receive and review
Second Request and other discovery materials in electronic format, which it views as beneficial
both for itself and for those producing documents to the agency. The agency also is adapting
Model Second Request language to provide for electronic production, and is working internally
and with the DOJ to determine the most effective methods for identifying responsive materials
stored in various types of electronic formats.
Additional Merger Procedure Reforms. Further improvements to merger review are
under consideration. FTC Chairman Majoras has established a task force to recommend
improvements to the merger review process. The task force is currently assessing the FTC
merger process in detail, examining such issues as the data requested on HSR Notification and
report forms, the contents of the analysis to aid public comment issued when consent agreements
7

Federal Trade Commission
are accepted, and the second request compliance process and its impact on both the agency and
practitioners. The task force is reviewing prior best practices and merger process initiatives to
determine what has been implemented and whether those initiatives have worked. In addition
to the task force, current initiatives include a possible release of an annotated Model Second
Request to explain the rationale underlying certain information requests, and additional efforts to
improve timeliness and efficiency.

2. Administrative Adjudication of Mergers
During the past year, the FTC had four merger cases in adjudicative status under Part 3 of its
Rules of Practice (Part 3). Of those four, the Commission issued a final decision in one (Chicago
Bridge), settled another (Aspen Technology), and a third is pending before an ALJ (Evanston/
Highland Park). The Commission withdrew the fourth case from adjudication following an
unsuccessful action in federal court for preliminary injunction and the subsequent consummation
of the transaction, and will consider whether to return the matter to Part 3 adjudication following
its review of staff’s recommendation (Arch Coal).
•

Chicago Bridge. In its first merger decision in administrative adjudication since
1995, the Commission ruled in January 2005 that Chicago Bridge illegally acquired
its closest competitor in the design and construction of various types of field-erected
specialty industrial storage tanks. The complaint alleged that the acquisition resulted
in either a monopoly or a dominant firm in four U.S. markets, including markets for
field-erected thermal vacuum chambers and storage tanks for various liquified gases.
The Commission’s order requires Chicago Bridge to create two new divisions that could
compete independently in the relevant markets, and to divest one of those divisions
within six months. Notably, the Commission’s unanimous opinion, authored by
Commissioner Swindle, includes an extensive discussion of the Commission’s treatment
of entry conditions.

•

Evanston/Highland Park. Last year, as a product of its hospital merger retrospective
project, the Commission issued an administrative complaint challenging a hospital
acquisition in Chicago’s northern suburbs by Evanston Northwestern Healthcare
Corporation. The complaint alleges that the merger resulted in large hospital price
increases compared to a control group at comparable hospitals. In addition to
addressing the competitive implications of the transaction in question, this case likely
will advance the economic learning regarding hospital mergers more generally. In a
separate count, the Commission also alleged price fixing by some doctors associated
with the hospitals. That count was recently removed from the ongoing litigation for the
Commission to consider a settlement proposal.

•

Arch Coal. Last spring, the Commission approved a preliminary injunction action to
block Arch Coal’s planned acquisition of Triton Coal Company, based on concerns that
the merger would harm competition in the market for coal production from Wyoming’s
Southern Powder River Basin. That area supplies one-third of U.S. coal production
and fuels electrical power generation in 26 states. The Commission also issued a
Part 3 complaint against this transaction in April 2004. The district court denied
the injunction, stating that the agency’s concern over the likelihood of coordinated
8

Federal Trade Commission
interaction was based
Figure 2
Adjudicative Merger Decisions
on a “novel theory” of
output coordination
Fiscal Years 1984 - 2005
and that the customer
Champion Spark Plug, Dkt. 9141 (6/10/84); American Medical International., Dkt. 9158 (11/9/84); B.A.T. Industries, Dkt. 9135 (12/17/84).
testimony had little
1984
or no probative
Echlin Manufacturing, Dkt. 9157 (6/28/85); Weyerhaeuser, Dkt. 9150 (9/26/85).
1985
value. In response
1986
to the Commission’s
1987
emergency motion,
B.F. Goodrich, Dkt. 9159 (3/15/88).
1988
the U.S. Court of
Midcon, Dkt. 9198 (7/18/89).
1989
Appeals for the
1990
Olin, Dkt. 9196 (6/13/90).
District of Columbia
1991
Circuit denied an
Owens-Illinois, Dkt. 9212 (2/26/92); Occidental Petroleum, Dkt. 9205 (12/22/92).
1992
injunction pending
1993
appeal. Although
Adventist Health System/West, Dkt. 9234 (4/1/94); Coca Cola, Dkt. 9207 (6/13/94); Coca Cola Bottling Southwest, Dkt. 9215 (8/31/94).
1994
the court granted an
R.R. Donnelley & Sons, Dkt. 9243 (7/21/95).
1995
expedited appeal, the
1996
parties consummated
1997
the transaction shortly
1998
after the court ruled.
1999
The appellate court’s
2000
per curiam order
2001
noted, however, that
2002
there was “nothing
2003
novel about the theory
2004
[the Commission]
Chicago Bridge & Iron, Dkt. 9300 (1/6/05).
2005
has advanced in this
0
1
2
3
case.” Subsequently,
the Commission withdrew the case from Part 3, in August 2004, to facilitate
consideration of next steps.
•

Aspen Technology/Hyprotech. In another case reflecting an emphasis on hightechnology matters, the parties resolved the challenge to the acquisition of the
Hyprotech software assets by Aspen Technology just weeks before an administrative
trial was set to begin last summer. The transaction was exempt from the HSR reporting
requirements and thus the FTC challenged it administratively after consummation.
The consent order, issued in July 2004, which fully remedies the concerns outlined
in the Commission’s complaint, requires Aspen Technology to divest the overlapping
Hyprotech assets and to take several other measures to ensure restoration of competition
to premerger levels.

3. Energy Industry Merger Enforcement
Probably no sector of the economy touches consumers’ lives more than energy. Demand for
petroleum products continues to increase, and consumers are acutely aware of price fluctuations.
Consequently, the agency’s work to maintain competition in energy markets is critical. The
9

Federal Trade Commission
Commission approved consent orders requiring divestitures in three transactions in the petroleum
industry in the past year:
•

Enterprise Products/GulfTerra Energy. In September 2004, the Commission
required several divestitures to protect competition in markets for propane and natural
gas before allowing the $13 billion merger of Enterprise Products Partners L.P. and
GulfTerra Energy Partners L.P. to go forward. The Commission’s consent order
required divestiture of interests in one of two pipeline systems and interests in one of
two propane storage facilities. In addition, the consent order includes a hold-separate
provision to preserve the viability and marketability of the assets pending divestiture.

•

Magellan/Shell. In September 2004, the Commission approved a consent agreement
that will prevent anticompetitive price increases for gasoline in the Oklahoma City
area by requiring Magellan Midstream Partners to divest a refined petroleum products
terminal in that city within six months of the merger.

•

Buckeye Partners/Shell. Like Magellan/Shell, this matter involves a purchase of
selected petroleum pipeline and terminal assets. The September 2004 settlement
preserves the agency’s ability to intervene in the event of a future transaction raising
concerns about petroleum terminals in the Niles, Michigan area (assets that were
excluded from this transaction) even if the future transaction is not subject to HSR
reporting requirements.

4. Health Care and Pharmaceutical Industry Merger Enforcement
American consumers paid nearly $1.8 trillion for health care in 2004 – about 15 percent of
gross domestic product – through tax dollars, insurance premiums, or out-of-pocket payments.
Thus, health care is another industry in which it is critical for the FTC to maintain competition.
In the past year, the FTC reviewed a number of important pharmaceutical industry mergers and
examined some completed hospital mergers, including the Evanston/Highland Park merger
that is currently under challenge in administrative litigation. The FTC reviewed the following
mergers in this important sector:
•

Sanofi-Synthélabo/Aventis. In July 2004, the FTC acted to preserve competition by
ordering divestiture of certain pharmaceuticals used to treat colon cancer and insomnia,
and also used as anticoagulants to ensure the viable ongoing competition for these
medications. The FTC conducted an extensive investigation of a complex $64 billion
combination of two of the world’s largest pharmaceutical firms before allowing the
acquisition to proceed. The Commission’s order required divestitures of manufacturing
assets, patents, and other intellectual property, and also required assistance with clinical
trials and provisions to help ensure the availability of key employees to the acquiring
firms to ensure viable ongoing competition for these medications.

•

Cephalon/Cima Labs. In August 2004, the Commission obtained a novel consent
agreement requiring the creation of a generic competitor to ensure competition for a
breakthrough cancer pain medication. The Commission required Cephalon, Inc. to
grant a no-cost, irrevocable license to manufacture and sell a generic version of its
patented drug Actiq as a condition to allowing Cephalon to proceed with its acquisition
10

Federal Trade Commission
of Cima Labs, Inc. This provided consumers with a substantially lower-priced
alternative and lowered the average price of the medication. This case reflects the
FTC’s continuing emphasis on the importance of generic prescription medications to
limit the rapid escalation of pharmaceutical costs.
•

Genzyme/Ilex. In December 2004, to preserve competition in the market for solid
organ transplant (SOT) acute therapy drugs, the Commission required Genzyme, in its
acquisition of Ilex, to divest to Schering the revenue stream in solid organ transplant
therapy for one of its drugs, while allowing Genzyme to keep the revenues for other
applications. To preserve competition, the Commission’s order requires Genzyme to
divest to Schering all contractual rights to Ilex’s product, Campath for use in SOT acute
therapy. Because Campath is used for other purposes, the order requires divestiture of
all of the rights involved in the drug’s use for SOT acute therapy only, while allowing
Genzyme to market the product for other applications.

•

Victory/St. Therese. As discussed above, the FTC took steps to ensure that hospital
competition in Waukegan, Illinois was not weakened by investigating the 2000 merger
of Victory
Figure 3
Memorial Hospital
Focusing on What’s Important to Consumers
and Provena St.
U.S. Annual Personal Consumption Expenditures
Therese Medical
by Selected Categories - 2004
Center as part
$1,600
of its systematic
$1,400
review of several
$1,200
consummated
$1,000
hospital mergers.
After reviewing
$800
extensive
$600
evidence obtained
$400
from numerous
$200
sources to
$0
determine whether
Motor Vehicles
Food
Clothing and
Energy
Transportation Medical Care
Recreation
anticompetitive
shoes
Medical care and energy costs represent a large part of family budgets. Note that in addition to direct expenditures for
energy, the cost of energy is a component of the price of nearly every other good or service that consumers purchase.
effects resulted
Source: Bureau of Economic Analysis, Gross Domestic Product: 4 Quarter 2004 (Preliminary) (Feb. 25, 2005), available
from this
at www.bea.gov/bea/newsrel/gdpnewsrelease.htm.
transaction, the
Commission did not find sufficient evidence to support a likelihood of consumer harm
from the transaction.
th

5. Other Merger Enforcement.
Over the past 12 months, the agency continued to scrutinize and challenge proposed mergers
across the economy when they threatened competition:
•

L’Air Liquide. The Commission obtained a consent order in April 2004 with two
leading industrial gas producers, under which L’Air Liquide was permitted to proceed
with its $3.5 billion acquisition of Messer Griesheim GmbH, but was required to divest
11

Federal Trade Commission
significant assets to maintain competition in markets for liquid oxygen, liquid nitrogen,
and liquid argon.
•

Itron/Schlumberger Electricity: In June of last year, the Commission prevented a
near monopoly in the U.S. market for mobile radio frequency (RF) automatic meter
reading (AMR) technologies for electric utilities by requiring Itron to grant a royaltyfree, perpetual, and irrevocable license to Hunt Technologies for Itron’s mobile RF
AMR technology. This remedy allowed Hunt to become a significant competitor to
Itron for these systems that allow utility companies to gather electric consumption data
automatically and remotely from electricity meters.

•

GE/InVision. The Commission permitted General Electric Company to acquire
InVision Technologies, Inc. while requiring GE to divest an InVision subsidiary to
preserve competition in the specialized market for X-ray nondestructive testing. This
equipment is used for inspection of aircraft and automobile components and for
other purposes. The order, dated September 2004, includes hold separate and asset
maintenance requirements to preserve the viability of the business to be divested.

•

Cytec/UCB. In March 2005, the Commission acted to preserve competition in a market
affecting the manufacture of many consumer products by requiring Cytec Industries
to divest UCB’s amino resins business, before allowing Cytec’s acquisition of UCB’s
Surface Specialties Business to proceed. The two firms were substantial competitors in
the market for amino resins, which are used as industrial coatings in the manufacture of
automobiles, appliances, and other products, and also to promote adhesion of rubber to
other materials, such as in the manufacture of tires.

6. Ensuring Compliance with Rules and Orders.
The Commission relies on firms to comply with the HSR reporting obligations and to fulfill
obligations imposed under FTC orders. To preserve the integrity of the reporting process and
the FTC’s authority to order relief, it is important to prosecute violations vigorously. In the past
year, the Commission obtained civil penalties for failures to file under HSR and for failure to
comply with a Commission divestiture order.
HSR Enforcement – William H. Gates, III. In May 2004, the Commission announced
the settlement of a federal court action against Bill Gates providing for payment of $800,000 in
civil penalties for violations of the HSR reporting requirements. Although Mr. Gates’ failure
to file apparently did not stem from any intent to violate, he was on notice of the HSR reporting
obligations, due to a warning issued following a previous inadvertent failure to file in 2001.
Thus, the Commission sought civil penalties for this second violation.
Order Compliance – RHI AG. In February 2004, the Commission finalized a settlement
with RHI AG, based on its failure to comply with the various provisions of a Commission order
issued in 2001, to resolve concerns surrounding RHI’s acquisition of a competitor in the market
for refractory bricks used in steel production. Under the settlement, RHI agreed to pay a civil
penalty of at least $650,000 for the violations and to conduct asbestos remediation at a divested
plant, substantially beyond the remediation required in the original order.

12

Federal Trade Commission

B. Nonmerger Enforcement
Consistent with its strategic focus, the FTC has identified priorities and sought
systematically to develop nonmerger cases in key areas. As with mergers, the agency focuses
on industries, including health care and energy, that matter most to consumers. The areas of
emphasis include health care, prescription drugs, standards setting, professional associations,
and immunities from, and
Figure 4
exceptions to, the antitrust
Consumer Harm Involved in a Single
laws.
Antitrust Case Can Exceed the Cost of All

In Millions

FTC Competition-Related Activity
In the nonmerger
$250
area, continuing litigation
$220
Estimated Cost to Consumers of a One-Year Delay
of Part 3 cases that had
in Generic Competition in Markets
$200
Affected by One Case, Compared to One-Year
been initiated in previous
Cost of FTC Antitrust Enforcement
years has kept both the
$150
staff and the Commission
$120
very busy this year. The
$89
$100
Commission issued two
interim administrative
$50
decisions, one involving the
$20
State Action Doctrine and
$0
another involving NoerrPlatinol
BuSpar
Taxol
Competition Mission
Pennington issues (South
NOTE: In Bristol-Myers Squibb, Docket No. C-4076 (April 14, 2003) the Commission accepted a consent order settling charges
that Bristol-Myers Squibb acted unlawfully to delay generic competition for two anti-cancer drugs, Taxol and Platinol, and the
anti-anxiety agent BuSpar. The impact of delays in generic entry is discussed in the Federal Trade Commission, Generic Drug
Carolina Board of Dentistry
Entry Prior to Patent Expiration: An FTC Study (July 2002), available at www.ftc.gov/os/2002/07/genericdrugstudy.pdf.
and Unocal, respectively);
accepted a settlement in a
physicians case (Piedmont Health Alliance); and is considering appeals from Initial Decisions in
three additional cases (Rambus, Kentucky Movers, and North Texas Specialty Physicians).

In a horizontal collusion case, the Commission applied its 2003 policy statement on remedial
use of disgorgement in accepting a multi-million dollar settlement of an alleged antitrust
violation involving pharmaceuticals (Perrigo/Alpharma).

1. Continued Emphasis on Health Care
As noted above, healthcare is a major issue for consumers. Thus, in addition to its activity
involving pharmaceutical and hospital mergers, the FTC has been active in prosecuting unlawful
conduct in the health care and pharmaceutical industries. The FTC has continued to take action
against groups of physicians and other health providers for agreements relating to prices. The
agency obtained four settlements, including one in a case in Part 3 litigation (Southeastern
New Mexico Physicians, White Sands Health Care System, Preferred Health Services and
Piedmont Health Alliance). In a fifth physician matter, the Commission is now considering the
appeal of an Initial Decision upholding the complaint (North Texas Specialty Physicians). The
Commission also required two pharmaceutical firms to disgorge $6.25 million in alleged illegal
overcharges for children’s pain medicine (Perrigo/Alpharma), and issued an order denying a
motion to dismiss the FTC’s challenge to alleged restrictions on competition for dental services
in South Carolina (South Carolina Board of Dentistry).
13

Federal Trade Commission
•

Southeastern New Mexico Physicians. In June 2004, a consent agreement resolved
FTC charges that 73 percent of the physicians independently practicing in Roswell,
New Mexico, collectively negotiated their fees with payers, resulting in prices above
those prevailing elsewhere in the state. The consent order bars similar future conduct.

•

White Sands Health Care System. In September 2004, a physician-hospital
organization in New Mexico settled the Commission’s allegations that it fixed prices
charged to health plans for physician and nurse anesthetist services, agreeing to cease
and desist such conduct.

•

Piedmont Health Alliance. In August 2004, a 450 member group of North Carolina
physicians agreed to settle price-fixing charges made by the Commission in a 2003
administrative complaint, just before the scheduled beginning of trial. The settlement
included the full relief contemplated in the Commission’s complaint.

•

Preferred Health Services. Most recently, in March 2005, the Commission ordered
another physician-hospital organization to stop collectively negotiating the prices its
independent physician members charge health plans. In this matter, the group consisted
of more than 100 physicians and the Oconee Memorial Hospital in northwestern South
Carolina. The group’s physicians allegedly make up approximately 70 percent of the
independently practicing physicians in and around Seneca, South Carolina.

•

North Texas Specialty Physicians. In November, an ALJ’s Initial Decision upheld
charges that this physician group negotiated agreements among participating physicians
on price and other terms, refused to negotiate with payers 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 respondent’s appeal, and complaint counsel’s
cross appeal on market definition and certain remedial issues, are pending before the
Commission.

•

Perrigo/Alpharma. The Commission required the disgorgement of $6.25 million in
allegedly illegal overcharges for an over-the-counter, store-brand of children’s liquid
Ibuprofen. Alpharma, Inc. and Perrigo Company signed an agreement under which
Alpharma allegedly agreed not to compete in selling children’s liquid Ibuprofen for
seven years in exchange for an up-front payment and a royalty on Perrigo’s sales of
the product. The complaint further alleges that Perrigo raised its prices following
the agreement. The Commission will use the $6.25 million payment to reimburse
consumers harmed by the alleged illegal conduct.

•

South Carolina Board of Dentistry. The FTC fought restrictions against dental
hygienists providing basic dental care to South Carolina school children – particularly
those economically disadvantaged. In July 2004, the Commission denied the South
Carolina Board of Dentistry’s motion to dismiss the FTC’s Part 3 complaint, rejecting
the Board’s contention that the State Action doctrine protected its actions against
antitrust challenge. The Commission noted that the Board’s actions were not pursuant
to a clearly articulated policy of the state and appeared to have been contravened by the
legislature. The Commission has agreed to stay the administrative proceedings pending
the resolution of the Board’s appeal to the Fourth Circuit of the Commission’s decision.
14

Federal Trade Commission

2. Energy
The Commission’s efforts to protect competition in the petroleum industry include a
significant adjudicative matter involving the alleged acquisition of monopoly power in the
technology market for producing a formulation of gasoline in California:
•

Unocal. In an Opinion issued in July 2004, the Commission reversed an ALJ’s initial
decision that the Noerr-Pennington doctrine protected Union Oil of California from
charges of monopolization, thus sending the matter back before an ALJ for a full trial on
the merits. The Commission held that, in some circumstances, false petitioning does not
enjoy Noerr-Pennington protection. According to the Commission, these circumstances
include “when the petitioning occurs outside the political arena; the misrepresentation is
deliberate, factually verifiable, and central to the outcome of the proceeding or case; and
it is possible to demonstrate and remedy this effect without undermining the integrity of
the deceived governmental entity.” The Commission’s complaint alleges that Unocal
made misrepresentations to the California Air Resources Board (CARB) and to industry
participants concerning its research relating to low-emissions reformulated gasoline
(RFG). Unocal’s actions allegedly led to a regulatory standard that overlapped with
Unocal patents, giving Unocal a monopoly over the technology used to produce and
supply California “summertime” RFG and costing California consumers hundreds of
millions of dollars in higher gasoline prices. The case is awaiting the ALJ’s decision
following the completion of the administrative trial.

3. Other Nonmerger Enforcement
In the past year, the Commission accepted consents in two other nonmerger cases raising
important conduct issues:
•

Clark County, Washington, Attorneys. In June 2004, the Commission charged an
attorneys’ group in Clark County, Washington with price fixing. The group consisted
of 43 independently practicing attorneys who represented criminal indigent defendants.
According to the FTC’s complaint, the attorneys formed a consortium through which
they collectively demanded higher fees from the county for defending certain types of
criminal cases and threatened to refuse to take additional cases of these types unless the
county agreed to the higher fees. The Commission settled with the group and issued an
order barring the attorneys from engaging in similar conduct in the future.

•

Virginia Board of Funeral Directors and Embalmers. The Commission, in August
2004, charged the Virginia Board of Funeral Directors and Embalmers with violating
the antitrust laws and restraining competition by prohibiting funeral directors from
advertising discounts for “preneed” funeral planning and services. The parties agreed
to a settlement, and an order bars the Board from prohibiting or restricting truthful
price advertising, including enforcing any regulation that might prevent Board licensees
from using truthful advertising to notify consumers of prices and discounts for funeral
products and services.

15

Federal Trade Commission
Two additional nonmerger adjudicative matters are pending before the Commission
following appeals from ALJ initial decisions:
•

Kentucky Movers. In 2003, the Commission filed a complaint against several
associations of household goods movers, charging that the associations, consisting
of competing firms, each violated the FTC Act by jointly filing tariffs containing
collective rates on behalf of their members. All but one of the matters have settled.
In June 2004, the ALJ’s Initial Decision upheld the complaint’s allegations that the
Kentucky association had engaged in horizontal price-fixing and that its conduct was
not protected by the State Action Doctrine because the state had not actively supervised
the association’s rate-making activities. The Commission heard oral arguments on the
matter in January 2005, and the matter is now awaiting a Commission decision.

•

Rambus. The Commission also is considering an appeal from an ALJ’s dismissal
of the complaint in a Part 3 proceeding against Rambus, Inc. The complaint charged
that Rambus violated the antitrust laws by knowingly failing to disclose its relevant
intellectual property holdings to a standards setting organization in which it was a
participant. In dismissing the complaint, the ALJ concluded that Rambus’ conduct did
not amount to deception or a violation of Rambus’ duties and that complaint counsel did
not prove that Rambus’ conduct violated the antitrust laws. The Commission heard oral
argument in December 2004, and a decision is forthcoming.

16

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 its enforcement efforts on issues of critical importance
to American consumers, including telemarketing fraud, business opportunity schemes, creditrelated scams, deceptive health claims, spam, spyware, and consumer privacy. Additionally, the
FTC has established a special unit that works closely with our criminal law enforcement partners
to build cases and prosecute the most recalcitrant offenders.
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 tool box includes databases, surveys,
workshops, reports, and civil investigative demands. Using these tools, the FTC enforces the
law, identifies developing trends, and educates itself, industry, and consumers to promote a
marketplace in which fraud and deception cannot easily flourish.

A. Fraud and Deception
1. Law Enforcement.
The FTC targets the
most pervasive types of
fraud for law enforcement
actions. From April 2004
through February 2005,
the FTC filed 83 actions in
federal district court and
obtained 75 judgments
ordering the return of more
than $474 million in redress
to consumers. In many
of these cases, the FTC
worked with local, state,
federal, and international
law enforcement partners.

Figure 5

Significant Redress Orders - $474 Million
April 2004 - March 2005
Other Matters
$74.6m - 16%
Bay Area
Business Council
$12.6m - 3%

Mark Nutritionals
(Harry Siskind)
$155.0m - 33%

World Media Brokers
/ Express Marketing
$19.0m - 4%

Slim Down Solution
$30.1m - 6%

Capital Choice
Consumer Credit, Inc.
$36.6m - 8%

Fairbanks
Assail, Inc.
Law Enforcement
Capital Corp.
(Kyle Kimoto)
$40.0m - 8%
$105.7m - 22%
Sweeps. Sweeps continue
to play an important role in
the FTC’s law enforcement
strategy. In addition to the direct impact of bringing cases against wrongdoers, sweeps create
public awareness about particular types of fraud, and provide a means to combine forces with
other law enforcement agencies. This year, the FTC announced sweeps targeting two types of

17

Federal Trade Commission
fraud that have been of particular concern to the agency because of their impact on consumers:
weight-loss products and business opportunity scams.
•

Project “Biz Opp Flop.” Announced in February 2005, this sweep included law
enforcement actions against more than 200 operations by federal agencies and
enforcement agencies from 14 states. The sweep targeted promoters of fraudulent
business opportunities (“biz opps”), including franchises and work-at-home plans.
The FTC, together with the U.S. Attorney’s Office for the Southern District of Florida,
the DOJ, the U.S. Postal Inspection Service (USPIS), and law enforcement agencies
from 14 states, stepped up the attack on biz opp scams by applying more criminal law
enforcement resources to this type of fraud than ever before. The U.S. Attorney’s Office
announced criminal charges against 14 individuals and the USPIS arrested 28 suspects.
This unprecedented cooperation between the FTC and criminal authorities sends a clear
message to biz opp scammers that jail time may await them.

•

Operation “Big Fat Lie.” In November 2004, the FTC announced federal court
actions against six companies charged with making false weight-loss claims for various
products, including pills, powders, green tea, topical gels, and diet patches. The sweep
continued the FTC’s efforts to stop deceptive advertising and to redress consumers
harmed by unscrupulous weight-loss advertisers; encourage media outlets to reject
advertisements containing bogus weight-loss claims; and educate consumers about false
claims promising miraculous weight-loss without diet or exercise.

Criminal Liaison Unit. Working with criminal law enforcers remains a priority for
the FTC. The Criminal Liaison Unit (CLU), created in December 2003, has stepped up
cooperation with criminal authorities. From April 2004 to March 2005, the FTC assisted in
38 matters involving criminal prosecutions of FTC defendants or their associates. This year,
CLU initiated a new program to familiarize criminal law enforcement agencies with the FTC’s
work and to provide hands-on assistance in selecting criminal prosecutions. As a result of
greater cooperation, in February 2005, the FTC, the DOJ, the USPIS, and the U.S. Attorney for
the Southern District of Florida jointly announced “Project Biz Opp Flop,” a sweep targeting
business opportunity fraud. Other CLU accomplishments this year include:
•

A joint consumer fraud training forum with the USPIS attended by more than 150 FTC
and Postal Inspection Service staff from around the country;

•

The appointment of two FTC staff attorneys as Special Assistant U.S. Attorneys for the
Southern District of Florida to assist that office in consumer fraud prosecutions; and

•

The creation of a criminal liaison fact book summarizing FTC jurisdiction and
background on FTC enforcement matters for criminal enforcers, including prosecutors,
FBI agents, Postal Inspectors, and local law enforcement, to facilitate inter-agency
cooperation, information sharing, and joint enforcement efforts.

Deceptive Lending Practices and Other Credit Schemes. For most consumers, access
to credit is essential for full participation in the nation’s economy. Some entities, however, take
advantage of consumers’ need for credit. Bogus organizations target consumers with bad credit
or significant consumer debt, promising to help obtain credit or manage their debt. As a result,
18

Federal Trade Commission
consumers may pay high fees for these services, only to receive nothing in return, or worse,
to see their credit damaged even further. Unscrupulous lenders deceive consumers about loan
terms, rates, and fees. The results can be severe, from damaged credit ratings to foreclosure.
•

Advance-Fee Credit Scams. Many advance-fee schemes, which take fees for
nonexistent loans or credit cards, now originate in Canada. The FTC works closely
with the Toronto Strategic Partnership – a group of law enforcement agencies in the
U.S. and Canada that collaborates to combat cross-border fraud – to identify, locate, and
shut down these schemes. Over the past 12 months, the FTC has brought seven cases
targeting this area of fraud. For example, in November 2004, the FTC, working with
the Partnership, filed a complaint against Prime One Benefits, a Canadian company that
allegedly promised consumers a “guaranteed” advance-fee credit card. The defendants
stipulated to a preliminary injunction.

•

Deceptive Credit Counseling Services. The FTC won two major victories this year
in the AmeriDebt litigation. In November 2003, the FTC charged AmeriDebt with
falsely promoting itself as a non-profit credit counseling organization. In September
2004, the district court rejected AmeriDebt’s argument that it was exempt from liability
under the FTC Act because of its nominal status as a non-profit entity, finding that the
FTC properly stated a claim against AmeriDebt as a de facto for-profit organization.
Also, the judge presiding over AmeriDebt’s bankruptcy case allowed the transfer of
AmeriDebt’s client accounts to a legitimate third-party credit counselor, protecting
consumers who otherwise might be stranded if AmeriDebt goes out of business.

•

Deceptive Debt Negotiation Services. In May 2004, the Commission charged a large
network of debt negotiation companies, fronted by the National Consumer Council
(NCC), with falsely claiming that they could stop creditors’ collection efforts and
significantly reduce consumers’ debts with little or no consequences to consumers. The
complaint also alleged that NCC called consumers whose telephone numbers were on
the DNC Registry and failed to provide privacy notices as required by the GrammLeach-Bliley Act. The defendants stipulated to a preliminary injunction.

•

Deceptive Mortgage Lending. In June 2004, the Commission charged PWR
Processing with violating the FTC Act, the Truth in Lending Act, and Regulation Z.
Defendants deceptively claimed that they could broker no-cost, low-rate refinances
of consumers’ mortgages. In fact, the defendants left consumers stranded with highinterest loans, and in many cases, damaged credit. In January 2005, the court granted
partial summary judgment for the FTC and entered a permanent injunction.
•

Capital City Mortgage. In February 2005, Capital City Mortgage, a mortgage
lender and servicer, settled FTC charges that it deceptively induced consumers
into taking loans secured by their homes, overcharged borrowers, and, in some
instances, caused consumers to lose their homes. Among other things, the
settlement prohibits defendants from engaging in certain deceptive and unfair loan
practices, permanently bans the defendants from making or servicing any loans
secured by homes, and requires them to pay consumer redress and other monetary
relief totaling at least $750,000.
19

Federal Trade Commission
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 continues to focus on combating deceptive health claims,
particularly weight-loss and serious disease-prevention claims. From March 2004 through
February 2005, the FTC brought 42 law enforcement actions in this area. In addition to the
“Operation Big Fat Lie” sweep, the agency targeted food and dietary supplement marketers
making deceptive health claims.
•

Cortisol Control Products. The “miracle pills” of 2004 were dietary supplements
that supposedly caused significant weight-loss and prevented disease by reducing
levels of the stress hormone cortisol. In September 2004, the Commission alleged that
the marketers of CortiSlim and CortiStress made deceptive weight-loss and diseaseprevention claims and used a deceptive infomercial format. An interim agreement filed
with the complaint stopped all of the conduct alleged in the complaint. Staff also sent
more than 40 warning letters to marketers of other similar products.

•

Kentucky Fried Chicken. In June 2004, KFC Corporation settled charges that it made
false health-related claims about its fried chicken in a national television advertising
campaign. The FTC alleged that the company falsely implied that eating two KFC
Original Recipe fried chicken breasts is better for a consumer’s health than eating
a Burger King Whopper, and that eating KFC fried chicken is compatible with low
carbohydrate diets. The settlement prohibits the company from making these or similar
false or unsubstantiated claims about the nutritional value, weight-loss benefits, or other
health benefits of its chicken.

Effective Remedies Through Avalanche Clauses. The FTC’s “avalanche clauses” are
yielding results. These order provisions condition the Commission’s agreement to suspended
judgments upon defendants’ truthful disclosures of their financial status. If defendants lie,
the court can reopen the case and reinstate a judgment for the full amount of consumer injury.
Over the last year, the Commission successfully obtained over a quarter of a billion dollars in
avalanche clause judgments. In September 2004, the FTC won a $106 million judgment against
Assail, Inc. after the court found that Kyle Kimoto, its president, concealed more than $3 million
in assets he failed to disclose as part of his settlement with the FTC resolving allegations that
defendants ran an advance-fee credit card scam. Also in September 2004, the FTC secured
a new settlement reinstating a $155 million judgment against Harry Siskind, who allegedly
misrepresented $600,000 in assets and failed to report $300,000 in additional assets when he
settled with the agency after allegedly selling worthless weight-loss supplements.
Project Scofflaw. Project Scofflaw
seeks criminal and civil contempt sanctions
against individuals who violate FTC
orders. For example, the FTC settled
two civil contempt actions against dietary
supplement marketers, enjoining one
set of defendants in Enforma Natural
Products from selling any weight-loss
products, and enjoining another defendant,

Figure 6

Project Scofflaw - 2004 Criminal Prosecutions:
•
•
•
•
•

20

6 defendants sentenced;
278 months confinement;
$40 million in criminal restitution;
9 individuals indicted in federal court,
1 in state court;
2 guilty pleas.

Federal Trade Commission
Kevin Trudeau, from appearing in, producing, or disseminating infomercials that advertise any
product or service, except for truthful infomercials for informational publications. In addition,
after referral for prosecution as part of the FTC’s Busted Opportunity law enforcement sweep,
Jeffrey and Terri Salley in January 2005 were sentenced, respectively, to 70 months incarceration
and four years of probation. The Salleys, who pled guilty to criminal contempt of court, were
indicted on 20 counts of criminal contempt for violating an order issued in United States v. World
Wide Coffee, Inc. The order prohibited them from making false earnings claims in connection
with business opportunities and from violating the FTC’s Franchise Rule.
Hispanic Law Enforcement Initiative. The Hispanic Law Enforcement and Outreach
Initiative, announced in April 2004, targets consumer fraud against Spanish-speaking consumers
through law enforcement, media outreach, consumer education, and inter-agency cooperation.
The Initiative monitors Spanish-language media and tracks Spanish-language complaints from
the Consumer Sentinel database. The FTC has announced 21 cases involving alleged frauds
using the Spanish-language, including scams involving green card lotteries, weight-loss products,
international driving permits, work-at-home schemes, and junk computers.

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 marketplace, assist the agency in advancing its consumer protection
agenda.

In Millions

Consumer Fraud Survey. In August 2004, FTC staff released a survey of consumer fraud
in the United States. Notably, the survey found that nearly 25 million adults – 11.2 percent of
the adult population – were
Figure 7
victims of one or more
Specific Types of Fraud
of the frauds covered by
By Millions of Incidents
the survey during the year
studied (2002-2003). In
7.0
addition, the survey found
6.55
6.0
that Hispanics, African
Americans, and American
5.0
4.80
4.60
Indian consumers were
4.0
much more likely to be
3.0
victims of fraud than
2.55
2.45
2.40
2.0
non-Hispanic whites.
1.90
1.0
By identifying the most
0.85
0.65
0.55
prevalent frauds and the
0.0
groups most affected by
them, this survey is helping
the FTC better serve
Source: Consumer Fraud in the United States: An FTC Survey, August 2004, available at
fraud victims through law
www.ftc.gov/reports/consumerfraud/040805confraudrpt.pdf. Survey conducted May 20 – June 3, 2003.
enforcement and education.
Advance Fee Buyers' Clubs
Loans

21

Credit Card
Insurance

Credit Repair

Prize
Promotions

Unauthorized
Billing for
Internet
Services

Pyramid
Schemes

Unauthorized
Billing for
Information
Services

Government
Job Offers

Business
Opportunities

Federal Trade Commission
Consumer Response Center. The Consumer Response Center (CRC) remains a vital
resource for both consumers and law enforcement by providing a forum for consumers to submit
complaints on a variety of issues. Each week, the CRC handles more than 25,000 contacts from
consumers and businesses. These contacts come via the FTC’s toll-free numbers (1-877-FTCHELP and 1-877-ID-THEFT), the FTC’s website, and the U.S. mail. The CRC also supports the
efforts of other law enforcement agencies. For example, the CRC acted as the primary response
center for the USPIS’s recent “Dialing for Dollars” anti-telemarketing fraud consumer education
campaign.
Figure 8

Consumer Sentinel Complaints
by Fiscal Year
700,000
616,665

600,000
518,814

500,000
400,000

356,072

300,000
200,953

200,000
123,162

100,000
0
2000

2001

2002
Fraud

2003

2004

Consumer Sentinel.
Consumer Sentinel is
the FTC’s primary fraud
database. Created in
1997, Consumer Sentinel
maintains more than 2.2
million consumer fraud and
identity theft complaints.
This data is available online
to more than 1,200 law
enforcement agencies in
the United States, Canada,
and Australia – an increase
of over 200 participating
agencies over last year.

ID Theft

Do Not Call Registry.
In addition to enabling
consumers to limit
telemarketing calls they receive, the Do Not Call Registry has collected more than 800,000
consumer complaints. The FTC shares these complaints with other federal and state law
enforcers through Consumer Sentinel. Most companies identified have a very small number of
complaints lodged against them, which indicates widespread compliance.

Figures do not include complaints about non-fraud matters or National Do Not Call Registry complaints.

Spam Database. “Spam,” the popular name for unsolicited commercial email, is
still a top concern for consumers and businesses. 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 currently receives more than 300,000 pieces of spam daily. The
total number of spam received by the FTC has grown from 94 million in March 2004, to more
than 200 million in March 2005. In 2004, the FTC provided several law enforcement partners
with direct access to its spam database. The database has been instrumental in the development
of state and federal enforcement actions against major spamming operations such as the FTC’s
case against Phoenix Avatar and the Texas Attorney General’s case Texas v. PayPerAction, LLC.
Identity Theft Tools. Identity theft is the top consumer fraud complaint received by the
FTC. The agency leads the fight against identity theft by providing a toll-free hotline and
website where consumers can file complaints and receive helpful information concerning their
rights as victims of identity theft. More than 1,100 law enforcement agencies have access to
22

Federal Trade Commission
these complaints. The FTC also develops preliminary investigative reports for other federal law
enforcement agencies and sponsors ID theft law enforcement training for state and local law
enforcers. To date, the FTC, in cooperation with the DOJ, the U.S. Secret Service, the USPIS,
and the International Association of the Chiefs of Police, has conducted 16 one-day Identity
Theft Law Enforcement Training Seminars attended by more than 2,200 officers from more than
800 agencies.
Cross-Border Fraud Website. The FTC also uses information collected at “econsumer.
gov” to identify fraud. Consumers from around the world can file complaints at the econsumer.
gov website, which has received over 15,000 consumer complaints to date. These complaints are
now accessible to consumer protection agencies in 20 countries. Participating agencies recently
added a link to a directory of global online alternative dispute resolution providers, so that
consumers from around the world have a potential avenue to resolve their consumer protection
complaints without going to court.

B. Consumer Privacy
Protecting consumer privacy remains a top priority in the FTC’s consumer protection
agenda. Through the vigorous enforcement of existing laws, rulemaking efforts, and ongoing
consumer and business education, FTC initiatives address the serious consequences that result
from the misuse of personal information.

1. Law Enforcement.
The FTC continued its aggressive enforcement of existing laws to protect consumer privacy
during the past year. Law enforcement actions ranged from cases involving violations of the Do
Not Call provisions of the Telemarketing Sales Rule, to cases attacking illegal spam or spyware
that tracks consumers’ online behavior. Highlights include:
National Do Not Call
Registry. As of March
2005, consumers had
registered more than 85
million phone numbers
with the FTC. The
Registry protects consumer
privacy by prohibiting
commercial telemarketing
calls to consumers who
register their telephone
numbers. The FTC has
made enforcement of the
Registry a top priority.
Since October 2003, the
Commission has filed
five enforcement actions
alleging that the defendants

Figure 9

National Do Not Call Registry
June 27, 2003 – December 31, 2004
82,981,197 Registrations

Web
Registrations
66%
54,713,465

Phone
Registrations
22%
18,295,990

Registrations
Transferred
from States
12%
9,971,742

23

Federal Trade Commission
had called consumers whose numbers were on the Registry, and has forwarded two additional
cases to the DOJ for filing:
•

Flagship Resort and Braglia Marketing Group. In February 2005, the Commission
announced settlements in several Do Not Call enforcement actions. This was the first
time the agency had sought civil penalties for violations of the Registry. Under the final
orders, two timeshare sellers agreed to pay $500,000 in civil penalties and abide by a
federal court injunction – the telemarketers they retained were banned from owning
or operating a telemarketing operation and agreed to a civil penalty of over $526,000.
According to the complaints, these defendants repeatedly violated the Registry
provisions of the FTC’s Telemarketing Sales Rule; failed to pay the fees required to
access the Registry; and unlawfully abandoned calls to consumers.

Spam and Spyware. Over the past year, the FTC’s spam program emphasized enforcement
of the CAN-SPAM Act, which became effective on January 1, 2004. More recently, spyware is
becoming one of the most serious consumer problems on the Internet. Spyware installs itself on
an individual’s computer without that person’s consent and then monitors or controls computer
use. It may be used to send pop-up ads, redirect the computer to websites, monitor Internet
surfing, or record keystrokes, which, in turn, can lead to identity theft. To address the adverse
effects of this digital menace, the FTC is investigating and aggressively prosecuting spyware
distributors.
Box 1

•

Phoenix Avatar. In April 2004,
Protecting Consumers Online
the FTC filed its first CAN-SPAM
cases against two sellers who hired
Commissioner Jon Leibowitz is particularly
spammers to promote their products.
interested in competition and technology issues,
including online commerce and privacy. On the
The defendants’ activities generated
technology side, he has spoken about the consumer
nearly one million consumer
harm caused by growing problems like spyware,
complaints. The FTC alleged that
phishing scams, and spam, and how the actions of
the defendants clogged the Internet
some bad actors threaten to undermine the promise
with millions of deceptive messages.
of the Internet. Most recently, Commissioner
Leibowitz addressed the Congressional Internet
In August 2004, the court issued
Caucus State of the Net Conference, where he
the first decision enforcing CANemphasized the ongoing role the Commission plays
SPAM – granting the FTC’s motion
in protecting consumers online by the aggressive
for a preliminary injunction. The
use of law enforcement tools like the CAN-SPAM
important message sent by that
Act and the Commission’s existing Section 5
authority.
court’s decision: if you profit from
illegal spam, you may be liable for
violations of the CAN-SPAM Act, even if you did not push the “send” button.

•

Global Net Solutions. In January 2005, the FTC filed suit against a network of
individuals and corporations that used spam to sell access to online pornography. The
Commission alleged that the defendants barraged consumers with sexually explicit
email that violated virtually every provision of the CAN-SPAM Act, including the Adult
Labeling Rule. The court immediately issued a temporary restraining order and has
since entered a preliminary injunction.

24

Federal Trade Commission
•

Seismic Entertainment. In October 2004, the Commission filed its first spyware case,
alleging that the defendants unfairly downloaded adware and other software programs
to consumers’ computers without authorization and then advertised “anti-spyware”
products to these same consumers. The court issued a temporary injunction stopping
the defendants’ unfair practices and the defendants are now subject to a preliminary
injunction.

•

MaxTheater, Inc. In March 2005, the Commission filed another case involving
spyware. The FTC alleged that MaxTheater offered consumers free spyware scans that
“detected” spyware on their computers even if there was none, to market anti-spyware
software that does not work as represented.

Information Security and Enforcing Privacy Promises. The Commission continued its
efforts to protect privacy by ensuring that companies do not misrepresent their privacy policies.
The agency gives special emphasis to representations concerning the security provided for
customer information and the disclosure of information to third parties.
•

•

Petco. In November 2004, the FTC
announced its fifth case targeting
companies that misrepresent the
security provided to consumers’
personal information. The FTC
alleged that Petco Animal Supplies,
Inc., although promising to keep its
customers’ information secure, did
not take reasonable or appropriate
measures to prevent commonly
known attacks to its website by
hackers. The FTC charged that
the flaws allowed a hacker to
access consumer records, including
credit card numbers. Like the
FTC’s prior information security
cases, the settlement requires that
Petco implement a comprehensive
information security program for its
website.

Box 2

Promoting Information Security
The Commission works to protect the
privacy and security of consumer information.
Commissioner Orson Swindle continues to play
an active role in promoting the importance of
information security. Commissioner Swindle has
emphasized the continuing need for consumer
education, noting that good information security
practices must become just another part of our
daily lives. Commissioner Swindle also has urged
corporate leaders to make good information
security practices an essential part of their business
operations – literally, a part of their corporate
culture. Addressing the Subcommittee on
Technology, Information Policy, Intergovernmental
Relations, and the Census, of the House Committee
on Government Reform, Commissioner Swindle
stated that “the FTC is working to ensure that all
companies entrusted with personal information
take reasonable steps to secure that information
and minimize the risk that it may be misused. The
agency has been and will continue to be vigilant in
promoting a culture of security.” Earlier this year,
the Cyber Security Industry Alliance presented
Commissioner Swindle with the RSA Conference
Award for Public Policy for his work on information
security.

GLB Safeguards Cases. In
November 2004, the Commission
announced its first cases enforcing
the Gramm-Leach-Bliley
Safeguards Rule, which requires
financial institutions to have reasonable procedures to ensure the security of customer
information. As part of a nationwide compliance sweep, the FTC charged two
mortgage companies with violating the Rule. The FTC alleged that the brokers failed
to implement required safeguards to protect customer names, Social Security numbers,
25

Federal Trade Commission
bank account numbers, and other sensitive financial information. The settlements bar
future violations of the Rule and require independent audits of the companies’ security
programs.
•

Gateway Learning. In September 2004, FTC announced its first case challenging
deceptive and unfair practices in connection with a company’s material changes to its
privacy policy. The FTC alleged that Gateway rented consumers’ personal information
to marketers, contrary to explicit promises made in its privacy policy at the time it
collected the data. According to the complaint, after collecting consumers’ information,
Gateway changed its privacy policy to allow sharing the information with third parties,
but failed to notify customers or obtain their consent.

2. Rulemaking.
Congress directed the FTC to issue rules to implement a number of statutes critical to
protecting the privacy of consumers. Pursuant to this Congressional directive, over the last 12
months, the agency promulgated new rules addressing issues like telemarketing, spam, consumer
credit, and identity theft.
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. It requires the FTC to engage
in 18 rulemakings. Within the past year, the FTC issued 10 of these rules and proposed two
others. One of the completed rulemaking efforts is the “Free Annual File Disclosures” Rule,
which requires the three national credit bureaus to establish a central website, phone number, and
mail address for consumers to order a free copy of their credit report once every 12 months. The
national rollout of this free credit report system began on the West Coast on December 1, 2004,
and will be completed by September 1, 2005.
CAN-SPAM Act. As mentioned above, the FTC issued two rules pursuant to the CANSPAM Act in FY 2004. The first required spammers to identify sexually explicit content in
the subject line of email. The rule implements the objective of the CAN-SPAM Act to protect
email recipients from unwitting exposure to unwanted sexual images in spam. The second
rule established criteria to determine whether the email’s primary purpose is commercial, and
therefore, covered by the Act.
Telemarketing Sales Rule. Congress instructed the FTC to amend the Do Not Call Rule
to require telemarketers to purge newly-registered numbers from their call lists monthly instead
of quarterly. The Rule became effective on January 1, 2005. The FTC also sought comment on
a proposal to modify the call abandonment provision of the Rule to allow telemarketers to use
prerecorded messages when they call consumers with whom they have an established business
relationship. The FTC’s request for comments emphasized that consumers will be able to assert
an entity-specific Do Not Call request to stop prerecorded message telemarketing, just as they
can with telemarketing that uses live sales representatives.

26

Federal Trade Commission

Chapter 3 – Policy Tools to Complement Law Enforcement
A. Competition Policy
As a complement to its enforcement mission, the FTC also promotes competition principles
through a wide variety of activities, such as research and reports, workshops, advocacy filings,
and amicus briefs. Through these activities, the FTC educates itself about emerging issues
and shares information with other policymakers, business leaders, and consumers, providing
intellectual leadership on competition issues.

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 include topics of perennial interest,
such as energy and healthcare, as well as emerging issues, such as concerns about the promise
and impact of new technologies and certain kinds of distribution policies.
Petroleum Merger Report. In August 2004, the staff of the FTC’s Bureau of Economics
released a report, The Petroleum Industry: Mergers, Structural Change, and Antitrust
Enforcement, which presented a detailed review of structural changes and the FTC’s antitrust law
enforcement efforts in the petroleum industry over the past 20 years. Consistent with the purpose
of enhancing public understanding and policy making concerning competition in this industry,
the report also elaborated on the analytical process the Commission uses when reviewing
petroleum-related mergers. The report concluded that thorough FTC oversight of the industry,
including both investigations and enforcement actions, has helped preserve industry competition
and prevented gasoline price increases beyond those already dictated by market conditions.
Health Care Report. In July 2004, the FTC and the DOJ released a joint report, Improving
Health Care: A Dose of Competition, which distilled a wealth of information gained from 27
days of public hearings and other data collected over a two-year period. To promote policies that
ensure access to quality health care and enhance informed consumer choice, the report provided
significant observations and recommendations about the availability of information regarding the
price and quality of health-care services; physician collective bargaining; insurance mandates;
hospital merger analysis; managed care organizations’ bargaining power; and hospital group
purchasing organizations.
Contact Lens Competition. The agency has been active in ensuring competition in the
contact lens industry. Under the Fairness to Contact Lens Consumers Act, in July 2004, the
FTC issued the Contact Lens Rule which requires, inter alia, that prescribers provide patients
with a copy of their prescriptions after a fitting and verify those prescriptions to any third party
designated by a patient. In February 2005, the FTC issued a report on competition in the contact
lens industry that focused on the effects of manufacturer marketing strategies, such as private
labeling and limited distribution, and found neither likely to raise competitive or consumer
protection concerns. The report also studied the pricing of contact lenses through various nontraditional contact lens sellers, and found that wholesale clubs and online retailers typically
offered the lowest prices for the lenses sampled. The report found that requirements that
27

Federal Trade Commission

The FTC’s Integrated Approach to Competition Policy

Figure 10

The FTC uses a variety of competition policy tools in a coordinated fashion to achieve its
policy goals, such as removing impediments to competition in the petroleum industry.*
TOOL: Market Monitoring

TOOL: Law Enforcement
• Merger enforcement actions in Shell/
Buckeye Partners, Shell/Magellan, and
Enterprise/GulfTerra Energy, requiring
divestitures to protect competition.
• Administrative litigation in Union Oil
Company of California, challenging
alleged misuse of regulatory
process to monopolize the sale of
“summertime” gasoline in California.

• Daily tracking of gasoline and diesel fuel
prices in 360 U.S. cities and use of an
econometric model to assess whether
price changes are deviating from historical
patterns, suggesting possible anticompetitive
activity.

TOOL: Conferences and Workshops
• January 2005 Conference on Estimating the
Price Effects of Mergers and Concentration in
the Petroleum Industry: An Evaluation of Recent
Learning.

GOAL: Prevent anticompetitive
increases in the price of
petroleum products.

TOOL: Competition Advocacy
TOOL: Research and Reporting

• Letters showing that bills in Michigan and
Kansas would likely deter pro-competitive
pricing of gasoline.

• Staff report on The Petroleum Industry:
Mergers, Structural Change, And Antitrust
Enforcement.
• Bureau of Economics Working Papers on
The Economics of Price Zones and Territorial
Restrictions in Gasoline Marketing and The
Economic Effects of the Marathon - Ashland
Joint Venture: The Importance of Industry
Supply Shocks and Vertical Market Structure.

TOOL: Congressional Testimony
• Testimony before House and Senate
committees on “Market Forces,
Anticompetitive Activity, and Gasoline
Prices,” describing FTC’s initiatives to protect
competition in the petroleum industry.

* The examples provided are from the period April 1, 2004 though March 31, 2005.

unnecessarily burden e-commerce, such as licensing requirements to dispense contact lenses and
advertising restrictions, have the potential to cause consumers to pay higher prices for contact
lenses without offsetting consumer protection benefits.

2. Hearings and Workshops.
Hearings and workshops represent one of the FTC’s most powerful policy “research
and development” tools. They allow the agency to bring together experts from the business,
28

Federal Trade Commission
government, legal, and academic communities to engage in an in-depth analysis of important,
and often contentious, issues. Often, FTC hearings and workshops lead to significant advances
in cutting edge knowledge of competition policy issues. In the past 12 months, the following
hearings and workshops have been of particular interest.
Price Effects of Mergers and Concentration in the Petroleum Industry. To ensure
that its work is most effective in maintaining competition and protecting consumers, the FTC
periodically assesses its performance in fulfilling its significant responsibilities and welcomes
constructive critiques. In this context, the Commission assembled a panel of five outside expert
econometricians in January 2005 for a conference on the effects of mergers in the petroleum
industry from an econometric perspective. The panelists addressed the question broadly as well
as with specific reference to two recent reports – a March 2004 FTC Bureau of Economics case
study of the effects of the Marathon-Ashland joint venture and a report released in May 2004 by
the Government Accountability Office.
Patent Reform. In April 2004, the FTC co-sponsored a conference, “Ideas into Action:
Implementing Reform of the Patent System,” with the National Academy of Sciences (NAS)
and the Berkeley Center for Law and Technology to address patent reform and possible
implementation. The event provided a forum for government officials, business representatives,
scholars, lawyers, and others to evaluate and discuss recommendations from recent reports on
patent reform released by the FTC and the NAS. In addition, the FTC recently co-sponsored,
with the National Academies’ Board on Science, Technology and Policy, and the American
Intellectual Property Law Association, several patent reform workshops, structured in a town
meeting format. That format facilitated commentary from a wide range of participants, including
small inventors, representatives of small and large businesses, and lawyers involved in patent
prosecution and litigation. Among other issues, the workshops have highlighted the FTC patent
reform recommendations for a post-grant opposition system and modification of the doctrine of
willful infringement. The final workshop will take place in Washington, D.C., on June 9, 2005
and will address draft patent reform legislation.

3. Advocacy.
An important complement to the FTC’s efforts to forestall or eliminate private restrictions
on competition are efforts to eliminate public impediments to competition that may reduce
consumer welfare. 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 law enforcement: health care,
energy, and others with a major impact on consumers’ wallets.
Pharmacy Benefit Manager Comments. Concerned with likely price increases in
pharmaceutical markets, the FTC staff submitted comments on proposed California legislation
that would have required pharmacy benefit managers (PBMs) to disclose certain information to
health plans and consumers regarding their arrangements with pharmaceutical companies. The
FTC pointed out that these provisions likely would reduce competition between pharmaceutical
companies and thus decrease the incidence of cost-reducing drug substitutions. Governor
Schwarzenegger vetoed the legislation and cited the FTC letter in his veto message as a basis for
his decision.
29

Federal Trade Commission
“Any Willing Provider” and “Freedom of Choice” Bills. Also concerned about
rising pharmaceutical costs and other harms to consumers, FTC staff responded to requests
for comments on seven proposed bills in Rhode Island that contain so-called “freedom of
choice” and “any willing provider” provisions for pharmaceutical sales. All seven bills require
health plans to ensure “freedom of choice” for consumers to choose among all sources of
pharmaceutical services and to include in their networks any pharmacy willing to accept the
contractual terms offered to other pharmacies. Although the bills are designed to increase
competition by letting consumers choose their pharmacy provider, staff concluded that the
bills likely would increase the cost of pharmaceutical services as well as limit competition and
undermine consumer choice.
Below Cost Gasoline Sales Bills. In 2004, FTC staff responded to requests from Michigan
and Kansas legislators for comments on bills to ban below-cost gasoline sales. FTC staff
concluded that, if enacted, the bills likely would restrict competition, deter pro-competitive price
cutting, and lead to higher prices for the states’ consumers. Moreover, staff concluded that such
bills are unnecessary because federal antitrust laws already cover below-cost pricing that has the
potential to harm competition.
Electricity. The FTC filed two comments with the Federal Energy Regulatory Commission
(FERC) in July 2004 about how to assess and safeguard against the exercise of market power
and accompanying price hikes. The first comment recommended that FERC’s assessments of
when to permit electric utilities to sell wholesale power at market rates be based on the principles
and framework outlined in the DOJ/FTC Horizontal Merger Guidelines. FERC has not yet
ruled on these issues. The second comment concerned FERC’s policies governing electric
utility procurement. FERC cited this comment to support new policies to prevent rate regulation
evasion and anticompetitive cross-subsidization that have the effect of raising consumer prices.
Corporate Ownership of Funeral Homes. In April 2004, FTC staff commented on a bill
to permit corporate ownership of funeral homes in Maryland in response to a legislator’s request.
Staff concluded that the bill would permit easier entry into the funeral home business, thereby
increasing competition and potentially offering consumers lower prices and better quality for
funeral home services.
Professional Services. The FTC has been active in advocating for maintaining and
increasing competition between attorneys and lay providers for a variety of services in an
effort to give consumers choices. The FTC and the DOJ submitted a comment urging the
Massachusetts Bar Association not to adopt an overly broad definition of the practice of law,
which staff argued was likely to eliminate many forms of lawyer-nonlawyer competition
and lead to higher costs for consumers. The FTC and the DOJ also commented in support
of a Massachusetts bill that would allow nonattorneys to provide many real estate settlement
activities, which will likely reduce real estate settlement costs for 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 12 months, the FTC filed amicus briefs on
issues concerning competition in the pharmaceutical industry, the proper application of antitrust

30

Federal Trade Commission
defenses, and maintaining and increasing competition between attorneys and lay providers to
enhance consumer choice.
•

Teva Pharmaceuticals USA v. Pfizer. The FTC’s brief in the Federal Circuit supported
allowing generic drug firms to seek a declaratory judgment that a generic drug does
not violate an existing patent. The FTC argued that disallowing such an action would
enable brand-name drug manufacturers to use provisions of the Hatch Waxman Act
to delay any generic applicant from entering the market, thus harming consumers by
depriving them of access to lower priced generic alternatives.

•

Andrx Pharmaceuticals, Inc. v. Kroger Company. With the DOJ, the FTC filed an
amicus brief responding to a petition for a writ of certiorari in a matter in which an
alleged pharmaceutical patent infringer agreed not to market its product while patent
infringement litigation was pending. Although the Sixth Circuit’s finding of a per se
antitrust violation arguably conflicts with an Eleventh Circuit precedent, the agencies
concluded that the issue is insufficiently developed to warrant the Supreme Court’s
attention at this time.

•

Jackson Tennessee Hospital Co. The agency’s brief challenged the district court’s
holding that certain conduct by a public hospital district was shielded from antitrust
enforcement by the State Action Doctrine, arguing that the court erred in holding that a
series of anticompetitive agreements were the foreseeable result of the hospital district’s
broad statutory authority, comparable to that of private firms, to operate and manage
health care facilities. As the brief explained, the State Action Doctrine only shields the
conduct of subordinate state entities when they act pursuant to a state policy to displace
competition with an alternative means of advancing the public interest.

•

Cleveland Bar Association vs. Compmanagement, Inc. The FTC’s brief argued that
the court should be guided by the public interest when considering whether lay practice
in workers’ compensation matters before the Ohio Industrial Commission constitutes
the unauthorized practice of law. The brief argued that prohibiting lay practice is
likely to cause consumers of these services to have less choice and pay higher prices,
without providing any additional protections. It also noted that lay representation had
been permitted for 30 years and with no evidence that it harmed consumers. The court
ultimately ruled that such lay representation was not the practice of law.

•

McMahon v. Advance Title. The FTC and the DOJ filed an amicus brief in the West
Virginia Supreme Court of Appeals, urging the court to reject a bar opinion that lay
real estate settlement services are the unauthorized practice of law. The brief argued
that there is no evidence of consumer harm from lay settlements and that such a ban
would likely increase the price of both lay and attorney settlements for West Virginia
consumers. The West Virginia court reversed the lower court’s decision to uphold the
bar opinion on the ground that there was an insufficient factual record to determine
that these services are the practice of law. The court stated that such a determination
requires weighing considerations such as accountability, due care, and public safety.

31

Federal Trade Commission

B. Consumer Protection Policy
In similar fashion, the FTC applied its various policy tools to complement its consumer
protection enforcement. Working with other law enforcement agencies, industry, the media, and
the public, the FTC heightened media awareness of false advertising, provided important data
and analysis on a variety of consumer protection issues, and developed even greater expertise in
technological and legal issues related to spam.

1. Reports and Research.
In addition to using electronic databases and websites to track consumer fraud, the FTC
conducts numerous studies of marketplace issues affecting consumers and publishes its findings
in reports.
National Do Not Email Registry Report to Congress. The CAN-SPAM Act called for
the FTC to report to Congress on a plan and timetable for establishing a National Do Not Email
Registry, modeled on the Do Not Call Registry. The FTC issued the Do Not Email Registry
Report on June 14, 2004, explaining that after significant fact finding such a program likely
would fail to reduce spam and might instead have the opposite effect. Rather than a National
Do Not Email Registry, the report advocated for the private development of a robust email
authentication system to prevent spammers from hiding their tracks and thereby evading Internet
service providers’ anti-spam filters and law enforcement. To explore the issues surrounding
email authentication and to facilitate the development of such a rule, the FTC held an Email
Authentication Summit last fall.
A CAN-SPAM Informant Reward System Report to Congress. The CAN-SPAM Act
also required the FTC to issue a report assessing whether, and how, a system to reward members
of the public for tracking down spammers could help improve enforcement of the CAN-SPAM
Act. Relying on the FTC’s law enforcement experience, the September 2004 report identified
three anti-spam enforcement hurdles: (1) identifying and locating the spammer; (2) developing
sufficient evidence to prove the spammer is legally responsible for sending the spam; and (3)
obtaining a monetary award. The report examined how to overcome these hurdles and analyzed
the issues the FTC believed Congress should consider in determining whether to go forward with
a reward system, and if so, the features such a system might include.
FACT Act Studies. The FACT Act requires the FTC to conduct eight studies. The
agency completed five of these studies in 2004 and reported on, respectively, (1) the accuracy
of information contained in credit reports; (2) data matching tools used by credit bureaus to
insert information into consumers’ credit files and provide credit reports to businesses; (3) the
costs and benefits of notifying consumers when negative information is added to their credit
files; (4) the effects of providing consumers with the same credit report used by a creditor
following an adverse credit decision; and (5) common financial transactions that are not included
in consumers’ credit files but that might bear on creditworthiness. The completed studies
examined the various methods used by the national credit bureaus to build and maintain their
complex databases of consumer information, and the costs and benefits of a variety of proposals
to improve the quality of the data in those databases. The studies ultimately concluded that
legislative or administrative changes to the credit reporting laws would be premature, given that
32

Federal Trade Commission

Figure 11

The FTC’s Integrated Approach to Consumer Protection Policy
The FTC uses a variety of tools to achieve its policy goals, such as
promoting protection for consumers from unwanted commercial email.
TOOL: Congressional Regulation and FTC
Rulemaking
• Primary Purpose Rule (March 2005).
• Sexually Explicit Labeling Rule (April 2004).
• Advance Notice of Proposed Rulemaking on several CAN-SPAM
definitions and provisions (March 2004).

TOOL: Congressional Testimony
• Testimony on Law Enforcement Targeting
Spam (May 2004).

TOOL: International Cooperation
• MOU on spam enforcement cooperation
with agencies in Australia and the United
Kingdom (July 2004).
• MOU with the FTC’s counterpart agency in
Spain (February 2005).
• London Action Plan on International Spam
Enforcement Cooperation, endorsed by 26
agencies from 20 countries, and 7 private
sector organizations from 4 continents
(October 2004).

GOAL: Promote protection
of consumers from
unwanted commercial email.

TOOL: Reports and Studies
TOOL: Law Enforcement

• National Do Not Email Registry
Report (June 2004).
• Informant Reward System Report
(September 2004).

• 68 spam-related cases
against 198 individuals and
companies since 1997.
• 6 CAN-SPAM cases, including
Global Net Solutions, Inc. and
Phoenix Avatar.

TOOL: Consumer and Business Education
• www.ftc.gov/spam contains information about recent
law enforcement actions, FTC reports and studies, and
tips for businesses and consumers on how to reduce
spam.

TOOL: Promoting Technological Solutions
• Email Authentication Summit examining current
authentication technology (November 2004).

we are just beginning to develop experience with the provisions of the FACT Act that address
these issues.

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.
33

Federal Trade Commission
Evaluating the Impact of New Technology on Consumers. The FTC continues to invest
significant resources to explore the impact of new technology on consumers, hosting workshops
on spyware (April 2004), radio frequency
Box 3
identification technology (June 2004), email
Privacy and P2P Technology
authentication (November 2004), and peer-topeer file sharing software (December 2004).
In December 2004, Commissioner Pamela
Each of these workshops addressed current
Jones Harbour presented opening remarks on the
applications as well as emerging technologies.
second day of the FTC’s workshop on peer-to-peer
The workshops provided the opportunities to
file-sharing technology. P2P technology enables
individuals to share files stored on their local hard
discuss the benefits and risks posed by new
drives (including music, video, or software), which
technologies and to examine various selfallows for faster file transfer and conservation of
regulatory and technological efforts to address
bandwidth, but may raise security, privacy, and
consumer concerns.
copyright concerns. In her remarks, Commissioner
Harbour stated, “As part of our consumer protection
Class Action Workshop. In September
mission, the FTC must remain vigilant in protecting
2004, the FTC and the Georgetown Journal
consumers against unfair trade practices, deception,
of Legal Ethics cosponsored a workshop
and anticompetitive conduct. But in order to
remain true to our competition mission, we also
on “Protecting Consumer Interests in Class
must take care not to pursue, create, or condone
Actions.” The seven panels debated policy
policies that inadvertently impede the evolution and
issues related to consumer class actions – all
adoption of useful new technologies, to the longwith an eye to determining how class actions
run detriment of consumers and businesses. Our
can be improved to protect the interests
goal in sponsoring this workshop is to bring together
the individuals and groups who develop and use
of consumers and ensure value to class
P2P technology – as well as those whose existing
members. The workshop addressed a wide
business models are affected by it – to ensure that
variety of issues, including the use of coupon
policy-makers and the public are as well-informed
compensation and other non-pecuniary forms
as possible.”
of redress, the role of third-party objectors and
amicus filers, drafting plain language notices
and ensuring they reach class members, compensating class counsel, special ethics concerns
in class action litigation, the current state of empirical analysis of key class action issues and
proposals for future research, and the use of class actions as an alternative to regulation.

3. Advocacy.
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.
Nutrient Health Claims. In July 2004, the FTC filed a comment on the FDA’s proposed
rules concerning certain nutrient content and health claims in food labeling. It encouraged the
FDA to consider alternatives to potentially overly restrictive requirements for making health
claims on food labels. It also supported revising the FDA’s regulations to allow food marketers
to provide a broader universe of accurate health-related information to assist consumers in

34

Federal Trade Commission
selecting more healthful food and to promote competition among manufacturers to develop and
market healthier food products.
Disclosure of Trans Fat. In April 2004, staff filed a comment supporting the FDA’s
proposal to provide on food labels information about trans fats, which recent studies showed
increase cholesterol levels much like saturated fats. The comment favored the development of a
Daily Value for trans fat to help consumers understand the significance of these fats in their diets
and to permit the FDA eventually to allow trans fat nutrient content claims and health claims.
Direct to Consumers Drug and Devices Advertisements. In May 2004, FTC staff
provided comments to the FDA on proposed new options for prescription drug and device
advertising. The comments observed that the FDA’s proposals represent substantial progress
toward the goal of finding the appropriate means to convey relevant risk information to
consumers in a manner that they can understand.

4. Amicus Briefs.
The FTC also seeks to advance consumer interests by filing amicus briefs in private
litigation. The FTC champions the interests of consumers by providing the courts with the
benefit of its experience in implementing consumer protection statutes and in affording redress
to injured consumers. For example, the Commission filed briefs in Spano v. Safeco Insurance
Co. and Ashby v. Farmers Group, Inc., two cases posing the question of whether the offering
of insurance at less favorable rates on the basis of information obtained in a consumer report
constitutes “adverse action” triggering consumer rights under the Fair Credit Reporting Act
(FCRA).
The Commission addressed another FCRA issue in Cole v. U.S. Capital, Inc., involving the
circumstances under which consumer report information can be provided for marketing purposes.
Also, in conjunction with several other federal agencies, the Commission filed an amicus brief in
American Bankers Ass’n v. Lockyer, addressing the preemptive effect of the FCRA on state laws.
Drawing on its own experience with the fashioning of effective consumer redress programs,
the Commission also intervened in a class action case to ensure that any settlement would afford
fair and effective remedies to consumers harmed by unlawful practices. In Cass v. AmeriDebt,
Inc., a case involving defendants in an FTC action challenging the allegedly deceptive marketing
of financial and debt management services, the FTC intervened to ask the Court to reconsider its
preliminary approval of a class action settlement and to stay the sending of notices to the class
regarding the settlement. The brief argued that the settlement was inadequate for a number of
reasons, including the size of the recovery and the failure of the notice to disclose adequately the
material terms of the settlement.

5. Consumer and Business Education and Outreach.
Information empowers consumers to recognize, avoid, and report fraudulent or deceptive
practices in the marketplace. As a result, the FTC mounts education campaigns in conjunction
with its consumer protection law enforcement and policy initiatives. Since April 2004, the FTC
has produced more than 49 new publications, 33 revised publications, designed 10 micro-sites on
ftc.gov, distributed more than 5 million publications, and logged almost 20 million accesses to its
websites.
35

Federal Trade Commission
Hispanic Outreach. One of the hallmarks of last year’s information efforts was the FTC’s
Spanish-language fraud awareness campaign, ¡Ojo! Mantente alerta contra el fraude: Infórmate
con la FTC. The campaign includes radio public service announcements (sent to nearly 220
radio stations), a website (www.ftc.gov/ojo), and outreach to more than 200 community-based
organizations in cities with large or growing Hispanic populations. The FTC continued to
increase outreach to Spanish-language media on dozens of consumer protection topics, including
identity theft, telemarketing fraud, bogus weight-loss and health care claims, and work-at-home
scams. Since April 2004, the FTC has distributed nearly 200,000 publications in Spanish; and
the agency’s website has logged almost 500,000 accesses to its Spanish language publications.
Consumer Education Publications. As new scams arise or take different twists, and as
newly enacted laws offer consumers additional protections, the FTC produces and disseminates
“news consumers can use” in a variety of formats, including brochures, columns, postcards,
radio public service announcements, and posters. Since April 2004, the FTC has produced
new publications on subjects as varied as phishing, telemarketing, mortgage servicing, gassaving gadgets, marketing violent entertainment to children, the National Do Not Call Registry,
shopping online, advance-fee loans, and spyware. The agency posts education pieces to its
website, distributes them through the media, and also disseminates them through intermediaries,
conferences, and conventions.
Outreach to Business. Along with empowering consumers with information about their
rights under the various consumer protection statutes, the FTC works with industry associations
and professional organizations to boost compliance with – and raise awareness of – trade
rules and regulations. Where appropriate, the agency encourages self-regulation. To persuade
the media to be more vigilant in scrutinizing the advertisements for weight-loss products,
the FTC disseminated Red Flags: A Guide to Bogus Weight-Loss Claims. The booklet and
website illustrate seven claims for weight-loss products that are facially false, and should never
be accepted for airing or publication. In addition, the FTC continued its focus on business
education by sponsoring the seventh Green Lights and Red Flags: FTC Rules of the Road for
Advertisers, a seminar for attorneys and advertisers. This one-day workshop offered a practical
overview on complying with federal consumer protection laws, attracted 135 attendees, and
covered advertising substantiation, special issues for online marketers, consumer privacy and
information security, and telemarketing. These and other business education materials are
also available to businesses on the FTC’s website and accessible through the Small Business
Administration.
Teaser Websites. With a nod to the ubiquity of the Web, the FTC continued its use of
“teaser” websites to spread consumer protection messages in efficient and creative ways. For
example, the “FatFoe” teaser site (www.wemarket4u.net/fatfoe) hawks the “benefits” of eggplant
extract for weight-loss, mimicking sites that make facially false claims for weight-loss products.
Consumers who clicked for more information about the “miracle pill” are redirected to an FTC
page with tips on how to spot bogus claims for diet products. This fake product site was widely
promoted through the media, and generated consumer interest through web logs (blogs). As part
of the Project Biz Opp Flop sweep, in February 2005, the FTC launched another teaser website
that looks like a pitch for a “can’t miss” business opportunity for “Sundae Station,” an icecream sundae vending machine. Once consumers click on any of the links, they learn the ad is
36

Federal Trade Commission
really an education piece
about business opportunity
scams.
Financial Literacy.
The passage of the
FACT Act spurred an
extensive revision of FTC
publications related to
credit, free credit reports,
and identity theft. As a
member of the inter-agency Financial Literacy and Education Commission created under the
FACT Act, the FTC also promotes federal resources on financial literacy for all segments of the
population through a new website (www.mymoney.gov) and a toll-free telephone number.
National Consumer Protection Week. The FTC coordinated the seventh annual National
Consumer Protection Week (NCPW) campaign, partnering with local, state, and federal
agencies, as well as national consumer advocacy groups, to highlight consumer protection and
education efforts around the country. This year, NCPW focused on identity theft and the steps
consumers should take to minimize the risk of identity theft. As part of these efforts, the FTC
built a website, www.consumer.gov/ncpw, created campaign materials, and organized an exhibit
at Union Station in Washington, D.C.

37

Federal Trade Commission

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 U.S. The FTC also actively assists new democracies
in their transition to market-based economies in developing competition and consumer protection
agencies.

A. Competition
1. Cooperation in Enforcement and Policy Development.
The FTC continues to strengthen relationships with competition agencies around the world.
These relationships have become a key component of an effective enforcement program, and
facilitate the agency’s efforts to promote
Box 4
convergence toward sound consumer welfareRendering International Assistance
based competition enforcement and policy.
The FTC continues to work closely with the
The Federal Trade Commission continues to
European Union, Canada, and many other
work with foreign nations that seek to benefit from
the FTC’s years of experience with the sound
jurisdictions on cases of mutual interest,
application of competition law to enhance consumer
including the following matters during the past
welfare. This is a particular challenge for those
year:
nations making the transition from pervasive

•

government control to a free market economy.
Sanofi/Aventis: Sanofi-Synthélabo’s
During the past year, Commissioner Thomas B.
2004 acquisition of Aventis, S.A.
Leary traveled to both China and to Russia to
raised competitive issues in several
meet with government officials responsible for
pharmaceutical markets including
the development of competition policy in these
important nations. He has stressed that these
the markets for cytotoxic drugs for
countries have the opportunity to learn from both the
the treatment of colorectal cancer.
successes and the mistakes that the United States
Close consultation and cooperation
has made during the relatively long evolution of its
between the FTC and the European
own competition law, and that the objective should
Commission (EC) staff were
be to seek consensus on the basic principles that
competition law seeks to protect before focusing on
necessary to achieve non-conflicting
the subtleties of specific legislative language that
remedies in the separate European
will implement the principles.
and U.S. markets. Because this was
a tender offer subject to France’s
takeover code, the FTC also consulted with France’s financial regulator, the Autorité des
Marchés Financiers.

•

GE/InVision: The FTC worked closely with Germany’s Bundeskartellamt and the
parties in developing an effective divestiture remedy to preserve competition in the

38

Federal Trade Commission
specialized market for X-ray nondestructive testing in conformance with the laws of
Germany, where most of the remedial obligations were to be implemented.
•

Sony/BMG: The FTC worked with the EC in their investigations of several
issues raised by this proposed merger of the parties’ music businesses. Both
agencies ultimately closed their investigations without taking enforcement actions,
acknowledging in their press releases their close communication during the
investigations.

The FTC’s bilateral relationships are important vehicles to minimize divergences in
competition policy and enforcement. Foreign agencies often seek the input of the U.S. agencies
in the development of new policy initiatives. During the past year, the FTC consulted with the
EC regarding several aspects of merger policy, including its review of remedies, with the United
Kingdom regarding the Competition Commission’s divestiture guidance, with the Canadian
Competition Bureau on the treatment of merger efficiencies, and with the Japan Fair Trade
Commission on the revision of its merger guidelines. The U.S. agencies also have benefitted
from the input from our foreign counterparts on policy reviews in the U.S.

2. Multilateral Competition Cooperation.
Multilateral competition fora provide important opportunities for agencies to enhance
mutual understanding and promote cooperation and convergence. The FTC participates actively
in, among others, the ICN, the OECD, APEC, and UNCTAD.
ICN. The ICN, which
Figure 12
now includes 86 member
International Competition Network
competition agencies from
Member Jurisdictions
77 jurisdictions, provides
Albania
EFTA
Kyrgyzstan
Slovak Republic
Andean Community Estonia
Latvia
Slovenia
an important venue for
Argentina
European Union
Lithuania
South Africa
antitrust officials worldwide
Armenia
Finland
Macedonia
Spain
Australia
France
Malta
Sri Lanka
to achieve procedural and
Austria
Germany
Mexico
Sweden
Azerbaijan
Greece
Morocco
Switzerland
substantive convergence on
Barbados
Hungary
Netherlands
Taiwan
best practices in antitrust
Belarus
Iceland
New Zealand
Tajikistan
Belgium
India
Norway
Thailand
enforcement and policy. In
Brazil
Indonesia
Pakistan
Tunisia
Bulgaria
Ireland
Panama
Turkey
April 2004, the ICN hosted
Canada
Israel
Peru
Ukraine
its third annual conference.
Chile
Italy
Philippines
United Kingdom
Colombia
Jamaica
Poland
United States
Based on recommendations
Costa Rica
Japan
Portugal
Uzbekistan
Croatia
Jordan
Romania
Venezuela
of the subgroup the FTC
Cyprus
Kazakhstan
Russia
Yugoslavia
chairs, the ICN adopted four
Czech Republic
Kenya
Senegal
Zambia
Denmark
Korea
new Recommended Practices
on Merger Notification
Procedures, which complement
the seven Recommended Practices and eight Guiding Principles for Merger Notification and
Review adopted the previous year. The ICN will consider new practices dealing with merger
remedies and agency enforcement powers at this year’s annual conference. In addition, the
Merger Working Group held a successful conference on merger investigation techniques,
and is engaged in projects on merger remedies and merger guidelines. The FTC also
39

Federal Trade Commission
participates actively in the ICN’s other working groups, including those on Competition Policy
Implementation, which works to help new agencies strengthen their institutional capacity and
performance, Antitrust Enforcement in Regulated Sectors, which deals with the practical and
procedural aspects of the relationship between antitrust enforcers and regulators, and Cartels,
which addresses the challenges of anti-cartel enforcement.
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 continuing work on, inter alia, merger process
convergence, regulatory reform, and the interface between trade and competition policy. The
FTC has helped lead OECD initiatives exploring synergies between competition and consumer
protection policy through joint roundtables, and the FTC participates in the Global Forum on
Competition in which competition issues are discussed with approximately forty OECD nonmembers from developing countries.

3. Trade/Competition Fora.
Trade agreements increasingly involve competition issues. The FTC participates in
U.S. delegations that negotiate competition chapters of Free Trade Agreements, including
the agreement with Australia and the ongoing negotiations with the Andean Community and
Thailand. The agency has been working with other U.S. agencies and the other nations of the
hemisphere, to develop competition provisions for a Free Trade Agreement of the Americas. The
FTC has co-chaired the U.S. delegation to the World Trade Organization (WTO) Working Group
on the Interaction Between Trade and Competition Policy, and is involved in WTO initiatives
involving competition issues.

B. Consumer Protection
Globalization is one of the central consumer protection developments of the 21st century,
commanding the attention of businesses, consumers, law enforcers, and policymakers around
the world. The FTC is leading the development of an international market-based consumer
protection model that focuses on protecting consumers from significant harm, and maximizing
economic benefit and consumer choice. The FTC is working toward these goals by building
an international network of cooperation to combat cross-border fraud and promoting marketoriented consumer protection and privacy policies.

1. Cross-Border Fraud.
With advances in technology, scammers can victimize thousands of consumers across the
globe in a short time and disappear nearly without a trace – along with their ill-gotten gains. The
FTC continues to receive more complaints involving international transactions and undertakes
more law enforcement investigations with international components. In the past few years, the
Commission launched a comprehensive program to combat cross-border fraud.
Legislative Proposals. The FTC testified in support of passage of the International
Consumer Protection Act to improve its ability to combat cross-border fraud. This legislation
would allow the FTC to share key information with foreign partners enabling them to pursue
fraudulent enterprises in their countries that target U.S. consumers. The proposed legislation
40

Federal Trade Commission
would help the FTC fight deceptive spam and spyware by allowing the agency to investigate
more fully email and other communications originating from outside the United States.
Cross-Border Fraud Cooperation. In January 2005, the FTC entered into a new consumer
protection enforcement memorandum of understanding (MOU) with its counterpart agency in
Mexico – the first consumer protection MOU with a non-English speaking country. The FTC
also continues to work closely with Canadian agencies on cross-border telemarketing issues.
Through its partnerships with Canadian agencies, the FTC filed several law enforcement actions
against Canadian telemarketers targeting U.S. consumers.
International Cooperation on Spam. The FTC co-hosted a meeting in London of
international agencies responsible for spam enforcement. The “London Action Plan on
International Spam Enforcement Cooperation,” announced at the meeting, was endorsed by 26
agencies from 20 countries and seven
Figure 13
private sector organizations from four
Location of London Action Plan Participants
continents. Pursuant to the Action Plan,
Australia
Lithuania
participants will share information,
Belgium
Mexico
investigative techniques, and enforcement
Norway
Canada
strategies. The FTC also announced a
Chile
Spain
Denmark
Sweden
trilateral MOU on spam enforcement
Finland
Switzerland
cooperation in July 2004 with agencies in
Hungary
The Netherlands
Australia and the United Kingdom, and
United Kingdom
Ireland
Japan
United States
an MOU with the Spanish data protection
Korea
agency in February 2005.

2. Promoting Market-Oriented Policies.
Given the growth of the global marketplace, greater consistency among consumer protection
rules will reduce compliance burdens for businesses selling internationally and, in turn, promote
consumer choice. Because clearer, more consistent rules will increase competition, consumers
should benefit from lower prices. The development of international market-driven consumer
protection policies is, therefore, a priority for the FTC.
Asia-Pacific Economic Cooperation (APEC) Privacy Framework. FTC staff participated
in the development of a privacy framework endorsed by Ministers attending a summit of the
APEC forum. The APEC Privacy Framework promotes a consistent approach to information
privacy protection across APEC member economies, while avoiding the creation of unnecessary
barriers to information flows.
Integration of Competition and Consumer Protection Policies. FTC staff led several
international initiatives promoting the integration of competition and consumer protection
policies. One of the goals of these initiatives was to encourage consumer protection agencies
worldwide to avoid overly-regulatory approaches that could deter competition and increase costs
for consumers. In October 2004, FTC Chairman Majoras led an academic roundtable to discuss
these linkages that was attended by the heads of both competition and consumer protection
agencies. FTC staff also participated in a joint meeting of the OECD Competition and Consumer
Policy Committees, and is now participating in an OECD Consumer Policy Committee working
group on this subject.
41

Federal Trade Commission

C. International Technical Assistance
The FTC provides technical assistance to countries in the developing world, both in
competition and consumer protection, using funds provided by the U. S. Agency for International
Development and the U. S. Trade and Development Agency. In 2004, the FTC conducted 25
missions to 16 countries, employing 33 different FTC employees. The program promotes U.S.
interests by encouraging economic growth and development through trade capacity building
and commercial law reform. The FTC program is currently active in the Andean Community,
Central America, Mexico, South Africa, India, and the Association of South East Asian Nations
(ASEAN). Last year, the FTC concluded successful programs in Southeast Europe and
Indonesia.
In alliance with the DOJ Antitrust Division, experienced antitrust lawyers and economists
engage primarily in short-term training missions to develop investigational skills. Resident
advisors are also stationed in Pretoria, South Africa and with the Secretary General of the
ASEAN in Jakarta, Indonesia. Experienced FTC consumer protection lawyers and economists
are a growing presence internationally, through short term missions with a special focus on ecommerce. These missions stress that consumer welfare and freedom of choice is advanced by
competitive marketing that conveys accurate rather that fraudulent or deceptive information.

42

Federal Trade Commission

Conclusion
Continuity in a Time of Transition: Looking Ahead to the Future
The past twelve months at the FTC have been marked by a unique opportunity to reflect
on and celebrate the agency’s achievements throughout the past 90 years. In 1914, the year the
agency was created, the United States manufactured almost twice as many horse-drawn vehicles
as cars; less than a quarter of all U.S. households had electricity; and only 1 in 10 Americans had
a telephone. The first transcontinental phone call was still a year away and, when it was made, it
cost $20.70 for three minutes, nearly $371 in today’s currency. The issues the Commission faces
today would have been the stuff of science fiction when the FTC was created, if they could have
been imagined at all.
Throughout the many changes in our economy, the FTC’s greatest achievements have
emerged far less from efforts marked by sharp, recurring discontinuities in philosophy than by
the cumulative, progressive search for better policies and practices. Continuity in philosophy
about the proper role of the FTC in protecting markets and consumers, even through times of
transition, has been a hallmark of recent agency history. The agency has experienced significant
personnel transition in the previous year, with the departures of former Chairman Timothy J.
Muris and Commissioner Mozelle Thompson, as well as some senior agency staff members, and
the arrival of Chairman Deborah Platt Majoras and Commissioner Jon Leibowitz and some new
key staff members. This natural transition enhances the FTC’s process of deliberate institutional
self-assessment, renewal, and development to permit it to meet the challenges that it is sure to
face.
The next twelve months will find an agency continuing its investment in activities that
strengthen the institution over the long term, which will, in turn, enhance the FTC’s special
charter – to stand up for both consumers and competition.

43

Federal Trade Commission

Principal Contributors to Report
Shira Pavis Minton, Chair
James M. Giffin, Competition
Marc M. Groman, Consumer Protection
Dawne E. Holz, Graphics and Design
Jon Morgan, Cover Design
Contributing FTC staff also include Asheesh Agarwal, Jeanine Balbach, Marian Bruno,
Jean-Marie S. Burke, Maria Coppola, Jeanne M. Crouse, John F. Daly, Russell W. Damtoft,
Rachel Miller Dawson, Laura DeMartino, Susan S. DeSanti, Reilly Dolan, Mark Eichorn,
James C. Hamill, Allen W. Hile, Alice Saker Hrdy, Brian Huseman, Laura Koss,
Tara Isa Koslov, Carol A. Kando-Pineda, Laura Mazzarella, Maneesha Mithal, Robin Moore,
Richard A. Quaresima, John H. Seesel, Andrew Smith, David M. Torok, Randolph W. Tritell,
Holly L. Vedova, Beth Arvan Wiggins, and Michael Wroblewski.

44

Federal Trade Commission

Senior Staff of the Federal Trade Commission
Chief of Staff

Maryanne S. Kane

Executive Director

Judith Bailey (Acting)

Director, Bureau of Competition
Deputy Directors

Susan A. Creighton
Bernard A. Nigro
Jeffrey Schmidt

Director, Bureau of Consumer Protection
Deputy Director

Lydia Parnes (Acting)
C. Lee Peeler

Director, Bureau of Economics
Deputy Directors

Luke Froeb
Mark Frankena
Paul A. Pautler

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

Marureen K. Ohlhausen (Acting)

Secretary of the Commission

Donald S. Clark

45

Federal Trade Commission

Federal Trade Commission Annual Awards
October 2004
Chairman’s Award

Louis Silvia

Louis D. Brandeis Award

Heather Hippsley

Janet D. Steiger Outstanding Team Award

Three Tenors Team
Health Care, Hearing & Report Team
Rulemaking Team

Leon Higginbotham, Jr. Award

BCP Diversity Council

Otis B. Johnson Award

Hiram Andrews
Carole Danielson
Arlene Palmer
Ann Stahl

Eleanor F. Greasley Award

Lorraine Bazile

Paul Rand Dixon Award

William Cohen
Reilly Dolan
Renee Henning
James Lacko
Laura Mazzarella
Janis Pappalardo

Mary Gardiner Jones Award

Michael Liggins
Lisa Rosenthal

Stephen Nye Award

Matthew Bye
Lisa Fialco
Michael Goodman
Sarah Schroeder

Outstanding Scholarship Award

Daniel Hosken

Francis Walker Award

Daniel O’Brien

Award for Excellence in Supervision

H. Gabriel Dagen
Yolanda Gruendel
Allen Hile
Markus Meier
Patrick Roach

Richard C. Foster Award

Beverly Dodson
Laureen France
Keith Golden

James M. Mead Award

Donna Blades
LaJuan Jeter
Jack Gabriel
Beth Wiggins
46


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102