Full text of Annual Report of the Federal Trade Commission : The FTC in 2007 : A Champion for Consumers and Competition, April 2007

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

The FTC in 2007:
A Champion for
Consumers and Competition

Federal Trade Commission
Deborah Platt Majoras, Chairman
Pamela Jones Harbour, Commissioner
Jon Leibowitz, Commissioner
William E. Kovacic, Commissioner
J. Thomas Rosch, Commissioner

“May this permanent home of the Federal Trade Commission
stand for all time as a symbol of the purpose of the Government
to insist on a greater application of the Golden Rule to the
conduct of corporations and business enterprises in their
relationship to the body politic.”
Franklin D. Roosevelt
Address at the Cornerstone Laying Ceremonies for the New Federal
Trade Commission Building, July 12, 1937

The online version of this report contains hyperlinks to news releases, reports, cases, campaigns, and other
information referenced in this report. The report is available at www.ftc.gov/os/2007/04/ChairmansReport2007.pdf.

Contents
Letter from the Chairman . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . i
A Year in Highlights . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 1
Section One: Competition Mission .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 4
Chapter 1. Competition Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A.	 Merger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
B.	 Nonmerger Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
C.	 Guidance, Transparency, and Process Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Chapter 2. Competition Policy Tools  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
A.	 Research and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
B.	 Hearings and Workshops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
C.	 Advocacy Letters and Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
D.	 Amicus Briefs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
E.	 Congressional Testimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Chapter 3. Competition – Consumer and Business Education and Outreach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Section Two: Consumer Protection Mission . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 24
Chapter 4. Consumer Protection Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
A.	 Fraud and Deception Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
B.	 Privacy and Data Security Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
C.	 Consumer Protection Law Enforcement Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Chapter 5. Consumer Protection Policy Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
A.	 Rulemaking  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
B.	 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
C.	 Hearings and Workshops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
D.	 Inter-governmental Task Force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
E.	 Advocacy Letters and Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
F.	 Amicus Briefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
G.	 Congressional Testimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Chapter 6. Consumer Protection - Consumer and Business Education and Outreach . . . . . . . . . . . . . . . . . . . . . . . . . .  40

Section Three: International Activities .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 43
Chapter 7. Competition  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
A. 	 Promoting Cooperation and Convergence Through Bilateral Relationships  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
B.	 Promoting Convergence Through Multilateral Competition Fora  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Chapter 8. Consumer Protection  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
A.	 The U.S. SAFE WEB Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
B.	 International Law Enforcement Cooperation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Chapter 9. International Technical Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  48

Looking Ahead .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 50
Senior Staff of the FTC  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
FTC Annual Awards - October 2006  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Principal Contributors to Report  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  54

In Memoriam
Sally Dean McGhee (1952 - 2007)
Martha Stringer Schoenborn (1947 - 2007)

The FTC in 2007: A Champion for consumers and competition

Letter from the Chairman
The Federal Trade Commission is responsible for ensuring that competition
in U.S. markets is free of distortion and that consumers are protected not from
the workings of markets but through the workings of markets unburdened
by anticompetitive conduct and government-imposed restrictions. We
enforce our nation’s antitrust and consumer protection laws, which act as
complements, each bringing discipline and strength to the other. This work is
critical, indeed central, to the well-being of the American people.
This Annual Report reflects the agency’s achievements and
accomplishments over the past year and demonstrates our continued
commitment to championing consumers by promoting competition and
consumer welfare in U.S. markets – from traditional “brick and mortar”
industries to emerging technology markets.
The Digital Decade is here, and the Internet has fundamentally changed
our lives. It has made the world bigger in the sense that it expands our reach in
offering and acquiring knowledge, opinions, or goods and services, and smaller
in the sense that it makes communicating and transacting around the globe
a cinch. It has provided a wide array of new and unique products and services
for consumers, but at the same time, presents new challenges for consumers
and, thus, law enforcement agencies. The very role of
consumers themselves is rapidly evolving in response
to new technologies. Consumers are no longer the
passive recipients of commercial messages. New
technologies give consumers greater options
concerning when, where, and how they receive
commercial messages, and consumers are
increasingly engaged in the marketplace of ideas
on the Internet, too, sharing non-commercial
content and ideas as well as building
communities.
As an agency with broad general
jurisdiction, the FTC is often at the forefront
of new markets, new technologies, and
unfortunately, new illegal practices. We
tackle our responsibilities through what
a sports enthusiast would describe as a
combination of various offensive and defensive
schemes. Our offense includes aggressive
law enforcement that must adapt quickly to
changing schemes and be able to execute the
“fast break.” The Commission then combines
a “zone defense,” through our cooperative
efforts with partners both private and
public, domestic and international, with a


Federal Trade Commission
“prevent defense,” through our consumer and business education that helps
to make sure that consumers and businesses have good equipment to protect
themselves.
The accomplishments discussed in this Report reflect our implementation
of these strategies. The relatively small size of the Commission necessitates
that we use these strategies to extend the reach of what we accomplish. And
by bringing competition enforcement actions in industries such as energy,
real estate, health care, and technology, we protect competition in areas of our
economy that are most vital to consumers. Developing consumer education
to help educate people about avoiding scams is essential, but we can greatly
extend the reach of our messages when we partner with other federal, state,
and local agencies, trade associations, consumer groups, and foreign entities.
True competition requires fair play. The FTC is committed to improving our
effectiveness, strengthening our work with strategic partners, and increasing
our knowledge and understanding of new and emerging technologies. At its
core, the goal of our work is to improve consumer welfare, and we will continue
to work toward that critical goal.

Deborah Platt Majoras
Chairman

ii

The FTC in 2007: A Champion for consumers and competition
“... the FTC
leverages its
limited resources
by focusing its
efforts on industries
and practices that
most directly affect
consumers.”

A Year in Highlights
The Federal Trade Commission (FTC or Commission), the only federal
agency with both consumer protection and competition jurisdiction in broad
sectors of the economy, is committed to ensuring that American consumers
are protected from deceptive, unfair, and anticompetitive trade practices that
harm consumer welfare. To accomplish this goal, the agency embraces its dual,
but complementary, missions. First, the FTC aggressively enforces the nation’s
antitrust laws to protect consumers from anticompetitive mergers and
business conduct. Second, the Commission actively engages in enforcement
efforts to protect consumers from fraudulent, deceptive, and unfair business
conduct, and to safeguard consumers’ privacy and personal information.
While the FTC’s competition and consumer protection missions focus on
different types of conduct, they share the same overall goal: that consumers
obtain truthful information about products and services that they can then
use to make purchase decisions in a competitive marketplace in which their
personal information is safeguarded. This purpose has assumed even greater
importance in this dynamic, digital, and global marketplace.
To accomplish these goals, the FTC leverages its limited resources by
focusing its efforts on industries and practices that most directly affect
consumers; by buttressing its enforcement and advocacy work through
coordination with other federal and state agencies, criminal authorities, and
international partners; by utilizing its broad array of databases and other
resources to support its enforcement work; by informing itself of consumers’
concerns and business conduct through hearings, workshops, and public
comments; by promoting its pro-consumer agenda through speeches, reports,
advocacy comments, amicus briefs, and testimony; and by educating consumers
and businesses with practical guidance on a wide range of marketplace
issues on paper and online, in English and in Spanish. The FTC efficiently and
effectively utilizes all of these tools to protect competition and consumers.



Federal Trade Commission
In the past year, the FTC accomplished a great deal in a broad spectrum of
industries, while making improvements to its organization and processes. For
example, the Commission:


Protected consumers’ access to low cost generic drugs by policing
noncompetition agreements between branded and generic drug
manufacturers.



Continued to protect consumers against deceptive health, safety, and
weight loss schemes, business opportunity fraud, and deceptive lending
and other credit scams.



Encouraged greater competition in the real estate brokerage industry
by challenging efforts to prevent lower cost, nontraditional listings
from being posted on Multiple Listing Services or the Internet.

“Our competition and consumer protection missions
are not wholly separate functions that just happen to
reside in one agency. Rather, they are related sets of
tools designed to accomplish the same goals – promoting
efficiency and preventing consumer harm.”
Chairman Majoras
Remarks before the Dallas Bar Association Antitrust and Trade
Regulation Section
(Jan. 18, 2005)



Evaluated the impact of technological
innovation on consumer protection
policy through its Tech-ade hearings.



Lowered heath care costs by
challenging agreements among
physicians to fix prices and boycott
health care payers, and by advocating
for competition in lieu of regulation
for pharmacy benefit managers.



Protected consumers’ privacy and information security through
aggressive enforcement against spyware, adware, and spam under the
FTC Act and the CAN-SPAM Act.



Resolved the Rambus case, holding that the company engaged in
anticompetitive “hold up” in the computer memory industry after
engaging in deceptive conduct before an industry standards-setting
body, and preventing Rambus from charging monopoly rates to license
its technology.



Developed a strategic plan for the federal government to better prevent
identity theft through the FTC’s leadership role in the President’s
Identity Theft Task Force, and began to implement the Task Force’s
interim recommendations at the agency.



Preserved competition in energy industries, and expanded public
understanding of energy markets, by challenging a merger in the
natural gas market and an acquisition in the terminaling of gasoline
market, issuing reports on gasoline price manipulation and ethanol
market concentration, and organizing a public forum for discussing
competition in energy markets.



The FTC in 2007: A Champion for consumers and competition


Analyzed the antitrust implications of single-firm conduct under
Section 2 of the Sherman Act through a series of hearings organized
with the Department of Justice.



Issued a report on childhood obesity that included recommendations
on the nutritional profiles of foods marketed to children, and that led
to the adoption of a self-regulatory initiative by 11 major companies to
promote healthier eating choices and lifestyles.



Created the Office of International Affairs to better coordinate the
FTC’s international competition, consumer protection, and technical
assistance programs, and to best utilize the agency’s new authority
under the U.S. SAFE WEB Act.



Improved the transparency of its public actions by issuing the FTC
Volumes of Decision for the years 1969 through 2005 online.



Gave the FTC’s website a new look to make it easier for visitors to
navigate the site and created new industry-specific mini-websites,
including one for the petroleum industry, to provide information
specific to those sectors.



Appointed the Commission’s first Chief Privacy Officer to coordinate and
strengthen the FTC’s own privacy and data security policies.

The FTC stands prepared to face the challenges of today’s marketplace
as a champion for consumers and competition. The agency’s integrity and
effectiveness have recently earned it several distinctions: a ranking as one
of the “most trusted federal agencies” to safeguard personal information
in a Ponemon Institute study; an Office of Government Ethics award for
outstanding ethics program; and the Office of Management and Budget’s
highest rating in a performance assessment of federal agencies. The FTC will
continue to do its utmost to maintain such high standards as it confronts new
challenges in the future.



Federal Trade Commission
“Aggressive
competition ...
gives consumers
the benefits of
lower prices, higher
quality products and
services, additional
choice, and greater
innovation.”

Section One: Competition Mission
Competition is critical to maintaining the free and open markets that are
the foundation of a vibrant economy. Aggressive competition among sellers
in an open marketplace gives consumers the benefits of lower prices, higher
quality products and services, additional choice, and greater innovation. The
goal of the FTC’s competition mission
is to remove the obstacles that
Total Yearly Enforcement Actions
impede competition and prevent its
benefits from flowing to consumers.
by Sector
FY 2005
FY 2004
The Commission’s competition
mission continues to be highly
productive and focuses on industries
Technology
that most directly affect consumers,
23%
such as health care, energy, real
Health Care and
Services & NonPharmaceuticals
Health Care
35%
estate, and technology. In the past
Professions
12%
year, the Commission pursued
FY 2006
FY 2007*
a broad range of merger and
nonmerger enforcement actions
in these and other industries. For
example, on the merger front, the
FTC has taken action to guarantee
consumers greater access to
generic drugs and other key
medical devices and services, and to
* Represents Fiscal Year 2007 through March 31, 2007.
prevent higher prices and preserve
services in the natural gas and industrial gas markets. Prompt FTC action has
also caused transactions in other key areas – such as in the energy industry
– to be withdrawn when the parties involved have not been able to resolve
competitive concerns.
Other
15%

Energy
15%

Energy
21%

Other
26%

Technology
0%

Services & NonHealth Care
Professions
16%

Technology
9%

Other
9%

Technology
10%

Energy
18%

Services & NonHealth Care
Professions
9%

Health Care and
Pharmaceuticals
55%

Health Care and
Pharmaceuticals
37%

Other
0%

Services & NonHealth Care
Professions
42%

Energy
16%

Health Care and
Pharmaceuticals
32%

The FTC’s nonmerger enforcement efforts have also been active,
particularly in the real estate, health care, and technology markets. For
example, the FTC has safeguarded consumers by challenging anticompetitive
practices that limited the ability of home buyers and sellers to obtain low-cost


The FTC in 2007: A Champion for consumers and competition
real estate brokerage services. In the health care industry, the FTC continued to
bring cases against physician groups engaged in price fixing agreements, and
successfully challenged the existence of a noncompetition agreement aimed
at delaying the entry of generic drugs into the marketplace. In the technology
area, the FTC issued important decisions in the Rambus case resolving complex
issues involving standards-setting in the computer memory industry.

Chapter 1. Competition Law Enforcement
A.	Merger Enforcement
The FTC’s merger enforcement workload has steadily increased in the last
three years. Compared to FY2004 levels, in FY2006 the agency experienced an
increase of almost 30 percent in the number of filings and an even greater
increase in the percentage of second requests issued. Based on data for the first
six months of FY2007, the FTC anticipates that the merger review process will
continue to play an increasingly demanding role in the year to come.
HSR Transactions, Second Requests,
and Merger Enforcement Actions
HSR Transactions

Second Requests
Issued

Fiscal
Year

Merger
Enforcement
Actions
% Change
from
#
previous
year
15
-29%
14
-7%
16
14%
11
83%**

% Change
% Change
from
from
#
#
previous
previous
year
year
2004
1377
42%
20
33%
2005
1610
17%
25
25%
2006
1746
8%
28
12%
2007*
983
19%**
18
80%**
* Represents Fiscal Year 2007 through March 31, 2007.
** The % change is calculated using data for the first six months of FY 2006.

1.	 Health Care Merger Enforcement
The health care industry plays a crucial role in the U.S. economy in terms
of the impact that it has on consumer spending and welfare. Health care
expenditures in the U.S. represent almost $2 trillion annually and have been
increasing steadily for the last 30 years. Consumers feel the sting of increasing
health care costs most prominently in their escalating insurance premiums
and in the cost of medicines and medical procedures. During the past year,
the FTC protected consumers by vigorously reviewing proposed merger
transactions in the health care industry and taking action to prevent potential
anticompetitive effects. The Commission challenged seven mergers and
obtained substantial relief by obtaining consent orders in the areas of generic


Federal Trade Commission
“The FTC is
committed to
ensuring that
consumers are
able to reap the
maximum benefit
from generic
competition while
at the same time
recognizing the
need to protect
relevant intellectual
property rights.”

drugs, over-the‑counter (OTC) medications, injectable analgesics, and medical
devices and diagnostic services.
Generic and Nonprescription Pharmaceuticals. Generic preparations
exert considerable competitive pressure on branded pharmaceuticals by
making available lower-cost generic drugs that are identical in chemical
composition and therapeutic value to the branded drug. The FTC is committed
to ensuring that consumers are able to reap the maximum benefit from
generic competition while at the same time recognizing the need to protect
relevant intellectual property rights. The FTC similarly protects competition
for non-prescription and OTC drugs.


Barr/Pliva. The FTC settled charges in this matter with a consent
order finalized in December 2006. The complaint alleged that Barr
Pharmaceuticals’ (Barr) proposed $2.5 billion acquisition of Pliva would
have eliminated current or future competition between the firms
in certain markets for generic pharmaceuticals. The consent order
required Barr to sell its generic antidepressant trazodone and its
generic blood pressure medication triamterene/HCTZ, divest either
Pliva’s or Barr’s generic drug for use in treating ruptured blood vessels in
the brain, and divest Pliva’s branded organ preservation solution.



Watson/Andrx. In order to maintain competition in the markets for
13 generic drug products, in December 2006 the FTC approved a final
consent order with the parties in this matter. Watson was required to
end its marketing agreements with Interpham Holdings, divest Andrx’s
right to develop, make, and market generic extended release tablets
that correct the effects of type 2 diabetes, and divest Andrx’s rights
and assets related to the developing and marketing of 11 generic oral
contraceptives.



Hospira/Mayne Pharma. In January 2007, the FTC accepted a
consent order subject to public comment requiring the companies
to sell assets used to manufacture and supply five generic injectable
pharmaceuticals, including those for injectable opioid analgesics and
for an injectable treatment for acute iron poisoning and chronic iron
overload.



Johnson & Johnson/Pfizer. The FTC had concerns about
anticompetitive issues in the markets for OTC H-2 blockers used to
prevent and relieve heartburn, hydrocortisone anti-itch products,
nighttime sleep aids, and diaper rash treatments, in the matter of
Johnson & Johnson’s proposed $16.6 billion acquisition of Pfizer’s
Consumer Health Division. The issues were settled with a final consent
order approved in January 2007, requiring that Pfizer sell its Zantac,
Cortizone, and Unisom divisions, and that Johnson & Johnson sell its
Balmex division.



The FTC in 2007: A Champion for consumers and competition
Medical Devices and Diagnostic Systems. The FTC also aggressively
policed mergers in the medical device and diagnostic systems industry to
ensure that health care consumers receive the benefits of lower cost and higher
quality products.


Boston Scientific/Guidant. The FTC approved a final consent order in
July 2006 in the matter of the proposed $27 billion acquisition of Guidant
Corp. by Boston Scientific Corp. The two companies were the largest
market share holders in several coronary medical device markets in
the U.S., together accounting for 90% of the U.S. PTCA balloon catheter
market and 85% of the U.S. coronary guidewire market. The consent
order required the divestiture of Guidant’s vascular business to an FTCapproved buyer.

“If there is one thing that I have learned, it is that we
cannot take for granted what we have. Free market and
competition principles are continually under attack and
need powerful champions. And it is not enough to simply
bring good enforcement cases. Being a forceful advocate
for competition also means fulfilling our special public
charter of fostering a culture of competition here at home
and around the world.”
Chairman Majoras
Creating a Global Competition Culture
(Sept. 7, 2005)





Hologic/Fischer Imaging. In August
2006, the Commission approved a
final consent order to ensure the
maintenance of competition in
the market for prone stereotactic
breast biopsy systems (SBBSs). The
Commission had challenged this
merger, which was consummated in
2005. The order required Hologic to
divest Fischer’s prone SBBS assets to
Siemens, a company well positioned
to become a competitor in this
market.

Thermo Electron/Fisher Scientific. To maintain competition in the
market for centrifugal vacuum evaporators (CVEs), a tool used in the
health care industry, the FTC approved a final order in December 2006
to settle charges that Thermo Electron Corporation’s proposed $12.8
billion acquisition of Fisher Scientific International, Inc. would have
greatly decreased competition in the industry. The order requires that
Thermo Electron divest Fisher’s Genevac division, which includes all CVE
operations for the company.

Hospitals and Other Institutional Providers. The FTC also reviews
carefully mergers between the nation’s hospitals to preserve competition.
In May 2006, the Commission heard oral arguments in the appeal of the
Evanston Northwestern Healthcare Corp. matter. In October 2005, the FTC’s
Administrative Law Judge found that Evanston’s acquisition of an important
competitor, Highland Park Hospital, resulted in higher prices and a substantial
lessening of competition for acute-care inpatient services in parts of Chicago’s
northern suburbs, and ordered the divestiture of Highland Park Hospital. The
FTC is currently reviewing the competitive effects of several other announced
hospital mergers.



Federal Trade Commission

Staff Profile
Peter Richman
BC/Mergers III
Deputy Assistant
Director of the Mergers
III Division, Peter recently
supervised the drafting
of the Commission’s
important report to
Congress, “Investigation
of Gasoline Price
Manipulation and PostKatrina Gasoline Price
Increases.” The report
documents the supply
and demand dynamics
in several energy
markets in the aftermath
of hurricanes Katrina
and Rita, and informs
policy makers regarding
securing energy supplies
in the future.
Peter has led
litigation and
investigation teams in
numerous Commission
petroleum matters
over the past 17 years,
including Marathon/
Ashland, Exxon/Mobil,
Chevron/Texaco, and
Valero/UDS. Peter’s
energy expertise
contributes to FTC
initiatives to promote
competition in critical
energy markets.

2.	 Energy Merger Enforcement
The energy sector is one of the pillars of the United States and world
economies. The FTC closely scrutinizes this industry for anticompetitive
activity, devoting substantial resources to investigate proposed mergers and
acquisitions, and litigating against such mergers when appropriate. These
endeavors ensure that harmful conduct is stopped and strong remedies are
imposed when a transaction is likely to lessen competition, while permitting
transactions that are unlikely to harm or may benefit competition. To achieve
this goal, the FTC carefully reviews proposed mergers between firms engaged
in, for example, the production and distribution of oil, gasoline, diesel, coal,
natural gas, and natural gas liquids (NGLs). NGLs are light hydrocarbons – such
as ethane, propane, and butane – that are used as fuel for heating or industrial
processes, in blending components for gasoline, and as feedstocks in the
production of plastics. The FTC’s enforcement actions are aimed at maintaining
competition and ensuring that Americans enjoy competitive prices for all
energy products and their derivatives.


Equitable Resources/Dominion Peoples. In March 2007, the
Commission filed an administrative complaint challenging Equitable
Resources’ proposed acquisition of The Peoples Natural Gas Company, a
subsidiary of Dominion Resources. Equitable Resources and Dominion
Peoples are each other’s sole competitors in the distribution of natural
gas to nonresidential customers in certain areas of Allegheny County,
Pennsylvania, which includes Pittsburgh. The complaint alleges that the
proposed transaction would result in a monopoly for many customers
who now enjoy competition.



Kinder Morgan/Carlyle Group and Riverstone Holdings. In January
2007, the Commission challenged the terms of a proposed $22 billion
deal whereby energy firm Kinder Morgan would be taken private by its
management and a group of investment firms, including The Carlyle
Group and Riverstone Holdings. The Commission’s complaint alleged
that Carlyle and Riverstone held significant positions in Magellan
Midstream, a major competitor of Kinder Morgan in the terminaling of
gasoline and other light petroleum products in the southeastern U. S.,
and that the proposed transaction would threaten competition in those
markets. In settling the Commission’s complaint, Carlyle and Riverstone
agreed to turn their investment in Magellan passive and to restrict the
flow of sensitive information between Kinder Morgan and Magellan.



EPCO/TEPPCO. In October 2006, the FTC issued a final consent order
settling charges related to Enterprise Product Partners’ (EPCO) $1.1 billion
acquisition of TEPPCO Partners’ NGLs salt dome storage businesses. The
FTC’s order required TEPPCO to divest its interests in the world’s largest
NGLs storage facility in Mont Belvieu, Texas, to an FTC-approved buyer.
In February 2007, the Commission approved that divestiture following a
public comment period.


The FTC in 2007: A Champion for consumers and competition


Chevron/USA Petroleum. In November 2006, Chevron and USA
Petroleum abandoned a transaction in which Chevron would have
acquired most of the retail gasoline stations owned by USA Petroleum,
the largest remaining chain of service stations in California not
controlled by a refiner. The FTC was concluding its investigation of the
proposed acquisition at the time and USA Petroleum’s president stated
that the parties abandoned the transaction because of resistance from
the FTC.

3.	 Defense and Security Industry Merger Enforcement
Given America’s vital interests and significant investments in our military
and national security industries, the FTC scrutinizes proposed mergers in these
industries for anticompetitive effects.


Boeing/Lockheed Martin. In October 2006, the Commission
intervened in the formation of United Launch Alliance (ULA), a
proposed joint venture between Boeing and Lockheed Martin. The FTC’s
complaint alleged that the formation of ULA as originally structured
would have reduced competition in the markets for U.S. government
medium to heavy launch services and space vehicles. In settling the
Commission’s charges, the parties agreed to take certain actions (such
as implementing nondiscrimination requirements and firewalls)
to address ancillary competitive harms not inextricably tied to the
national security benefits of ULA.



General Dynamics/SNC Technologies. In December 2006, the
Commission challenged General Dynamics’ proposed $275 million
acquisition of SNC Technologies. The FTC’s complaint alleged that the
planned deal would have undermined competition by bringing together
two of only three competitors providing the U.S. military with meltpour load, assemble, and pack services used during the manufacture
of ammunition for mortars and artillery. Under the terms of the
consent agreement, General Dynamics was required to sell its interest in
American Ordinance to an FTC-approved buyer.

4.	Other Merger Enforcement
In the past year, the FTC also investigated and took enforcement action with
respect to mergers in other industries where necessary to protect competition.


Linde/BOC Group. Industrial gases such as oxygen, nitrogen, and
helium play a crucial role in many segments of our economy, including
health care, oil and gas, agriculture, and manufacturing. In August
2006, the FTC approved a final consent order relating to the proposed
$14.4 billion acquisition of the BOC Group by Linde requiring Linde to
divest air separation units, bulk refined helium assets, and other assets
in eight localities across the U.S. The consent order aims to maintain


Federal Trade Commission
Under the threat
of a preliminary
injunction sought
by the Commission,
Warner Chilcott
waived the
provision in its
agreement that
kept the generic
competition off the
market.

competition for liquid oxygen, liquid helium, and bulk refined helium in
several U.S. markets.


Service Corp International (SCI)/Alderwoods. In January 2007,
the Commission approved a final consent order settling charges that
SCI’s proposed acquisition of Alderwoods Group likely would lessen
competition in certain markets for funeral and cemetery services.
Under the settlement, SCI agreed to sell funeral homes in 29 markets
and cemeteries in 12 markets across the United States.

B.	Nonmerger Enforcement
In the last year, the FTC has continued to pursue aggressively nonmerger
matters in the health care and real estate sectors, as well as in the market
for computer memory technology. The agency has utilized a combination of
enforcement, policy, and outreach tools to educate businesses and consumers
on how potentially restrictive business practices are evaluated under the law.
Moreover, the FTC has designed appropriate tools to educate consumers on
how these practices can affect them directly.
1.	 Health Care Nonmerger Enforcement
The FTC continues to be vigilant in the detection and investigation of
agreements between drug companies that delay generic drug entry. The
Commission also actively brought enforcement actions against agreements
among physicians designed to boycott third-party payers and fix prices.
Further, the agency successfully fought off a challenge to an administrative
decision in a case in which it has alleged anticompetitive practices that
were detrimental to children’s dental care. By challenging these kinds of
anticompetitive practices, the FTC strives to ensure that essential health
care services will be available to consumers at prices established in an open,
competitive market.
Agreements That Delay Generic Entry. The Commission continues to
vigorously investigate agreements between pharmaceutical companies that
delay the entry of generic drugs to the detriment of consumers.


FTC to Subpoena Drug
Firms In Probe of
Industry's Practices
March 30, 2006

Warner Chilcott/Barr Labs. In November 2005, the Commission filed
a complaint in federal district court challenging an agreement between
Warner Chilcott and Barr Laboratories in which Barr had agreed not to
market a lower-priced generic version of Warner Chilcott’s Ovcon 35, an
oral contraceptive drug, in exchange for $20 million. In September 2006,
under the threat of a preliminary injunction sought by the Commission,
Warner Chilcott waived the exclusionary provision in its agreement,
and the next day Barr announced its intention to start selling generic
Ovcon in the U.S. Under the terms of the October 2006 order settling
the Commission’s charges, Warner Chilcott agreed to certain terms to
protect generic entry into the market. Though Warner Chilcott settled,
the FTC’s case against Barr continues.
10

The FTC in 2007: A Champion for consumers and competition
The Commission
continues to
challenge physician
price fixing
schemes that harm
“competition and
consumers by
raising prices for
health care services
and health care
insurance coverage
and by reducing
consumers’
choices.”

The Commission also continues to investigate patent settlements between
pharmaceutical companies that are required to be filed with the Commission
under the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003. Some of these settlements may be anticompetitive. For example,
in “exclusion payment settlements,” the brand name firm pays its potential
generic competitor to abandon a patent challenge and delay entering the
market, essentially sharing the brand’s profits between them, and postponing
consumers’ access to lower-priced generic drugs.
Physician Price Fixing. In the past year, the FTC challenged three separate
matters alleging illegal agreements whereby competing physicians jointly set
their prices and collectively agreed to withhold their services if health care
payers did not meet their fee demands. This conduct harms competition and
consumers by raising prices for health care services and health care insurance
coverage and by reducing consumers’ choices. In each case, the Commission’s
consent order prohibits the physician groups from, among other things,
facilitating agreements among competing physicians that restrict the ability of
any physician to deal individually with a health plan payer.


Puerto Rico Association of Endodontists. In August 2006, the
Commission approved a final consent order settling charges alleging
that 30 competing association members acted unlawfully by agreeing to
set the prices they would charge dental insurance plans and by refusing
to deal with plans that would not accept the collectively determined
prices.



New Century Health Quality Alliance. In October 2006, following
the public comment period, the Commission approved a final consent
order settling Commission charges alleging that two independent
practice associations and 18 member physician practices in the Kansas
City, Missouri, area refused to deal with health care plans, except on
collectively agreed-upon prices and other terms.



Advocate Health Partners. In February 2007, the Commission
approved a final consent order settling the FTC’s challenge against
the conduct of several organizations representing more than 2,900
independent Chicago-area physicians for agreeing to fix prices and
for refusing to deal with certain health plans except on collectively
determined terms. The FTC continues to monitor a clinical integration
plan set up by respondents for any anticompetitive effects.

Anticompetitive Practices Affecting Children’s Dental Care. During
the past year, the Commission also prevailed against a challenge to the
Commission’s June 2004 interlocutory opinion in South Carolina State Board
of Dentistry that denied state action immunity to a state board of dentistry.
The Commission alleged that the state board engaged in anticompetitive
conduct that restricted the availability of preventive dental services to
school-aged children in South Carolina. The court of appeals agreed with the
11

Federal Trade Commission
Commission’s request to dismiss the appeal for lack of jurisdiction, and the
Supreme Court denied the board’s petition for certiorari.
2.	 Real Estate Nonmerger Enforcement
Purchasing or selling a home is one of the most significant financial
transactions most consumers will ever make. The FTC has actively investigated
restrictive practices in the residential real estate industry, including efforts by
private associations of brokers to impede competition from brokers who use
non-traditional listing arrangements. In this last year alone, the FTC brought
eight enforcement actions against associations of realtors or brokers who
adopted rules that withheld the valuable benefits of the association-controlled
Multiple Listing Services (MLSs) from consumers who chose to enter into
non‑traditional, and often less expensive, listing contracts with real estate
brokers. Such association policies limit home sellers’ ability to choose a listing
type that best serves their specific needs.


“The real estate industry is critical to our
citizens. For many, the purchase of a home
represents tangible fulfillment of the American
dream, the reward for hard work and dedication,
sometimes spanning decades. … Competition in
the real estate industry, therefore, is not merely
of interest to those involved in the real estate
industry… but to anyone who has ever bought
or sold, or is thinking about buying or selling, a
house.”
Chairman Majoras
Opening Remarks at FTC/DOJ Workshop on
Competition in the Real Estate Industry
(Oct. 25, 2005)



Austin Board of Realtors. In September
2006, the FTC entered into a final consent
order settling charges against the Austin
Board of Realtors (ABOR) for its practice
of preventing consumers with listing
agreements for potentially low-cost,
unbundled brokerage services from
marketing their listings on public real
estate-related Internet sites. In settling the
charges, ABOR is prohibited from adopting
or enforcing any rule that treats one type
of real estate listing agreement more
advantageously than any other or from
interfering with its members’ ability to enter
into any lawful listing agreement with home
sellers.

Real Estate Competition Law Enforcement Sweep: Williamsburg
Area Association of Realtors, Inc.; Monmouth County Association
of Realtors; Northern New England Real Estate Network,Inc.;
Realtors Association of Northeast Wisconsin, Inc.; Information
and Real Estate Services, LLC; RealComp II Ltd; MiRealSource,
Inc. In October 2006, the FTC’s Bureau of Competition filed its first law
enforcement sweep, which challenged rules in seven jurisdictions that
withheld valuable benefits of the MLSs they control from consumers
who chose to enter into non-traditional listing contracts with real
estate brokers. Six of the seven rules blocked non-traditional, lessthan-full-service listings from being transmitted by the MLS to a wide
range of popular Internet sites, while the seventh blocked such nontraditional brokerage contracts from the MLS entirely. The Commission
announced in October 2006 consent agreements with five of the groups
12

The FTC in 2007: A Champion for consumers and competition
operating MLSs in parts of Colorado, New Hampshire, New Jersey,
Virginia, and Wisconsin that agreed to stop discriminating against
non-traditional listing arrangements. Two real estate groups in the
Detroit, Michigan, area did not settle, and the FTC issued administrative
complaints alleging anticompetitive practices against the groups. In
February 2007, the Commission settled with one of these Michigan
groups, which agreed to abandon the challenged practices.
3.	 Technology Nonmerger Enforcement
The Commission also places great emphasis on safeguarding competition
in the high technology sector, such as the computer hardware and software
industries.
Rambus. During the past year, the FTC issued two decisions resolving its
administrative complaint alleging anticompetitive conduct in the markets
for computer memory technology. In July 2006, the FTC issued an opinion by
Commissioner Pamela Jones Harbour concluding that Rambus, Inc. unlawfully
monopolized markets for four computer memory technologies that have been
incorporated into industry standards for dynamic random access memory
(DRAM) chips. DRAMs are widely used in personal computers, servers, printers,
and cameras. The Commission found that, through a course of deceptive
conduct, Rambus was able to distort a critical standard-setting process and
engage in an anticompetitive “hold up” of the computer memory industry. The
Commission held that Rambus’ acts of deception constituted exclusionary
conduct under Section 2 of the Sherman Act and contributed significantly to
Rambus’ acquisition of monopoly power in the four relevant markets.
In February 2007, Chairman Majoras issued the opinion of the
Commission on remedy. In that opinion, the Commission prescribed
a set of remedies barring Rambus from making misrepresentations
or omissions to standard‑setting organizations, requiring Rambus to
license its SDRAM and DDR SDRAM technology and setting limits to the
royalty rates it can collect under its licensing agreements including with those
firms that may have already incorporated its DRAM technology. The order
also requires Rambus to employ a Commission-approved compliance officer
to ensure it discloses relevant patent information to any standard-setting
organizations in which it participates.
4.	 Retail Goods Nonmerger Enforcement
The FTC also guards against anticompetitive conduct in the retail sector
and brings enforcement cases where necessary.


Missouri Funeral Board. In March 2007, the Commission announced
for public comment a proposed order settling charges that the Missouri
State Board of Embalmers and Funeral Directors illegally restrained
competition by defining the practice of funeral directing to include
13

Federal Trade Commission
selling funeral merchandise to consumers on an at-need basis. The
Board’s regulation permitted only licensed funeral directors to sell
caskets to consumers on an at-need basis, thereby discouraging other
retailers from selling caskets. The Board ended the restriction last year
and agreed that it will not prohibit or discourage the sale of caskets,
services, or other funeral merchandise by unlicensed persons.
C.	Guidance, Transparency, and Process Improvements
During the last year, the FTC implemented two measures aimed at
streamlining the merger review process: merger review process reform and
e-filing.
Merger Review Process Reform. In February 2006, Chairman Majoras
announced significant merger process reforms aimed at streamlining the
review process and reducing the costs borne by both the FTC and merging
parties. During the past year, the FTC has implemented these reforms
including reducing the number of custodians for which parties must search
for information, reducing the time period during which parties are required
to provide documents, allowing parties to preserve fewer back-up tapes under
certain circumstances, and significantly reducing the amount of information
required in the parties’ privilege logs.
E-filing. In June 2006, the FTC and the DOJ Antitrust Division,
implemented an electronic filing system that provides merging
parties the option to submit premerger notification filings required
by the Hart-Scott-Rodino (HSR) Act via the Internet. With this new
process, electronic filings may be submitted quickly and easily,
eliminating the time and expense entailed in duplicating and
delivering paper documents.

Chapter 2. Competition Policy Tools
The FTC’s competition enforcement mission is complemented
by a broad series of activities, including research and reports,
workshops, advocacy filings, and amicus briefs. Through this work,
the Commission learns about emerging and important issues
and shares this information with other policymakers, businesses,
the antitrust bar, and the public in order to provide leadership on
significant antitrust-related matters.
A.	Research and Reports
During the last year, the FTC continued to develop its policy agenda by
performing research and publishing reports on a wide scope of relevant
competition issues. These include topics of perennial interest, such as energy
and health care, as well as increasingly important topics such as Internet access.

14

The FTC in 2007: A Champion for consumers and competition
1.	 Energy


Report on Gasoline Price Manipulation and Post-Katrina
Gasoline Price Increases. In May 2006, the FTC released the findings
of a Congressionally-mandated investigation into whether gasoline
prices nationwide were “artificially manipulated by reducing refinery
capacity or by any other form of market manipulation or price gouging
practices,” as well as into gasoline pricing in the aftermath of Hurricane
Katrina. In its investigation, the FTC examined evidence relating to a
broad range of possible forms of manipulation and found no instances
of illegal market manipulation that led to higher prices during the
relevant time periods. While the Commission did find 15 examples of
pricing fitting the relevant legislation’s definition of evidence of “price
gouging,” it concluded that other factors – such as regional or local
market trends – appeared to explain the increased prices in nearly all
cases.



Report on Ethanol Market Concentration. In December 2006, the
Commission issued a report that examined the current state of ethanol
production in the U.S. and measured market concentration using
capacity and production data. The study, which is the second in a series
of annual reports, concluded that U.S. ethanol production currently
is not highly concentrated and that market concentration based on
production capacity decreased over the past year. The study also
examined the possible effect on concentration of agreements between
ethanol producers and third-party marketers. The study concluded that
current concentration levels in ethanol production do not indicate that
a single firm, or a small group of firms, could wield sufficient market
power to set or coordinate price or output levels.

2.	 Health Care


Authorized Generics Study. In March 2006, the FTC staff initiated
a study on authorized generic drugs. The study is intended to help
understand the circumstances under which innovator companies
launch generics; to provide data and analysis regarding the effects
of authorized generics on short-term price competition, particularly
during the Hatch-Waxman Act’s exclusivity period, and on long-term
prospects for generic entry; and to add to the research on the effect
of generic drug entry on prescription drug prices. Currently, staff is
reviewing public comments on the proposed methodology for the study.

3.	 Technology


Wi-Fi Report. In September 2006, the FTC published a staff report,
“Municipal Provision of Wireless Internet,” which provided a decisiontree framework to policymakers considering whether and how
municipalities should provide Internet service. The report identifies the
15

Federal Trade Commission
potential benefits and risks to competition and consumers associated
with municipal provision of wireless Internet service. The report was
the first publicly released work from the FTC’s Internet Access Task
Force, which was convened by Chairman Majoras in August 2006.


Second Report on Intellectual Property and Competition. In
Spring 2007, the FTC and DOJ are issuing the second report addressing
issues arising at the intersection of antitrust and intellectual property
law and policy. The Report will make recommendations for competition
law and policy, and follows an initial report issued in 2003 after extensive
hearings on this issue.

4.	Other


Noerr-Pennington Report. In November 2006, the Commission
released a report that provided enforcement perspectives on the
Noerr‑Pennington doctrine, which precludes application of the antitrust
laws to certain private acts that urge government action. The report
provided the staff’s views on how best to apply the doctrine to conduct
that imposes significant risks to competition, but does not further
the important First Amendment and governmental decision-making
principles underlying the doctrine.



Report on Horizontal Merger Investigation Data, Fiscal Years
1996-2005. To promote greater transparency in merger enforcement,
the Commission published a report in January 2007 showing the trend
in merger enforcement investigations for the fiscal years 1996-2005.
Staff analyzed certain market structure information in connection with
the Commission’s decision whether or not to seek relief in the specific
markets investigated. Further, for those investigations involving
three or fewer markets, staff tabulated the Commission’s enforcement
decisions based on the presence or absence of “hot documents,” “strong
customer complaints,” and “entry conditions.”

B.	Hearings and Workshops
Hearings and workshops organized by the FTC represent a unique
opportunity for the agency to develop policy research and development tools
and to help foster a deeper understanding of the complex issues involved in
the economic and legal analysis of antitrust law. Typically, these events bring
together representatives reflecting a wide range of perspectives and provide
an opportunity for experts from the legal, business, academic, and government
communities to share ideas, confront positions, and identify new areas of
interest.

16

The FTC in 2007: A Champion for consumers and competition
1.	 Hearings


SECTION 2 HEARINGS

Single-Firm Conduct Hearings. Starting in June 2006, the FTC and DOJ
Antitrust Division held a series of joint public hearings – in Washington,
D.C., Berkeley, California, and Chicago, Illinois – to study the antitrust
implications of single-firm conduct. The hearings have sought public
input regarding how best to analyze whether and when specific types of
single-firm conduct may be anticompetitive and violate Section 2 of the
Sherman Act, and whether and when conduct is pro-competitive and
lawful. The hearings have specifically focused on the identification and
analytical meaning of monopoly power; circumstances that determine
exclusionary conduct; unilateral refusals to deal; predatory pricing;
loyalty and bundled discounts; exclusive dealing; tying; misleading
and deceptive conduct; remedies; historical and strategic business
perspectives; the use of empirical data; and international perspectives.
After the hearings conclude, agency staff will prepare a report of the
hearings’ results and relevant research.

2.	 Workshops


energy markets
in the 21st century:
Competition Policy in Perspective



broadb a n d
connect v ty
compet t on
pol cy

Competition in Energy Markets. In April 2007, the FTC hosted a
public conference to explore a range of energy issues of importance to
American consumers, as well as to the U.S. and global economies. The
three-day conference, “Energy Markets in the 21st Century: Competition Policy
in Perspective,” covered topics such as the relationship between market
forces and government policy in energy markets; the dependence of the
U.S. transportation sector on petroleum; the effects of electric power
industry restructuring on competition and consumers; technological
developments in the industry; the security of U.S. energy supplies; and
the government’s role in maintaining competition and protecting
energy consumers.
Broadband Connectivity Competition Policy. In February 2007, the
FTC hosted a public workshop to explore the many competition and
consumer protection issues relating to broadband Internet access,
including so-called “network neutrality.” Among the topics discussed
were the current and future state of competition in the market for
broadband Internet access; the capabilities and incentives of broadband
Internet service providers to discriminate against, degrade, block,
or charge fees for prioritized delivery of unaffiliated content and
applications; and the potential effects of network neutrality regulation
on innovation and competition in the market for broadband Internet
access. The FTC plans to release a report based on this workshop later
this year.

energy markets
in the 21st century:
Competition Policy in Perspective



Economics in the Pharmaceutical Industry. In October 2006, the
FTC’s Bureau of Economics hosted a non-public conference discussing
recent economic research related to competition and consumer
17

Federal Trade Commission

“... broadband is
an ‘information
service’ – not
a ‘common
carrier service’
exempt from FTC
jurisdiction ...”
Online Initiatives
In an August 2006
speech, Chairman Majoras discussed several
FTC initiatives to protect
competition and consumers in the online world,
including the creation of
the FTC’s Internet Access
Task Force to educate
the Commission on Internet access issues. She
also reiterated the Commission’s position that
it may assert jurisdiction
to challenge deceptive or
anticompetitive conduct
by broadband service
providers, noting that
broadband is an “information service” – not a
“common carrier service”
exempt from FTC jurisdiction – a position reflecting recent judicial and
regulatory developments.

protection issues in the pharmaceutical industry. The discussion
included the economic impact of direct-to-consumer advertising,
spillovers and mergers in pharmaceutical research and development,
and economic incentives for new drug development.
C.	Advocacy Letters and Comments
The promotion of competition principles to policymakers is a fundamental
complement to the agency’s enforcement activities. Experience has shown
that government-imposed restrictions are among the most effective and
durable constraints on competition. The Commission’s competition advocacy
program applies rigorous antitrust analysis and empirical evidence to provide
information to government officials with the goal to limit or eliminate public
impediments to competition that may harm consumers. Over the last year, the
FTC’s advocacy filings generally have sought to achieve one of three objectives:
(1) facilitating entry, (2) eliminating perverse market incentives, or (3) making
it easier for consumers to get useful information. The FTC’s recent advocacy
efforts have contributed to several positive consumer outcomes.


Wine Direct Shipping. In 2006, FTC staff filed comments on legislation
in Florida and Ohio that would allow direct shipment of wine from
out-of-state manufacturers to consumers in those states, provided that
certain requirements were met. The proposed legislation was designed
to bring Florida and Ohio law into compliance with the recent Supreme
Court decision in Granholm v. Heald, which held (relying on the FTC’s 2003
Wine Report) that states may not discriminate against out-of-state,
and in favor of in-state, wineries. Staff concluded that, if enacted, the
proposed legislation would benefit consumers by providing greater
wine selection and lower prices, while also allowing each state to meet
its other public policy goals, such as preventing underage access to
alcohol and collecting taxes. Staff also noted that the provision which
limits the ability of large producers to import wine into Florida would
likely reduce the benefits to consumers.



Patent Rules of Practice. In May 2006, the FTC submitted comments
to the U.S. Patent and Trademark Office (PTO) in response to the PTO’s
statement of proposed rulemaking regarding its proposed rules on
continuations, whereby patent applicants may amend their claims or
present additional arguments and evidence supporting patentability.
The Commission supported the PTO’s proposed rules and urged their
adoption, as they accommodate the legitimate uses of continuations,
limit abuses that can harm the competitive process, and promote the
patent system’s ability to provide incentives to innovate to the extent
they reduce the pendency of patent applications.



Online Auction Trading Assistants. In May 2006, FTC staff provided
comments on proposed Louisiana state legislation exempting
individuals and firms assisting consumers in selling goods through
18

The FTC in 2007: A Champion for consumers and competition
online auction houses (e.g., eBay) to hold an auctioneer’s license. The
comments noted that the use of trading assistants lowers the price for
consumers to use online auction houses and that staff had found no
evidence of consumer harm from the use of such trading assistants.


Online Attorney Matching Services. In May 2006, FTC staff filed
comments with the Texas Bar Association’s Professional Ethics
Committee providing analysis of the likely effects on consumers of
the bar association’s opinion finding it unethical for Texas attorneys
to participate in online legal matching services. Staff concluded that
such a restriction likely would harm Texas consumers by increasing
the costs associated with finding legal representation and, ultimately,
the price for legal services. The comments further noted that there is
no evidence that online legal matching services have caused consumer
harm that would justify banning them.



Unauthorized Practice of Law. In June 2006, the FTC and DOJ jointly
filed comments with a committee in the New York State Assembly
opposing proposed legislation to expand the scope of activities
constituting the unauthorized practice of law. In particular, parties
to a real estate transaction in New York presently routinely rely on
non-attorneys to conduct title abstracting and to prepare basic
transactional documents. The proposed legislation would define
all such work as the practice of law and by definition exclude nonattorneys from nearly all aspects of real estate transactions. The
agencies believe that non-attorneys should be permitted to compete
with attorneys in such matters, “except where specialized legal
knowledge and training is demonstrably necessary to protect the
interests of consumers.”



Pharmacy Benefit Managers. In October 2006, FTC staff provided
comments on legislation in Virginia that would regulate the contractual
relationship between pharmacy benefit managers and health benefit
plans. The comments argued that such regulation would limit the
ability of the parties to enter into efficient, mutually advantageous
contracts and might increase pharmaceutical prices. For example,
according to FTC staff, the bill likely would hamper initiatives by health
plans to encourage consumers to use certain lower-priced drugs, and
ultimately might decrease the number of consumers with insurance
coverage for pharmaceuticals without producing offsetting benefits.

D.	Amicus Briefs
In one of the most active Supreme Court terms for antitrust cases in
decades, the FTC participated in several amicus briefs submitted to aid the Court
in analyzing and resolving competition-related issues. The matters in which
the agency intervened range from Section 2 cases, to price fixing matters, to
vertical price restraints.
19

Federal Trade Commission
The Commission’s
argument in the
government’s
amicus brief in
Weyerhaeuser
— that the test
which applies to
claims of predatory
pricing also
applies to claims of
predatory bidding
— was subsequently
adopted by a
unanimous Supreme
Court.



Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber. In two joint
amicus briefs, filed in May and August 2006, the FTC and DOJ urged the
U.S. Supreme Court to grant certiorari and reverse the Ninth Circuit Court
of Appeals decision which: 1) held that the standard for a predatory
pricing claim articulated by the Supreme Court in Brooke Group Ltd v.
Brown & Williamson Tobacco Corp. did not apply to a case in which the
plaintiff alleged “predatory bidding” in violation of Section 2 of the
Sherman Act; and 2) approved instructions that allowed a jury to find
a violation based on assessments of factors such as “fairness” and
“necessity.” In February 2007, a unanimous Supreme Court agreed with
the government and vacated the Ninth Circuit’s decision, holding that
the Brooke Group test applies to predatory bidding claims.



Latino Quimica-Amtex S.A., v. Atofina S.A. In June 2006, the
Commission and DOJ filed jointly an amicus brief in this case which
involved an international price fixing conspiracy by manufacturers
of two chemicals. The chemicals, sodium monochloroacetate
and monochloroacetic acid, are used in manufacturing foods,
pharmaceuticals, herbicides, and plastics. At issue was the Sherman
Act claims of several foreign companies that purchased the chemicals
from manufacturers located outside the U.S., for delivery outside of the
United States. In keeping with the position previously advanced in the
Empagran litigation, the brief urged the Second Circuit to affirm the
dismissal of the complaint for lack of jurisdiction. Shortly after the brief
was filed, the parties withdrew the appeal.



Leegin Creative Leather Products, Inc. v. PSKS, Inc. In January 2007,
the DOJ and FTC filed a joint amicus brief in the U.S. Supreme Court
addressing the question whether an agreement between a supplier
and its dealer that sets the dealer’s minimum retail price constitutes
a per se violation of Section 1 of the Sherman Act or is instead properly
analyzed under the rule of reason. The brief argued that the per se rule
against vertical minimum resale price maintenance established in Dr.
Miles Medical Co. v. John D. Park & Sons Co. is irreconcilable with the Court’s
modern antitrust jurisprudence and should be overruled.



Credit Suisse First Boston v. Glen Billing. In January 2007, the FTC, DOJ, and
Securities and Exchange Commission (SEC) jointly filed an amicus brief
addressing the application of the antitrust laws to activities subject
to SEC regulation. The brief argued that collaborative underwriting
activities occurring during the initial public offering of securities that
are expressly or implicitly authorized under the securities laws, as well
as conduct inextricably intertwined with such activities, are immune
from the antitrust laws. At the same time, the brief cautioned that
not all underwriting activities occurring in connection with an initial
public offering enjoys a blanket antitrust exemption. The brief urged

20

The FTC in 2007: A Champion for consumers and competition
the Court to vacate the lower court rulings, neither of which struck
the appropriate balance between the interests of the antitrust and
securities laws.
Commission staff also participated in discussions with the DOJ and other
federal agencies regarding the position taken by the United States as amicus in
several cases involving intellectual property, which had important implications
for competition and consumer interests. In the cases decided to date, the
Supreme Court has vacated or reversed lower court rulings that threatened
consumer interests by taking an unduly rigid approach to patent litigation and
remedies.
E.	 Congressional Testimony
During the last year, the Chairman and other Commissioners, as well as
senior Commission staff, provided key testimony on a number of significant
competition-related subjects, including health care, energy, real estate
brokerage, and patent law reform.


“In our advocacy work, we also frequently
weigh in on proposed federal legislation, and are
frequently successful in preventing the passage of
legislation that would impede competition or protect
market participants from antitrust enforcement.”
Chairman Majoras
Remarks at 2005 ABA Annual Meeting
(Aug. 6, 2005)

Health Care. From July 2006 through
February 2007, Commissioners and other
FTC staff presented prepared testimony on
health care-related issues on four separate
occasions. The topics included enforcement
and advocacy activities regarding branded
and generic pharmaceutical competition,
including potentially anticompetitive
payments used to settle patent disputes, FTC
interventions against physicians adopting
collective price fixing and boycotting
agreements, and the oversight of competition
in the contact lens market.



Energy. Chairman Majoras provided testimony in May 2006 discussing
major issues addressed in the FTC’s report concerning gasoline price
manipulation, presenting the Commission’s findings and related policy
implications, and offering recommendations for Congress to consider
in its ongoing efforts to protect consumers in petroleum markets.
The testimony focused on market forces and competitive dynamics
affecting gasoline prices, including general price-gouging issues, as well
as the repercussions and disruptions in the petroleum industry caused
by Hurricane Katrina.



Real Estate Brokerage. Senior Commission staff testified in July
2006 regarding competition in the real estate brokerage industry. The
testimony addressed the recent growth in alternative, Internet‑based
business models in the industry, as well as actions on the part of
competitors and state governments that make it more difficult for
21

Federal Trade Commission
such alternative models to compete against traditional brokers. The
FTC reiterated that it will continue to aggressively bring enforcement
actions against anticompetitive conduct and advocate against
legislation detrimental to consumers in this industry.


Patent Law Reform. Commission staff testified in February 2007
that patent policy stimulates innovation by providing an incentive to
develop and commercialize inventions, but that invalid or questionable
patents can increase costs and hinder competition. The staff testified
that implementing the patent reform recommendations the FTC made
in its 2003 report, “To Promote Innovation: The Proper Balance of Patent and
Competition Law and Policy,” would increase the likelihood that issued
patents are valid and that challenges to invalid patents will proceed
more efficiently.

Chapter 3. Competition – Consumer and Business
Education and Outreach
In addition to its aggressive law enforcement and advocacy efforts, the
FTC is committed to enhancing consumer confidence in the marketplace
through public education and outreach. In the past year, Commission staff
launched a multi-dimensional outreach campaign emphasizing that antitrust
enforcement helps consumers reap the benefits of competitive markets by
keeping prices low and the quality of services high, and by encouraging more
choices in the marketplace. The Commission is building a library of brochures,
fact sheets, articles, reports and other products – both in print and online – in
its efforts to reach consumers, attorneys, and business people. Further, the FTC
plans to partner with other public and private organizations to broaden the
dissemination of this important message.


Competition Counts. “Competition Counts: How Consumers
Win When Businesses Compete” is a brochure that introduces
consumers and businesses to the importance of competition,
and the role that antitrust enforcement plays in benefitting
both the economy and our nation’s citizens.



New industry-specific mini-websites. The Commission’s
website continues to grow in size and scope with resources
on competition policy in a variety of vital industries. This year,
the FTC launched new industry-specific websites for oil and
gas, health care, real estate, and, most recently, technologyrelated issues. These mini-websites serve as a convenient
place for consumers and businesses to learn about the FTC’s
efforts to advance competition in these important business
sectors. For example, these websites include the FTC’s latest
law enforcement actions, detailed staff reports, conference
schedules, and “tip sheets” for consumers.

22

The FTC in 2007: A Champion for consumers and competition

Staff Profile



Case-related consumer education. In the past year, the Commission
continued to integrate its competition enforcement activities with
consumer and business education, so that the public can better identify
the signs of anticompetitive behavior and understand the economic
impact of corporate mergers or other restrictive business practices.
In conjunction with the initiation or settlement of enforcement
cases, the Commission issued practical tips for consumers in a wide
variety of industries, including how to select a real estate agent and
shop for funeral services and generic drugs, as well as “plain language”
information on oil and gas availability and pricing.



Expanding media coverage. In the past year, news coverage of FTC
competition activities has grown due to both the increasing interest
in antitrust enforcement, as well as the implications enforcement
activities have on consumers. For example, major metropolitan daily
newspapers reported on the FTC’s suits in several states against real
estate groups that blocked access by discount brokers to Multiple
Listing Services. National publications, including The Wall Street Journal,
reported on FTC enforcement actions in the health care industry,
covering news of several health care merger cases that resulted in
divestitures, and reported on Commission testimony before the Senate
concerning potentially anticompetitive conduct between generic and
branded drug firms in settling patent disputes. Gasoline pricing was
the most widely covered competition issue during the past year, and
reporters covering the latest trends in the energy industry consulted
the Commission’s oil and gas mini-website. The FTC’s competition
advocacy work was also widely reported with several magazines
running stories on the competition for legal services, wine, and contact
lenses.

Shira
Pavis Minton
Office of the
General Counsel
As the Assistant
General Counsel for
Ethics, Shira helps
administer the FTC’s
Ethics Program
which this year won
the U.S. Office of
Government Ethics’
Award for Outstanding
Achievement in
Managing an Ethics
Program. The FTC
is committed to the
highest level of ethical
conduct, and Shira and
the ethics staff provide
ethics training for all FTC
employees.
In speaking at
the National Ethics
Conference recently,
Shira emphasized that
the main reason for
the success of the FTC
Ethics Program is the
“culture of compliance”
that flows from the very
highest level of the
agency.

23

Federal Trade Commission

“The FTC uses its
law enforcement
powers to actively
fight fraudulent
and deceptive
practices that harm
consumers.”

Section Two: Consumer Protection
Mission
The FTC’s consumer protection mission is to protect the public from
fraud, deception, and unfair practices in the marketplace. During the past
year, the agency focused on issues of
critical importance to consumers,
Sentinel Top Complaint Categories
including misleading credit and debtJanuary 1 – December 31, 2006
related practices, deceptive health
claims, business opportunity schemes,
Magazines,
Foreign Money Offers
Buyers Clubs
spyware, data security, pretexting,
4%
2%
Advance-Fee Loans,
unwanted telemarketing calls, protecting
Internet Auctions
Telephone Services
Credit Protection
6%
2%
2%
children online, and spam. In some cases,
Other
Internet Services,
10%
enforcement can culminate in a referral
Computer Complaints
8%
by the FTC’s Criminal Liaison Unit, which
Prizes, Sw eepstakes,
works with criminal authorities to seek the
Lotteries
9%
prosecution of the worst offenders.
The agency’s law enforcement
efforts are supported by information
Identity Theft
gathering tools that help the agency stay
48%
at the forefront of emerging technologies
Percentages are based on the number of Sentinel complaints (513,955) received by the FTC between January 1 and December 31, 2006,
where a specific Sentinel product/service category was reported. 160,399 Sentinel complaints were not coded under any specific category.
Source: “Consumer Fraud and Identity Theft Complaint Data” report issued February 2007.
and consumer threats, and inform
policymakers, businesses, and the public
as a whole. The FTC’s tools include workshops, rulemakings, reports, and
complaint databases.
Shop-at-Home,
Catalog Sales
9%

Chapter 4. Consumer Protection Law
Enforcement
A.	Fraud and Deception Law Enforcement
The FTC uses its law enforcement powers to actively fight fraudulent and
deceptive practices that harm consumers. From April 2006 through March 2007,
the FTC filed 59 actions in federal district court and obtained 120 judgments
24

The FTC in 2007: A Champion for consumers and competition
The “ABCs” of
Financial Practices
In a February 2007
speech before the Consumer Federation of
America, Chairman Majoras emphasized the
Commission’s ongoing
commitment to protecting
consumers in the financial
services marketplace. In
announcing the Commission’s agenda, Chairman Majoras stated that
the Division of Financial
Practices will focus on
the “ABCs” of financial
practices:

ordering defendants to pay $414 million in redress to consumers, and $12 million
in civil penalties. In many of these cases, the FTC worked with other law
enforcement entities to achieve effective results. The following are examples
of enforcement actions initiated by the Bureau of Consumer Protection
challenging different types of illegal conduct in various industries.
Deceptive Lending and Other Credit Schemes. The FTC targets abusive,
deceptive, and unfair financial practices, including abusive debt collection
practices, deceptive debt reduction claims, and misleading loan promises.
These practices can have severe consequences for consumers, including
high cost loans, ruined credit histories, and unwarranted fears of arrest and
incarceration.


Debt Collection. In January 2007, the FTC charged a collection agency,
Rawlins & Rivera, Inc., and its principals with falsely threatening and
illegally harassing consumers to pay their debts. The FTC also alleged
the defendants had improper communications with third parties
about consumers’ debts, used abusive and obscene language in calls,
and continued collection activities after receiving timely dispute
letters from the consumers. In March 2007, the Commission obtained a
preliminary injunction to halt the unlawful and abusive practices.



Debt Negotiation. In August 2006, a federal district court granted
the FTC’s request for an ex parte temporary restraining order and asset
freeze against several related debt negotiation companies, including
National Support Services. The complaint charged that the defendants
falsely claimed that they could reduce a consumer’s unsecured debts
by as much as 40 to 60 percent. The FTC alleged that many consumers
who enrolled in the defendants’ program saw their credit ratings
worsen substantially and their debts grow as a result of following the
defendants’ advice to stop making payments on their debts. Similarly,
in January 2007, the FTC filed a complaint against Select Management
Solutions and its director alleging that the defendants falsely promised
they could lower consumers’ credit card rates thereby saving them
thousands of dollars, and in February 2007 obtained a preliminary
injunction against the defendants. The Commission worked jointly with
its Canadian partners to halt this unlawful scheme.



Mortgages Para Hispanos.Com. In September 2006, a mortgage
broker settled FTC charges that he promised customers with little
or no English proficiency one set of loan terms verbally in Spanish,
while requiring them to sign English-only closing documents with less
favorable terms. One feature of the settlement requires the broker and
his company to provide Spanish-speaking consumers with a Spanish
disclosure statement and consumer education brochure.

Alternative mortgages.

The Commission will continue to target deceptive
or unfair mortgage lending
practices, particularly the
deceptive advertising of
nontraditional or alternative mortgages that entice
consumers with lower
initial payments, but often
pose significant long-term
financial risks.

Bad debt collection.

The Commission will
continue to guard against
deceptive and abusive
debt collection practices,
and will hold a workshop
in the Fall 2007 to examine current practices in
this industry.

Credit-related deception.
The FTC will maintain
its vigilance in challenging deceptive debt negotiation and similar credit
repair schemes.

Deceptive Health, Safety, and Weight Loss Claims. The FTC continues
to combat the deceptive marketing of health products, particularly products
25

Federal Trade Commission
making disease prevention or weight loss claims, and products targeted to
children. From April 2006 through March 2007, the FTC initiated or resolved
14 law enforcement actions challenging 27 products as making such claims.
Two of the actions were part of the FTC’s Hispanic Initiative and six involved
marketing in languages other than English.


Q-Ray Bracelet. In September 2006, a federal district court found that
the defendants’ claims for their purported pain relief ionized bracelets
were false and unsubstantiated. At trial, the defendants argued that
the bracelets had a placebo effect, but the court ruled that even if they
had a placebo effect, consumers were “duped.” The court required the
individual and corporate defendants to pay up to $87 million in refunds
to consumers.



Xenadrine EFX, CortiSlim, TrimSpa, and Bayer’s One-A-Day
WeightSmart. In January 2007, the Commission announced
in four separate cases that the marketers of these extensively
advertised products had settled charges that they had made false or
unsubstantiated weight loss or weight-control claims. In settling, the
marketers surrendered cash and other assets collectively worth at least
$25 million and agreed to limit their future advertising claims.

Business Opportunity Sweep. For more than
a decade, the FTC has spearheaded a federal-state
partnership to combat business opportunity and workat-home frauds, and to educate the public to detect
$5.4 million
and avoid these scams. In December 2006, the FTC
announced Project FAL$E HOPE$, which consisted of more
$3.2 million
than 100 law enforcement actions brought by the FTC,
$1.0 million
DOJ, Postal Inspection Service, and state law enforcers.
The FTC contributed nine new cases, in each of which
$1.0 million
it successfully obtained temporary relief to halt the
fraud alleged. Project FAL$E HOPE$ also announced the
continuing successes of the 2005 business opportunity sweep, Project Biz Opp
Flop. In 2006, 23 individuals charged in Project Biz Opp Flop were convicted and
28 defendants were sentenced to prison terms ranging from one year to more
than 15 years.

Significant Civil Penalty Cases
April 2006 - March 2007
Richard L. Prochnow
Bayer Corporation
The Broadcast Team, Inc.
Xanga.com, Inc.

Deceptive Sweepstakes Scams. In October 2006, the FTC filed an action
in federal district court against the National Prize Information Group Corp. and
its owner alleging that they bilked consumers upwards of $9 million through
misleading claims that consumers had won large sweepstakes prizes that
could be collected for a small fee. The court found the defendants’ disclaimers
inadequate and issued a preliminary injunction and an asset freeze.
Misleading Gift Cards. In March and April 2007, the Commission
announced its first two enforcement actions involving gift cards. Both Kmart
Corp. and Darden Restaurants, Inc. (which owns Red Lobster and Olive Garden)
26

The FTC in 2007: A Champion for consumers and competition

“... the court
ordered the
defendants to
pay $26 million
in consumer
redress.”

Another Multimillion
Dollar Judgment
The Commission
brings enforcement actions against all sorts of
fraudulent money-making
schemes. For example,
in Davison & Associates,
the Commission charged
that the defendants had
engaged in deceptive
practices in connection
with their invention promotion business.
After a three-week
trial, the court ordered
the defendants to pay
$26 million in consumer
redress. Based on the
record of “blatant, varied,
and repeated misrepresentations,” the court
also ordered that in future
dealings with consumers,
the company make specific, detailed disclosures
about their track record in
helping inventors market
their ideas.

allegedly promoted their gift cards as equivalent to cash, but failed to disclose
adequately fees assessed when a gift card is not used for 24 consecutive months.
Kmart also allegedly misrepresented that its gift cards never expire. In settling,
both companies agreed to disclose dormancy fees prominently in future
advertising, disclose the existence of such fees on the front of their gift cards,
and provide refunds to affected consumers.
Hispanic Law Enforcement Initiative. The FTC continues to combat
consumer fraud against Hispanics aggressively. Since the introduction of its
Hispanic Initiative in 2004, the FTC has filed 39 actions against 131 businesses
and individuals alleged to have fraudulently sold a myriad of purported
products and services to Spanish-speaking consumers. During the April 2006
Hispanic Multimedia Surf, conducted by law enforcement partners across the
United States and in five Latin American countries, the FTC identified numerous
potentially deceptive ads and sent warning letters to 166 advertisers and 77
media outlets. Further, as part of this initiative, the Commission co-hosted an
Hispanic outreach workshop with other agencies in September 2006 to identify
problems of particular concern to the Hispanic community and to discuss
solutions.


QTX. In September 2006, the FTC obtained preliminary relief in federal
court which shut down a work-at-home scheme that promised Spanishspeaking consumers earnings of $500 a week for assembling “bead
houses.” The Commission alleged that the defendants routinely rejected
the work of the purchasers even when they managed to fully assemble
one of the items. In February 2007, the Commission settled with one of
the main defendants, permanently halting this deceptive scheme.

Project Scofflaw. This FTC initiative
focuses on individuals and companies
that are already subject to FTC and federal
court orders as a result of prior FTC law
enforcement actions. The FTC places a high
priority on enforcing orders against repeat
offenders as well as against those who act in
concert with them.


Project Scofflaw - 2006
Criminal Contempt
Prosecutions
3 defendants sentenced
25 years in prison
more than $18 million in total
criminal restitution ordered

Gumpel. The FTC initiated a civil
contempt action in January 2007
against Julian Gumpel and related
businesses for allegedly violating the core provisions of a 1998 federal
court order issued in connection with an invention promotion scheme.
The Commission charged that the contempt defendants violated
the prior order by falsely claiming that consumers would reap huge
financial benefits by using their invention promotion services. By
charging consumers $5,000 to $40,000 for their services, defendants
netted more than $60 million. The court ordered preliminary relief,
froze the defendants’ assets, and appointed a receiver.
27

Federal Trade Commission

Staff Profile



Kellie
Cosgrove Riley
BCP/Division of
Privacy and Identity
Protection
An attorney in the
Division of Privacy and
Identity Protection,
Kellie has worked on a
number of privacy, ID
Theft, and credit-related
projects. For example,
Kellie represents the
FTC on the Public Sector
Data Security working
group of the President’s
Task Force on Identity
Theft, and serves on the
FTC’s Privacy Steering
Committee.
Kellie has also
been responsible for
rulemaking projects
under the Fair and
Accurate Credit
Transactions Act and
the Gramm-Leach-Bliley
Act, and planned the
FTC’s public forum, “The
Consumer and Credit
Scoring.”

The Commission filed or settled other contempt actions between
April 2006 and March 2007, including Neiswonger, which involved a
business opportunity scheme; Lane Labs, involving a purported cure
for male infertility and a so-called “superior” calcium supplement;
ConsumerInfo.com, relating to nationwide television ads for a
credit monitoring service; and Vocational Guides, Inc. concerning
government grants.

Criminal Liaison Unit. The Criminal Liaison Unit coordinates the
FTC’s work with criminal authorities to prosecute the criminal activity that
underlies many of the FTC’s more serious consumer fraud cases. From April
2006 to March 2007, the FTC assisted in the criminal prosecution of 130 FTC
defendants or their associates, many of which resulted in convictions and
substantial sentences ranging from one year to more than 17 years in prison. In
several cases, FTC attorneys were designated as Special Assistant United States
Attorneys in order to directly prosecute the offenders.


American Entertainment Distributors. Based on an FTC referral,
the DOJ brought criminal charges against ten defendants who sold
fraudulent DVD kiosk business opportunities that cost 400 consumers
a total of $19 million. The FTC filed a parallel civil case against some of
the same defendants, as well as a motion to hold one defendant in civil
contempt for violation of a prior FTC injunction. That defendant, who
also faces a criminal contempt charge, is incarcerated in Costa Rica and
is awaiting extradition. In the past year, eight defendants involved in
this scheme were sentenced to prison terms ranging from one year to
more than ten years.

B.	Privacy and Data Security Law Enforcement
Protecting consumers’ privacy and data security continues to be a central
part of the FTC’s consumer protection mission. While the explosive growth
of the Internet and sophisticated computer systems have provided huge
benefits to consumers, the public will lose faith in these technologies unless
their personal information is protected. The FTC has taken the lead to protect
consumers from technology-driven threats to the security of their personal
data, computers, and email. Privacy concerns range from protecting consumers
from unwanted pornographic email to protecting children from the collection
of their personal information. The Commission’s Division of Privacy and
Identity Protection (DPIP), created a little over one year ago, spearheads law
enforcement and related policy work in this area.
Spyware and Adware. Since April 2006, the FTC has announced five new
cases involving software programs that take control of or damage consumers’
computers, or send high volumes of disruptive advertising. These cases
reinforce three important principles: (1) a consumer’s computer belongs to him
or her, not to the software distributor; (2) buried disclosures do not work, just
as they have never worked in more traditional areas of commerce; and (3) if a
28

The FTC in 2007: A Champion for consumers and competition

“The settlement
requires future
disclosure of
DRM limitations
on product
packaging.”

distributor puts a program on a consumer’s computer that the consumer does
not want, the consumer must be able to uninstall or disable it.


Zango. In November 2006, this company, formerly known as
180solutions, settled FTC charges that through distributors it
surreptitiously installed its adware on millions of consumers’ computers
and deliberately made the adware programs difficult for consumers to
identify and remove. Zango agreed to disgorge $3 million in ill‑gotten
gains, stop sending ads to consumers affected by its previous practices,
obtain consumers’ express consent before downloading software onto
consumers’ computers, and implement user‑friendly complaint and
uninstall mechanisms.



ERG Ventures. The FTC filed a complaint in October 2006 alleging
that the defendants tricked millions of consumers into downloading
malevolent software by hiding it within seemingly innocuous free
software. The software allegedly degraded computer performance,
disabled anti‑spyware programs, and exposed consumers to a barrage
of disruptive ads. The FTC obtained preliminary injunctions enjoining
the defendants’ deceptive and unfair practices and freezing their assets.



Seismic Entertainment Productions. The FTC concluded its
litigation against a group of spyware purveyors who downloaded
onto unsuspecting consumers’ computers spyware that changed the
computers’ default settings, hijacked their search engines, and then
bombarded consumers with messages offering to sell them additional
software to fix the very problem the defendants had caused. In May
and November 2006, the court entered permanent injunctions with
monetary relief against all defendants and ordered the mastermind of
the scheme, Sanford Wallace, to disgorge over $4 million.

Digital Rights
Management
In January 2007, Sony
BMG Music Entertainment
settled FTC charges that
it failed to disclose adequately to consumers that
some of its music CDs installed digital rights management (DRM) software
that limited how consumers could use the CDs.
Among other things, the
software prevented consumers from making more
than three copies of the
music and from playing
the music on many portable digital devices.
The settlement requires
future disclosure of DRM
limitations on product
packaging. In announcing
the consent agreement in
this case, Chairman Majoras emphasized that if
new technologies contain
material limitations on
their use, including that
they are not interoperable
so that the product does
not perform as expected,
then it may be deceptive
to fail to disclose adequately the restrictions to
consumers.

Data Security and Identity Theft. Data security breaches continued
to make headlines this past year, with successive press reports on companies
and government agencies that suffered losses or thefts of sensitive consumer
information. The FTC has taken a multi-faceted approach to protecting the
privacy and security of consumers’ personal information, focusing on all phases
of the life cycle of personal data, including its collection, storage, use, and
disposal. The FTC’s tools include laws and regulations such as the Safeguards
Rule issued under the Gramm-Leach-Bliley Act which requires financial
institutions to take reasonable measures to protect customer data, and the
Disposal Rule under the FACT Act which requires companies to dispose of credit
report data in accord with a set of practices designed to prevent others from
using that data without authorization. To date, the FTC has brought 14 cases
challenging inadequate security practices by companies that handle sensitive
consumer data.


Nations Title Agency. In May 2006, the FTC announced a settlement
with Nations Title and related parties resolving charges that the
29

Federal Trade Commission

“... companies
must maintain
reasonable and
appropriate
measures to
protect sensitive
consumer
information.”

company tossed consumer home loan applications in an open dumpster
and allowed hackers to gain access to its computer network. The
settlement bars the company from making deceptive claims about
privacy and security, bars future violations of several federal privacy and
security rules, and requires the company to implement a comprehensive
information security program and obtain independent biennial security
audits for 20 years.


Data Security for
Business
In receiving the 2007
RSA Conference Award
for Public Policy in February 2007, Chairman
Majoras emphasized
that “companies must
maintain reasonable and
appropriate measures to
protect sensitive consumer information.”
For example, businesses must:
 make sure claims
about data security are
accurate.
 be aware of, and
protect against, wellknown and common
security threats.
 know with whom
they are sharing their
customers’ sensitive
information.
 not retain sensitive
consumer information
that they do not need.

Guidance Software. In November 2006, the FTC announced a
settlement resolving allegations that this software company failed to
implement simple, inexpensive, and readily available security measures
to protect consumers’ personal information, contravening express
claims about security precautions on its website. According to the
FTC’s complaint, hackers were able to exploit the company’s security
vulnerabilities (such as its practice of permanently storing sensitive
data in readable text on its servers) and access sensitive credit card
information for thousands of consumers. The settlement requires a
comprehensive information security program and security audits.

Pretexting Sweep. The FTC also focused its law enforcement resources in
the last year on the use of pretexting and other illegal practices to obtain and
sell consumers’ telephone and financial records. In May 2006, the FTC filed five
complaints in federal court against online data brokers who allegedly obtained
confidential telephone records without consumers’ knowledge or consent and
then sold the records to third parties. The FTC alleged that the data brokers
committed unfair practices by disclosing customer phone records without
their knowledge or consent. In October 2006 and February 2007, two of those
lawsuits settled with the defendants agreeing to permanent injunctions
halting the sale of phone records and to disgorge their ill-gotten gains.
Do Not Call. This past year, the FTC vigorously enforced the Telemarketing
Sales Rule (TSR), including the Do Not Call (DNC) provisions that prohibit most
telemarketing to consumers who place their telephone numbers on the
National Do Not Call Registry, as well as provisions prohibiting “abandoned calls”
which fail to connect consumers to a live operator within two seconds. Since
the FTC began enforcing compliance with the Registry in October 2003, the
agency has filed 25 enforcement actions against 52 individual and 73 corporate
defendants, alleging that they had called consumers protected by the Registry.
In 19 of those cases, the FTC obtained settlements with orders requiring
payment in the aggregate of more than $8 million in civil penalties and more
than $8 million in consumer redress. Compliance with the Registry has been
high and American consumers have praised its effectiveness.


The Broadcast Team. The FTC successfully resolved litigation against
The Broadcast Team, Inc. (TBT), a telemarketer that specialized in
broadcasting prerecorded calls. The DOJ filed a civil penalty action on
the FTC’s behalf in December 2005 alleging that TBT called numbers
on the Registry and made millions of abandoned calls. Prior to this
30

The FTC in 2007: A Champion for consumers and competition

Significant Redress Orders
March 2006 - March 2007
Seasilver USA, Inc.

$119.2 million

Q-Ray Company

$87.0 million

Transnet Wireless Corp.

$48.1 million

Telecard Dispensing Corp.

$28.6 million

Davison and Associates

$26.0 million

Internet Marketing Group, Inc.

$15.0 million

Robert Chinery, Jr.

$12.8 million

Window Rock Enterprises Inc.

$12.0 million

Peter J. Salzano

$10.0 million

filing, TBT had preemptively challenged the FTC’s authority to
apply the TSR’s call abandonment provision to prerecorded
charitable solicitation calls made by for-profit telefunders. In
April 2006, a federal district court granted the Commission’s
motion to dismiss TBT’s suit. In February 2007, TBT and its
owners settled the DOJ action, agreeing to comply with the TSR
and pay a $1 million civil penalty.


Peoples Benefit Services. In June 2006, the FTC filed
the first case that highlighted the application of the
DNC provisions to corporate affiliates. The defendants
asserted that they were permitted to call consumers on
the DNC Registry on the basis of a purported established
business relationship between the consumers and the
seller’s corporate affiliates, but the FTC contended the
relationship did not meet the “consumer expectation” test
for allowing such calls. The Commission also challenged
the defendants’ access of the Registry via a separately
incorporated affiliate as a failure to pay the access fees.
The defendants settled this suit and agreed to pay $350,000
in civil penalties.

COPPA. The Children’s Online Privacy Protection Act (COPPA) and the FTC’s
implementing rule give parents the power to determine whether and what
information is collected online from their children under age 13, and how such
information may be used.


FTC Fines Xanga
for Violating
Kids' Privacy
$1 million penalty against social
networking site is largest under
1998 law
September 7, 2006

Xanga.com. In September 2006, the FTC filed its 12th COPPA action,
a civil penalty settlement with the social networking site Xanga.
com, Inc. and its principals. The FTC’s complaint alleged that Xanga
collected, maintained, and disclosed the personal information of over
one million children under age 13 by creating over 1.7 million separate
online accounts for those children without first obtaining the required
parental consent or complying with other COPPA Rule requirements.
The settlement requires Xanga.com to comply with the rule, delete all
information collected in violation of the rule, and pay civil penalties of $1
million, the largest penalty ever collected for a COPPA violation.

CAN-SPAM Act/Adult Labeling Rule. Since 1997, when the FTC brought
its first case involving unsolicited commercial email (spam), the FTC has
aggressively pursued deceptive and unfair spam practices through 89 law
enforcement actions against 241 individuals and companies, 26 of which
targeted violators of the CAN-SPAM Act. In the past year, it brought eight new
law enforcement cases challenging deceptive spam. The Act generally prohibits
deceptive sender and subject‑line content in commercial email and provides
consumers with the right to opt out of future commercial email campaigns.
The Adult Labeling Rule mandates warning labels on email that contains
sexually explicit material.
31

Federal Trade Commission


Jumpstart Technologies. In March 2006, the FTC settled an action
and obtained $900,000 in civil penalties against Jumpstart Technologies,
which allegedly promised “free” movie tickets to consumers if they
divulged the email addresses of several friends. According to the
complaint, Jumpstart then repeatedly emailed those friends, making
the messages appear as if they originated from the consumer’s own
email address. The FTC alleged that Jumpstart’s use of misleading
“from” information and subject lines violated the CAN-SPAM Act. The
settlement also prohibits the company from engaging in future email
campaigns with deceptive sender information or content. The civil
penalty is the largest obtained by the FTC for illegal spam.



TJ Web Productions. In December 2006, a federal court approved a
settlement in a Commission case alleging that the defendant’s affiliates
sent sexually explicit emails that violated the CAN-SPAM Act and the
Adult Labeling Rule. The FTC obtained $465,000 in civil penalties, and the
defendant is required to monitor closely any affiliates (or email “button
pushers”) who it hires to send commercial email messages.

C.	Consumer Protection Law Enforcement Tools
The FTC’s tools for identifying fraud and deception, as well as privacy and
data security violations, involve the collection and analysis of information
about consumer experiences in the marketplace. This function – carried out
through various databases and other Commission resources – is critically
important to the FTC’s consumer protection mission.
“(Company X) installed malware/spyware on my
computer. ... tried to charge me to remove it, and
required me to spend 5 hours and $100 to get it
removed. This is criminal that companies like this
can continue to prey on people and try to blackmail a
payment out of them.”
New York Consumer
April 2006

Consumer Response Center. The
Consumer Response Center (CRC), which
recently celebrated its 10th anniversary, remains
a vital resource for both consumers and law
enforcement. Each week, the CRC handles
more than 31,000 inquiries and complaints
from consumers and businesses. These
contacts come via the FTC’s tollBfree numbers
(1­‑877‑FTC‑HELP and 1‑877‑ID‑THEFT), the FTC’s
website, and the mail.

Consumer Sentinel. Consumer Sentinel,
the FTC’s fraud and identity theft complaint
database, contains over 3.5 million fraud and
identity theft complaints and is accessible to
1,650 law enforcement agencies which use the database to share information,
coordinate investigations, and pursue leads.
National Do Not Call Registry. The Registry continues to protect
consumers from unwanted commercial telemarketing calls. As of April 2007,
consumers have placed more than 142 million telephone numbers on the
32

The FTC in 2007: A Champion for consumers and competition
Registry, which continues to accept new telephone numbers. Additionally,
the Registry collects do not call complaints from consumers and shares them
through Consumer Sentinel. The National Registry has provided a model for
the international community: in the past eighteen months, the Canadian and
Australian governments have authorized their own do not call programs.
Identity Theft Tools. Identity theft continues to be the leading
consumer fraud complaint received by the FTC. Consumers file complaints
and receive advice concerning identity theft from the FTC’s toll-free hotline
and website operated by the CRC. Nearly 1,550 law enforcement agencies have
access to identity theft complaints through Consumer Sentinel. The FTC
also coordinates ID theft law enforcement training for state and local law
enforcers. To date, the FTC, in conjunction with its partners, has conducted 24
training seminars attended by more than 3,240 officers from more than 1,075
agencies.
Spam Database. “Spam,” the popular name for unsolicited commercial
email, remains a significant source of concern for Internet users. The FTC has
maintained since 1998 an electronic address to which the agency encourages
consumers and businesses forward spam (spam@uce.gov). This address now
receives approximately 250,000 pieces of spam daily. The total amount of spam

Commissioner Rosch
Thoughts on the Future of the Commission’s Consumer Protection
Mission
In a January 2007 speech before ABA Section of Antitrust Law, Consumer
Protection Conference, Commissioner J. Thomas Rosch discussed his “wish list” for
the Commission’s consumer protection mission for the next several years:


First, the Commissioner would like to see the Commission and its international counterparts
coordinate their efforts so that the international flow of data and personal information — so
crucial to global commerce — are subject to consistent rules.



Second, he expressed a desire that the Commission take full advantage of its authority under the
newly-enacted U.S. SAFE WEB Act and work with other consumer protection agencies to better
combat cross-border fraud.



Third, he would like to see the Commission and its international counterparts modernize their
arsenal of law enforcement remedies so that they can combat effectively high-tech threats —
such as spam, spyware, and data security vulnerabilities — that injure consumers.



Fourth, he would like the Commission, along with the Department of Agriculture, state and local
school authorities, and the media, to encourage the food and beverage industries to make serious
efforts to combat the national epidemic of childhood obesity. In particular, he noted that the
snack food and fast food industries must increase their efforts to protect the health of our young
people.



Fifth, and finally, he noted that on the antitrust front, he would like to see more elements of
consumer welfare theory integrated into the Bureau of Competition’s law enforcement and
educational initiatives.

33

Federal Trade Commission
received by the FTC has increased by 100 million in the past year to more than
407 million. The spam database remains vital to the development of the FTC’s
CAN-SPAM Act enforcement activities as well as cases brought by other federal
and state agencies.

Chapter 5. Consumer Protection Policy Tools
The FTC applies a distinctive set of policy tools to complement its consumer
protection law enforcement efforts. The FTC works with industry, other
government entities, the media, and the public to collect and disseminate
information to establish policies that protect consumers.
A.	Rulemaking
The FTC carefully engages in rulemakings so that its rules are consistent
with its statutory authority, and with the aim to benefit consumers without
overly burdening business.


FACT Act “Red Flags.” In July 2006, pursuant to the Fair and Accurate
Credit Transactions Act of 2003 (FACT Act), the FTC, together with
several financial regulatory agencies, published proposed regulations
that would require financial institutions and creditors to implement
procedures to detect, prevent, and mitigate identity theft in connection
with account openings and existing accounts. The proposed regulations
include lists of patterns and specific forms of activity that might
raise a “red flag” signaling a possibility of identity theft, e.g., a request
for a change of address which is followed closely by a request for a
replacement credit card.

Franchise Rule. In January 2007, following extensive input from
the public, the FTC approved final amendments to this rule. The
modifications harmonize federal and state franchise pre‑sale disclosure
laws; address changes in the marketing and
sale of franchises, including online; and reduce
“I came across an ad for vending machines;
unnecessary compliance costs by, among other
the ad also promised locations and free training
things, creating exemptions for sophisticated
... I could go on and on about the outright lies
prospective franchisees. The revised rule will go
[the company] made to me ... the businesses [the
into effect in July 2007.
company’s recommended locator] found were


neither “high traffic” nor were they “prearranged”
... while [the company] did not guarantee any
income, the company represented that the national
average for the machine I purchased was $90 net
profit per week per machine. On my best week,
I did not even make $9 per machine. I hope that
other consumers will learn from my experience and
not fall victim to this type of scam.”
Pennsylvania Consumer
December 2006

34



Business Opportunity Rule. In April 2006,
the Commission proposed a rule to protect
consumers from unfair and deceptive
practices in the sale of non‑franchise business
opportunities. Among other things, the
proposed rule would require a one‑page
disclosure document. Until a final decision is
made, those portions of the original Franchise
Rule that dealt with non‑franchise business
opportunities continue to apply.

The FTC in 2007: A Champion for consumers and competition


Appliance Labeling Rule. In January 2007, the FTC
proposed improving the familiar yellow and black
Energy Guide label for major consumer appliances.
Based on substantial consumer research, the FTC’s
proposed label features operating cost as the most
prominent measure of energy performance.

B.	Reports
The FTC analyzes marketplace issues affecting consumers, often after
holding public hearings or workshops involving industry and consumer
representatives, and publishes its findings in reports.


Childhood Obesity Report. In April 2006, following a two-day
workshop, the FTC and the Department of Health and Human Services
issued a joint report that looked at ways to encourage industry and
media companies to promote healthier foods and beverages to
children. The report recommended that industry members improve
the nutritional profiles of foods they promote to children and that
the Council of Better Business Bureau’s (CBBB) Children’s Advertising
Review Unit consider setting minimum nutritional standards for
foods marketed to children. Since the report’s issuance, 11 major food
manufacturers have agreed to participate in a self-regulatory initiative
through the CBBB that seeks to shift the mix of advertising to children
under age 12 to encourage healthier eating choices and lifestyles.



Media Violence Report. In April 2007, the FTC released its sixth report
analyzing the marketing to children of violent entertainment products
by the motion picture, music recording, and video game industries.
The report encourages enforceable self-regulatory restrictions on the
advertising of violent R-rated movies, explicit content recordings, and
M-rated games. It notes the substantial improvement of video game
retailers in restricting the sale of M-rated games to unaccompanied
children, as opposed to retailers of R-rated DVDs and explicit content
recordings who failed to improve significantly. It also reports that an
FTC survey shows that most parents are familiar with the video game
ratings system and use it regularly, although a significant minority
believe it could provide better information.

perspectives on

marketing,
self-regulation,
&
childhood obesity

A Report on a Joint Workshop of
the Federal Trade Commission &
the Department of Health & Human Services

April 2006

C.	Hearings and Workshops
As new developments arise in the marketplace, the FTC holds hearings
and workshops to study emerging issues that may cause consumer injury and
to learn from the experiences of consumers, businesses, academia, as well as
government and other experts in various fields.


“Tech‑ade" Hearings. In November 2006, as a follow‑up to its 1995
Global Hearings, the FTC held “Protecting Consumers in the Next Tech‑ade”
35

Federal Trade Commission

PROTECTINGIN
CONSUMERS hearings to discuss the impact of technological innovation on consumer

The Next Tech-ade



protection policy over the next decade. More than 100 panelists spoke
over the course of three days about new technologies on the horizon
and their potential effect on consumers, including the widening gap
between older and younger consumers in their use of technologies.
During an additional non-public day, government officials, including
foreign representatives, discussed how they can work together more
effectively to protect consumers. In February 2007, the Chairman
announced a series of Tech-ade Town Hall meetings to solicit public
input into this issue, and the Commission intends to issue a report later
this year discussing the key findings from the hearings and meetings,
and recommending changes in consumer protection law, practice, and
procedure. Finally, the FTC is developing a Technology Research and
Policy Development Plan for 2008 that will include all of the hearings,
workshops, conferences, and similar events related to technology that
the Commission intends to hold during the year.
Mortgage Lending Workshop. The FTC
protecting
consumers in the
sponsored a public workshop in May 2006,
“Protecting Consumers in the New Mortgage
Marketplace,” to explore the financial
benefits and risks of new residential mortgage products. Participants
focused on the two types of alternative mortgage products that have
experienced the greatest growth in popularity and market share in the
past two years: interest-only loans and payment option adjustable rate
mortgages.
new mortgage
marketplace

Negative Option Workshop. In January 2007, the FTC hosted a
workshop analyzing the marketing of goods and services through
offers with negative option features – i.e., offers where sellers interpret
a consumer’s failure to take an affirmative action to reject goods or
services, or to cancel a sales agreement, as acceptance of the offers.
Participants discussed the costs and benefits of such offers, the online
marketing of such offers, and ways to make effective disclosures when
such offers are made online.


FTC public workshop



Identity Authentication Workshop. In the fight against identity
theft it is crucial to address not only how personal information is stolen
but also how businesses can prevent thieves from using stolen data
successfully to impersonate their victims. The Commission will host a
two-day public workshop in April 2007, “Proof Positive: New Directions for ID
Authentication,” to explore the role of verification and authentication of a
consumer’s identity in financial and other commercial transactions.



Rebate Workshop. In April 2007, the Commission
will host a workshop in San Francisco, California,
to address the costs and benefits of mail-in rebate
offers by manufacturers and retailers. Topics will

Proof
Positive

New Directions for ID Authentication
April 23-24, 2007

36

an FTC Conference

rebate debate
April 27, 2007
San Francisco

The FTC in 2007: A Champion for consumers and competition

O
N F L EE
I D
N
R
H A H CA
WIT

FTC’s Own Privacy
Initiatives
As a corollary to its
law enforcement efforts
challenging commercial
practices that threaten
consumer privacy, the
Commission has intensified its efforts to
strengthen its own privacy and data security
policies and to raise the
awareness of Commission staff about privacy
issues. In the past year,
the agency implemented
new policies and procedures that address the
collection, use, storage,
sharing, retention, and
disposal of consumer and
corporate data generally,
with a particular emphasis
on personally identifiable
information and sensitive
health information. To
coordinate these efforts,
the Chairman appointed
Marc Groman as the
FTC’s first Chief Privacy
Officer in September
2006, and expanded the
role of the agency-wide
Privacy Steering Committee. As part of the agency’s expanded employee
outreach, in March 2007
the FTC kicked off its
inaugural “Privacy Week”
– a week-long series of
programs, events, and
training designed to further embed privacy into
the workplace culture of
the FTC.

include deceptive and unfair practices, as well as “best practices,” in the
offering and fulfillment of rebates.
D.	Inter-governmental Task Force
The FTC plays a role in improving government practices by working with its
fellow federal and state agencies to tackle significant consumer-related issues,
such as identity theft.


Identity Theft Task Force. In May 2006, the President created
an Identity Theft Task Force, chaired by the Attorney General and
co‑chaired by the Chairman of the FTC, and comprised of 18 federal
agencies. Its goals are to develop a strategic plan for the federal
government to better prevent identity theft, coordinate prosecution,
educate citizens on how to avoid becoming victims and businesses
on steps to protect personal data, and ensure recovery for victims.
In September 2006, the Task Force delivered an interim set of
recommendations that addressed, among other things, how federal
agencies respond when they have data breaches, how they safeguard
sensitive consumer data, and how they collect and use Social Security
numbers as identifiers. The interim recommendations also addressed
the development of an online “universal police report” that identity
theft victims can use to help restore their identities. In December
2006, the Task Force solicited public comments on ways to improve the
effectiveness and efficiency of federal government efforts to reduce
identity theft.

E.	 Advocacy Letters and Comments
The agency also lends its expertise to other federal and state agencies
that are considering rules or other actions that affect consumers. Advocacy
continues to be an important adjunct to law enforcement in order to advance
the FTC’s consumer protection mission.


Attorney Advertising. In September 2006, FTC staff submitted a
comment to the New York State Unified Court System regarding
proposed restrictions on attorney advertising. According to staff, some
of the proposals would have prevented non-misleading advertising that
may convey useful information to consumers. The court subsequently
issued revised rules, adopting nearly all of staff’s recommendations.
In March 2007, FTC staff submitted comments to the Louisiana State
Bar Association and the Florida Bar urging those entities to reconsider
their proposed restrictions on attorney advertising, which staff argued
were unnecessarily broad and potentially harmful to competition and
consumers.



Whole Grain Labeling. In April 2006, FTC staff provided a comment
letter to the FDA regarding its draft guidance for labeling statements
37

Federal Trade Commission
about the whole grain content of food products. The comment
recommended that the FDA reconsider allowing claims such as “good
source” of whole grain or provide other means to give consumers
context as to the amount of whole grain in a product, consider
establishing definitive percentage content standards for making
unqualified claims such as “whole grain” or “made with whole grain,” and
seek relevant consumer research.


State Child Protection Registry. In March 2006, at the request of
a Hawaii State Senator, FTC staff provided a comment regarding a
proposal to establish a state-based Child Protection Registry and to
make it unlawful to send a registrant spam advertising products
minors cannot legally buy or containing adult content. The comment
recommended against creation of the registry, explaining that the
registry can easily be abused by pedophiles and that publishing a list of
verified email addresses could unintentionally increase the amount of
spam received by registrants. The Hawaii legislature ultimately did not
adopt this bill.

F.	 Amicus Briefs
The Commission also regularly files amicus briefs as an important adjunct
to its core enforcement mission, and to aid appellate courts in the proper
interpretation of consumer protection-related statutes.


Safeco Ins. Co. v. Burr; GEICO Gen. Ins. Co. v. Edo. In November 2006, the
FTC joined in an amicus brief filed in the Supreme Court by the United
States in these consolidated cases, urging vacatur and remand in
Safeco, and reversal in GEICO. The brief argued that, under the Fair Credit
Reporting Act (FCRA), the phrase “willful noncompliance” encompasses
both knowing violations and reckless disregard for the law. The brief
also argued that an insurance company must provide an applicant with
an adverse action notice whenever that company offers a consumer
a higher insurance rate than it would have offered if the consumer’s
report had been more favorable.



Whitfield v. Radian Guaranty, Inc. In March 2006, the FTC filed an amicus
brief supporting consumers in this case arising under the FCRA. The
brief argued that the district court erred in holding that a mortgage
insurance company was not required to provide a consumer with an
FCRA adverse action notice even though, as a result of information in a
consumer report, the insurance company charged a higher premium for
mortgage insurance. The brief explained that the FCRA requires such a
notice because the insurance company’s action relates to the consumer,
even though the consumer is not the beneficiary of the policy.

38

The FTC in 2007: A Champion for consumers and competition
G.	Congressional Testimony
Commissioners and senior Commission staff presented congressional
testimony in the past year on a wide range of important consumer protectionrelated issues, including privacy, data security, and other Internet-related issues.


Social Networking Websites. In June 2006, testifying for the FTC,
Commissioner Pamela Jones Harbour told a House subcommittee
that there is a need for social networking websites to develop and
implement safety features to protect children who visit their sites.

Commissioner Harbour
Protecting Children On Social Networking Websites
In testimony before Congress and at the Commission’s Tech-ade hearings,
Commissioner Pamela Jones Harbour discussed the newfound benefits and risks
to children and teens created by the online social networking phenomenon. While
acknowledging the positive sense of camaraderie and community that such
websites can provide, Commissioner Harbour also warned that social networking websites
raise heightened privacy and security concerns for children and teens, especially from sexual
predators. She emphasized that “parents, children, industry, and government have a shared
interest and responsibility in creating a safe and secure online environment.”
Commissioner Harbour strongly encouraged a meaningful and immediate industry response
to the risks online social networking poses for children and teens, including the creation of
industry best practices. At the same time, she emphasized the Commission’s aggressive
law enforcement efforts against website operators who collect, use, and disclose personal
information in violation of the Children’s Online Privacy Protection Act and Section 5 of the
FTC Act. By combining law enforcement, industry self-regulation, and consumer education,
the Commission is committed to helping create a safer online experience for children and all
consumers.



Broadband Internet Access Services. Testifying for the FTC in
June 2006 before the Senate Judiciary Committee, Commissioner
William E. Kovacic told Congress that it should preserve the FTC’s
existing authority to protect consumers against deceptive practices
and to maintain competition in the broadband services industry.
The testimony also urged Congress to eliminate the gap in the FTC’s
jurisdiction created by the telecommunications common carrier
exemption, because that exemption is likely to frustrate the FTC’s ability
to stop deceptive and unfair practices.



“Whois” Databases. In July and September 2006, BCP Deputy Director
Eileen Harrington and Commissioner Jon Leibowitz testified,
respectively, before congressional subcommittees regarding Whois
databases – the directories that contain information about website
operators. The testimony noted that Whois provides information
39

Federal Trade Commission
Helping Consumers
Save Money at the
Pump
Important variables,
such as how drivers fuel,
drive, and maintain their
cars, can offer increased
fuel efficiency and save
consumers money at the
pump. In May 2006, the
FTC released a new website, www.ftc.gov/savegas, with a “bumper-tobumper” interactive guide
and tips for consumers
on what they can do to
conserve gasoline. The
FTC also released a consumer alert entitled “Saving Money at the Pump.”
During the past year, the
Commission released a
series of columns at its
mini-website, www.ftc.
gov/oilandgas, summarizing current market conditions that may impact
gas prices and the FTC’s
role in petroleum industry
enforcement.
In August 2006, the
Commission also announced a settlement
with International Research and Development
Corp. and its principal
for falsely claiming that
their magnetic “FuelMAX”
device would reduce
automobile emissions
and increase gas mileage.
The defendants agreed
to pay $4.2 million in
consumer redress and are
banned from selling or
manufacturing magnetic
fuel savings devices.

Commissioner Leibowitz
Protecting Against Deceptive Internet Schemes
Commissioner Jon Leibowitz has been an outspoken
advocate of the Commission’s efforts to protect the
online experience for consumers. The Commission
continues its aggressive law enforcement efforts to
stop a wide variety of Internet-related abuses, ranging
from deceptive spam, spyware, and unauthorized adware to Internet
auction fraud, illegal pyramid schemes, and business opportunity
scams. In June 2006, Commissioner Leibowitz represented the
Commission at an ICANN conference in Morocco to raise concerns
about proposed limitations to the use of Whois databases, which
provide contact information for website operators. Commissioner
Leibowitz stated that the Commission relies strongly on these
databases to protect consumers’ privacy and welfare, for example, by
identifying targets in spyware and spam cases. He emphasized that:
“The FTC believes that the Whois databases, despite their
limitations, are nevertheless critical to the agency’s consumer
protection mission, to other law enforcement agencies around
the world, and to consumers.... The FTC is concerned that
any attempt to limit Whois... will put its ability to protect
consumers and their privacy in peril.”
These efforts are part of the Commission’s broad commitment
to ensuring that consumers enjoy the benefits of the Internet while
being protected against online fraud, deception, and invasions of
privacy.

critical to the FTC’s consumer protection investigations, and
recommended that the organization responsible for Whois data not
limit public access and consider measures to improve the accuracy and
completeness of domain name registration information.


Phone Pretexting. In September 2006 and March 2007, DPIP Associate
Director Joel Winston and BCP Director Lydia Parnes testified before a
congressional subcommittee and committee, respectively, concerning
the Commission’s aggressive law enforcement efforts against firms
engaging in pretexting to obtain consumers’ telephone records and
other personal information. They also discussed legislative proposals
that would assist the FTC’s efforts to curtail telephone records
pretexting.

Chapter 6. Consumer Protection - Consumer and
Business Education and Outreach
The FTC’s plain-language consumer and business education materials
provide practical guidance on a wide range of topics relevant to day-to-day
marketplace activities. Education enhances law enforcement efforts and
40

The FTC in 2007: A Champion for consumers and competition
empowers consumers. Between April 2006 and March 2007, the FTC distributed
more than 11.8 million print publications in both English and Spanish and
logged more than 41.2 million accesses to the Commission’s publications
online. In addition, the FTC worked through the media and other partners to
reach millions more. The FTC also takes a leading role in promoting its law
enforcement and education efforts during National Consumer Protection Week
in February.


“Deter, Detect, Defend” Campaign
Targets ID Theft. In May 2006,
the FTC launched this campaign
in both English and Spanish to let
consumers know how to reduce
their risk of identity theft and how
to respond if it happens. The FTC’s
ID Theft Consumer Education Kit includes a 10-minute video with tips
from the FTC and consumers who have dealt with identity theft and
its consequences, a brochure, and tips for community education events.
Hundreds of organizations, including those assisting older consumers,
are distributing the FTC’s information on identity theft and linking
to the redesigned www.ftc.gov/idtheft website. In the past year, the
FTC has distributed more than 4.4 million copies of its identity theft
publications and logged over 5.7 million accesses to its identity theft
website.



“We Don’t Serve Teens.” In October 2006, the FTC launched this
campaign to reduce underage drinking by encouraging adults to stop
providing teens with access to alcohol. The campaign’s centerpiece is
www.DontServeTeens.gov, a website sponsored by a coalition of public
and private sector organizations. It features information on the risks
of underage drinking, ways to talk to teens and other parents about
the issue, and ideas for community outreach. The bottom line message
to neighbors, relatives, and friends who may serve teens: “Don’t serve
alcohol to teens. It’s unsafe. It’s illegal. It’s irresponsible.”



OnGuardOnline. OnGuardOnline.gov – an interagency website
managed by the FTC to help computer users guard against Internet
fraud, secure their computers, and protect
their personal information – added new
modules on social networking and online
investment scams. Since its launch in late
2005, OnGuardOnline has attracted more
than 3.5 million visits. Many of the most popular social networking
websites link to OnGuardOnline’s module on social networking, making
it the most viewed page on OnGuardOnline.



FTC Encourages Bilingual Consumer Literacy. In January 2007, the
FTC released “Read Up! How to be an Informed Consumer” (“(Entérate! Cómo ser
41

Federal Trade Commission

Up !

Rea

d

un consumidor informado”) – a new bilingual compendium of information
for Spanish-speakers and Hispanic organizations on consumer rights,
managing finances, making major purchases, avoiding scams and
rip‑offs, and being safe and secure online – and related materials to help
organizations incorporate consumer information into their outreach
programs.

How to be an

Informed
Consumer



Business Education Program. Educating business executives and
their attorneys about advertising and marketing is an FTC priority.
The FTC continues to spread the word about business compliance at
legal education events, trade shows, industry conferences, and Better
Business Bureau meetings across the nation.



Business Guide for Data Security. The FTC also provides guidance
to businesses to assist them in protecting consumers’ information. For
example, the Commission published “Protecting Personal Information: A
Guide for Business,” a how-to handbook on data security.



Teaser Site on Health Claims. In October 2006, the FTC posted a
“teaser” website for Glucobate, a purported all-natural diabetes remedy
at www.wemarket4u.net/glucobate. When consumers click for more
information, they are taken to the FTC’s “Be Smart. Be Skeptical” website
with tips on evaluating online health claims. Numerous blogs, bulletin
boards, and newsgroups have used the Glucobate story to warn about
deceptive product claims. This site follows the success of another teaser
site, FatFoe, that purported to sell a product that guaranteed weight loss
with no diet or exercise.

Federal Trade Commission
www.ftc.gov

Protecting

PERSONAL INFORMATION

A Guide for Business

FEDERAL TRADE COMMISSION

glucobate

42

The FTC in 2007: A Champion for consumers and competition
“Through the
OIA, the FTC will
continue to build
a strong network
of cooperative
relationships
with foreign
competition and
consumer protection
agencies....”

Fostering
International
Cooperation
The FTC continues to
promote sound policy with
nations that are at the
early stages of developing
market-based competition
and consumer protection laws. Last April, for
example, Chairman Majoras became the first FTC
Chairman to visit China.
She met with government officials and National
People’s Congress representatives responsible for
developing the first comprehensive competition
law in China, as well as
with agencies in charge of
enforcing China’s consumer protection laws.
Last month, she also
led an FTC delegation to
Hungary and Romania,
both of which are longterm beneficiaries of the
FTC’s technical assistance
program and which have
recently joined the European Union.
Her work to strengthen
these relationships helps
to foster greater cooperation in the FTC’s competition and consumer protection missions.

Section Three: International
Activities
“Competition and consumer protection are complements, and both
have gone global.” With these words, Chairman Majoras launched the FTC’s
new Office of International Affairs (OIA) in January 2007 to coordinate more
effectively the full range of the FTC’s international activities. The OIA brings
together formerly separate international antitrust, consumer protection, and
technical assistance programs under one office whose Director, Randolph W.
Tritell, reports to the Chairman. The OIA will bring increased prominence to
the FTC’s international work, and will enhance the FTC’s ability to coordinate its
enforcement efforts effectively to promote convergence toward best practices
with our counterpart agencies around the world.
Through the OIA, the FTC will continue to build a strong network of
cooperative relationships with foreign competition and consumer protection
agencies, and to play a lead role in key multilateral fora. One of the OIA’s first
priorities will be to take advantage of new opportunities provided by the U.S.
SAFE WEB Act to more effectively address cross-border fraud by providing the
Commission new tools to overcome barriers to cross-border cooperation in
consumer protection investigations and cases. The OIA will also continue the
Commission’s work assisting nations that are moving toward market-based
economies to develop and implement sound polices that support competition
and protect consumers.

Chapter 7. Competition
A. 	 romoting Cooperation and Convergence Through
P
Bilateral Relationships
Cooperation with antitrust agencies abroad is a key component of the
FTC’s competition enforcement agenda, resulting in closer collaboration on
cross-border actions and convergence toward internationally consistent
consumer welfare-based competition policies. The FTC routinely coordinates
with colleagues in foreign antitrust agencies on the analysis and resolution of
43

Federal Trade Commission
cases of mutual concern. This results in more efficient and effective review of
multijurisdictional mergers and suspected anticompetitive conduct. Recent
examples of international coordination in merger enforcement include:


Boston Scientific/Guidant. Boston Scientific’s proposed $27 billion bid
to take over Guidant raised concerns in several medical device markets,
particularly stents and other devices used to treat vascular diseases.
The FTC coordinated its review with the European Commission (EC), the
Canadian Competition Bureau, and the Japan Fair Trade Commission.
The FTC’s review resulted in a consent order requiring the divestiture
of Guidant’s vascular business to an FTC-approved buyer. Canada closed
its investigation because remedies obtained by the FTC and the EC
adequately resolved competition concerns in Canada.



Linde/BOC Group. Linde’s proposed $14.4 billion acquisition of the
BOC Group raised competitive concerns in numerous local markets for
atmospheric gases, and in the world market for bulk refined helium in
which a combined Linde/BOC would have become the largest supplier.
FTC staff worked with EC and Australian competition agency staff to
address these concerns and cooperated on the remedial phase of the
case to maintain competition in the worldwide helium market.

Through the OIA, the FTC continues to foster its bilateral ties through
consultations in Washington, D.C. and in foreign capitals, as well as through
continued formal and informal case coordination. The OIA maintains regular
contacts with the competition agencies of our major trading partners such
as Canada, Mexico, the European Union (EU) and its principal member-states,
Japan, Korea, and Australia. Cooperation with other important jurisdictions
such as Brazil, the Russian Federation, and countries in Central and Eastern
Europe continues to grow as well.
The FTC also continues to work closely with the two most populous
countries in the world, China and India, as they seek to develop and implement
effective competition laws. The Chairman and senior staff visited China in the
past year and, with the DOJ Antitrust Division, have been providing valuable
input to Chinese authorities as they draft their anti-monopoly law.
The FTC also builds on its strong bilateral relationships to promote policy
convergence through formal and informal working arrangements with other
agencies, many of which seek the FTC’s views on new policy initiatives. For
example, during the past year, the FTC consulted with the EC regarding the EC’s
review of its policies on abuse of dominance and on remedies policies, with the
Canadian Competition Bureau on merger remedies and health care, and with
the Japanese Fair Trade Commission on abuse of dominance and revisions
to its merger guidelines. The Commission also is consulting with the EC on
its new draft guidelines for the review of non-horizontal mergers. The FTC
will continue to seek opportunities to share its experience with competition
agencies around the world.
44

The FTC in 2007: A Champion for consumers and competition

Commissioner Kovacic
Realizing the Benefits of Comparative Study
Commissioner William E. Kovacic has focused extensively on how U.S.
and foreign competition and consumer protection agencies can benefit by
studying the experience of other jurisdictions. He has emphasized that
modern international experience provides valuable opportunities for any single
jurisdiction to improve its own operations by emulating superior techniques from others.
Commissioner Kovacic has identified two elements of effective comparative study. The
first is an accurate understanding of the jurisdiction whose experience is to be studied.
To foster understanding of the U.S. experience, Commissioner Kovacic has written
extensively and delivered many presentations in the United States and abroad about the
evolution of modern U.S. competition and consumer protection enforcement norms and on
the intellectual foundations of modern U.S. policy.
The second element is a process to identify superior practices. Multilateral bodies
such as the International Competition Network (ICN) and the Organization for Economic
Cooperation and Development (OECD) are useful means to this end. In discussions with
foreign officials at meetings of the ICN and OECD, Commissioner Kovacic has explained
how the FTC since the late 1970s has used the evaluation of past litigation and nonlitigation programs to guide decisions about future policies. These presentations have
helped encourage the world’s competition and consumer protection authorities to conduct
assessments of completed projects, institutional arrangements, and operational procedures.
Among other results, the efforts of Commissioner Kovacic and FTC officials played a
major part in leading the OECD Competition Committee to convene a session on ex post
evaluation in 2005 and to conduct a planned follow-up session later in 2007.

B.	Promoting Convergence Through Multilateral
Competition Fora
Multilateral competition fora provide significant opportunities
for antitrust agencies to promote mutual understanding and further
international cooperation. The FTC participates actively in several such fora,
including the International Competition Network (ICN), the Organization
for Economic Cooperation and Development (OECD), the United Nations
Conference on Trade and Development (UNCTAD), and the Asia-Pacific Economic
Cooperation (APEC).
ICN. The ICN, which includes 100 competition agency
members from 88 jurisdictions, is an important forum
for international competition officials to work towards
procedural and substantive convergence, including
promoting best practices in antitrust enforcement and policy. The FTC plays
a leadership role in the ICN’s major projects. For example, the FTC co-chairs
the ICN’s Unilateral Conduct working group, which is producing a report on
the objectives of unilateral conduct rules and the definition and assessment
of dominance and market power. The Commission chairs the ICN subgroup
on Merger Notification and Procedures and is preparing a report on defining
45

Federal Trade Commission

Staff Profile
Pablo Zylberglait
Office of
International Affairs
Pablo has networked with our law
enforcement partners
all over the world. He
negotiated memoranda
of understanding with
consumer protection
agencies in Ireland
(2003), Mexico (2005),
and Costa Rica (2006),
and worked with the U.S.
Trade Representative
on consumer protection
provisions for several
free trade agreements,
most notably Chile
(2003) and Singapore
(2003).
Pablo also
coordinates the
Commission’s technical
cooperation efforts in
consumer protection
and serves as the FTC’s
principal staff delegate
to the ICPEN and the
Iberoamerican Forum
of Consumer Protection
Agencies.

the scope of transactions subject to merger review. The FTC also plays a key
role in the ICN’s working group on Competition Policy Implementation, which
assists new competition agencies to strengthen their institutional capacity and
performance. Finally, the Commission serves on the ICN’s Steering Group and
will continue to play an active part in this organization, including at the ICN’s
seventh annual conference in Moscow in May.
OECD. The OECD Competition Committee is
an important venue for antitrust officials from
developed countries to share their experiences and
promote best practices. The Committee recently held sessions on competition
and energy security, competition and innovation, analysis of bidding markets
in merger investigations, assessment of vertical mergers, and enhancing
competition in real estate transactions. Upcoming topics include competition
in legal services, guidance to the business community on the assessment of
dominance, efficiencies in merger investigations, competition issues in public
procurement, and the evaluation of actions and resources by competition
agencies.
The OECD is planning to hold a Global Forum on Competition, with
representatives from more than 20 agencies in non-member developing
countries. The FTC is also helping to design a major session on the relationship
between competition and consumer protection, and will also participate in
other regional OECD programs targeted to non-members such as the Latin
America Competition Forum.
UNCTAD. The FTC participates in UNCTAD’s
Intergovernmental Group of Competition Experts
and selected regional competition programs.
During the past year, the FTC participated in UNCTAD’s programs on the relation
between competition agencies and regulatory authorities, and on competition
provisions in regional trade agreements. The Commission will continue to be
involved in UNCTAD’s upcoming work including programs on ex post evaluations
of competition initiatives.
Free trade agreements. U.S. free trade agreements often include a
chapter on competition issues. The FTC participates in U.S. delegations that
negotiate competition chapters of free trade agreements, which in the past
year included Korea, Thailand, and Malaysia.

Chapter 8. Consumer Protection
Rapid increases in technology and globalization have accelerated the pace
of new consumer protection challenges, such as spam, spyware, telemarketing
fraud, data security, and privacy that cross national borders and raise both
enforcement and policy issues. The Internet and modern communications
devices, such as Voice over Internet Protocol (VoIP), have provided tremendous
benefits to consumers but have also aided telemarketing fraud and raised
46

The FTC in 2007: A Champion for consumers and competition
fresh privacy concerns. To address these issues, the FTC has a comprehensive
international consumer protection program that focuses on providing
consumers in the global marketplace with sound and effective protections that
maximize economic benefit and consumer choice.
A.	The U.S. SAFE WEB Act
In the coming year, the FTC will implement the U.S. SAFE WEB Act of 2006,
which was signed into law in December 2006, and which provides the FTC with
updated tools for the 21st century. It allows the FTC to cooperate more fully with
foreign law enforcement authorities in the area of cross-border fraud and other
practices harmful to consumers that are increasingly global in nature, such as
fraudulent spam, spyware, misleading health and safety advertising, privacy
and security breaches, and telemarketing fraud.
Specifically, the U.S. SAFE WEB Act enhances FTC
authority in four areas that are essential to crossborder enforcement cooperation. First, the Act
authorizes the FTC to share confidential information,
such as documents and testimony, with appropriate
limitations and assurances of confidentiality, with
its foreign law enforcement counterparts. This will
help the Commission’s law enforcement efforts and
Chairman Majoras
U.S. consumers. Second, it permits the FTC to use its
Statement on Passage of U.S. SAFE WEB Act
investigative power on behalf of foreign law enforcement
(Dec. 11, 2006)
agencies if it determines that the cooperation is
consistent with the U.S. public interest. Third, the Act
permits the FTC to protect the confidentiality of information it receives
from foreign agencies. Finally, the Act contains several provisions that will
strengthen the FTC’s bilateral and multilateral enforcement relationships, such
as permitting the FTC to enter into international cooperation agreements and
staff exchanges with foreign counterparts. The U.S. SAFE WEB Act also confirms
the FTC’s authority to take action in cross-border cases and obtain remedies,
including restitution for injured U.S. and foreign consumers.
“Congress has taken an important step
in the fight to combat cross-border fraud
by passing the U.S. SAFE WEB Act. Just
as today’s marketplace has gone global,
so have scams and deception. Scammers
cannot hide behind foreign borders to
escape FTC law enforcers.”

B.	International Law Enforcement Cooperation
Increased globalization also requires the FTC to cooperate in international
policy and law enforcement efforts to develop flexible market-oriented
standards to address long standing, as well as emerging, consumer protection
issues. To achieve these goals, the FTC works directly with its consumer
protection and other law enforcement partners in international organizations
and foreign agencies. For example, the FTC continues to participate actively
in the International Consumer Protection Enforcement Network (ICPEN) and
supported the ICPEN’s operations this year by hosting the Secretariat. The FTC
will also continue to work within the OECD and the Organization of American
States on consumer protection matters, for example, by developing dispute
resolution and redress guidelines and model laws. FTC staff also met directly
47

Federal Trade Commission
with hundreds of foreign officials in Washington, D.C. on consumer protection
issues, and reciprocated by meeting with their foreign counterparts in official
visits to over 20 countries in the past year.
Privacy and Information Security Issues. The FTC has in particular
undertaken recent steps to strengthen international cooperation on privacy
and information security issues, including work within both APEC and the
OECD to coordinate the enforcement of privacy laws. In 2006, for example, the
FTC and its foreign partners called for increased cross-border law enforcement
and public/private sector cooperation to combat spam. The OECD provided
recommendations in this area in April 2006 when it issued the OECD Toolkit
to Combat Spam, a comprehensive report that focuses on legislation,
enforcement, education, technology, and public-private partnerships to fight
spam. The FTC also co-chairs the London Action Plan (LAP) on international
spam enforcement cooperation. The LAP’s December 2006 meeting, held jointly
with the European Union’s Contact Network of Spam Authorities, focused on
online threats beyond spam, including spyware and malware.
Canada. The FTC also continues to build its special relationship with
its Canadian counterparts by expanding its partnerships with Canadian
regional entities to fight cross-border fraud, including mass marketing fraud
by Canadians targeting U.S. and Canadian consumers. The FTC participates
in several regional partnerships with Canadian enforcers in Ontario, British
Columbia, Quebec, Alberta, and the Atlantic Provinces. In February 2007, for
example, working in cooperation with the local and provincial police in Ontario,
the FTC obtained a court order that shut down a Canadian telemarketer that
targeted consumers throughout the U.S., falsely claiming it could reduce their
credit card interest rates.
Cross-Border Cases. In 2006, the FTC’s Bureau
of Consumer Protection, with assistance from its
international consumer protection personnel, filed
eight new cases with a significant international
aspect in federal court and continued to litigate
and investigate dozens of other matters involving
foreign parties, witnesses, and evidence. The FTC
contacted and received assistance from agencies
in approximately 15 countries in these cases and
investigations.

“I received the following pages, unsolicited,
from British Columbia regarding a mega-million
lottery. I did not call or contact them in any way
prior to, or after, receiving their communication
that I am a ‘winner.’ I do hope this information is
helpful in protecting others against this fraud.”
Washington Consumer
February 2007

Chapter 9. International Technical Assistance
The FTC, through the OIA, is also renewing its commitment to assist
developing nations as they move toward market-based economies by assisting
with development and implementation of competition and consumer
protection laws and policies. Last year was another busy period for the
FTC’s international technical assistance program, which provides training
and other education. Since its inception in the early 1990s, the program has
48

The FTC in 2007: A Champion for consumers and competition
conducted hundreds of training missions in developing nations, employing
the Commission’s legal and economic expertise. In a typical training mission,
a lawyer and economist team conducts a three or four day interactive
case simulation with staffs from the newly created enforcement agencies
that involve substantive and procedural issues likely to be encountered in
a real investigation. These activities, funded mostly by the U.S. Agency for
International Development (USAID), are an important part of the FTC’s efforts
to promote sound competition and consumer protection policies around the
world. The FTC works in close cooperation with the DOJ Antitrust Division in
conducting its antitrust activities in this program. During the coming year, the
FTC will work with USAID and other funding agencies to find opportunities to
expand the program, particularly in the consumer protection area.
In 2006, the FTC sent 34 different staff experts on 30 technical assistance
missions to 17 countries. The FTC was most active this year in the ten-nation
ASEAN community, India, Russia, Azerbaijan, South Africa, Central America, and
Egypt. The Commission also conducted missions in Jordan and Ethiopia, and
concluded a highly successful program in Mexico. As part of its ASEAN program,
the FTC continues to maintain a resident advisor in Jakarta, Indonesia, who
works with the ASEAN Office of the Secretary General, as well as with the
competition and consumer protection authorities in Indonesia and Vietnam.

49

Federal Trade Commission
“The agency
will continue to
provide guidance to
consumers in how
to avoid the latest
scams and frauds,
and to businesses
in how to comply
with their legal
obligations.”

Looking Ahead
The FTC’s accomplishments in the past year presage the challenges and
opportunities we will face in the next 12 months as we renew our commitment
to champion for consumers and competition. With merger activity on the
rise, we will review hundreds of mergers, increasingly in dynamic industries
characterized by significant intellectual property interests. We will continue
to focus our nonmerger antitrust scrutiny on areas that have a tremendous
impact on consumers’ lives – health care and pharmaceuticals, energy,
technology, and real estate – with special attention directed at the interface
between antitrust and intellectual property. We will root out and prosecute
fraudulent business schemes in broad sectors of the economy, seeking
restitution for consumers where appropriate, and use the new tools that the
U.S. SAFE WEB Act provides for combatting cross-border fraud.
And we will continue our pursuit of a “culture of security” through
“Our ultimate goal is to identify
future challenges and opportunities
our work to protect consumers’ privacy and data security and
in fulfilling our core mission of
eradicate identity theft.
protecting consumers. At the FTC,
we recognize that being prepared
for the future is critical if we are
to foster confidence in consumers
that they will benefit from new
technologies, while being protected
from undue risks that they create.”

As always, the FTC’s enforcement efforts will be buttressed and
informed by its many policy tools, including hearings, workshops,
and studies to learn about the newest developments, emerging
technologies, and concerns in the marketplace. For example, on
the competition side, the Commission intends to conduct a study
on authorized generic drugs and issue reports on broadband
connectivity and the relationship between intellectual property
Chairman Majoras
Remarks at Public Hearings on Protecting
and competition law and policy; while its consumer protection
Consumers in the Next Tech-ade
mission will be informed by workshops on spam and current debt
(Nov. 6, 2006)
collection practices, as well as by the Tech-ade town hall meetings.
The agency will continue to provide guidance to consumers in how
to avoid the latest scams and frauds, and to businesses in how to comply with
their legal obligations. It will also draw on resources from its newly-created
Office of International Affairs to most effectively coordinate with its foreign
partners to combat international threats, and will continue to work with other
domestic law enforcement agencies in its fight against consumer fraud. We are
honored to work on behalf of American consumers and will strive continuously
to protect the free market from those that would distort or cheat it.
50

The FTC in 2007: A Champion for consumers and competition

Left to right: Michael Salinger, Nancy Ness Judy, Donald S. Clark, Jeanne Bumpus, Charles Schneider, Lydia Parnes,
Jeffrey Schmidt, Brian Huseman, Maureen K. Ohlhausen, Randolph W. Tritell, William Blumenthal.

Senior Staff of the FTC
Chief of Staff			

		

Brian Huseman

Executive Director					
	
Deputy Executive Directors			
							

Charles Schneider
Christina Perez
Sonna L. Stampone

Director, Bureau of Competition			
	
Deputy Directors				
							

Jeffrey Schmidt
Kenneth L. Glazer
David P. Wales

Director, Bureau of Consumer Protection		
	
Deputy Directors				
							

Lydia B. Parnes
Eileen Harrington
Mary Beth Richards

Director, Bureau of Economics			
	
Deputy Directors				
							

Michael Salinger
Mark Frankena
Paul A. Pautler

	

General Counsel					
Principal Deputy General Counsel		

Director, Office of International Affairs		
	
Deputy Directors				
							
							

William Blumenthal
John D. Graubert
Randolph W. Tritell
Hugh G. Stevenson
Elizabeth Kraus
James C. Hamill

Director, Office of Congressional Relations	
Director, Office of Public Affairs			
	

Jeanne Bumpus
Nancy Ness Judy

Director, Office of Policy Planning			
Deputy Director				

Maureen K. Ohlhausen
James C. Cooper

Secretary of the Commission			

Donald S. Clark

Chief Administrative Law Judge			

Stephen J. McGuire

Inspector General					

Howard L. Sribnick

51

Federal Trade Commission

FTC Annual Awards - October 2006
Chairman’s Award
Carolyn Shanoff
Louis D. Brandeis Award
Joseph Brownman
Janet D. Steiger Outstanding Team Award
E-Premerger Deployment Team
Identity Theft Team
Schering-Plough Team
Spyware Team
Richard C. Foster Award
Darlene Cossette
Joyce Moore
Louise Woodson
James M. Mead Award
Dawne Holz
Patricia Thompson
Howard Shapiro
Paul Rand Dixon Award
David Balan
Christopher Couillou
Christopher Garmon
Geoffrey Green
David Narrow
Alain Sheer
Kim Vandecar
Mary Gardiner Jones Award
Pamela Timus
Award for Excellence in Supervision
Sherron Greulich
Deborah Kelly
Carrie Klein
Daniel Salsburg
Thomas Syta

52

The FTC in 2007: A Champion for consumers and competition

Otis B. Johnson Award
Claudia Bourne Farrell
Allyson Himelfarb
Alan Krause
Stefano Sciolli
Excellence in Economics Award
Keith Anderson
Outstanding Scholarship Award
Christopher Taylor
Stephen Nye Award
Rozina Bhimani
Malini Mithal
Mary Elizabeth O’Neill
Leon Higgenbotham, Jr. Award
Jill Coleman
Robert Sussman
Eleanor F. Greasley Award
Emily Anderson
Tammy John
Lula Little

53

Federal Trade Commission

Principal Contributors to Report
Michael D. Bergman 			

Project Coordinator

Jeanine Balbach and Stefano Sciolli 	

Bureau of Competition

Michael F. Ostheimer 			

Bureau of Consumer Protection

Russell W. Damtoft 			

Office of International Affairs

Dawne Holz 				

Graphics and Design

Contributing staff members also include Marian Bruno, William E. Cohen,
John F. Daly, Rachel Miller Dawson, Timothy A. Deyak, Stacy Feuer,
John D. Graubert, Marc Groman, Nathan Hawthorne, Brian Huseman,
Daniel Kaufman, Carrie Klein, Elizabeth Kraus, Michael Lezaja, Gregory P. Luib,
Sara Razi, John H. Seesel, Kelly Signs, Yael Weinman, Beth Arvan Wiggins, and
Brad Winter. Covers designed by Tawanda Shannon.

54

“The record of accomplishments in the interest of fair
competition ... warrant that this body shall have a habitation
adequate to its needs and in keeping with the importance of the
tasks which it has accomplished and will continue to perform in
the protection of American trade.”
Franklin D. Roosevelt
Address at the Cornerstone Laying Ceremonies for the New Federal
Trade Commission Building, July 12, 1937