[Senate Hearing 110-1070]
[From the U.S. Government Printing Office]

                                                       S. Hrg. 110-1070
                           OVERSIGHT OF THE 
                       FFEDERAL TRADE COMMISSION



                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION


                             APRIL 10, 2007


    Printed for the use of the Committee on Commerce, Science, and 

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                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                   DANIEL K. INOUYE, Hawaii, Chairman
JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska, Vice Chairman
    Virginia                         JOHN McCAIN, Arizona
JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida                 GORDON H. SMITH, Oregon
MARIA CANTWELL, Washington           JOHN ENSIGN, Nevada
FRANK R. LAUTENBERG, New Jersey      JOHN E. SUNUNU, New Hampshire
MARK PRYOR, Arkansas                 JIM DeMINT, South Carolina
THOMAS R. CARPER, Delaware           DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri           JOHN THUNE, South Dakota
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Lila Harper Helms, Democratic Deputy Staff Director and Policy Director
   Christine D. Kurth, Republican Staff Director and General Counsel
Kenneth R. Nahigian, Republican Deputy Staff Director and Chief Counsel
                            C O N T E N T S

Hearing held on April 10, 2007...................................     1
Statement of Senator Dorgan......................................    35
Statement of Senator Klobuchar...................................    30
Statement of Senator Pryor.......................................     1
Statement of Senator Stevens.....................................     2


Harbour, Hon. Pamela Jones, Commissioner, FTC....................    21
Kovacic, Hon. William E., Commissioner, FTC......................    25
Leibowitz, Hon. Jonathan D., Commissioner, FTC...................    23
Majoras, Hon. Deborah Platt, Chairman, Federal Trade Commission..     3
    Prepared statement...........................................     5
Rosch, Hon. J. Thomas, Commissioner, FTC.........................    26


Editorial, dated June 8, 2006, from The New York Times, entitled 
  ``When Drug Firms Pay Off Competitors''........................    47
Response to written questions submitted by Hon. Maria Cantwell to 
  Hon. Deborah Platt Majoras.....................................    58
Response to written questions submitted by Hon. Daniel K. Inouye 
  and Hon. Mark Pryor to all FTC Commissioners...................    47
Response to written questions submitted by Hon. Frank R. 
  Lautenberg to all FTC Commissioners............................    55
Response to written questions submitted by Hon. Claire McCaskill 
  to all FTC Commissioners.......................................    56

                           OVERSIGHT OF THE 
                        FEDERAL TRADE COMMISSION


                        TUESDAY, APRIL 10, 2007

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 11:03 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Mark Pryor, 

                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Let's go ahead and get started here. Senator 
Inouye has asked me to pinch hit for him today, and I'm honored 
to do so. We're going to have a number of Senators coming and 
going throughout the hearing.
    And I want to thank the Federal Trade Commissioners for 
being before the Committee today. It's a rare opportunity to 
have all five here. I believe the last time all five 
commissioners were here was in June of 2005, for a hearing on 
identity theft, and I'd like to welcome the Chairman and all 
the commissioners, and thank them both for their time in 
delivering their statements and for the performance of the 
mission there at the FTC. We appreciate it here in the Senate 
because we know how important the mission of the FTC is.
    I'd also like to take a moment to express the Committee's 
sorrow to the families of Martha Stringer Schoenborn and Sally 
Dean McGhee. Their service and loyalty to the Commission were 
unparalleled, and their presence is sorely missed.
    Established in 1914 under the Federal Trade Commission Act, 
the Commission's mandate has two distinct components: first, to 
protect consumers from unfair or deceptive acts or practices in 
or affecting commerce; and, second, to protect consumers from 
unfair methods of competition. As part of this authority, the 
agency enforces some 46 statutes. While the overall mission has 
not changed over the past 93 years, the technology and services 
that Americans now experience challenge the Commission to keep 
pace. While the competition mission looks similar to what 
Americans faced during the Wilson Administration, the consumer 
protection mission does not. The concept of telemarketing in 
1914 was probably fuzzy, at best; but now we have a Do Not Call 
list that gives consumers the choice not to be bothered in 
their homes or on their cell phones. No one in 1914 could 
conceive of the notion that a fraudster could step into their 
identity with the press of a few keystrokes and potentially 
ruin their life.
    But, with all these differences, some problems are very 
similar and continue to persist. In 1914, the price of gasoline 
was about 15 cents per gallon, with concerns that the oil and 
retail gasoline industry had so much power, it could escalate 
prices over what they should be in a competitive environment. 
Today, the nationwide price of regular gasoline is about $2.70 
per gallon, with concerns that the oil and retail gasoline 
industry has so much power that it could escalate prices over 
what it should in a competitive environment. As you all know, 
I'm particularly interested in these topics.
    I think most Americans would call the Do Not Call Registry 
a rousing success, but there are issues in regards to the fee 
structure and the continued viability of the Registry that need 
to be addressed. Americans continue to be victimized by large-
scale breaches, such as the T.J. Maxx breach, and Americans are 
anxious for robust protections from identity theft, including 
the ability to freeze their credit if they so choose.
    After Hurricane Katrina, Americans got a refresher course 
in the power of oil and retail gasoline producers, after seeing 
$6 gas prices in some areas immediately following the storm. 
The Commission has had success in protecting the American 
consumer in several areas, but there is more work to do. I hope 
that the Committee and the Senate can enact legislation to 
protect consumers' identity, ensure the continued viability of 
the Do Not Call Registry, and ensure competition and 
transparency in the oil and gas industry.
    I look forward to today's testimony, and I look forward to 
working with the Commission as this Committee works toward 
legislation to improve the Commission's ability to protect 
consumers from deceptive practices and abusive methods of 
    Senator Stevens?

                    U.S. SENATOR FROM ALASKA

    Senator Stevens. Thank you, Mr. Chairman.
    I join you in thanking the witnesses for being here today, 
and join you also in expressing our condolences to the FTC and 
its family for their loss. And I know it has been a difficult 
time for all the members of the Commission and its staff.
    Your Commission has two important missions: protecting 
consumers from unfair and deceptive practices and protecting 
consumers from unfair methods of competition. We should assist 
the Commission to fulfill these missions by reporting out a 
clean bill to authorize the Commission for the first time since 
1998. I think it should be one of our goals.
    In addition, the Committee must ensure that the FTC has the 
regulatory authority it needs to go after and prosecute bad 
actors on the current scene, particularly when crimes involve 
new and emerging technologies. The illicit use of spam and 
spyware to perpetuate identity theft is one of the instances 
where increased regulatory authority could assist the 
Commission in doing its job.
    But I do thank you all, and we look forward to hearing your 
statements today.
    And I thank you very much for having this oversight 
    Senator Pryor. Thank you, Senator Stevens.
    What we'll do today is, we will allow each of the 
Commissioners to do a 5-minute opening statement. We'll take 
Chairwoman Majoras first, and then we'll go down through a 
list. So, I'll just recognize you as we go.
    Madam Chair, would you like to start?

                        TRADE COMMISSION

    Ms. Majoras. Thank you very much, Chairman Pryor, Vice 
Chairman Stevens, members of the Committee. My fellow 
commissioners and I are pleased to appear before you today. I 
will provide an overview of the FTC's work to protect consumers 
and competition, while my colleagues each will provide some 
detail on a particular area of focus.
    The FTC is pursuing a vigorous and effective law 
enforcement program in a dynamic marketplace that is 
increasingly global and characterized by changing technologies. 
We challenge business practices that are anticompetitive, 
deceptive, and unfair, and we promote informed consumer choice 
and understanding of the competitive process. To meet the 
challenges of a growing workload in Fiscal Year 2008, the FTC 
requests $240,239,000 and 1,084 FTEs.
    During the past 3 fiscal years, our consumer protection 
work has produced more than 235 court orders, requiring 
defendants to pay more than $1.3 billion in consumer redress; 
more than 52 court judgments for civil penalties, totaling over 
$40 million; and 187 new Federal court complaints aimed at 
stopping unfair and deceptive conduct. At the same time, we 
have developed roughly 200 new consumer and business education 
campaigns, completed 58 statutorily-mandated rulemakings and 
reports, hosted 48 public conferences and workshops, and issued 
33 reports on issues of significance to our consumers. We must 
continue with our active and aggressive agenda if we are to 
fulfill our responsibility to consumers.
    Protecting the privacy of American consumers has become, 
and remains, a top priority in the information age. Deterring 
identity theft begins with data security, and the FTC has 
brought 14 enforcement actions against companies for their 
failure to provide reasonable security. Recently, we launched a 
nationwide identity theft consumer education campaign, ``Deter, 
Detect, Defend,'' and we released a new business education 
guide on data security. We also protect privacy through 
implementation of the highly successful Do Not Call Registry, 
which now contains 142 million telephone numbers. And 
enforcement actions against telephone pretexters and those who 
violate the Children's Online Privacy Protection Act. And we 
are aggressively pursuing purveyors of spyware and spam.
    To protect consumers in the financial services marketplace, 
this year we're focusing enforcement efforts on the marketing 
of alternative mortgage products, illegal methods used in debt 
collection, and deception in the credit area. Other areas of 
attack in our fraud program include business opportunity and 
work-at-home scams, telemarketing fraud, and bogus health and 
weight-loss claims. And, among these, phony healthcare products 
rank high on our agenda, as they can seriously harm consumers 
who forego otherwise legitimate and effective treatment 
options. And we've brought forward more than a dozen of these 
cases in just the past year.
    We've also been a driving force in the recent renewal of 
self-regulation in the area of childhood obesity, and we 
continue our work in monitoring self-regulation among marketers 
of alcohol and also of videogame, music, and movies with 
violent content. Thanks to Congress, which worked with us to 
pass the U.S. SAFE WEB Act of 2006, we now have better tools to 
battle cross-border fraud.
    We focused our competition efforts on areas that have the 
most significant impact on consumers, healthcare, energy, high-
tech, and real estate. In Fiscal Year 2006, we identified 16 
mergers that raised concerns for competition, requiring relief 
in nine, whilst the other seven were abandoned or withdrawn or 
restructured. And so far in this fiscal year we've issued 18 
second requests in mergers, 11 merger cases already have 
resulted in enforcement action or withdrawal, and we've brought 
seven nonmerger cases.
    In healthcare, during the past year we achieved substantial 
relief before allowing mergers in areas such as generic drugs, 
over-the-counter meds, injectable analgesics and other medical 
devices and diagnostic services. The Commission has been 
aggressive in challenging price-fixing agreements among 
competing physicians and agreements between drug companies that 
delay generic entry. And we continue to stand up against 
exclusion payment settlements by working with Congress on 
bipartisan efforts to advance a workable legislative remedy.
    So far in 2007, the Commission has challenged two mergers 
in the energy industry. Equitable Resources, Inc. proposed 
acquisition of The People's Natural Gas Company, and the 
proposed $22-billion deal whereby energy firm Kinder Morgan 
would be taken private by its management and by a group of 
investment firms.
    During the past year, the agency has brought eight 
enforcement actions against associations of 
Realtors' for brokers who adopted rules, but 
allegedly withheld the benefits of the multiple listing 
services they control from consumers simply because those 
consumers chose to enter into nontraditional listing contracts 
with brokers.
    And in the technology arena, the Commission issued a final 
opinion and order in the nonmerger proceeding against 
technology developer Rambus, determining that Rambus unlawfully 
monopolized the markets for four computer memory technologies.
    Mr. Chairman, members of the Committee, you have my 
commitment that we will continue to work tirelessly on the 
behalf of the consumers of the United States. We appreciate 
your support. We appreciate your condolences this morning. And 
we look forward to continuing our work together to further the 
interests of American consumers.
    Thank you.
    [The prepared statement of Ms. Majoras follows:]

      Prepared Statement of Hon. Deborah Platt Majoras, Chairman, 
                        Federal Trade Commission
I. Introduction
    Chairman Inouye, Vice Chairman Stevens, and members of the 
Committee, I am Deborah Platt Majoras, Chairman of the Federal Trade 
Commission (``Commission'' or ``FTC''). My fellow Commissioners and I 
are pleased to come before you today to testify about the FTC's Fiscal 
Year 2008 budget and to discuss our work to protect consumers and 
promote competition.\1\ We look forward to continuing to work together 
to further the interests of American consumers.
    \1\ The written statement represents the views of the Federal Trade 
Commission. My oral presentation and responses to questions are my own 
and do not necessarily reflect the views of the Commission or any other 
    The FTC is the only Federal agency with both consumer protection 
and competition jurisdiction in broad sectors of the economy.\2\ The 
agency enforces laws that prohibit business practices that are harmful 
to consumers because they are anticompetitive, deceptive, or unfair, 
and it promotes informed consumer choice and understanding of the 
competitive process.
    \2\ The FTC has broad law enforcement responsibilities under the 
Federal Trade Commission Act, 15 U.S.C.  41 et seq. With certain 
exceptions, the statute provides the agency with jurisdiction over 
nearly every economic sector. Certain entities, such as depository 
institutions and common carriers, as well as the business of insurance, 
are wholly or partly exempt from FTC jurisdiction. In addition to the 
FTC Act, the agency has enforcement responsibilities under more than 50 
other statutes and more than 30 rules governing specific industries and 
    The FTC has pursued a vigorous and effective law enforcement 
program in a dynamic marketplace that is increasingly global and 
characterized by changing technologies. Through the efforts of a 
dedicated, professional staff, the FTC continues to handle a growing 
workload. Our testimony today summarizes some of the major activities 
of the past year and describes some of the planned initiatives for FY 
    To meet the challenges in our Consumer Protection and Maintaining 
Competition efforts in FY 2008, the FTC requests $240,239,000 and 1,084 
    During FY 2008, the FTC will address significant law enforcement 
and policy issues throughout the U.S. economy and abroad, devoting 
major portions of its resources to those areas in which the agency can 
provide the greatest benefits to consumers. This testimony highlights 
program priorities in the FTC's two missions. The focus of the Consumer 
Protection mission will be on broad efforts to fight unfair and 
deceptive conduct involving data security, identity theft, Do Not Call 
enforcement, financial services, advertising, media violence ratings, 
childhood obesity, and new technology-driven threats such as spam and 
spyware. The focus of the Competition mission will be on merger and 
nonmerger enforcement, particularly in the health care, energy, and 
high technology industries. The testimony concludes with a summary of 
the agency's FY 2008 appropriation request.
II. Consumer Protection
    During FY2006, the FTC's Bureau of Consumer Protection achieved 
many successes. It obtained 93 court orders requiring defendants to pay 
more than $309 million in consumer redress; obtained 24 court judgments 
for civil penalties in an amount over $27 million; filed 60 new 
complaints in Federal district court to stop unfair and deceptive 
practices; completed 13 statutorily-mandated rulemakings and other 
statutorily-mandated requirements such as reports; led three law 
enforcement sweeps; hosted 11 conferences and workshops; filed 24 
consumer advocacy comments; issued 11 reports on topics significant to 
consumers; and developed 79 consumer and business education campaigns.
    The FTC continues to build on this successful record. This 
testimony highlights key issues and initiatives for the agency's 
consumer protection mission in FY 2008, as well as the methods the FTC 
will use to address them.
A. Consumer Privacy
    Protecting the privacy of American consumers has long been a top 
priority at the Federal Trade Commission, and it remains a crucial 
consumer protection issue. The following highlights some examples of 
the Commission's recent work on privacy issues.
1. Data Security and Identity Theft
    In 1998, Congress passed the Identity Theft Assumption and 
Deterrence Act (``the Identity Theft Act''), which assigned the FTC a 
unique role in combating identity theft and coordinating government 
efforts.\3\ This role includes taking consumer complaints; implementing 
the Identity Theft Data Clearinghouse, a centralized database of victim 
complaints used by 1,300 law enforcement agencies; assisting victims 
and consumers by providing information and education; and educating 
businesses on sound security practices. The FTC continues to focus on 
combating identity theft primarily through law enforcement, 
participation in the Presidential Identity Theft Task Force, workshops, 
and education to assist the millions of Americans harmed by identity 
    \3\ Pub. L. 105-318, 112 Stat. 3007 (1998) (codified at 18 U.S.C.  
a. Law Enforcement
    While the FTC, a civil enforcement agency, cannot enforce criminal 
identity theft laws, it can take law enforcement action against 
businesses that fail to implement reasonable safeguards to protect 
sensitive consumer information from identity thieves. Over the past few 
years, the FTC has brought 14 enforcement actions against businesses, 
including BJ's Wholesale Club, ChoicePoint, CardSystems Solutions, and 
DSW, for their failure to provide reasonable data security. These 
actions include cases against companies that allegedly threw files 
containing consumer home loan applications into an unsecured dumpster; 
stored sensitive information in multiple files when there was no longer 
a business need to keep the information; failed to implement simple, 
low-cost, and readily available defenses to well-known web-based hacker 
attacks; stored sensitive consumer information in unencrypted files 
that could be easily accessed using commonly known user IDs and 
passwords; and failed to use readily available security measures to 
prevent unauthorized wireless connections to their networks. The 
Commission continues to monitor the marketplace to encourage companies 
to implement and maintain reasonable safeguards to protect sensitive 
consumer information. In appropriate cases, the Commission will bring 
enforcement action.
b. Identity Theft Task Force
    Last year, President Bush established the Identity Theft Task 
Force, which Attorney General Gonzales chairs and I co-chair.\4\ In his 
Executive Order, the President directed the Task Force to submit to him 
a strategic plan for fighting identity theft. The 18 Federal agencies 
that comprise the Task Force have been hard at work developing the 
    \4\ See FTC News Release, FTC Launches Nationwide ID Theft 
Education Campaign (May 10, 2006), available at http://www.ftc.gov/opa/
    On September 19, 2006, the Task Force issued a series of interim 
recommendations These recommendations include: development of 
government-wide guidance addressing whether and how to provide notice 
to individuals in the event of a government agency data breach; the 
development of a universal police report that identity theft victims 
can use to present their case to creditors and credit reporting 
agencies; and an accelerated review of government's use of Social 
Security numbers.\5\ Following issuance of the interim recommendations, 
the Task Force solicited public comments to supplement its research and 
analysis, and to identify areas where additional recommendations may be 
warranted.\6\ The Task Force is in the process of reviewing the 
comments and will release a final strategic plan and recommendations 
this week.
    \5\ President's Identity Theft Task Force, Summary of Interim 
Recommendations (Sept. 2006), available at http://www.ftc.gov/os/2006/
    \6\ President's Identity Theft Task Force Seeks Public Comment 
(Dec. 26, 2006), available at http://www.ftc.gov/speeches/majoras/
c. Education
    Education of consumers and businesses is integral to the 
Commission's consumer protection mission. The FTC continues to educate 
consumers on how to avoid becoming victims of identity theft, and last 
year launched a nationwide identity theft education program.\7\ The 
program has been very popular--the FTC has distributed more than 1.5 
million brochures and 40,000 education kits to address identity theft, 
which can be used by employers, community groups, Members of Congress, 
and others to inform their constituencies.
    \7\ See FTC News Release, FTC Launches Nationwide ID Theft 
Education Campaign (May 10, 2006), available at http://www.ftc.gov/opa/
    The FTC also sponsors an innovative multimedia website, 
OnGuardOnline, designed to educate consumers about basic computer 
security.\8\ The website provides information on specific topics such 
as phishing, spyware, and spam. Since its launch in late 2005, 
OnGuardOnline has attracted more than 3.5 million visits.
    \8\ Available at http://onguardonline.gov/index.html.
    The Commission directs its outreach to businesses as well. Just 
this month, the FTC released a new business education guide on data 
security.\9\ The Commission anticipates that the brochure will prove to 
be a useful tool in alerting businesses to the importance of data 
security issues and give them a solid foundation on how to address 
    \9\ Available at http://www.ftc.gov/bcp/edu/microsites/idtheft/
d. Workshops
    The Commission continually tries to stay abreast of developments in 
privacy, data security, and identity theft. Over the past several 
years, the Commission has hosted numerous workshops and public forums 
to this end.\10\
    \10\ See materials for the conferences Protecting Consumers in the 
Next Tech-Ade (Nov. 6-8, 2006), available at http://www.ftc.gov/
techade; Information Flows, The Costs and Benefits to Consumers and 
Businesses of the Collection and Use of Consumer Information (June 18, 
2003), available at http://www.ftc.gov/bcp/workshops/infoflows/
030618agenda.html; The eInformation Marketplace: Merging and Exchanging 
Consumer Data (Mar. 13, 2001), available at http://www.ftc.gov/bcp/
workshops/infomktplace/index.html; Technologies for Protecting Personal 
Information Workshop 1: The Consumer Experience (May 13, 2003), 
available at http://www.ftc.gov/bcp/workshops/technology/agenda.htm; 
FTC Spyware Workshop (Apr. 19, 2004), available at http://www.ftc.gov/
bcp/workshops/spyware; Radio Frequency Identification: Applications and 
Implications for Consumers (June 21, 2004), available at http://
    This month, the Commission will host a workshop to explore consumer 
authentication as another avenue for combating identity theft. 
Implementing better procedures for verifying that consumers are who 
they say they are when they open new accounts or access existing ones 
can make it more difficult for criminals to use stolen information. We 
hope that the Commission's workshop will help spur the development of 
more effective techniques, like multifactor authentication and 
2. Pretexting
    Another important issue on the Commission's privacy agenda is the 
practice of telephone records pretexting. Phone pretexting is the 
short-hand term used to describe the use of false pretenses to obtain 
sensitive phone records, including lists of calls made and the dates 
and duration of such calls, and then to sell them to third parties 
without the knowledge or consent of the actual account holder.
    In May 2006, before the Hewlett-Packard pretexting story became 
national news, the Commission filed five cases against web-based 
operations that obtained and sold consumers' confidential telephone 
records to third parties.\11\ The FTC's complaints allege that the 
unauthorized sale of phone records is an unfair practice in violation 
of the FTC Act and seek a permanent halt to the sale of the phone 
records. To date, the Commission has resolved two of these and is 
litigating the rest. The settlement orders impose strong remedies 
against the defendants, including a ban on obtaining or selling phone 
records and a prohibition against pretexting to obtain other personal 
information of consumers. Additionally, the defendants must give up the 
profits made from their sales.
    \11\ FTC v. Info. Search, Inc., No. 1:06-CV-01099-AMD (D. Md. filed 
May 1, 2006), available at http://www.ftc.gov/os/caselist/
pretextingsweep/060501informationsearch-cmplt.pdf; FTC v. AccuSearch, 
Inc. d/b/a Abika.com, No. 06-CV-0105 (D. Wyo. filed May 1, 2006), 
available at http://www.ftc.gov/os/caselist/pretextingsweep/
060501accusearchcomplaint.pdf; FTC v. CEO Group, Inc. d/b/a Check Em 
Out, No. 06-60602 (S.D. Fla. filed May 1, 2006), available at http://
www.ftc.gov/os/caselist/pretextingsweep/060501ceogroup-cmplt.pdf; FTC 
v. 77 Investigations, Inc., No. EDCV06-0439 VAP (C.D. Cal. filed May 1, 
2006), available at http://www.ftc.gov/os/caselist/pretextingsweep/
060501-77investigcmplt.pdf; FTC v. Integrity Sec. & Investigation 
Servs., Inc., No. 2:06-CV-241-RGD-JEB (E.D. Va. filed May 1, 2006), 
available at http://www.ftc.gov/os/caselist/pretextingsweep/
060503integritysecurcmplt.pdf. The Commission's efforts against phone 
pretexting are ongoing. In addition to our civil cases, in light of 
recent Congressional passage of the Telephone Records and Privacy 
Protection Act, which criminalizes certain telephone pretexting, the 
Commission is likely to develop investigations that can be referred to 
criminal law enforcement authorities.
    Most recently, in February 2007, the FTC announced a case against 
Action Research Group, an alleged pretexter who deceptively obtained 
and sold consumers' confidential phone records without their knowledge 
or consent.\12\ The agency has asked the court to stop the conduct and 
to order the defendants to give up their ill-gotten gains.
    \12\ FTC v. Action Research Group, No. 6:07-CV-0227-ORL-22JGG (M.D. 
Fla. filed Feb. 15, 2007), available at http://www.ftc.gov/os/caselist/
B. Technology
    Although technology can play a key role in combating identity theft 
and improving consumers' lives, it also can create new consumer 
protection challenges. The Commission has worked aggressively to 
protect consumers from technological threats such as spyware and spam. 
In addition, the agency has focused on identifying new issues related 
to technology in order to better protect consumers in the next decade.
1. Spyware
    The Commission has brought eleven spyware enforcement actions in 
the past 2 years. These actions have reaffirmed three key principles: 
First, a consumer's computer belongs to him or her, not the software 
distributor. Second, buried disclosures do not work, just as they have 
never worked in more traditional areas of commerce. And third, if a 
distributor puts a program on a consumer's computer that the consumer 
does not want, the consumer must be able to uninstall or disable it.
    The Commission's most recent settlement with DirectRevenue, a 
distributor of adware, illustrates these principles.\13\ According to 
the FTC's complaint, DirectRevenue, directly and through its 
affiliates, offered consumers free content and software, such as screen 
savers, games, and utilities, without disclosing adequately that 
downloading these items would result in the installation of adware. The 
installed adware monitored the online behavior of consumers and then 
used the results of this monitoring to display a substantial number of 
pop-up ads on their computers. Moreover, it was almost impossible for 
consumers to identify, locate, and remove this unwanted adware. Among 
other things, the FTC's complaint alleged that DirectRevenue used 
deception to induce the installation of the adware and that it was 
unfair for the company to make it unreasonably difficult to uninstall 
the adware. To resolve these complaint allegations, DirectRevenue has 
agreed to provide clear and prominent disclosures of what it is 
installing, obtain express consent prior to installation, clearly label 
its ads, provide a reasonable means of uninstalling software, and 
monitor its affiliates to assure that they (and their own affiliates) 
comply with the FTC's order. In addition, DirectRevenue has agreed to 
disgorge $1.5 million to the U.S. Treasury. The Commission will 
continue to bring law enforcement actions in this area.
    \13\ In the Matter of DirectRevenue, LLC, FTC File No. 052 3131 
(Feb. 16, 2007), available at http://www.ftc.gov/os/caselist/0523131/
2. Spam
    Since 1997, when the FTC brought its first case involving spam, the 
Commission has aggressively pursued deceptive and unfair practices 
involving spam through 89 law enforcement actions, 26 of which were 
filed after Congress enacted the CAN-SPAM Act. In FY 2006, the FTC 
brought eight new law enforcement actions targeting deceptive and 
fraudulent spam e-mail.\14\
    \14\ In FY 2006, the FTC brought eight new law enforcement actions 
targeting deceptive and fraudulent spam e-mail. FTC v. Pacific Herbal 
Sciences, Inc., et al., No. CV-05-7242 (C.D. Cal. filed Oct. 6, 2005) 
(alleging false header information, deceptive subject lines, 
inconspicuous opt-out mechanism, non-functioning opt-out mechanism, 
inconspicuous solicitation, and omitted postal address); FTC v. Zachary 
Kinion, No. 05C-6737 (N.D. Ill. filed Nov. 29, 2005) (alleging false 
header information, deceptive subject lines, inconspicuous opt-out 
mechanism, nonfunctioning opt-out mechanism, and omitted postal 
address); FTC v. Matthew Olson, No. C05-1979 (W.D. Wash. filed Nov. 29, 
2005) (alleging false header information, deceptive subject lines, 
inconspicuous opt-out mechanism, non-functioning opt-out mechanism, and 
omitted postal address); FTC v. Brian McMullen, No. 05C-6911 (N.D. Ill. 
filed Dec. 8, 2005) (alleging false header information, deceptive 
subject lines, inconspicuous opt-out mechanism, non-functioning opt-out 
mechanism, and omitted postal address); FTC v. William Dugger, et al., 
No. CV-06-0078 (D. Ariz. filed Jan. 9, 2006) (alleging false header 
information, relay of messages through computers without authorization, 
and failure to include adult-content label); United States v. Jumpstart 
Technologies, LLC, et al., No. C-06-2079 (N.D. Cal. filed Mar. 21, 
2006) (alleging false header information, deceptive subject lines, 
inconspicuous opt-out mechanism, failure to honor opt-out requests, and 
inconspicuous solicitation); United States v. Kodak Imaging Network, 
Inc., No. 06-3117 (N.D. Cal. filed May 10, 2006) (alleging 
inconspicuous opt-out mechanism, non-functioning opt-out mechanism, and 
omitted postal address); and United States v. Ice.com, No. 8:06-CV-580 
(N.D.N.Y. filed May 11, 2006) (alleging failure to honor opt-out 
    The FTC continues to devote resources to fighting spam. The 
Commission is aware of e-mail filtering companies' recent reports that 
the amount of spam they process is rising and is studying whether this 
increase has resulted in a change in the amount of spam actually 
reaching consumers. The Commission's recent experience suggests that 
spam is being used increasingly as a vehicle for more pernicious 
conduct, such as phishing, viruses and spyware. This spam goes beyond 
mere annoyance to consumers--it can result in significant harm by 
shutting down consumers' computers, enabling keystroke loggers to steal 
identities, and undermining the stability of the Internet. This summer, 
as a follow-up to its initial Spam Forum of 2003, the Commission will 
host a workshop to examine how spam has evolved and what stakeholders 
can do to address it.
3. The Tech-Ade Workshop
    The FTC is committed to understanding the implications of the 
development of technology on privacy and consumer protection--as, or 
even before, these developments happen. Last November, the FTC convened 
public hearings on the subject of Protecting Consumers in the Next 
Tech-Ade.\15\ The FTC heard from more than 100 of the best and 
brightest people in the tech world about new technologies on the 
horizon and their potential effect on consumers.
    \15\ See FTC News Release, Hearings Will Explore Emerging 
Technologies and Consumer Issues in the Next Decade (July 26, 2006), 
available at http://www.ftc.gov/opa/2006/07/techade.htm.
    One interesting trend that was highlighted at Tech-Ade is the 
widening gap between older and younger consumers in their use of 
technology. Younger consumers are much more likely to be interconnected 
with other users of technology in a wide variety of ways--they are 
online, on cell phones, text messaging, uploading videos, playing 
multiplayer online games, and creating websites and blogs.
    Accordingly, advertisers and marketers are making creative use of 
these technologies to convey their messages to consumers at an early 
age. At the Tech-Ade workshop, participants discussed several new 
interactive methods to make advertising more relevant to younger 
consumers. These included: (1) advergames and in-game advertising, such 
as interactive games on an advertiser's website that incorporate the 
advertiser's products or video games that feature a product 
advertisement; (2) behavioral targeting, which relies on sophisticated 
technology to analyze consumers' online activities and provide 
advertising identified as relevant to their interests; and (3) viral, 
``buzz,'' and word-of-mouth marketing, which rely on pre-existing 
social networks to increase awareness about a particular product or 
brand. The Commission also heard about the convergence of marketing and 
user-generated content and the challenges that can be presented when 
the line between consumer and producer is blurred.
    Given these trends, the FTC is proposing the development of a 
``media literacy'' initiative to educate and empower children and their 
parents to be more discerning consumers of information. The goals of 
this initiative are to raise awareness of advertising and marketing 
messages; increase knowledge of how to skillfully read, analyze, and 
appreciate an advertisement; show the benefits of being an informed 
consumer; and help build partnerships to leverage agency resources and 
education messages.
    This initiative is just one example of how the Commission is using 
what it learned at the Tech-Ade conference to develop its future 
consumer protection agenda. The Commission will issue a draft report on 
the Tech-Ade conference highlighting additional new developments this 
4. Civil Penalties
    We believe the Commission's ability to protect consumers from 
unfair or deceptive acts or practices would be substantially improved 
by legislation, all of which is currently under consideration by 
Congress, to provide the Commission with civil penalty authority in the 
areas of data security, telephone pretexting and spyware. Civil 
penalties are important in these areas where our traditional equitable 
remedies, including consumer restitution and disgorgement, may be 
impracticable or not optimally effective in deterring unlawful acts. 
Restitution is often impracticable in these cases because consumers 
suffer injury that is either non-economic in nature or difficult to 
quantify. Likewise, disgorgement may be unavailable because the 
defendant has not profited from its unlawful acts, for example, in 
cases we bring against companies for failing to maintain reasonable 
safeguards to protect sensitive consumer data. As such, we renew our 
support for civil penalty authority in these areas and look forward to 
continuing to work with this Committee in particular to buttress the 
Commission's ability to protect consumers.
C. Health
    Of course not all fraud is technology-related. Health fraud, for 
example, can still be found in the offline world as in the online 
world. Too often, consumers fall prey to fraudulent health marketing 
because they are desperate for help. Fifty million Americans suffer 
from a chronic pain condition \16\ and have found no effective cure or 
treatment. Seventy million Americans are trying to lose weight.\17\ The 
FTC continues to take action against companies that take advantage of 
these consumers.
    \16\ Partners for Understanding Pain, Pain Advocacy Tool Kit (Sept. 
2006) (including members from American Cancer Society, American 
Pharmacists Association, and Arthritis Foundation, among others), 
available at http://www.nmmra.org/resources/Home_Health/Nurses
    \17\ M.K. Serdula, et al., Prevalence of Attempting Weight Loss and 
Strategies for Controlling Weight, 282 JAMA 1353-1358 (1999).
    From April 2006 through February 2007, the FTC initiated or 
resolved 13 law enforcement actions involving 25 products making 
allegedly deceptive health claims.\18\ For example, in September 2006, 
a Federal district court found that defendants' claims for their 
purported pain relief ionized bracelets were false and unsubstantiated, 
and required the individual and corporate defendants to pay up to $87 
million in refunds to consumers.
    \18\ E.g., FTC v. Window Rock Enters., Inc., No. CV04-8190 (JTLx) 
(C.D. Calif. filed Jan. 4, 2007) (stipulated final orders) (CortiSlim), 
available at http://www.ftc.gov/os/caselist/windowrock/windowrock.htm; 
In the Matter of Goen Techs. Corp., FTC File No. 042 3127 (Jan. 4, 
2007) (consent order) (TrimSpa), available at http://www.ftc.gov/os/
127agreement.pdf; United States v. Bayer Corp., No. 07-01 (HAA) (D.N.J. 
filed Jan. 3, 2007) (consent decree) (One-A-Day), available at http://
consentdecree.pdf; FTC v. Chinery, No. 05-3460 (GEB) (D.N.J. filed Dec. 
26, 2006) (stipulated final order) (Xenadrine), available at http://
finalorder.pdf; FTC v. QT, Inc., No. 03 C 3578 (N.D. Ill. Sept. 8, 
2006) (final judgment order), available at http://www.ftc.gov/os/
    In January 2007, the Commission announced separate cases against 
the marketers of four extensively advertised products--Xenadrine EFX, 
CortiSlim, TrimSpa, and One-A-Day WeightSmart. Marketers for these 
products 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.\19\
    \19\ See FTC News Release, Federal Trade Commission Reaches ``New 
Year's'' Resolutions with Four Major Weight-Control Pill Marketers 
(Jan. 4, 2007), available at http://www.ftc.gov/opa/2007/01/
    Another important issue on the Commission's health agenda is 
childhood obesity. In the Summer of 2005, the Commission and the 
Department of Health & Human Services held a joint workshop on the 
issue of childhood obesity.\20\ The goal was to encourage industry to 
respond to the public concerns surrounding food advertising and 
marketing by taking strong action to modify their products, their 
marketing techniques, and their messages. The Commission's April 2006 
report on the workshop pointed out that all segments of society--
parents, schools, government, health care professionals, food 
companies, and the media--need to work to improve our children's 
health. The report urged industry to consider a wide range of options 
as to how self-regulation could assist in combating childhood 
    \20\ See FTC News Release, Workshop Explores Marketing, Self-
Regulation, and Childhood Obesity (July 15, 2005), available at http://
    \21\ Perspectives on Marketing, Self-Regulation, & Childhood 
Obesity: A Report on a Joint Workshop of the Federal Trade Commission 
and the Department of Health and Human Services (Apr. 2006), available 
at http://www.ftc.gov/os/2006/05/PerspectivesOnMarketingSelf-Regulation
    A number of companies took the FTC's recommendations seriously. On 
October 16, 2006, for example, the Walt Disney Company announced new 
food guidelines aimed at giving parents and children healthier eating 
options.\22\ And just a few months ago, the Children's Advertising 
Review Unit, CARU, which is administered by the Council of Better 
Business Bureaus, announced a new self-regulatory advertising 
initiative designed to use advertising to help promote healthy dietary 
choices and healthy lifestyles among American children.\23\ Eleven 
leading food manufacturers--including McDonalds, The Hershey Company, 
Kraft Foods, and Cadbury Schweppes--committed to devoting at least 50 
percent of their advertising directed to children under twelve to 
products that represent healthy dietary choices or that prominently 
include healthy lifestyle messages that encourage physical activity or 
good nutrition. They also committed to reducing their use of third-
party licensed characters and to incorporating healthy lifestyle 
messages into their interactive games.
    \22\ See Bruce Horovitz and Laura Petrecca, Disney to Make Food 
Healthier for Kids, USA TODAY (Oct. 17, 2006), available at http://
    \23\ See Annys Shin, Ads Aimed at Children Get Tighter Scrutiny; 
Firms to Promote More Healthful Diet Choices, WASH. POST, Nov. 15, 
2006, at D1.
D. Financial Practices
    As with health issues, financial issues impact all consumers--
whether they are purchasing a home, trying to establish credit or 
improve their credit rating, or managing rising debt. Thus, protecting 
consumers in the financial services marketplace is a critical part of 
the FTC's consumer protection mission. This year, the Commission will 
focus on the ``ABCs'' of financial practices: Alternative mortgages, 
Bad debt collection, and Credit-related deception.
1. Alternative Mortgages
    Commission law enforcement actions have targeted deceptive and 
other illegal practices in the mortgage market, with a focus on the 
subprime market. FTC actions have targeted deceptive or unfair 
practices by mortgage brokers, lenders, and loan servicers in all 
stages of mortgage lending--from advertising and marketing through loan 
servicing. In recent years, the Commission has brought 21 actions 
against companies in the mortgage lending industry, yielding more than 
$320 million in redress for consumers.
    The FTC will continue this enforcement work, with an eye toward 
recent developments in mortgage products. In recent years, more and 
more consumers entered into ``nontraditional'' or ``alternative'' 
mortgage products. Last year the Commission held a workshop to examine 
the consumer protection issues arising from them.\24\ These products 
generally offer consumers the option of making lower required payments 
in the early years of a loan--which make it easier, initially, to 
purchase a home, or to purchase a more expensive home. But they also 
pose substantial risks for consumers who do not understand, or are not 
prepared for, the possible ``payment shock'' down the road, when 
monthly minimum payments jump higher--sometimes even double--at the end 
of the introductory period. Following up on what the Commission learned 
at its workshop, it is looking closely at instances of deceptive 
mortgage advertising, particularly advertising of ``nontraditional'' 
    \24\ Available at http://www.ftc.gov/bcp/workshops/mortgage/
2. Bad Debt Collection
    As consumer debt levels have risen, so have complaints to the 
Commission about debt collectors. The Commission receives more 
complaints about debt collectors than any other single industry, with 
66,000 complaints about third-party debt collectors in 2005 and more 
than 69,000 in 2006.
    The FTC is tackling the problem of unlawful debt collection 
practices in two ways. First, the Commission engages in aggressive law 
enforcement. In January, for example, the Commission filed an action to 
stop a debt collector's allegedly repeated, egregious violations of the 
Fair Debt Collection Practices Act.\25\ Second, this Fall, the FTC will 
hold a workshop to take stock of the debt collection industry. The Fair 
Debt Collection Practices Act was enacted 30 years ago. Given the rise 
in consumer debt levels, as well as consumer complaints, it is time to 
take another look at the industry. The Commission will examine changes 
in the industry and the related consumer protection issues, including 
whether the law has kept pace with developments.
    \25\ FTC v. Rawlins & Rivera, Inc., No. 6:07-CIV-146-ORL (M.D. Fla. 
filed Jan. 31, 2007) (complaint), available at http://www.ftc.gov/os/
3. Credit Deception
    Some consumers with financial problems fall prey to deceptive debt 
negotiation or similar credit repair schemes. Legitimate credit 
counseling organizations offer valuable services to help consumers 
solve their financial problems. However, the Commission has taken 
enforcement actions against those offering debt reduction services that 
charge hidden fees, make false promises to lower consumers' debts, or 
misrepresent that they will eliminate accurate negative information 
from consumers' credit reports.
    Earlier this year, the Commission filed a complaint against Select 
Management Solutions.\26\ In its complaint, the Commission alleged that 
telemarketers for Select Management Solutions falsely promised that 
they could lower consumer credit card interest rates to the single 
digits, resulting in savings of at least $2,500. Consumers were charged 
$695 for this service. The Commission alleged that consumers 
experienced no savings and that the money-back guarantee was false. The 
FTC succeeded in obtaining a preliminary injunction in this case. The 
Commission continues to monitor this industry and will continue to 
bring appropriate enforcement actions as warranted.
    \26\ Available at http://www.ftc.gov/os/caselist/0623215/
E. Do Not Call
    The National Do Not Call (DNC) Registry has been an unqualified 
success. It has registered more than 142 million telephone numbers 
since its inception in 2003. Because consumers' registrations expire 
after 5 years, the Commission plans a significant effort to educate 
consumers on the need to reregister their phone numbers.
    Most entities covered by the DNC Rule comply, but for those who do 
not, tough enforcement is a high priority for the FTC. Since the FTC 
began enforcing compliance with the Registry in October 2003, the 
agency has pursued 25 enforcement actions against 52 individual and 73 
corporate defendants, alleging that they had called consumers protected 
by the Registry. In these cases, the FTC has obtained settlements with 
orders requiring payment in the aggregate of approximately $9 million 
in civil penalties and more than $8.2 million in consumer redress and 
F. Retail Practices
    The FTC has been examining retail practices in several areas. 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.\27\ On April 27, 2007, the FTC 
will host a public workshop in San Francisco, California, to discuss 
the issues surrounding the use of mail-in rebates by manufacturers and 
retailers.\28\ One goal of the workshop will be to explore ``best 
practices'' in the offering and fulfillment of rebates.
    \27\ See FTC News Release, FTC to Hold Public Workshop on Negative 
Option Marketing (Dec. 21, 2006), available at http://www.ftc.gov/opa/
    \28\ See FTC News Release, FTC to Hold ``Rebate Debate'' Public 
Workshop in San Francisco (Jan. 31, 2007), available at http://
    Another retail practice that the Commission has been examining is 
hidden expiration dates and dormancy fees on gift cards. In recent 
weeks, the Commission has announced two settlements in this area, one 
with Kmart Corporation and another with the national restaurant 
company, Darden Restaurants.\29\ According to the FTC's complaints, 
both Kmart and Darden promoted their gift card as equivalent to cash 
but failed to disclose that fees are assessed after 2 years (initially 
15 months, in Darden's case) of non-use. In addition, the FTC alleged 
that Kmart affirmatively misrepresented that its card would never 
expire. Kmart and Darden have agreed to disclose any fees or expiration 
date prominently in future advertising and on the front of the gift 
card. Both companies have also agreed to provide refunds of dormancy 
fees assessed on their cards. Kmart will reimburse the dormancy fees 
for consumers who provide an affected gift card's number, a mailing 
address, and a telephone number. Darden will automatically restore to 
each card any dormancy fees that were assessed. In 2006, both companies 
voluntarily stopped charging dormancy fees on their gift cards.
    \29\ See FTC News Release, National Restaurant Company Settles FTC 
Charges for Deceptive Gift Card Sales (Apr. 3, 2007), available at 
G. Media Violence
    The Commission has continued its efforts to monitor the marketing 
of violent entertainment to children and to encourage industry self-
regulation. Since 1999, the Commission has issued five reports on the 
marketing of violent entertainment products. In April 2007, the 
Commission will issue its sixth report on the entertainment industries' 
self-regulatory programs. In addition to updating the current state of 
industry practices, the report will include the results of a nationwide 
telephone survey of parents and children regarding their familiarity, 
use, and perceptions of the video game rating system. The report will 
also include the results of another nationwide undercover mystery shop 
of movie, game, and music retailers.
H. Aiding Criminal Enforcement
    The frauds that the FTC pursues civilly are also often crimes. Over 
the past 2 years, the FTC's Criminal Liaison Unit, or CLU, has stepped 
up cooperation with criminal authorities--a dramatic illustration of 
the FTC's efforts to bring the collective powers of different 
government agencies to bear upon serious misconduct in many consumer 
protection areas.
    During 2006, CLU reported some outstanding developments. Grand 
juries charged 71 FTC defendants and their close associates with crimes 
including mail and wire fraud, bank fraud, conspiracy, money 
laundering, and tax fraud. During the same period, Federal prosecutors 
obtained convictions of 57 FTC defendants and their close associates. 
And consumer protection-related crimes continue to draw stiff 
sentences. Thirty-three FTC defendants and their close associates 
received prison sentences totaling more than 259 years, ranging from 1 
year to more than 17 years in prison. The FTC's criminal referral 
program continues to be a high priority.
I. Consumer Advocacy
    Advocacy is another method used by the Commission to advance 
consumers' interests. The FTC frequently provides comments to 
legislatures and government agencies on the effect of proposed laws and 
regulations. The Commission also testified before the 109th Congress 31 
times. Although consumers need to be protected from fraud and 
deception, unduly broad restrictions on the dissemination of truthful 
and non-misleading information are likely to limit competition and 
consumer choice.\30\
    \30\ Through enforcement and advocacy with the Food and Drug 
Administration (FDA), the FTC has developed substantial expertise in 
policy issues related to food and drug advertising and labeling. 
Recently, the FTC staff provided comments to the FDA in response to a 
request for public comment regarding its draft guidelines for labeling 
statements about the whole grain content of food products. The staff 
suggested that the FDA expand on its guidance by reconsidering whether 
to allow certain claims (such as ``good source'' of whole grains) to be 
made by companies, providing additional guidance on the appropriate use 
of certain claims (such as ``100 percent whole grain''), and conducting 
further research to determine how best to define whole grain-related 
terms and reduce consumer confusion. See FTC Staff Comment Before the 
Food and Drug Administration: In the Matter of Draft Guidance for 
Industry and FDA Staff: Whole Grain Label Statements, FTC file No. 
V060114 (Apr. 18, 2006) available at http://www.ftc.gov/os/2006/04/
v060114ftcstaffcommentofthefdaredocketno2006-0066.pdf. The FTC also 
recently has used advocacy to protect children from online child 
predators. FTC staff filed a comment regarding proposed legislation in 
Hawaii designed to protect minors from unwanted commercial e-mails 
(spam) that advertise products or services they are prohibited from 
buying or that contain adult advertising or links to adult content. The 
bill would establish a Child Protection Registry and make it illegal to 
send such messages to registrants. The FTC staff explained that, much 
as it did in commenting on similar legislation in Illinois in 2005, the 
registry easily could be abused by online child predators, publishing a 
list of verified e-mail addresses could unintentionally increase the 
amount of spam received by registrants, and the bill's substantial 
compliance costs could hamper Internet competition and prevent 
consumers from receiving legitimate and wanted information. The Hawaii 
legislature ultimately did not adopt this bill. See FTC Staff Comment 
to The Honorable Carol Fukunaga Concerning Hawaii Senate Bill 2200, A 
Bill To Create A Child Protection Registry and Prohibit Certain 
Unwanted Commercial Email Messages, FTC File No. V060012 (Mar. 2006) 
available at http://www.ftc.gov/os/2006/04/V060012
III. Maintaining Competition
    In addition to addressing unfair and deceptive conduct, the 
Commission is charged with protecting consumers by maintaining 
competition. The goal of the FTC's competition mission is to strengthen 
free and open markets by removing the obstacles that impede competition 
and prevent its benefits from flowing to consumers. To accomplish this, 
the FTC has focused its enforcement efforts on sectors of the economy 
that have a significant impact on consumers, such as health care, 
energy, technology, and real estate. In this testimony, the Commission 
will highlight several important merger and nonmerger enforcement 
actions of the past year.
A. Health Care
    The health care industry plays a crucial role in the U.S. economy 
in terms of consumer spending and welfare, and thus, the FTC has 
dedicated substantial resources to protecting consumers by vigorously 
reviewing proposed merger transactions, investigating potentially 
anticompetitive conduct that threatens consumer interests, and taking 
action to prevent anticompetitive effects.
1. Agreements That Delay Generic Entry
    The FTC continues to be vigilant in the detection and investigation 
of agreements between drug companies that delay generic entry, 
including investigating some patent settlement agreements between 
pharmaceutical companies that are required to be filed with the 
Commission under the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003. In these ``exclusion payment settlements'' 
(or, to some, ``reverse payment settlements''), the brand-name drug 
firm pays its potential generic competitor to abandon the patent 
challenge and delay entering the market. Such settlements restrict 
competition at the expense of consumers, whose access to lower-priced 
generic drugs is delayed, sometimes for many years.
    In addition, in November 2005, in the case of FTC v. Warner 
Chilcott Holdings Company III, Ltd., the Commission filed a complaint 
in Federal district court seeking to terminate an agreement between 
drug manufacturers Warner Chilcott and Barr Laboratories that denied 
consumers the choice of a lower-priced generic version of Warner 
Chilcott's Ovcon 35, a branded oral contraceptive.\31\ Under threat of 
a preliminary injunction sought by the FTC, in September 2006, Warner 
Chilcott waived the exclusionary provision in its agreement with Barr 
that prevented Barr from entering with its generic version of Ovcon. 
The next day, Barr announced its intention to start selling a generic 
version of the product, and it now has done so.\32\
    \31\ FTC v. Warner Chilcott Holdings Co. III, No. 1:05-cv-02179-CKK 
(D.D.C. filed Nov. 7, 2005) (complaint filed), available at http://
    \32\ FTC News Release, Consumers Win as FTC Action Results in 
Generic Ovcon Launch (Oct. 23, 2006), available at http://www.ftc.gov/
opa/2006/10/chilcott.htm. In October 2006, the district court entered a 
final order that settled the FTC's charges against Warner Chilcott. As 
a result of the settlement, Warner Chilcott: (1) must refrain from 
entering into agreements with generic pharmaceutical companies in which 
the generic agrees not to compete with Warner Chilcott and there is 
either a supply agreement between the parties or Warner Chilcott 
provides the generic with anything of value and the agreement adversely 
affects competition; (2) must notify the FTC whenever it enters into 
supply or other agreements with generic pharmaceutical companies; and 
(3) for 3 months, had to take interim steps to preserve the market for 
the tablet form of Ovcon in order to provide Barr the opportunity to 
compete with its generic version. FTC v. Warner Chilcott Holdings Co. 
III, No. 1:05-cv-02179-CKK (D.D.C. filed Oct. 23, 2006) (stipulated 
permanent injunction and final order), available at http://www.ftc.gov/
os/caselist/0410034/finalorder.pdf. The FTC's case against Barr is 
2. Pharmaceuticals, Medical Devices, and Diagnostic Systems
    The Commission is active in enforcing the antitrust laws in the 
pharmaceutical, medical devices, and diagnostic systems industries. For 
example, the FTC approved a consent order regarding Barr 
Pharmaceuticals' proposed acquisition of Pliva.\33\ In settling the 
Commission's charges that the transaction would have increased 
concentration and led to higher prices, Barr is required to sell its 
generic antidepressant, trazodone; its generic blood pressure 
medication, triamterene/HCTZ; either Pliva's or Barr's generic drug for 
use in treating ruptured blood vessels in the brain; and Pliva's 
branded organ preservation solution. Last year, the FTC imposed 
conditions on several other pharmaceutical mergers, including: Watson 
Pharmaceuticals/Andrx Corporation; \34\ Teva Pharmaceutical Industries/
IVAX Corporation; \35\ Johnson & Johnson's acquisition of Pfizer's 
consumer health division; \36\ and Hospira, Inc./Mayne Pharma 
Limited.\37\ Recent medical devices and diagnostic systems cases 
include: the FTC's consent order regarding the proposed $27 billion 
acquisition of Guidant Corporation by Boston Scientific Corporation, 
which required the divestiture of Guidant's vascular business to an 
FTC-approved buyer; \38\ and consent orders in mergers affecting 
markets for biopsy systems and for centrifugal vacuum evaporators used 
in the health care industry.\39\
    \33\ In the Matter of Barr Pharms., Inc., FTC Docket No. C-4171 
(Dec. 8, 2006) (decision and order), available at http://www.ftc.gov/
    \34\ In the Matter of Watson Pharms., Inc., and Andrx Corp., FTC 
Docket No. C-4172 (Dec. 12, 2006) (decision and order), available at 
    \35\ In the Matter of Teva Pharm. Indus. Ltd. and IVAX Corp., FTC 
Docket No. C-4155 (Mar. 2, 2006) (decision and order), available at 
    \36\ In the Matter of Johnson & Johnson and Pfizer Inc., FTC Docket 
No. C-4180 (Jan. 19, 2007) (decision and order), available at http://
decisionorder_publicversion.pdf; see also In the Matter of Allergan, 
Inc. and Inamed Corp., FTC Docket No. C-4156 (Apr. 17, 2006) (decision 
and order), available at http://www.ftc.gov/os/caselist/0610031/
    \37\ FTC News Release, FTC Challenges Hospira/Mayne Pharma Deal 
(Jan. 18, 2007), available at http://www.ftc.gov/opa/2007/01/
hospiramayne.htm; In the Matter of Hospira, Inc. and Mayne Pharma Ltd., 
FTC Docket No. C-4182 (Jan. 18, 2007) (decision and order), available 
at http://www.ftc.gov/os/caselist/0710002/070118do0710002.pdf.
    \38\ In the Matter of Boston Scientific Corp. and Guidant Corp., 
FTC Docket No. C-4164 (July 25, 2006) (decision and order), available 
at http://www.ftc.gov/os/caselist/0610046/060725do0610046.pdf.
    \39\ In the Matter of Hologic, Inc., FTC Docket No. C-4165 (Aug. 9, 
2006) (decision and order), available at http://www.ftc.gov/os/
caselist/0510263/0510263decisionandorderpubrecver.pdf; In the Matter of 
Thermo Electron Corp., FTC Docket No. C-4170 (Dec. 5, 2006) (decision 
and order), available at http://www.ftc.gov/os/caselist/0610187/
    FTC staff also has initiated a study on authorized generic 
drugs.\40\ The study is intended to help the agency understand the 
circumstances under which innovator companies launch authorized 
generics; to provide data and analysis of how competition between 
generics and authorized generics during the Hatch-Waxman Act's 180-day 
exclusivity period has affected short-run price competition and long-
run prospects for generic entry; and to build on the economic 
literature about the effect of generic drug entry on prescription drug 
    \40\ FTC News Release, FTC Proposes Study of Competitive Impacts of 
Authorized Generic Drugs (Mar. 29, 2006), available at http://
3. Hospitals and Physicians
    The Commission has worked vigorously to preserve competition in 
local hospital markets. In October 2005, an FTC Administrative Law 
Judge found that Evanston Northwestern Healthcare Corporation's 
consummated acquisition of an important competitor, Highland Park 
Hospital, resulted in higher prices and a substantial lessening of 
competition for acute care inpatient hospital services in parts of 
Chicago's northern suburbs.\41\ In May 2006, the Commission heard oral 
arguments on the appeal of this matter and a Commission opinion is 
forthcoming.\42\ Several other hospital mergers have been announced 
within the past several months, and we have active investigations 
    \41\ In the Matter of Evanston Northwestern Healthcare Corp., FTC 
Docket No. 9315 (Oct. 20, 2005) (initial decision), available at http:/
    \42\ In the Matter of Evanston Northwestern Healthcare Corp., FTC 
Docket No. 9315 (Apr. 20, 2006) (notice scheduling oral argument), 
available at http://www.ftc.gov/os/adjpro/d9315/
    \43\ The Commission also challenged the merger of two of the top 
three operators of outpatient kidney dialysis clinics and required 
divestitures in 66 markets throughout the United States. In the Matter 
of Fresenius AG, FTC Docket No. C-4159 (June 30, 2006) (decision and 
order), available at http://www.ftc.gov/os/caselist/0510154/
    The FTC continues to investigate and challenge unlawful price 
fixing by physicians and other health care providers that may lead to 
higher costs for consumers. In the past year, the FTC approved four 
consent orders settling charges that competing providers jointly set 
their prices and collectively agreed to refuse to deal with health care 
payers that did not meet their fee demands.\44\
    \44\ In the Matter of Puerto Rico Ass'n of Endodontists, Corp., FTC 
Docket No. C-4166 (Aug. 24, 2006) (decision and order), available at 
/0510170c4166praedecisionorder.pdf; In the Matter of New Century Health 
Quality Alliance, Inc., FTC Docket No. C-4169 (Sept. 29, 2006) 
(decision and order), available at http://www.ftc.gov/os/caselist/
0510137/0510137nchqaprimedecisionorder.pdf; In the Matter of Advocate 
Health Partners, et al., FTC Docket No. C-4184 (Feb. 7, 2007) (decision 
and order), available at http://www.ftc.gov/os/caselist/0310021/
0310021.htm; and In the matter of Health Care Alliance of Laredo, L.C., 
FTC Docket No. C-4158 (Mar. 23, 2006) (decision and order), available 
at http://www.ftc.gov/os/caselist/0410097/0410097.htm.
B. Energy
    Few issues are more important to American consumers and businesses 
than current and future energy production and use. The FTC plays a key 
role in maintaining competition and protecting consumers in energy 
markets by challenging antitrust violations, conducting studies and 
analyses, and providing comments to other government agencies.
    So far in 2007, the Commission has challenged two mergers in the 
energy industry. Last month, the Commission filed an administrative 
complaint challenging Equitable Resource's proposed acquisition of The 
People's Natural Gas Company, a subsidiary of Dominion Resources. 
Equitable and Dominion People's 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 benefit from competition between 
the two firms. 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 United States, 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.\45\
    \45\ Other recent energy matters include: Chevron/USA Petroleum, an 
abandoned 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 
(USA Petroleum's president stated that the parties abandoned the 
transaction because of resistance from the FTC), see Elizabeth 
Douglass, Chevron Ends Bid to Buy Stations, LA TIMES, Nov. 18, 2006, 
Part C at 2; EPCO/TEPPCO, in which EPCO's $1.1 billion acquisition of 
TEPPCO's natural gas liquid storage business was only allowed to 
proceed if TEPPCO first agreed to divest its interests in the world's 
largest natural gas storage facility in Bellvieu, Texas, to an FTC-
approved buyer, see In the Matter of EPCO, Inc., and TEPPCO Partners, 
L.P., FTC Docket No. C-4173 (Oct. 31, 2006) (decision and order), 
available at http://www.ftc.gov/os/caselist/0510108/
0510108c4173do061103.pdf; Chevron/Unocal, which resolved the 
Commission's administrative monopolization complaint against Unocal and 
antitrust concerns arising from Chevron's proposed $18 billion 
acquisition of Unocal, see In the Matter of Chevron Corp., FTC Docket 
No. C-4144 (July 27, 2005) (consent order), available at http://
www.ftc.gov/os/caselist/0510125/050802do0510125.pdf and Union Oil Co. 
of Calif., FTC Docket No. 9305 (July 27, 2005) (consent order), 
available at http://www.ftc.gov/os/adjpro/d9305/050802do.pdf; and Aloha 
Petroleum/Trustreet Properties, in which the Commission alleged that 
Aloha's proposed acquisition of Trustreet Properties' half interest in 
import-capable terminal and retail gasoline assets in Hawaii would have 
reduced from five to four the overall number of island gasoline 
marketers that had guaranteed access to supply, and from three to two 
the number of suppliers selling to unintegrated retailers, see FTC v. 
Aloha Petroleum Ltd., No. CV05 00471 HG/KSC (Dist. Hi. complaint filed 
July 27, 2005), available at http://www.ftc.gov/os/caselist/1510131/
050728comp1510131.pdf. Ultimately, Aloha Petroleum was dismissed at the 
agency's request after Aloha announced a long-term agreement with a 
third party, Mid Pac Petroleum, that would give Mid Pac substantial 
rights to use the terminal to import gasoline into Hawaii.
    In May 2006, the FTC released a report titled Investigation of 
Gasoline Price Manipulation and Post-Katrina Gasoline Price 
Increases.\46\ This report contained the findings of a Congressionally-
mandated Commission 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.'' The report also discusses gasoline pricing by refiners, 
large wholesalers, and retailers in the aftermath of Hurricane Katrina. 
In its investigation, the FTC examined evidence relating to a broad 
range of possible forms of manipulation. It found no instances of 
illegal market manipulation that led to higher prices during the 
relevant time periods, but found fifteen examples of pricing at the 
refining, wholesale, or retail level that fit the legislation's 
definition of evidence of ``price gouging.'' \47\ Other factors such as 
regional or local market trends, however, appeared to explain these 
firms' prices in nearly all cases.\48\
    \46\ FTC News Release, FTC Releases Report on its ``Investigation 
of Gasoline Price Manipulation and Post-Katrina Gasoline Price 
Increases'' (May 22, 2006), available at http://www.ftc.gov/opa/2006/
    \47\ Science, State, Justice, Commerce, and Related Agencies 
Appropriations Act, 2007, Pub. L. No. 109-108  632, 119 Stat. 2290 
(2005) (Section 632).
    \48\ Federal Trade Commission, Investigation of Gasoline Price 
Manipulation and Post-Katrina Gasoline Price Increases (Spring 2006), 
available at http://www.ftc.gov/reports/060518
PublicGasolinePricesInvestigationReportFinal.pdf; but see concurring 
statement of Commissioner Jon Leibowitz (concluding that the behavior 
of many market participants leaves much to be desired and that price 
gouging statutes, which almost invariably require a declared state of 
emergency or other triggering event, may serve a salutary purpose of 
discouraging profiteering in the aftermath of a disaster), available at 
C. Real Estate
    Purchasing or selling a home is one of the most significant 
financial transactions most consumers will ever make, and 
anticompetitive industry practices can raise the prices of real estate 
services. In the past year, the agency has brought eight enforcement 
actions against associations of competing realtors or brokers. The 
associations, which control multiple listing services, adopted rules 
that allegedly withheld valuable benefits from consumers who chose to 
enter into non-traditional, and often less expensive, listing contracts 
with real estate brokers. In seven of these matters, the Commission 
agreed to settlements prohibiting multiple listing services from 
discriminating against non-traditional listing arrangements. The eighth 
matter is currently in administrative litigation.\49\ The result of 
these actions will allow consumers more choice and ensure that if 
consumers choose to use discount real estate brokers they will not be 
handicapped by rules preventing other consumers from seeing their 
listings on the Internet.
    \49\ See, e.g., FTC News Release, FTC Charges Austin Board of 
Realtors With Illegally Restraining Competition (July 13, 2006), 
available at http://www.ftc.gov/opa/2006/07/austin
board.htm; see also FTC News Release, FTC Charges Real Estate Groups 
with Anticompetitive Conduct in Limiting Consumers' Choice in Real 
Estate Services (Oct. 12, 2006), available at http://www.ftc.gov/opa/
2006/10/realestatesweep.htm; FTC News Release, Commission Receives 
Application for Proposed Divestiture from Linde AG and The BOC Group 
plc; FTC Approves Final Consent Orders in Real Estate Competition 
Matters (Dec. 1, 2006), available at http://www.ftc.gov/opa/2006/12/
D. Technology
    Technology is another area in which the Commission has acted to 
protect consumers by safeguarding competition. In February 2007, the 
Commission issued an opinion and final order in the legal proceeding 
against computer technology developer Rambus, Inc.,\50\ and the matter 
continues in litigation. Previously, in July 2006, the Commission had 
determined that Rambus unlawfully monopolized the markets for four 
computer memory technologies that have been incorporated into industry 
standards for dynamic random access memory (DRAM) chips. DRAM chips are 
widely used in personal computers, servers, printers, and cameras.\51\ 
In addition to barring Rambus from making misrepresentations or 
omissions to standard-setting organizations again in the future, the 
February 2007 order, among other things, requires Rambus to license its 
SDRAM and DDR SDRAM technology; with respect to uses of patented 
technologies after the effective date of the order, bars Rambus from 
collecting more than the specified maximum allowable royalty rates; and 
requires Rambus to employ a Commission-approved compliance officer to 
ensure that Rambus's patents and patent applications are disclosed to 
industry standard-setting bodies in which it participates.\52\ Our hope 
is that this case will result in more accurate and useful disclosure of 
intellectual property in standard-setting bodies, which will improve 
product quality and lower costs to consumers.
    \50\ FTC News Release, FTC Issues Final Opinion and Order in Rambus 
Matter (Feb. 5, 2007), available at http://www.ftc.gov/opa/2007/02/
    \51\ In the Matter of Rambus, Inc., Docket No. 9302 (July 31, 2006) 
(opinion of the Commission), available at http://www.ftc.gov/os/adjpro/
    \52\ In the Matter of Rambus, Inc., Docket No. 9302 (Feb. 5, 2007) 
(opinion of the Commission on remedy), available at http://www.ftc.gov/
os/adjpro/d9302/070205opinion.pdf; In the Matter of Rambus Inc., Docket 
No. 9302 (Feb. 2, 2007) (final order), available at http://www.ftc.gov/
E. Retail and Other Industries
    The FTC also guards against anticompetitive conduct in the retail 
sector and brings enforcement cases where necessary. In March 2007, the 
Commission announced 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 selling funeral merchandise to consumers on an at-need 
basis.\53\ 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.
    \53\ In the Matter of Missouri Board of Embalmers and Funeral 
Directors, FTC File No. 061 0026 (Mar. 9, 2007) (proposed decision and 
order), available at http://www.ftc.gov/os/caselist/0610026/
    The Commission also has sought to protect customers by imposing 
conditions on mergers involving launch services; \54\ the manufacture 
of ammunition for mortars and artillery; \55\ the Nation's two largest 
funeral home and cemetery chains; \56\ and liquid oxygen and 
    \54\ In the Matter of Lockheed Martin Corp. and The Boeing Co., FTC 
File No. 051 0165 (Oct. 3, 2006) (decision and order), available at 
165decisionorderpublicv.pdf; In the Matter of Lockheed Martin Corp. and 
The Boeing Co., FTC File No. 051 0165 (Oct. 3, 2006) (agreement 
containing consent order), available at http://www.ftc.gov/os/caselist/
    \55\ In the Matter of Gen. Dynamics Corp., FTC Docket No. C-4181 
(Dec. 28, 2006) (decision and order), available at http://www.ftc.gov/
os/caselist/0610150/0610150decisionorder.pdf; In the Matter of Gen. 
Dynamics Corp., FTC Docket No. C-4181 (Dec. 28, 2006) (agreement 
containing consent orders), available at http://www.ftc.gov/os/
    \56\ In the Matter of Serv. Corp. Int'l and Alderwoods Group Inc., 
FTC Docket No. C-4174 (Dec. 29, 2006) (decision and order), available 
at http://www.ftc.gov/os/caselist/0610156/070105do0610156.pdf.
    \57\ In the Matter of Linde AG and The BOC Group PLC, FTC Docket 
No. C-4163 (Sept. 5, 2006) (decision and order), available at http://
F. Guidance, Transparency, and Merger Review Process Improvements
    The FTC also works to facilitate cooperation and voluntary 
compliance with the law by promoting transparency in enforcement 
standards, policies, and decision-making processes. During the last 
year, the FTC implemented two important process reforms that 
streamlined the merger review process. In February 2006, the Commission 
announced the implementation of significant merger process reforms 
aimed at reducing the costs borne by both the FTC and merging 
parties.\58\ In June 2006, the FTC and the Department of Justice 
Antitrust Division implemented an electronic filing system that allows 
merging parties to submit, via the Internet, premerger notification 
filings required by the Hart-Scott-Rodino (HSR) Act.\59\
    \58\ FTC News Release, FTC Chairman Announces Merger Process 
Reforms (Feb. 16, 2006), available at http://www.ftc.gov/opa/2006/02/
    \59\ FTC News Release, Federal Trade Commission and Department of 
Justice Allow Electronic Submission of Premerger Notification Filings 
(June 20, 2006), available at http://www.ftc.gov/opa/2006/06/
G. Competition Advocacy
    The Commission frequently provides comments to Federal and state 
legislatures and government agencies, sharing its expertise on the 
competitive impact of proposed laws and regulations when they 
explicitly or implicitly impact the antitrust laws, and when they alter 
the competitive environment through restrictions on price, innovation, 
or entry conditions. Recent FTC advocacy efforts have contributed to 
several positive consumer outcomes. In the past year, the FTC has 
sought to persuade regulators to adopt policies that do not 
unnecessarily restrict competition in the areas of wine 
distribution,\60\ patent rules of practice,\61\ online auction trading 
assistants,\62\ attorney matching services,\63\ real estate legal 
services,\64\ and pharmacy benefit managers.\65\
    \60\ FTC Staff Comments to The Honorable Paula Dockery (Apr. 10, 
2006), available at 
    \61\ Comments of the United States Federal Trade Commission Before 
the United States Patent and Trademark Office, In the Matter of Changes 
to Practice for Continuing Applications, Requests for Continued 
Examination Practice, and Applications Containing Patentably Indistinct 
Claims, Docket No. 2-5-P-066 (May 3, 2006), available at http://
    \62\ FTC Staff Comments to The Honorable Noble E. Ellington, 
Louisiana State Senate (May 26, 2006), available at http://www.ftc.gov/
    \63\ FTC Staff Comments to Mr. W. John Glancy, Chairman, 
Professional Ethics Committee for the State Bar of Texas (May 26, 
2006), available at http://www.ftc.gov/os/2006/05/V060017
    \64\ Federal Trade Commission and United States Department of 
Justice Comments to Assemblywoman Helene E. Weinstein, Chair, Committee 
on Judiciary, New York State Assembly (June 21, 2006), available at 
    \65\ FTC Staff Comments to Terry G. Kilgore, Member, Commonwealth 
of Virginia House of Delegates (Oct. 2, 2006), available at http://
H. Hearings, Reports, Conferences, and Workshops
    Hearings, conferences, and workshops organized by the FTC represent 
a unique opportunity for the agency to develop policy and research 
tools and help foster a deeper understanding of the complex issues 
involved in the economic and legal analysis of antitrust law.
    Beginning in June 2006, the FTC and the Department of Justice 
Antitrust Division have held hearings to discuss the boundaries of 
permissible and impermissible conduct under Section 2 of the Sherman 
Act.\66\ The primary goal of the hearings is to examine whether and 
when specific types of single-firm conduct are procompetitive or benign 
and when they may harm competition. The Commission expects to complete 
the hearings in the second quarter of 2007.
    \66\ FTC News Release, FTC and DOJ to Host Joint Public Hearings on 
Single-Firm Conduct as Related to Competition (Nov. 28, 2005), 
available at http://www.ftc.gov/opa/2005/11/unilateral.htm.
    The Commission and the Department of Justice are nearing completion 
of a second report addressing issues that arise at the intersection of 
antitrust and intellectual property law and policy. This second report 
follows an initial report issued in 2003 following extensive hearings 
on this important topic.
    In August 2006, the FTC convened the Internet Access Task Force to 
examine issues raised by converging technologies and regulatory 
developments, and to inform the enforcement, advocacy, and education 
initiatives of the Commission. Under the leadership of the Internet 
Access Task Force, the FTC recently addressed two issues of interest to 
    First, in October 2006, the FTC released a staff report, Municipal 
Provision of Wireless Internet. The report identifies the potential 
benefits and risks to competition and consumers associated with 
municipal provision of wireless Internet service.\67\ Second, in 
February 2007, the FTC hosted a two-day workshop to explore the many 
competition and consumer protection issues relating to broadband 
Internet access, including so-called ``network neutrality.'' \68\ Among 
the topics discussed at the workshop 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 intends to release 
a report of this workshop later this year.
    \67\ FTC Staff Report, Municipal Provision of Wireless Internet 
(Sept. 2005) available at 
    \68\ FTC Workshop, Broadband Competition Connectivity Policy (Feb 
13-14, 2007), available at http://www.ftc.gov/opp/workshops/broadband/
    In April 2007, the Commission will hold a three-day conference on 
Energy Markets in the 21st Century: Competition Policy in 
Perspective.\69\ The conference will bring together leading experts 
from government, the energy industry, consumer groups, and the academic 
community to participate on panels to examine such topics as: (1) the 
relationship between market forces and government policy in energy 
markets; (2) the dependence of the U.S. transportation sector on 
petroleum; (3) the effects of the electric power industry restructuring 
on competition and consumers; (4) what energy producers and consumers 
may expect in the way of technological developments in the industry; 
(5) the security of U.S. energy supplies; and (6) the government's role 
in maintaining competition and protecting energy consumers.
    \69\ FTC Conference, Energy Markets in the 21st Century: 
Competition Policy in Perspective (Apr. 10-12, 2007), available at 
I. Competition Education Initiatives
    The FTC is committed to enhancing consumer confidence in the 
marketplace through enforcement and education. This year, Commission 
staff launched a multi-dimensional outreach campaign, targeting new and 
bigger audiences, with the message that antitrust enforcement helps 
consumers reap the benefits of competitive markets by keeping prices 
low and services and innovation high, as well as by encouraging more 
choices in the marketplace.\70\ As a part of this effort, the 
Commission's website, www.ftc.gov, 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,\71\ Health Care,\72\ Real Estate,\73\ and Technology.\74\ These 
minisites serve as a one-stop shop for consumers and businesses who 
want to know what the FTC is doing to promote competition in these 
important business sectors. In the past year, the FTC also issued 
practical tips for consumers on buying and selling real estate, funeral 
services, and generic drugs, as well as ``plain language'' columns on 
oil and gas availability and pricing.
    \70\ Available at http://www.ftc.gov/ftc/antitrust.htm.
    \71\ Available at http://www.ftc.gov/ftc/oilgas/index.html.
    \72\ Available at http://www.ftc.gov/bc/healthcare/index.htm.
    \73\ Available at http://www.ftc.gov/bc/realestate/index.htm.
    \74\ Available at http://www.ftc.gov/bc/tech/index.htm.
IV. International
    The FTC's Office of International Affairs (OIA), created in January 
2007, brings together the international functions formerly handled in 
the Bureaus of Competition and Consumer Protection and the Office of 
General Counsel. 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.
    The FTC has built a strong network of cooperative relationships 
with its counterparts abroad, and plays a leading role in key 
multilateral fora. The growth of communication media and electronic 
commerce presents new challenges to law enforcement--fraud and 
deception now are without borders. We work with other nations to 
protect American consumers who can be harmed by anticompetitive conduct 
and frauds perpetrated outside the United States. The FTC also actively 
assists new democracies moving toward market-based economies with 
developing competition and consumer protection laws and policies.
A. Consumer Protection
    Globalization and rapid changes in technology 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, 
have provided tremendous benefits to consumers but also have aided 
telemarketing fraud and raised fresh privacy concerns. The FTC has a 
comprehensive international consumer protection program of enforcement, 
networking, and policy initiatives to address these new challenges.
    In the coming year, the FTC will implement the U.S. SAFE WEB Act of 
2006, which was signed into law last December. Thanks to the action of 
the Commerce Committee and of Congress, the U.S. SAFE WEB Act 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, such as fraudulent 
spam, spyware, misleading health and safety advertising, privacy and 
security breaches, and telemarketing fraud, that are global and that 
harm consumers. As the FTC begins to take advantage of these new tools, 
cooperation with foreign law enforcement agencies regarding 
information-sharing and investigative assistance will be greatly 
improved, diminishing fundamental roadblocks to effective cooperation.
    The FTC works directly with consumer protection and other law 
enforcement officials in foreign countries to achieve its goals. In 
particular, in response to the amount of fraud across the U.S.-Canadian 
border, the FTC continues to build its relationship with its Canadian 
counterparts. We have worked hard to expand partnerships with Canadian 
regional entities to fight telemarketing fraud by Canadians targeting 
U.S. and Canadian consumers.
    Increased globalization also requires the FTC to participate 
actively in international policy efforts to develop flexible, market-
oriented standards, backed by aggressive enforcement, to address 
emerging consumer protection issues. In 2006, for example, the FTC, 
working with its foreign partners through the Organization for Economic 
Cooperation and Development (OECD) and through the London Action Plan, 
the international spam enforcement network, called for increased cross-
border law enforcement cooperation and increased public/private sector 
cooperation to combat spam. The FTC will also continue to focus the 
international community on the importance of enforcement as a key 
component of privacy protection in the OECD, the Asia Pacific Economic 
Cooperation (APEC), and other multilateral organizations. The FTC also 
continues to participate actively in APEC's Electronic Commerce 
Steering Group and several OECD committees, including the Committee on 
Consumer Policy, and in the International Consumer Protection 
Enforcement Network (ICPEN). The FTC supported the ICPEN's operations 
this year by hosting its Secretariat.
B. Competition
    The FTC's cooperation with competition agencies around the world is 
a vital component of our enforcement and policy programs, facilitating 
our ability to collaborate on cross-border cases, and promoting 
convergence toward sound, consumer welfare-based competition policies.
    FTC staff routinely coordinate with colleagues in foreign agencies 
on mergers and anticompetitive conduct cases of mutual concern. The FTC 
promotes policy convergence through formal and informal working 
arrangements with other agencies, many of which seek the FTC's views in 
connection with developing new policy initiatives. For example, during 
the past year, the FTC consulted with the European Commission regarding 
its review of policies on abuse of dominance and remedies; with the 
Canadian Competition Bureau on merger remedies and health care issues; 
with the Japan Fair Trade Commission on abuse of dominance and 
revisions to its merger guidelines; and with the Chinese authorities on 
the drafting of a new antitrust law. We will also be consulting with 
the European Commission on its new draft guidelines for the review of 
non-horizontal mergers. The FTC participated in consultations in 
Washington and in foreign capitals with top officials of, among others, 
the European Commission, the Japan and Korea Fair Trade Commissions, 
and the Mexican Federal Competition Commission. Chairman Majoras became 
the first FTC Chairman to visit China, establishing important 
relationships with officials involved in developing the first 
comprehensive competition law in China, and underscoring the importance 
of the FTC's and Antitrust Division's work to provide input into the 
drafting process. Several other Commissioners have also been to China 
to work on consumer protection and competition issues.
    The FTC is an active participant in key multilateral fora that 
provide important opportunities for competition agencies to enhance 
mutual understanding in order to promote cooperation and convergence, 
including the International Competition Network (ICN), the OECD, the 
United Nations Conference on Trade and Development (UNCTAD), and APEC. 
For example, over the past year, the FTC has served on the ICN's 
Steering Group, co-chaired its Unilateral Conduct working group and 
related objectives subgroup, chaired its Merger Notification and 
Procedures subgroup, and played a lead role in its working group on 
Competition Policy Implementation. In addition, the FTC also 
participates in U.S. delegations that negotiate competition chapters of 
proposed free trade agreements, including in connection with 
negotiations with Korea, Thailand, and Malaysia during the last year. 
All of this work ultimately benefits American consumers.
C. International Technical Assistance
    The FTC assists developing nations as they move toward market-based 
economies with developing and implementing competition and consumer 
protection laws and policies. These activities, funded mainly by the 
United States Agency for International Development and conducted in 
cooperation with the Department of Justice's Antitrust Division, are an 
important part of the FTC's efforts to promote sound competition and 
consumer protection policies around the world. In 2006, the FTC sent 34 
different staff experts on 30 technical assistance missions to 17 
countries, including the ten-nation ASEAN community, India, Russia, 
Azerbaijan, South Africa, Central America, and Egypt. We also conducted 
missions in Jordan and Ethiopia, and concluded a highly successful 
program in Mexico.
V. Needed Resources for Fiscal Year 2008
    To accomplish the agency's mission in FY 2008, the FTC requests 
$240,239,000 and 1,084 FTE. This level of resources is needed to allow 
the FTC to continue to build on its past record of accomplishments in 
enhancing consumer protection and protecting competition in the United 
States and, increasingly, abroad. The FY 2008 request represents an 
increase of $17,239,000 over the FTC's FY2007 budget request before 
Congress. The increase includes:

   $8,839,000 in mandatory salary and contract expenses;

   $1,400,000 for 10 new FTE for the Consumer Protection 
        Mission's Privacy and Identity Protection Program;

   $4,500,000 for the Consumer Protection Mission's outreach 
        and enforcement efforts including:

    --$2,000,000 for the ``Media literacy'' initiative;

    --$1,300,000 for Do Not Call registration renewals and outreach;

    --$100,000 to increase enforcement efforts to combat spyware; and

    --$100,000 to support our Congressionally-endorsed efforts to 
            promote industry self-regulation in the marketing of 
            entertainment and food to children;

   $1,600,000 for electronic litigation support and E-Gov and 
        information technology initiatives; and

   $900,000 for facility reconditioning, equipment replacement, 
        records management, and human capital and support needs.

    The FTC's FY 2008 budget request is comprised of three funding 
sources. The majority of the funding will be derived from offsetting 
collections: HSR filing fees and Do Not Call fees will provide the 
agency with an estimated $163,600,000 in FY 2008. The FTC anticipates 
that the remaining funding needed for the agency's operations will be 
funded through a direct appropriation of $76,639,000 from the General 
Fund in the U.S. Treasury.
VI. Conclusion
    Mr. Chairman, Mr. Vice Chairman, and members of the Committee, we 
want to ensure that the quality of our work is maintained despite the 
breadth of our mission and the challenges that we have described 
involving technological change and an evolving global economy. In the 
last several years, however, Congress has passed a variety of 
significant new laws that the FTC is charged, at least in part, with 
implementing and enforcing, such as the CAN-SPAM Act, the Fair and 
Accurate Credit Transactions Act (FACTA), the Children's Online Privacy 
Protection Act (COPPA), the Gramm-Leach-Bliley Act, and the U.S. SAFE 
WEB Act. In light of these new laws and challenges, we will continue to 
assess our personnel and resource needs to ensure that the agency 
vigorously protects American consumers and promotes a vibrant 
    The FTC appreciates the strong support it has received from 
Congress to serve its critical mission of protecting consumers and 
maintaining competition. I would be happy to answer any questions that 
you and other Members may have about the FTC's programs and budget 

    Senator Pryor. Thank you.
    The Honorable Pamela Jones Harbour?


    Ms. Harbour. Thank you, Chairman Pryor, Vice Chairman 
    I am pleased to appear before you today to discuss the 
Commission's work in two rapidly developing areas: cross-border 
data protection and international law enforcement cooperation. 
In particular, I will focus on our work with the Asia Pacific 
Economic Cooperation, or APEC, to develop rules to govern the 
transfer of personal data across borders. I will also focus on 
the Commission's newly expanded authority granted by Congress 
in the U.S. SAFE WEB Act.
    As you know, APEC consists of 31 economies, or countries, 
on the Pacific Rim, including the United States, all with 
different domestic legal frameworks. U.S. consumers are doing 
more business with foreign companies. And U.S. companies also 
are doing more business on an international scale. As a result, 
employees, data, products, and customers are scattered across 
multiple countries and, therefore, are subject to multiple 
privacy regulations.
    APEC's data privacy subgroup has undertaken a project to 
create a flexible framework that enables cross-border data 
flows while accommodating the different approaches of all of 
its member economies around the globe. Because of the 
Commission's expertise in protecting consumer privacy 
domestically, we have been involved from the beginning in 
formulating the APEC privacy framework, which was endorsed by 
the member economies and by the United States in 2004. Since 
that time, the Commission has worked with the Department of 
Commerce to develop an implementation plan for cross-border 
privacy rules that is flexible enough to incorporate U.S. and 
other approaches to privacy, and to provide assurances that 
consumer data will be protected across borders.
    There are many reasons why the Commission supports the 
development of cross-border privacy rules:
    First, protecting consumer privacy is vital. Cross-border 
privacy rules will provide more consistent and reliable 
protections for consumers, and will assure other APEC economies 
that data transferred into the United States will benefit from 
appropriate privacy protections.
    Second, cross-border data flows, through outsourcing, for 
example, convey benefits to consumers such as cost-savings and 
around-the-clock customer service.
    And, third, cross-border or global privacy rules offer a 
way to harmonize different privacy regimes in an international 
setting. If implemented effectively, cross-border privacy rules 
can provide more consistent and reliable protections for 
consumers, as well as clear standards for businesses across the 
APEC region.
    In short, cross-border privacy rules have tremendous 
potential. The challenge ahead is to develop workable rules 
that accommodate different domestic approaches around the 
globe. We are confident that the more support the U.S. gives 
this process, the more U.S. businesses and consumers will 
benefit in the long term.
    It is against this backdrop that I will turn briefly to the 
U.S. SAFE WEB Act. We are tremendously gratified that Congress 
expanded the Commission's ability to cooperate with our foreign 
counterparts. SAFE WEB, which as you know, was signed into law 
December of 2006, deposits updated information-sharing tools 
into the Commission's law enforcement arsenal, and these tools 
will help us fight a wider range of practices that can harm 
    Now, although Section 5 of the FTC Act grants the 
Commission broad authority over unfair or deceptive acts or 
practices, the Act's cooperation provisions, drafted back in 
1938, have become somewhat outdated in the face of 21st century 
global trade and technological developments. When we began 
tackling cross-border electronic fraud, such as spam, spyware, 
and phishing, these limits on our ability to cooperate 
internationally became an impediment to our law enforcement. 
And, unfortunately, because we could not share information with 
our foreign counterparts, high-tech con artists could strike 
quickly, victimize thousands of consumers, and then seemingly 
disappear without a trace. SAFE WEB updates our cross-border 
authority in many ways. We now can share compelled or 
confidential information with our foreign counterparts, and 
gather new information for them, as well.
    We feel a great sense of accomplishment and appreciation 
that Congress has passed this law, but we realize that our work 
is just beginning. We now must take advantage of our new 
enforcement powers. And, to that end, we have convened a 
steering group to implement SAFE WEB, and we have begun to use 
these new tools in our investigations.
    In conclusion, I appreciate the opportunity to present 
remarks on these increasingly important global issues, and I 
look forward to answering your questions.
    Thank you.
    Senator Pryor. Thank you.
    The Honorable Jonathan Leibowitz?


    Mr. Leibowitz. Thank you, Chairman Pryor, Vice Chairman 
Stevens. I am also pleased to appear before you today to talk 
about some of the technology issues that the Commission is 
currently examining.
    Let me briefly highlight just three: spyware, spam, and 
telephone pretexting. All are Internet-related in one way or 
    First, spyware. The Commission has brought 11 spyware and 
adware cases in the past 2 years. Our initial cases involved 
hardcore spyware that hijacked Internet browsers, made CD-rom 
trays open and close and open and close, captured consumers' 
personal information, and caused computers to slow down or even 
crash. Recently we've begun to attack nuisance adware, 
disruptive software placed on people's computers without their 
notice or consent. These actions reaffirm several core 
principles: that consumers' computers belong to them, not to 
the software distributors; that buried disclosures do not 
suffice; and that the consumer must be able to uninstall 
unwanted adware.
    Our recent settlements with Zango and DirectRevenue 
illustrate these principles vividly. The two companies offered 
consumers free content in software without, we allege, 
adequately disclosing that downloading these items would result 
in the installation of adware. That adware generated an eye-
popping number of pop-up ads--6.9 billion pop-up ads by Zango 
alone. In both these cases, we obtained strong injunctive 
relief. The companies agreed to give clear notice and obtain 
express consent from consumers prior to installation. They 
agreed to provide a reasonable means to uninstall the software 
and to monitor their affiliates. The two companies will also 
forfeit a total of $4.5 million in ill-gotten gains. The 
Commission will continue to make spyware a priority. And we're 
happy to work with you--and, Senator Stevens, we appreciate you 
mentioning this spyware legislation--and this Committee on any 
measure you move forward with.
    Second, spam. The Commission has brought almost 90 cases 
targeting spam in the last 10 years, many of those filed after 
the CAN-SPAM Act gave us the ability to sue those who assist or 
facilitate spam distribution and the authority to seek civil 
penalties--both tremendously helpful as we fight the spam 
    As you know, spam goes beyond mere annoyance; it's being 
used as a vehicle for pernicious conduct, such as phishing 
scams, viruses, and spyware. This summer, the Commission will 
host a workshop to examine how spam has evolved and what 
stakeholders can do to address it. Filtering technology is a 
big part of the solution--so is the work of ISPs. But rest 
assured we will continue to bring forward spam cases.
    More than half of all spam and spyware, by the way, is 
transmitted into the United States from other countries. And 
so, as the Chairman and Commissioner Harbour mentioned, your 
Committee's leadership and your staff's hard work in passing 
the U.S. SAFE WEB Act--I believe it passed at 4:22 in the 
morning, the final measure moved before the last Senate 
adjourned sine die--gives us important new authority to share 
confidential information with our law enforcement counterparts 
so that we can work more effectively to help Americans who are 
harmed from abroad.
    The third issue, telephone pretexting. In May 2006, well 
before the Hewlett-Packard story became a national scandal, the 
Commission filed five complaints against web-based operations 
that obtained and sold consumers' confidential telephone 
records to third parties in violation of the FTC Act. To date, 
the Commission has resolved two cases with consent orders that 
impose strong remedies, including bans on obtaining phone 
records, prohibitions against pretexting to obtain other 
personal information, and disgorgement of profits. Last year, a 
law making pretexting a criminal offense was enacted but, as 
you know Senator Pryor, there is still a need for legislation 
that would close the gap and give the Commission authority to 
seek civil penalties against pretexters.
    Finally, the sad truth is that Internet malefactors 
understand and exploit technology. To keep pace with them, we 
need to continually educate ourselves. Last November, the FTC 
convened hearings on ``Protecting Consumers in the Next Tech-
Ade.'' We heard from more than 100 technology leaders about 
trends that may not be here today, but will affect all of our 
lives tomorrow. Among other topics, panelists addressed viral 
marketing, social networking, and user-generated content--which 
holds tremendous promise for consumers but raises serious 
perils for parents of young children. These hearings will help 
us anticipate ways in which new technologies can be misused and 
develop new ways to use technology to benefit consumers.
    To do any of this, of course, we need to work with our 
oversight Committee. And so I thank you again for the 
opportunity to testify. I'm happy to answer questions after my 
colleagues have finished.
    Senator Pryor. Thank you.
    Next, the Honorable William Kovacic.

                       COMMISSIONER, FTC

    Mr. Kovacic. Chairman Pryor, Vice Chairman Stevens, thank 
you for the opportunity to review the Commission's recent 
competition policy initiatives concerning the energy sector.
    I will focus on activities of the past 12 months, and will 
discuss four elements of our competition program for energy: 
law enforcement, research, cooperation with other government 
agencies, and public consultation.
    Merger control is the core of recent FTC law enforcement 
concerning the energy sector. Four matters stand out:
    In March, the Commission issued an administrative complaint 
challenging the proposed purchase by Equitable Resources, Inc. 
of a subsidiary of Dominion Resources. The FTC alleged that the 
proposed transaction would create a monopoly of natural gas 
distribution services in Pittsburgh and in surrounding parts of 
Allegheny County, Pennsylvania.
    Two months ago, the Commission opposed the terms of a $22 
billion deal by which Kinder Morgan would have been taken 
private by its management and a group of investment firms. The 
Commission obtained adjustments to protect competition in the 
transportation and temporary storage of gasoline and other 
petroleum products in the southeastern United States.
    Last November, Chevron and USA Petroleum abandoned a 
transaction by which Chevron would have bought most of USA 
Petroleum's retail gasoline stations in California. The FTC had 
been conducting an investigation of the proposed deal, and USA 
Petroleum's president said that resistance from the FTC 
ultimately induced the parties to abandon the transaction.
    Last October, the FTC issued a consent order that compelled 
the divestiture of salt-dome storage capacity on the Texas Gulf 
Coast to resolve competitive issues arising from EPCO's 
acquisition of the natural-gas liquid storage business of 
TEPPCO partners.
    These and other FTC law enforcement initiatives draw 
heavily upon the Commission's investment of resources to 
conduct research and perform studies involving the energy 
sector. These investments are the equivalent of research and 
development in public administration. They guide the FTC's 
pursuit of cases, and they inform our use of non-litigation 
tools that Congress has entrusted to the Commission.
    In May 2006, the Commission presented to Congress its 
report on the investigation of gasoline price manipulation and 
post-Katrina gasoline price increases. The report examined 
whether energy firms had manipulated gasoline prices, and it 
described how energy markets responded to the destruction 
caused by Hurricanes Katrina and Rita.
    In December 2006, the Commission also issued a report on 
the current state of ethanol production in the United States.
    As you know, the FTC is not the only public body with 
competition policy responsibilities that affect the performance 
of the energy sector. Improved cooperation with other public 
authorities can help each institution spend its competition 
resources more effectively. I believe the creation of more 
effective public agency networks is a key ingredient of future 
policy success in energy and other parts of the economy.
    To this end, last September the FTC and representatives of 
various state attorneys general held a 1-day workshop to 
discuss competition and consumer protection issues that 
involved gasoline pricing. At the end of that day, the workshop 
participants, I think, unanimously regarded the event as a 
valuable step toward improving Federal and state cooperation to 
address developments of common concerns, such as mergers.
    The fourth and final ingredient of the FTC's energy program 
is public consultation in the form of public hearings, 
seminars, or workshops. These consultations enable the FTC not 
only to give those outside our walls the benefit of our current 
thinking, but also permit the FTC to gain deeper insight into 
developments affecting the industry and consumers, to identify 
major emerging issues, and to help build a consensus about 
appropriate policy responses.
    Earlier this morning, a short distance from this building, 
the FTC convened the first of 3 days of hearings on ``Energy 
Markets in the 21st Century: Competition, Policy, and 
Perspective.'' These hearings are examining the role of old and 
new fuel cycles, demand-side issues, such as the operation of 
the transportation sector, lessons from past regulatory 
strategies, and the vulnerability of the United States to 
supply and demand shocks. The proceedings feature an 
extraordinary group of participants, drawn from consumer 
groups, government agencies, energy companies, think tanks, and 
universities. I believe the hearings have great promise to 
improve our understanding of how the FTC can best apply its 
competition policy instruments and, more ambitiously, to 
suggest the paths that our Nation's energy policy should take 
in the future.
    I am pleased to address your comments and questions.
    Senator Pryor. Thank you.
    And the Honorable J. Thomas Rosch.


    Mr. Rosch. Thank you, Chairman Pryor, Vice Chairman 
    Senator Pryor. Microphone, please.
    Mr. Rosch. Now going? OK, great, thank you--and Senator 
Klobuchar, thank you very much for the opportunity to appear 
before you this morning. I really appreciate it. And I 
particularly appreciate, Chairman Pryor, your getting my name 
right. I can't believe it. It's the first time it has ever 
    Today, I'd like to talk briefly about the Commission's 
activity in the healthcare area. One of the most important 
priorities of the Commission is, of course, the pursuit of 
those who make deceptive healthcare claims.
    Over the past few years, the agency has brought several 
successful enforcement actions against marketers that 
deceptively advertise health-related products that they claimed 
could, among other things, cause weight loss, decrease pain, 
cure cancer, and increase height in adults and children. For 
example, marketers for weight-loss products recently settled 
charges that they'd made false or unsubstantiated claims; and 
in settling, they surrendered cash and other assets 
collectively worth at least $25 million, and agreed to limit 
their future advertising claims.
    In addition to law enforcement action, the Commission works 
hard to educate the media and consumers about fraudulent 
claims. For example, since 2003 we've promoted a Red Flags 
initiative, which asks for the media's help in preventing the 
dissemination of facially deceptive advertising claims for 
weight-loss products. As a complement to this initiative, the 
agency has also created extensive consumer education campaigns 
to alert consumers about deceptive claims, including teaser 
websites and online games.
    Competition also plays an important role in our healthcare 
agenda. Our written statement describes some of our efforts to 
ensure that healthy competition exists in the markets in which 
healthcare providers do business, including our challenges to 
price fixing by physician providers and to hospital and drug 
company mergers. But I'd like to take a minute to describe our 
efforts to combat what we consider to be illegal reverse 
payments made by branded drugmakers to generic drugmakers in 
patent litigation settlements between branded and generic firms 
instituted under the Hatch-Waxman Act. As you know, the 
Eleventh Circuit reversed our decision in the Schering case 
that a substantial reverse payment made seemingly as a quid pro 
quo for the generic to abandon its effort to enter the market 
before expiration of the branded's patent was illegal. We held, 
in that case, that the settlement agreement was tantamount to a 
market division agreement between a competitor--namely, the 
branded--and a potential competitor--namely, the generic--which 
the Supreme Court has held is per se illegal.
    The Eleventh Circuit held we were wrong in Schering, and 
that a settlement within the scope of the patent--in other 
words, a settlement that wouldn't affect the generic's 
unpatented products or keep the generic from competing beyond 
the life of the patent--is legal under the patent laws. The 
Supreme Court declined to review that decision, at the 
suggestion of the Justice Department, which advised that the 
issue was not ripe for Supreme Court review.
    In the Tamoxifen case, which involved facts similar to 
Schering, a divided Second Circuit essentially followed the 
Eleventh Circuit. We think Tamoxifen and Schering are bad law. 
More specifically, we continue to believe that most, if not 
all, reverse payments are illegal if they're made at the same 
time a generic agrees not to compete as soon as it could if it 
won its challenge to the branded's patent.
    Schering could be reversed in one of two ways:
    First, the Supreme Court has just asked for the Justice 
Department's recommendation whether the Court should review the 
decision in Tamoxifen. We're hopeful that the Court will review 
and reverse Tamoxifen, and will do so in a fashion that will 
discredit Schering.
    Second, the Judiciary Committee has reported a bipartisan 
bill that would generally prohibit reverse payments in the 
instances I described. Commissioner Leibowitz testified on 
behalf of the Commission in connection with that bill.
    Whether the Supreme Court or the Congress overturns 
Schering, we firmly believe that one or the other should do so, 
because agreements like those at issue in Schering can severely 
hobble competition between providers of drugs, and thereby 
impose a very significant tax on the Federal and state 
governments, as well as on consumers, all of which spend 
billions of dollars each year buying drugs and stand to benefit 
from competition.
    I look forward to answering any questions you may have. 
Thank you.
    Senator Pryor. Thank you.
    Now--thank all the Commissioners for your testimony and 
your comments today--now, we made you go in a certain order 
when you testified here a moment ago, but we're not going to go 
in any order up here.
    Senator Pryor. And all I can say to that is, welcome to the 
U.S. Senate.
    Senator Pryor. No, actually, Vice Chairman Stevens has to 
slip out, as well as Senator Klobuchar, so we'll acknowledge 
Vice Chairman Stevens first, and then Senator Klobuchar.
    Senator Stevens. Thank you very much, Mr. Chairman. I'm 
concerned about, Mr. Rosch----
    Mr. Rosch. That's fine. Yes, Senator.
    Senator Stevens.--and his comments concerning the 
litigation that followed that reversed payment concept. On a 
generic basis, how often are your decisions at FTC taken to 
    Mr. Rosch. That is the only time that a Hatch-Waxman Act 
case has been brought by the Commission.
    Senator Stevens. I'm sorry to interrupt you, but as a 
Commission, how much time do you spend in litigation concerning 
the appeals to the court from your decisions? That's what I'm 
trying to get to.
    Mr. Rosch. Oh, in any decisions or just in the drug area?
    Senator Stevens. Yes, in any decisions. I address to the 
Chairman first, if I may.
    Ms. Majoras. What I would say is, probably once or twice a 
year from our own decisions, and then we have a very active 
amicus program in which private antitrust lawsuits that are in 
the courts of appeals are cases in which we often are asked to 
weigh in. And, of course, we weigh in, in a lot of Supreme 
Court cases.
    Senator Stevens. So, litigation, then, is not a substantial 
delay in the enforcement of your decisions?
    Ms. Majoras. Not typically in the enforcement of our 
administrative case decisions. We are, of course, in court as 
prosecutors, particularly on the consumer protection side, 
quite frequently. For example, we filed----
    Senator Stevens. But you initiate that action, right?
    Ms. Majoras. We initiate that action in Federal court, 
    Senator Stevens. Well, that's surprising, really, because 
there's more and more litigation that's delaying administrative 
decisions on it, and that's a very interesting statistic.
    Going back to you, Mr. Rosch, you seem to suggest that if 
the Supreme Court doesn't take this case, then you would 
suggest that Congress review, and the House does have a bill. 
Is that right?
    Mr. Rosch. They--actually, the Senate Judiciary Committee 
has voted out a bipartisan bill.
    It's not before, I think, the Senate.
    Mr. Leibowitz. Senator Stevens, if I could add, there's a 
bill introduced by Senator Kohl, Senator Grassley, Senator 
Leahy, and Senator Schumer, that would take a bright-line 
test--it would take a bright-line approach to prohibiting these 
deals. It came out of the Judiciary Committee by unanimous 
consent. Congressman Waxman introduced the bill that's in the 
House Energy and Commerce Committee. And we just feel like 
these pay-for-delay settlements in which a brand pays a generic 
to stay out of the market are very, very problematic. We 
believe they violate the antitrust laws. And whether we resolve 
this by virtue of the Supreme Court or by creating a split in 
the Circuits if the Supreme Court doesn't take cert on 
Tamoxifen, or whether Congress passes a law to overturn these 
deals, we just want to solve the problem, because it means 
consumers will get lower-priced drugs sooner; they won't have 
to pay for the higher-priced brand, they'll be able to pay for 
the lower-priced generic; and it means that the Federal 
Government--which buys, I think, after Medicare Part D, 
probably 25 percent of all pharmaceutical purchases--will be 
able to save money and reduce its budget deficit.
    Senator Stevens. My last question would be to any of you 
who wish to comment on it. What's the relationship now between 
the FTC and the FCC? In past years, it looked like there was a 
collision course in some of these areas. Have you worked out 
some comity with the FCC as particular commission?
    Ms. Majoras. We do have a very good relationship with the 
FCC, I'm happy to report. There are several areas of overlap 
where we work closely. So, for example, implementation of the 
Do Not Call Registry. Telephone pretexting is an area where I 
think recently we've divided the work quite effectively; the 
FCC focused on the actual communications carriers themselves 
and their release of information that should not be released, 
and our focusing on the actual pretexters and those who are 
selling the information on the Internet. So, that's another 
area. And we have a group of individuals at each agency who 
communicate with one another in particular as a conduit.
    I think the source of, perhaps, tension that you are 
recognizing, Senator Stevens, is, there are some questions that 
have been raised about the common carrier exemption that has, 
in our history, prevented the FTC from enforcing in the area of 
common carriers. Now, with the way industries are changing, we 
find our--and converging--we find ourselves bumping up against 
that exemption more and more in areas in which our public--and 
Congress, I think--expects us to enforce our laws; and yet, we 
have some companies saying, ``But I'm partially a common 
carrier.'' So, as the economy's changing, that's an issue, I 
think, to be addressed.
    Senator Stevens. Thank you very much, Mr. Chairman. One of 
my interests, as I think many people know, is the question of, 
How do we protect minors, in terms of access to objectionable 
content? I've asked you for some comments, but I do hope that 
you will all monitor that problem. I think, increasingly, the 
predator concept on the Internet is a particularly sensitive 
issue, as far as minors are concerned.
    Thank you very much, Mr. Chairman.
    Senator Pryor. Thank you.
    And Senator Stevens alluded to--we're going to leave the 
record open for 2 weeks for Senators to submit questions, and 
we'd appreciate a timely response.
    Senator Pryor. Senator Klobuchar?

                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you, Mr. Chairman. And thank you 
for allowing me to go now.
    I thank all of you for coming, and I hope, at some point, 
we'll talk in more detail about the work you're doing with 
identity theft. As a former prosecutor, I actually referred 
people to your website many times and gave out your materials. 
In Minnesota, I had the notoriety of getting the legislature to 
pass a law banning phishing in Minnesota. That would be 
computer phishing.
    Senator Klobuchar. And I really do think that we need to 
talk more about how we work with local prosecutor's offices on 
what are essentially international/national problems, and I 
think it would be very fruitful if we could work on this 
    But I wanted to focus more today, in my questions, on the 
gasoline price-gouging issues. And I know that, you know, gas 
went up this summer. There was a lot of concern in our state 
about gas price-gouging. I know the FTC looked at this, and 
issued a report. But my question is really a broader one 
because I heard from some experts in the field that the FTC's 
current authority is insufficient to protect consumers, and in 
the rest of the country--in my State and the rest of the 
country--from gasoline price-gouging, because many of these 
practices, I have heard, are beyond the scope of the FTC's 
authority. And I wondered if you could comment on that.
    Ms. Majoras. Certainly, thank you, Senator.
    It is true that we enforce the antitrust laws and we 
enforce laws against deceptive or unfair practices. Those 
terms, ``deceptive'' and ``unfair,'' have been defined over the 
years by the Commission and the courts so that they're not, you 
know, completely overly broad. And we do not have direct 
authority to challenge price gouging unless it's done in the 
context, for example, of an anticompetitive, you know, 
conspiratorial scheme, for example.
    Senator Klobuchar. Yes----
    Ms. Harbour. Yes----
    Senator Klobuchar.--Commissioner.
    Ms. Harbour.--I'd like to add something on that issue. At 
the Federal level, the price-gouging debate and the newly 
introduced legislation, in my opinion, only scratches the 
surface of our energy policy in this country. I think the 
United States clearly has some energy problems. We're faced 
with major challenges in sustaining, in my view, viable, long-
term balances between supply and demand. I think there are some 
engineering problems, there are some environmental problems, 
and there are some lifestyle issues. But I think most of these 
problems are not only antitrust problems, and, even assuming a 
vigorous enforcement of the antitrust laws, I don't think that 
antitrust can fix all of these problems. But I will say that if 
price-gouging statutes or legislation were passed, I would 
enforce those laws.
    Mr. Leibowitz. Yes, I think Senator Stevens introduced a 
bill this Congress that we've been looking at. Senator Cantwell 
introduced a bill last Congress. I believe she's going to 
reintroduce it. And, of course, although there's a division 
among us as to how supportive or--or how supportive we are as 
to price-gouging statutes, we will, of course, enforce any law 
that you enact.
    Senator Klobuchar. That's good to know.
    Senator Klobuchar. The second thing I wanted to ask was 
about the GAO report that found that mergers increased market 
concentration in the oil and gas industries approved by the FTC 
led to increased prices for American consumers. Do you all see 
the effects of these mergers and these consolidations? And, you 
know, where is the GAO wrong if you don't agree with their 
opinion in this report?
    Ms. Majoras. Thank you, Senator. We've looked very 
extensively at the GAO report, and we worked very closely with 
DOJ--with GAO to dissect it, both their methodology and their 
results. We do think there are some problems with the study. 
It's--I mean, I give GAO credit. I mean, it's very difficult to 
determine the effects of mergers, especially--there were 
several large mergers, of course, in the energy industry during 
the 1990s. The FTC permitted many of the mergers to go through. 
But only after seeking significant, and getting significant, 
divestitures of the areas of competitive overlap.
    In terms of--and so, what the GAO found was roughly, 
perhaps, a 1-cent to 5-cent increase, which I don't downplay. 
One cent to five cents of an increase can be a significant one 
for consumers. But there were problems that our economists 
found with the methodologies that GAO used, and with, then, 
taking those results and saying, ``Therefore, all of these 
mergers were anticompetitive and are causing prices to go up.'' 
For example, if you look at the upstream market for oil, those 
markets are really unconcentrated. I mean, still every--any 
individual participant only has a very small market share. 
Moving forward through the chain to refining, those markets, 
contrary to popular belief, if you actually look at the facts, 
are still unconcentrated or only moderately concentrated. So, 
it's--and for a variety of other reasons--I don't want to take 
up all your time--they're--we had some issues with that report, 
that we've discussed with GAO. But, rather than just say, 
``That's it,'' we've been working with economists to try to 
develop new methodologies so that we can better measure the 
impacts of mergers, going forward.
    Senator Klobuchar. I know two of your fellow commissioners 
wanted to answer as well. OK.
    Mr. Kovacic. Senator, if I could add one thing that I like 
a great deal about what the GAO attempted to do, and one thing 
about which I disagree. Developing a custom or a habit, both 
within our agency or by knowledgeable outsiders, of doing 
assessments of the effects of what we do, is a highly desirable 
element of what public agencies should do. My own belief, 
intensely, is that government agencies should devote more 
resources than they do now to going back and measuring the 
effects of interventions or decisions not to act. The GAO's 
contribution to that process is a highly desirable one. It's 
the GAO's execution of the effort about which I have questions, 
because the results in the admittedly difficult arena of this 
type of analysis are extraordinarily sensitive to the technique 
that one uses. I see it as being the equivalent, in many ways, 
of the GAO having jumped about 95 percent of the way across the 
Grand Canyon, which is an enormously impressive accomplishment, 
but ultimately quite disappointing.
    Senator Klobuchar. But at least, Commissioner, they did try 
to make the jump. I mean, they----
    Mr. Kovacic. I----
    Senator Klobuchar.--they start--I mean, my concern is 
whether the FTC is continuing to study this, because----
    Mr. Kovacic.--Indeed, we are, Senator. As a way of 
addressing these differences, Chairman Majoras and my current 
colleagues convened a conference, in January 2005, in which we 
presented the results of our studies side by side with the GAO 
and engaged in a discussion, the results of which are now in 
the public domain, about analytical techniques. So, I think it 
is incumbent on us not simply to say, ``You didn't jump far 
enough,'' but to improve the jumping technique to get across.
    Mr. Leibowitz. And if I could try to climb us out of the 
abyss of the----
    Senator Klobuchar. Oh, that was a nice segue.
    Mr. Leibowitz.--Grand Canyon a little bit----
    Mr. Leibowitz.--the GAO looked at deals that took place, I 
think, mostly prior to 2003. We're sort of a commission of----
    Mr. Kovacic. All of the deals studied were before 2001.
    Mr. Leibowitz. All of them were before 2001. We are sort of 
a commission of newbies here. I think the--I think we arrived 
in 2003, 2004, and--into 2005. And so, since we've been at the 
Commission, we've sued to block a deal in Hawaii involving 
Aloha Petroleum--where the number of marketers was going from 
five to four. We were successful there. We've been credited, as 
Commissioner Kovacic mentioned, with having Chevron pull out 
from a purchase of USA Petroleum in California. So, I like to 
think--and I think my fellow commissioners believe--that we're 
working aggressively on behalf of consumers in this area.
    Mr. Rosch. Yes, if I could just add, on that point, 
Senator, I know this is kind of a hot-button issue, so I do 
feel obliged to speak to it. I think that Chairman Majoras is 
absolutely right that even at the refinery level it may be the 
case that, in most areas of the United States, the markets are 
relatively unconcentrated. However, there is no question at all 
that further mergers will further concentrate these markets. 
And so, I think I can safely say that any further mergers of 
companies that have refinery properties will undergo very 
careful scrutiny by this Commission.
    Senator Klobuchar. Thank you very much. I appreciate it.
    Senator Pryor. Thank you.
    Let me dive in here on a different matter, sort of a more 
general matter, and that is, I know it's difficult sometimes 
for a Federal commission or Federal agency to come to Congress 
and say, ``We don't have enough resources to do our job.'' And 
what I would encourage you to do is to talk to us, whether it's 
publicly or privately, and, if we could get you some more 
resources, tell us what you would do with those resources. And 
if you need more statutory authority--I think, Mr. Leibowitz, a 
few moments ago, you mentioned more statutory authority in a 
couple of areas, and others did, too. Tell us what you need to 
do your job better. And, again, it doesn't have to be in a big 
public forum like this, but I would love to have that dialogue 
with the Commission so that if we find any additional money in 
the budget, which is going to be hard to do, but if we do, and 
we find more resources, and if we can pass some law to help, we 
want to try to do that.
    Let me start with Mr. Leibowitz, if I can. You talk about 
spyware and adware; especially--well, both of those, but 
especially with spyware, why should spyware be legal at all? 
Why should it ever be legal? What's the good public-policy 
reason to allow spyware to even exist?
    Mr. Leibowitz. Well, we don't--I think we don't believe 
spyware should be legal. If you are putting things on 
consumers' computers without their notice and consent, that 
very well could be a deceptive or unfair act in violation of 
Section 5. And so we're going to aggressively go after spyware 
and nuisance adware, and I think we have, in the last--in the 
last couple of years.
    Senator Pryor. I'm----
    Mr. Leibowitz. And the SAFE WEB Act that you enacted at the 
end of last year will be very helpful to us in going after 
cross-border fraud and spyware.
    Senator Pryor.--I'm glad to hear that, and I'm glad you're 
doing that because it's a real source of frustration for, I 
know, my constituents, my family, my office and everybody else. 
But basically for anybody that has a computer, it's a real 
source of frustration. So, I'm glad to hear you say that.
    Here's the other question on spyware and adware, are your 
remedies sufficient--you talked about a huge case--I don't 
recall the name of the case, but you talked about a huge case, 
and it seemed like a fairly hefty fine, but the fine in 
relation to how much they were doing seemed relatively small. 
Is the remedy that you have available, is it sufficient?
    Mr. Leibowitz. Well, I would say this disgorgement of 
profits can be a very good and strong remedy sometimes. I 
think, from my perspective--and I'll let other commissioners 
speak to this, as well--if we had civil penalty authority to go 
after--to go after spyware malefactors, that would be very, 
very useful. I know it's in some of the bills that percolated 
around this Committee last Congress. Because with something 
like spyware, it's hard to determine what the injury is to each 
consumer, and it's hard to determine, sometimes, how much of 
the profits that the company makes are from illegal conduct and 
how much are from permissible conduct. And so, I think it would 
be a very, very good strong deterrent to have civil penalty 
authority. That would be helpful. Yes, sir.
    Mr. Kovacic. Mr. Chairman, if I could just add, a critical 
area of our effort in the last few years has been to work more 
closely with government agencies that have criminal enforcement 
authority, because many of the most serious wrongdoers we 
observe in this area are, I believe, only going to be deterred 
if their freedom is withdrawn. Ultimately, it's going to be 
successful criminal prosecution, which engages the resources of 
the Department of Justice, the U.S. Attorneys, state 
governments, and foreign authorities, whom we've been 
emphasizing today, to take their freedom away. Many of the bad 
actors whose work your constituents have identified, are 
technologically proficient, they're geographically adaptable. 
Many of them operate outside the United States. They can only 
be described as vicious organized criminals. Until we have 
success, as a law enforcement community, in placing them in 
prison, I don't think we'll ultimately have the deterrent 
influence we need. So, that cooperative effort on the criminal 
enforcement side, I think, is a key dimension of the sanctions 
    Senator Pryor. Good. Let me switch gears here for just a 
moment, and then I'm going to recognize Senator Dorgan.
    Not to pick on one company, but recently there were some 
stories about T.J. Maxx having, I think, over 45 million 
accounts of credit card and debit card information stolen. And 
apparently this happened in December of last year, but they did 
not reveal the details of this until March--late March of this 
year, until just a couple of weeks ago, I guess. First question 
I would have, maybe, for the Chairwoman, is, What should the 
notice requirement be when something like this happens? What 
notice requirement should exist to protect consumers? And, 
second, there's an idea floating around here in the Senate, and 
probably the House, on a credit freeze, which would allow 
consumers to freeze their credit so people couldn't have access 
to their credit information without their permission--without 
the consumers' permission. And I'm curious about your thoughts 
about whether that would actually protect consumers. So, Madam 
Chair, you can start, and other people can chime in.
    Ms. Majoras. Thank you, Senator Pryor.
    As you know, the area of data security is one in which 
we've been highly active, and, as T.J. Maxx, in fact, has 
acknowledged, we're taking a look at that situation. As far as 
the--as having a legislated notice-of-breach provision, we 
think it should be tied to when there is a significant risk of 
harm to consumers. And the reason for this is that there are 
plenty of situations in which security may be breached, but 
it's unlikely that it would have an impact on consumers. And we 
get concerned that if consumers get over-noticed, they will 
just simply stop paying attention, or, at the other end of the 
scale, panic in a situation in which they need not, and take 
expensive measures that they need not take. So, that's where 
we've been on that.
    As far as credit freezes, when the issue was first raised, 
a couple of years ago, my view was that we should wait a bit. 
And the reason is because states were enacting them; whereas, 
the Federal Government had enacted certain measures in the FACT 
Act. And we really wanted to see those take hold and see how 
they were working for consumers before we jumped into a new 
area. And the nice benefit sometimes is, we can use the states 
as the laboratories of democracy to see what the impact is. So, 
we're now currently looking at this issue of credit freezes, 
versus the protections in the FACT Act, to see what's working, 
what's not, and what would be best if a Federal statute were 
passed. So, we're happy to work with you further in thinking 
that through as we go forward.
    Senator Pryor. Great. Any other----
    Ms. Harbour. Yes, Chairman Pryor. We are a very collegial 
commission, but there are times that we disagree slightly at 
the margins. And, as far as the legislative notice of breach, 
my opinion has always been that a significant risk of harm was 
too high of a bar. And I say that, because there are times when 
companies are very reluctant to quantify the breach as being 
significant, because they are fearful that it will have an 
impact on their stock prices, and they will, therefore, not 
feel it's significant, although it is a risk of harm. So, 
though we do agree about the breach notification, I would have 
some reservations about the ``significant'' moniker on that.
    Mr. Leibowitz. And if I could just add, the other two 
components that we all agree on in terms of data security 
legislation would be a safeguards rule, so that companies 
safeguard important personal information, and then civil 
penalty authority, so that we'll have a strong deterrent that 
we can use.
    Mr. Kovacic. I think that this is an issue that is worthy 
of a continuing conversation between ourselves and the 
Committee, because, in many ways, through the individual law 
enforcement proceedings that we've undertaken in specific 
investigations, we learn a bit more each time about what an 
appropriate standard might be. So, I would simply add that, in 
light of our experience in individual matters, I think every 
month we become better informed about what an ultimate 
legislative adjustment might be and how it might be designed.
    Senator Pryor. Great.
    Senator Dorgan?


    Senator Dorgan. Mr. Chairman, thank you very much.
    Let me thank the Commissioners for being here today.
    I'd like to ask a series of questions. I do want to ask 
some questions about gas prices, at some point. But first, let 
me ask all of the Commissioners briefly--as you know, the 
common carrier exemption exists with respect to the 1934 Act on 
communications that really provided authority to the Federal 
Communications Commission over those areas. That has now 
largely been deregulated. And I would ask--I happen to believe, 
and I would ask if you concur--that the common carrier 
exemption should be repealed so that the Federal Trade 
Commission would have some jurisdiction in this area to 
investigate and protect consumers.
    Ms. Majoras. Thank you, Senator Dorgan.
    We do, in fact, believe that the exemption is outdated. We 
are already seeing places in which companies raise it and 
stymie our enforcement efforts. An example--to take a 
hypothetical example--would be, we endeavor to look at some 
advertising, perhaps, of a broadband provider that we think may 
be misleading, and the broadband provider is bundling broadband 
services, which we could enforce against, with traditional 
telephone services, and tells us, ``Uh-uh, no, you can't go 
anywhere near that, because it's--because of the common carrier 
    Senator Dorgan. Do the rest of the Commissioners believe we 
should repeal the exemption?
    Mr. Leibowitz. Yes, we--I think it's an anachronism, and we 
appreciate your leadership. I know you tried to remove it last 
year, and we think we can do good consumer protection and 
antitrust work if that prohibition is repealed.
    Ms. Harbour. And, that's right, because if it is not 
repealed, I think consumers do not benefit from FTC oversight 
against deceptive and unfair market, advertising, and billing 
practices. And I think the bundling of telecommunications 
services is a growing phenomenon that--this exemption basically 
complicates our ability to protect consumers. Therefore, we 
would advocate for removal of the exemption.
    Mr. Kovacic. Senator, I think the intuition of your 
proposal is exactly right. We essentially have a legal 
infrastructure that was built over 70 years ago, when the 
industry was much different. We have highly dynamic industries 
that are blurring together, yet we have a legal infrastructure 
whose essential elements are now outdated. So, I'd endorse your 
approach entirely.
    Senator Dorgan. All right.
    Mr. Rosch. And I would just add my voice along with the 
others, except that I think I'd probably emphasize that our 
track record with respect to other instances in which we review 
mergers which are also before the FCC, and we make a 
contribution to the FCC's understanding of the competition 
issues, I think speaks for itself, and I think that's another 
reason for repealing the exemption.
    Senator Dorgan. Does the common carrier exemption apply on 
the issue of XM and Sirius, the proposed merger of XM and 
Sirius, or are you involved in that?
    Mr. Rosch. No, that's Justice. But it--the answer is--as to 
us, I don't know what the answer would be.
    Senator Dorgan. Why would you have a role to play in making 
a judgment about the XM and Sirius proposed merger?
    Ms. Majoras. We do not. As you know, we share antitrust 
authority with the Department of Justice. We have an MOU 
between the two agencies in which we divide the work, and 
they've had the experience in radio, really since the 1996 
Telecom Act, so the radio mergers go to Justice.
    Senator Dorgan. Yes. One wouldn't want to value that 
experience with any significant value, would we? Given what has 
happened with the concentration and growth, it doesn't suggest 
that whatever the role of Justice was in these areas was a role 
that was helpful to our country. But that's another story, 
perhaps for another time.
    I think the XM/Sirius proposed merger raises very 
significant questions. I didn't know whether you were involved 
in that or not. This Committee might want to have some 
discussions with Justice and others. And I know there's a 
hearing scheduled on that issue, but that's a very significant 
and a serious issue. And, you know, I have, from time to time, 
threatened to put the pictures of attorneys, both at Justice 
and the Federal Trade Commission, on the side of milk cartons, 
feeling that we're paying a lot of them, but they've vanished 
on the issue of antitrust enforcement because we've not had 
very significant antitrust enforcement in this country. You 
want to merge? Merge. Nobody seems to care very much. That has 
been true under Democratic Administrations and Republican 
Administrations. And, boy, I--if you'd look at growth and 
concentration in a range of areas, I think it's very troubling, 
and it's all happened with pom-poms and cheerleaders, and we 
have people say, ``Well, we'll put conditions here and there,'' 
but the fact is, there has been dramatic growth in 
concentration in virtually every area of commerce. But that's 
just my lament.
    Chairman Majoras, there was a posting today in the--an 
Associated Press story that had you saying, ``A Federal law 
against oil company price gouging would be difficult to enforce 
and could hurt consumers by causing fuel shortages.'' How would 
a Federal law against oil company price gouging cause fuel 
shortages? Did you say that or is it a misquote?
    Ms. Majoras. I don't remember that exact quote, but I have 
said things like that, yes.
    Senator Dorgan. Tell me how a law that would prohibit price 
gouging would cause fuel shortages, in----
    Ms. Majoras. Well----
    Senator Dorgan.--your judgment.
    Ms. Majoras. Well, the difficulty with a statute that 
prohibits price gouging, fundamentally, is, How do you define 
it? In other words, if you raise prices for one reason, then 
maybe that's OK, but if you raise prices because you're just a 
bad person and you want to gouge people, maybe that--that's 
another. And the difficulty that we've seen in our past history 
in the United States is that anytime we've tried to place 
constraints on the ability of companies to raise prices, 
particularly in times of crisis, which is when this generally 
has been raised, two things happen. First of all, price 
increases signal, particularly in times of emergency, to other 
suppliers, ``Hey, we need more supply here. Come to this 
area.'' That's exactly what happened after Katrina, when we saw 
European supplies and the like being diverted to the Gulf, and 
that means, then, we have more supply and the price goes down a 
bit faster. The second signal that prices send is, they send 
the signal to consumers that, in fact, supplies are tight, and 
we need to reduce our demand. That also happened after the 
hurricanes--tragic hurricanes in 2005. So, if we put in--as 
virtually every economist I've read on the issue has said, if 
you put a constraint on prices, as well intentioned as it is, 
because, admittedly, price gouging sounds like a horrible 
thing, is a moral issue, and I understand that--the difficulty 
in enforcement would be in identifying it. And when we looked 
at these issues after Katrina, we found very few instances that 
we could say were true price gouging. And even in instances 
where you heard, you know, of a person here and there raising 
the price up to 6 bucks a gallon or something, what happened, 
actually, was pretty admirable. The market said, ``No,'' and 
consumers said, ``No.'' And that--those guys were--had to bring 
their price down pretty darn fast or they were going to lose 
all of their business. So----
    Senator Dorgan. But do you understand--were you involved--I 
guess the answer is, you were not involved in the issues of 
wholesale electric pricing in California, where we now get the 
transcripts of people that were manipulating supplies, 
manipulating the market system. Years afterwards----
    Ms. Majoras. Sure.
    Senator Dorgan.--we discovered that this was wholesale 
cheating. Consumers got bilked out of billions of dollars. FERC 
sat there, dead from the neck up, didn't give a damn, didn't do 
a thing, came and testified before my Committee, saying, ``You 
must not interfere. You must not interfere. The market system 
will work.'' The market system was rigged. It was rigged.
    Now, the question I have is--I don't know whether there's 
price gouging, at the moment, or where it might be, but you 
said that it--I guess you seemed to say that if price gouging 
is bad--I assume that you believe price gouging is inherently 
bad, do you not?
    Ms. Majoras. Well, it depends on how you define it.
    Senator Dorgan. Well, the term ``gouging,'' itself, would 
suggest how I define it, but would you----
    Ms. Majoras. But----
    Senator Dorgan.--if the market system, whatever that is, 
has its arteries clogged by concentration, and, therefore, it 
allows the participants, rather than be engaged in price 
competition, to set their own price, and, therefore, gouge 
consumers at an inappropriate time, do you think that's 
inappropriate? Is that destructive of the consumer's interest?
    Ms. Majoras. Not--I mean, not exactly as you've said it. 
Look, if the individual--if individual companies are making 
their own decisions about prices, not agreeing with the 
industry about prices, and the market's working, and they raise 
the price, then, no, I would not--I would not call that--I 
would not call that ``gouging.'' If you tried, today, to do 
that, and raised the price up to--I don't know what you would 
think is gouging--5 or 6 bucks a gallon, it wouldn't be 
sustained. There's no way. Because there's enough competition 
there that the price would come back down.
    Senator Dorgan. But you know something? I heard exactly the 
same testimony from FERC during the California ripoff, to the 
tune of billions of dollars.
    Ms. Majoras. I understand, Senator. But it isn't as though 
we have no authority today to go after market manipulation. We 
scrutinize these petroleum markets constantly----
    Senator Dorgan. Give me an example of----
    Ms. Majoras.--looking for----
    Senator Dorgan .--actions you've taken----
    Ms. Majoras.Well----
    Senator Dorgan.--to scrutinize. Have you taken actions?
    Ms. Majoras. We have taken actions. We've brought----
    Senator Dorgan. And----
    Ms. Majoras. We've brought cases--we haven't--we haven't 
found manipulation, in the sense that you're talking about in 
the electricity markets. And, of course, there are some 
significant differences between electricity markets and 
petroleum markets that actually, I think, have an impact on the 
ability to manipulate. Electricity, for example, can't be 
stored or saved, and petroleum can be, and that has a huge 
impact on the market.
    Senator Dorgan. But the similarities are much more 
interesting: highly concentrated and an ability to manipulate 
the market.
    Mr. Leibowitz, you wanted to respond?
    Mr. Leibowitz. Yes, if I could just respond momentarily to 
both this issue and to the prior issue you raised. You know, 
the Chairman and I talk all the time about price-gouging 
legislation and other legislative and non-legislative issues. 
In this case, we're in disagreement. I do believe that price-
gouging legislation could prevent some of the profiteering, for 
example, that we saw in the wake of Hurricane Katrina, some of 
the other bad acting, so long as it's limited in duration, 
there's an emergency trigger. I know Senator Stevens has a 
bill, and Senator Cantwell had a bill last year.
    I want to come back, though, to the notion of putting our 
names on milk cartons. There has certainly been----
    Senator Dorgan. It was actually pictures I was talking 
    Mr. Leibowitz. There are pictures for--right. Well, 
pictures, names.
    Senator Dorgan. Your picture and your name.
    Mr. Leibowitz. My picture and my name.
    Mr. Leibowitz. I would like, actually, Bill Kovacic's name 
under my picture.
    Mr. Leibowitz. I share your concern that--about antitrust 
enforcement--the need for vigorous antitrust enforcement. Most 
of the time I've heard those criticisms, though, it has not 
been about the FTC. We have brought cases to block oil company 
mergers, at least in the last couple of years, one in Hawaii, 
one--we've been given credit with having--causing the acquirer 
to pull out of a California deal because they knew we were 
going to go to court to block it.
    And then, on the issue of reverse payments between the 
brands and the generics, where the brand--and we've talked 
about this issue--where the brand pays the generics to stay out 
of the market. I think we have been absolutely vigorous on 
that. And I'll put into the record an editorial from the New 
York Times entitled ``Return of the Drug Company Payoffs,'' 
where it said the FTC has been waging a ``valiant fight.''
    [The information referred to follows:]

   The New York Times Editorial/Letters--Wednesday, January 24, 2007

                   Return of the Drug Company Payoffs

    Two excessively lenient court decisions have allowed the 
manufacturers of brand-name drugs to resume the underhanded practice of 
paying generic competitors to keep their drugs off the market. It is a 
costly legal loophole that needs to be plugged by Congressional 
    The problem arises when a generic manufacturer tries to take its 
drug to market before the patent on a brand-name drug has expired by 
arguing that its product does not infringe upon the patent or that the 
patent is invalid. Huge sums of money are at stake, especially with 
blockbuster drugs whose annual sales can exceed a billion dollars.
    Rather than risk it all, a brand-name manufacturer may choose to 
pay its generic competitor substantial compensation to drop its 
challenge and delay marketing its drug. Both companies make out 
handsomely. The big losers are consumers and the public and private 
insurers that must continue to pay monopoly prices for the brand-name 
    The Federal Trade Commission, which has been waging a valiant 
fight, succeeded for several years in eliminating such settlements. But 
two appeals court decisions in 2005 held that they are a legitimate way 
to resolve patent disputes. And sure enough, the FTC reported last week 
that--after a five-year hiatus--brand-name companies made 3 such do-
not-compete settlements in Fiscal Year 2005 and 14 more last year.
    The pharmaceutical industry contends that the settlements are a 
reasonable way to resolve disputes and that they often result in 
bringing generic drugs to market before a patent has expired, albeit 
not as soon as the generic company wanted. The industry argues that 
regulators and the courts should judge such settlements on a case-by-
case basis.
    Our own hunch is that the better approach for Congress to take as 
it moves toward corrective legislation would be a ``bright line'' 
prohibition against making any payments to delay introduction of a 
generic drug. That would set a clear standard and enhance the 
likelihood that consumers would get a chance to benefit from real 
competition in the pharmaceutical market.

    Senator Dorgan. I agree with that. And we've been--you've 
had a setback as a result of a court decision there----
    Mr. Leibowitz. Thank you.
    Senator Dorgan.--and we need to--Congress needs to respond 
to that.
    Maybe I draw with too broad a brush here. We have roughly 
1,000-plus attorneys whose job it is to work on antitrust, and 
a good many in Justice, some at the FTC and other places, and 
it's--if you just look back a decade, it's hard to see that 
we've made much progress because there's dramatically increased 
concentration in most areas. And that was the point I was 
trying to make.
    Mr. Rosch. Senator?
    Senator Dorgan. Yes, sir.
    Mr. Rosch. I guess I'm the low man on the totem pole, 
literally, here, but let me make three quick points, if I may, 
because I came from California, and I was there during the 
price gouging with respect to electricity. And, you're right, 
that was rigging the market. There's no question about that.
    The first point I would make is that we do have a statute 
that is different from FERC's. We have a statute that prohibits 
unfair methods of competition. And I do believe that we can go 
after single-firm conduct in that context.
    The second point I would make is that the closest analogy 
to that--I will say that electricity is, again, an area which, 
by and large, goes to Justice rather than the FTC--in an area 
where we do have jurisdiction, is probably what I've read about 
BP's hoarding of heating oil on the East Coast about 18 months 
ago. And we thought about bringing a case in that area, but the 
fact of the matter is that the Commodities Futures Commission 
is already exercising jurisdiction in that area, and Justice is 
bringing a criminal case. It would be nothing but piling on and 
a waste of taxpayers' dollars if we brought another case in 
that area.
    The third point I would want to make is that the Chairman, 
I think, is absolutely right that if you get it wrong with 
respect to price gouging, the consequences can be very severe. 
I happen to be 67 years old, so I remember when President Nixon 
imposed price caps on petroleum back in the early 1970s, and 
what happened as a result of that is that I ended up in gas 
lines running several blocks.
    Senator Dorgan. Mr. Rosch--finish up with----
    Mr. Rosch. No, I--I'm sorry.
    Senator Dorgan. I love the----
    Mr. Rosch. I go on too long. Please.
    Senator Dorgan. I understand about the market. The market 
system is the best system we know for the goods and services to 
be moved in the directions that consumers want goods and 
services. The allocation of goods and services by the 
marketplace is the best I know. But the marketplace needs 
effective regulation to work. When the arteries of the 
marketplace are clogged, and you have too much concentration, 
too much pricing power in the hands of too few, the consumers 
get injured, and injured badly. So, we create a Federal Trade 
Commission, an FTC, and we ask the FTC to be aggressive. 
Aggressive. We don't want you to get it wrong, but neither do 
we want you to sit back and say, ``You know what? Let's let the 
market sort this out.'' There are plenty of perversions in the 
marketplace that need effective regulations.
    You all really are the referees, of sorts, with respect to 
manipulation of markets, the damage to consumers from that 
manipulation. And I just--I react a little bit when I hear 
people say, ``Let's let the marketplace sort that.'' That's 
exactly what FERC said to us, and FERC--it was in exactly the 
same situation--they sat at the table and they said to us, 
``It'll be fine. You all that want to slap some price controls 
on these folks, shame on you. The market will sort this out.'' 
In the meantime, the consumers are being cheated and bilked.
    And the point I want to make is this: it is a matter of 
philosophy and will, as one assumes these jobs, about whether 
or not you're going to go after these things because you can 
say that you have the authority to do it, but using the 
authority, and having the will to use the authority, on behalf 
of consumers at the right time is critical for something like 
the FTC.
    Now, one final point--Mr. Kovacic, I'll get to you--out of 
my subcommittee, we're going to try to move a piece of 
legislation that will reauthorize the Federal Trade Commission. 
It has been since 1996. I mean, we've got to do better than 
that. I'm going to try very hard to reauthorize the FTC, get it 
through this Committee and get it to the Congress. You deserve 
that, and so do the American people.
    My only point today is that I want a Federal Trade 
Commission to be worthy of its appointment and its work on 
behalf of American consumers, to be a regulatory body--yes, 
regulatory--regulation, nothing wrong with regulation; that's 
what helps keep this free-market system free and working 
effectively. So, I want the Federal Trade Commission to 
succeed, not fail. Don't misinterpret my remarks.
    Mr. Kovacic?
    Mr. Kovacic. Senator, thank you for indulging me for 
another minute.
    I'd like to go to the Enron example. As I understand it, a 
critical element of the misconduct there was the deliberate 
manipulation and deception of an existing public regulatory 
process; that is, Enron and other traders lied to government 
regulators who were responsible for allocating capacity, where 
bottlenecks determine the flow of electricity to different 
users. That's a case I would have brought under the Federal 
Trade Commission Act. And I want to give you an energy example 
where we've brought a case by policing instances carefully 
where firms seek to achieve or exploit their market position by 
manipulating the processes of government regulation. Our Unocal 
case, which was resolved in 2005, and resulted in the 
nonenforcement of patents for CARB gasoline in California, 
resulted from our allegations that what Unocal had done had 
been to lie to the state regulators in California in the 
process of setting the standard in question. That has been 
worth, by our calculation, essentially $500 million a year 
through the life of those patents. That is, where the 
behavior--and I think this was key to the strategy in Enron--
where the behavior in question involves the deceit, the 
manipulation of a regulatory process whose very existence is 
essential to the functioning of the sector, that's behavior 
that we would police aggressively.
    Senator Dorgan. Let me say, Senator Pryor, you've indulged 
me with a lengthier period of questioning, but I want to make 
one response to that. I sat in that Chairman's chair and 
chaired the hearings on Enron in this Committee. Ken Lay sat 
where you sat, took the Fifth Amendment. Jeffery Skilling sat 
and talked all day. Turns out he didn't tell us the truth. But 
the plain fact is this. The FERC, Federal Energy Regulatory 
Commission, used language that rings a bell with me when I hear 
it again, that the market system--the market system--you say 
you would have brought action. The only way you would know what 
was happening there was to investigate aggressively, and that 
was not the case, because, philosophically, the other agency 
felt, ``The market system will sort this out. Prices go up. 
They'll come down.'' And that's my only concern.
    I guess we shouldn't debate history at greater length than 
that, except to say when I--Ms. Majoras, when I saw your 
statement this morning that price gouging--will cause fuel 
shortages, I don't buy it, not a bit. You and I are going to 
have some other discussion at some point, I hope, and perhaps 
even before this Committee.
    Ms. Harbour. Senator Dorgan, I would like to just make a 
couple of comments. I've sat here, and I've listened, and I 
know you talked about the market system being rigged, and 
compared, perhaps, us to FERC. But I do know that we are very 
vigilant in this area. I view myself as being somewhat hawkish. 
I know that the Commission tracks daily retail gas prices in 
360 cities and wholesale prices in 20 major urban areas. And, 
under the antitrust laws, if there were collusion, we would 
bring an action, or we would be talking about it and 
dissenting, if we didn't. We are looking at this very 
vigilantly. I think this is a very complicated industry. I have 
said before, I do not think that the Nation's gas and oil 
policies can be solved by antitrust alone. We know that, you 
know, there are supply-and-demand issues, we know that, on 
the--as domestic consumption goes up each year, China and India 
are consuming more and more oil. We have the Federal, we have 
the local, we have the regional influences of gasoline prices. 
I, for one, do not feel that I am sitting here and watching our 
gasoline prices going up, and doing nothing. I think that we 
are looking very carefully. And, under the antitrust laws, if 
there is any sort of collusion, we would certainly bring an 
action in that regard.
    Senator Dorgan. Senator Pryor, are you completely out of 
    Senator Pryor. No, not----
    Senator Dorgan. Probably close.
    Senator Pryor. I'm enjoying this. I----
    Senator Dorgan. There's----
    Senator Dorgan. Let me just--Ms. Harbour, there's no 
marketplace here with respect to oil. I mean, no--certainly no 
free market. You have OPEC countries, a cartel sitting around a 
table deciding how much they'll produce and what they want to 
get for it. You have the spot market, which is an orgy of 
speculation, the futures market, an orgy of speculation. You 
have a much more highly concentrated oil industry with the 
majors now all having two names because they married up with 
some other company, so instead of one name, it's always two 
names. And then, in addition, a substantial portion of the oil 
in the international marketplace is controlled by countries, 
not companies. So, there's no free market here at all. And I'm 
not suggesting you're not doing anything. I'm not suggesting 
your work isn't worthy. I want to work with you to reauthorize 
the functions of the FTC. I'm just saying that I want the FTC 
to be an aggressive advocate on behalf of consumers. They're 
going to the gas pumps right now, paying, in some cases, close 
to $3; in some parts of the country, well over $3. Exxon will 
announce its latest profits, and I assume they will exceed the 
$36 billion of last year. And I think a whole lot of consumers 
have a lot of questions to ask about whether this so-called, 
``free market,'' works for them. They know better--they know it 
doesn't. They know it works for some, but it certainly doesn't 
work for them.
    Ms. Harbour. And I agree, Senator. But the United States, 
as I said earlier, clearly has some energy problems, and we 
have to work within that framework.
    Senator Dorgan. Yes, I agree with that, but I would prefer 
a Federal Trade Commission that says, ``We welcome a price-
gouging Federal law.'' I mean, 26 states now have price-gouging 
laws they've enacted. I would prefer a Federal Trade Commission 
that says, ``You know something? A Federal price-gouging law is 
right down in our wheelhouse of what ought to be done.'' I----
    Ms. Majoras. Well, I would, Senator, if I thought that it 
was really what was going to help consumers. I mean, I care 
deeply about helping consumers, but just about every economist 
in our Nation, just about every editorial page of every major 
newspaper has come out again and again and said, ``This won't 
help, and it potentially will hurt.'' So, I'd love to come up 
and talk to you further about these issues. And I--and I also 
think that--you're absolutely right about OPEC. I mean, we 
start with OPEC at the upstream market. But after that, I'd 
like to show you, Senator, the work that we've done that shows 
that we actually do have a market economy beyond OPEC for these 
markets, and the way--and the way that--or the way those 
markets have worked. We've--we pay more attention to this 
industry than any other, except perhaps healthcare. We are 
watching, all the time, and we're aggressively pursuing 
investigations. And if we find manipulation that violates the 
law, I can assure you I will be the first one lining up to----
    Senator Dorgan. Would you----
    Ms. Majoras.--bring the case.
    Senator Dorgan. Would you send me a list of those 
economists that believe that price-gouging legislation is a bad 
    Ms. Majoras.Oh--I mean, yes, the--I mean, the----
    Senator Dorgan. That would be helpful.
    Ms. Majoras.--it has been written about extensively.
    Senator Dorgan. I used to teach economics in college 
briefly, but I overcame that and----
    Senator Dorgan.--I'd like to get the names of economists 
that think that laws that prevent price gouging somehow are 
inherently unworthy.
    Ms. Majoras. Yes. There are a lot of them, so I will.
    Ms. Harbour. And antitrust lawyers, too.
    Mr. Leibowitz. And at the risk, Senator of continuing this 
round and restating the obvious, if Congress passes a price-
gouging statute, we will obviously enforce it. I mean, I've 
been supportive of a price-gouging statute, but the whole 
Commission will enforce any law that you enact.
    Mr. Kovacic. Absolutely. Absolutely, Senator, the will of 
this body will be fulfilled in our own work, and I would 
welcome the chance to continue the conversation that you 
invited before.
    Senator Dorgan. I just came to say hello.
    Senator Dorgan. Apparently, I got carried away.
    Mr. Kovacic. We won't let you say goodbye.
    Senator Dorgan. My colleague--I owe my colleague about 15 
minutes of his life.
    Senator Dorgan. Senator Pryor, thank you very much.
    Senator Pryor. Thank you, Senator Dorgan. That was good.
    And I will say this, just in closing, on gas prices and oil 
markets, it is complicated. It's very complicated. It's the 
only industry I know of where when the feedstock--when the cost 
of the oil itself was going up, the profits of the industry 
were mushrooming. That doesn't happen normally. Normally, when 
you see the underlying feedstock go up, you see the profits 
being squeezed and squeezed and squeezed, under normal market 
    And also, I think that a lot of times when people talk 
about price gouging, they instinctively look at the retail 
level. But there's a lot of competition at the retail level, 
and they're really just passing on the costs that they inherit. 
It's almost like the local drugstore; you can't get mad at them 
for the high cost of drugs, because, you know, they make a very 
small margin on their drugs.
    So, there are some similarities in the oil industry and the 
gasoline industry with other industries, and then some real 
differences. So, we want to work with you all through this. I 
know that we get a lot of comments about it in our office. I 
think I filled up today, and I paid $2.77 a gallon. And so, 
prices are definitely increasing again.
    But, with that, what we're going to do is, we're going to 
leave the record open for a couple of weeks, for 2 weeks. I 
know one person had something they wanted to submit for the 
record. That's fine. If you all have some documents you want to 
submit, if you want to get that list of economists and make it 
part of the record, that would be great, Madam 
    \*\ The information previously referred to is maintained in the 
Committee files.
    And I don't have any other questions, at this point. There 
are no other Senators that do.
    So, with that, we'll adjourn and leave the record open for 
2 weeks. Thank you for being here.
    [Whereupon, at 12:28 p.m., the hearing was adjourned.]
                            A P P E N D I X

          The New York Times--Editorial/Letters, June 8, 2006

                  When Drug Firms Pay Off Competitors

    We hope that the Supreme Court agrees to take up a pivotal drug 
patent case brought by the Federal Trade Commission against Schering-
Plough. Otherwise, the Commission may find itself powerless to block 
one of the more underhanded tactics used by brand-name drug 
manufacturers to keep generic competitors off the market.
    The tactic is brutally simple. A company that holds a patent on a 
brand-name drug, often a blockbuster that rakes in huge profits, pays a 
generic manufacturer to delay the sale of a competing product that 
might grab a big slice of the business. The patent holder makes so much 
money by delaying competition that it can easily afford to buy off the 
generic company, with the result that both companies share the wealth. 
The only losers are the consumers who must continue to pay high drug 
    The Schering-Plough case involved K-Dur 20, a potassium supplement 
used to mitigate the side effects of drugs that treat high blood 
pressure and congestive heart failure. The active ingredient is in 
common use and not patentable, but Schering holds a patent for a 
coating material that releases the active ingredient slowly. That 
patent does not expire until this year. But two generic manufacturers 
filed applications in 1995 to market competing drugs whose coatings, 
they said, would not infringe Schering's patent.
    Schering disagreed, sued, and then ultimately settled the cases. It 
paid $60 million to one generic manufacturer in a settlement that 
delayed market entry until 2001 and $15 million to another generic 
manufacturer in a deal that delayed entry until 2004.
    After looking at details of the deal, the FTC concluded, quite 
reasonably, that these settlements were essentially payoffs to delay 
competition. The $60 million had actually been demanded by one generic 
company as compensation for revenues it would lose by delaying sales of 
its product. And at least $10 million of the other settlement would be 
paid only if the generic company got government approval to market a 
competitive product and thus posed a threat to Schering-Plough.
    Even so, a Federal appeals court ruled that the payments did not 
violate antitrust law and that the facts did not bear out the FTC's 
contention that the payments were intended to delay competition.
    That was a disastrous blow to Congressional laws that seek to speed 
the entry of generic competitors by brushing away spurious patent 
infringement claims by brand-name manufacturers. Since the appeals 
court decision, there has been a sharp rise in the number of 
settlements in which brand-name companies pay off generic competitors 
to keep their cheaper drugs off the market.
    The FTC has rightly petitioned the Supreme Court to consider the 
case. But it has been undercut by the Justice Department, which has 
urged the Court to keep its hands off, arguing that the case does not 
provide a good vehicle for resolving the complex issues involved. 
Whether the court acts or not, Congress should try to find a 
legislative route to block unscrupulous drug companies from buying off 
the competition.
 Response to Written Questions Submitted by Hon. Daniel K. Inouye and 
                Hon. Mark Pryor to all FTC Commissioners
    Question 1. What are your top priorities for the FTC to address 
this year?
    Answer. Listed below are our top consumer protection and 
competition priorities, which cover a broad range of areas. Given the 
breadth of our mission and the need to be proactive in addressing new 
and evolving challenges facing consumers and competition, we ask that 
Congress fully fund the agency's FY 2008 budget request of $240 
Consumer Protection Priorities
    We have several priorities for the upcoming year in the consumer 
protection area. First, data security and identity theft continue to be 
high priorities. The Commission has brought 14 enforcement actions 
against businesses for their failure to provide reasonable data 
security, and we will continue this enforcement work. We will also 
continue to educate consumers on how to avoid becoming victims of 
identity theft, and to educate businesses on steps they can take to 
safeguard their customers' sensitive information. On the policy front, 
the Commission continually tries to stay abreast of developments in 
privacy, data security, and identity theft. Over the past several 
years, the Commission has hosted numerous workshops and public forums 
to this end. Last month, the Commission hosted a workshop to explore 
consumer authentication, with the goal of encouraging better procedures 
to verify that consumers are who they say they are, so that it is more 
difficult for criminals to use stolen information. Through these 
activities, we will also be implementing the recommendations of the 
President's Identity Theft Task Force, which Chairman Majoras and 
Attorney General Gonzales co-chaired.
    A second priority is financial issues affecting consumers. For 
example, the FTC has an important role to play in policing the subprime 
mortgage market. In recent years, we have brought over 20 law 
enforcement actions against businesses in the mortgage lending 
industry, obtaining over $320 million in redress for consumers. This 
work has focused particularly on companies operating in the subprime 
market. We will continue our work in this area, focusing in particular 
on deceptive mortgage advertising. Another financial practice we are 
targeting through aggressive enforcement is the problem of abusive debt 
collection practices. We will also hold a workshop this fall to examine 
and take stock of the debt collection industry.
    Third, in the technology area, combating spyware and spam are two 
high priorities for the Commission. The Commission has brought 11 
spyware enforcement actions in the past 2 years, and will continue its 
work in this area. The Commission has also aggressively pursued 
deceptive and unfair practices in spam through 89 law enforcement 
actions, 26 of which were filed after Congress enacted the CAN-SPAM 
Act. This July, the Commission will host a workshop on the current 
state of spam, as a follow-up to a workshop the Commission held in 
2003. The two-day public summit will analyze malicious spam, shifts in 
spamming incentives and tactics, strategies for protecting consumers 
and businesses, and countermeasures for stopping malicious spammers and 
    A fourth priority is consumer health issues. In the past year, the 
FTC has initiated or resolved 13 law enforcement actions involving 25 
products making allegedly deceptive health claims. In addition to 
health fraud, the FTC is active in the area of childhood obesity. In 
the Summer of 2005, the Commission and the Department of Health and 
Human Services held a joint workshop on the issue of childhood obesity. 
The Commission's April 2006 report on the workshop urged industry to 
consider a wide range of options as to how self-regulation could assist 
in combating childhood obesity. A number of companies took the FTC's 
recommendations seriously and announced that they would use advertising 
to help promote healthy dietary choices and healthy lifestyles among 
American children. The FTC will host a workshop this summer to report 
on industry progress in implementing these self-regulatory initiatives. 
The Commission is also conducting a comprehensive study of industry 
activities and expenditures associated with marketing food to children 
and adolescents. We plan to issue a report to Congress next year. 
Finally, the Commission will soon release a report, which presents a 
comprehensive analysis of the exposure of children (ages 2-11) to 
television advertising in 2004. The report will compare the recent 
level of exposure to that measured by studies done by the FTC's 1978 
Children's Advertising Rulemaking, prior to the rise in childhood 
obesity rates.
    A fifth priority is Do Not Call enforcement. The National Do Not 
Call (DNC) Registry has registered more than 130 million telephone 
numbers since its inception in 2003. Most entities covered by the DNC 
Rule comply, but for those that do not, tough enforcement is a high 
priority for the FTC. Since the FTC began enforcing compliance with the 
Registry in October 2003, the agency has filed 25 enforcement actions 
against 125 defendants, alleging that they had called consumers 
protected by the Registry. In these cases, the FTC has obtained 
settlements with orders requiring payment in the aggregate of 
approximately $9 million in civil penalties and more than $8.2 million 
in consumer redress and disgorgement. In addition, because consumers' 
registrations expire after 5 years, the Commission plans a significant 
effort to educate consumers on the need to reregister their phone 
numbers next year.
Competition Priorities
    Healthcare, particularly the pharmaceutical industry, is a top 
priority for the FTC. Our main legislative priority is to support 
legislation to fix the exclusion payment problem, and we continue to 
investigate and consider legal challenges to these agreements. We also 
actively review agreements between pharmaceutical manufacturers, 
including exclusion payment agreements between branded and generic 
companies.\1\ We have continued to review pharmaceutical mergers and 
will litigate or order divestitures to cure competitive problems. We 
also work to secure competition among healthcare providers, including 
physicians and hospitals, by reviewing proposed mergers and stopping 
agreements on price among competing healthcare providers who have not 
engaged in sufficient financial or clinical integration.
    \1\ The Medicare Prescription Drug Improvement, and Modernization 
Act of 2003 requires that pharmaceutical companies file agreements with 
the Commission and the Department of Justice within 10 days of 
    We are also very active in pursuing any anticompetitive conduct in 
areas involving hi-tech industries, because competition and innovation 
are so important in that area. In the non-merger area, we just 
concluded a series of hearings on single firm conduct. We hope to issue 
a report in the near future that will provide guidance to businesses in 
this area of the law.
    Preserving and promoting competition in energy markets is another 
priority for the FTC. We scrutinize mergers in the energy industry very 
closely and pursue litigation where needed to protect competition. We 
are currently litigating against two proposed mergers in the energy 
industry: one involving natural gas distribution and the other 
involving the bulk supply of light petroleum products. We continue to 
examine the state of competition in the oil and gasoline industries, 
including specifically the causes of gasoline price increases. 
Additionally, last month, we hosted ``Energy Markets in the 21st 
Century: Competition Policy in Perspective,'' a public conference, 
exploring a range of energy issues of importance to American consumers, 
as well as to the United States and other global economies, and we will 
study the submissions from this conference to inform our enforcement 
and study agenda in the energy sector.
    Merger matters, in general, are also of great importance. HSR filed 
transactions, the number of second requests issued, and enforcement 
actions are up in the first 6 months of FY 2007 as compared to FY 2006. 
Approximately \2/3\ of the Bureau of Competition's resources are 
devoted to merger investigations and we expect we will continue to 
bring more important enforcement actions to protect competition during 
the remainder of the year. We will also continue to focus on the second 
request process itself--working cooperatively and constructively with 
merging parties to streamline our investigations and make them more 
efficient, consistent with the Commission's need for information to 
evaluate the likely competitive effects of the merger.
    Finally, real estate is a priority area for the FTC. Over the past 
year, the FTC brought several enforcement actions stopping real estate 
associations from limiting competition from discount brokers. We also 
just this month with the Department of Justice issued a report on 
competition in the real estate brokerage industry. The report was based 
on a workshop we held in October of 2005 on competition in real estate. 
We will continue to protect competition in this area and to educate 
consumers on how competition in the industry benefits them.

    Question 2. Last year, the Commerce Committee reported a 
comprehensive bill that would require companies to provide increased 
security to sensitive consumer data and require companies to notify 
consumers if they had been subject to possible identity theft. In the 
last couple of years, are there any new and emerging trends or methods 
by those performing identity theft that warrant consideration?
    Answer. Identity thieves acquire and exploit sensitive consumer 
data in a variety of ways, and are constantly developing new techniques 
and uses. For example, phishing recently has taken on a new form, 
dubbed ``vishing'' in which thieves use Voice-over-Internet Protocol 
(VoIP) technology to spoof the telephone call systems of financial 
institutions and request callers to provide their account information. 
Because the identity theft issue is ever-evolving, our approach to data 
security--and the model it advocates for any new law that may be 
passed--focuses on reasonable procedures to safeguard information, 
rather than mandating specific security practices and technologies. For 
example, the Safeguards Rule, implemented under the Gramm-Leach-Bliley 
Act, requires covered entities to develop a data security program that 
is reasonable in light of the sensitivity of the information at issue, 
the nature of the company's business operations, and the risks the 
company faces. In creating its program, each company must designate an 
official or officials to be responsible for the program, conduct a risk 
assessment to determine the data security risks the company faces, 
develop safeguards to address those risks, oversee service providers 
who have access to company data, and adjust the plan to reflect 
business changes and new risks to data. We believe that this approach 
to data security is an appropriate one because it allows--indeed, 
requires--companies to adapt their safeguards to new threats, new 
technologies, and other changes over time.

    Question 3. Has the Commission noticed any state efforts that have 
provided greater security from identity theft for consumers?
    Answer. A number of states have passed laws that require companies 
and other entities to provide notice to consumers whose sensitive 
identifying information has been breached. At least some of these laws 
have contributed significantly to consumer awareness of the risks of 
identity theft--both as to the specific breach and in general. The 
increased awareness, in turn, can prompt consumers to take steps to 
protect themselves. The notification laws vary as to when and how the 
notice should be provided, what the notice should contain, and the 
circumstances under which notification can be delayed. The Commission 
supports the establishment of a Federal breach notification standard 
that would require notice when the data breach creates a significant 
risk of identity theft. A risk-based standard would mandate 
notification in situations where the notice would be useful to 
consumers by alerting them to the need to take protective measures. On 
the other hand, requiring notification for remote risks may not be 
beneficial to consumers, because the notices may cause consumers to 
take costly, but unnecessary actions and may result in them ignoring 
more significant incidents.\2\
    \2\ Commissioner Harbour believes that requiring breach 
notification only when the risk of identity theft is ``significant'' 
may establish an unduly high threshold to trigger consumers' rights for 
    Many states also have enacted credit freeze laws. Although there is 
great variation among the states in how these provisions operate, in 
general, they allow consumers to block all access to their credit 
report, thereby, as a practical matter, preventing fraudsters from 
opening new accounts in the consumer's name. In addition, the laws 
typically allow consumers to release the freeze, either temporarily or 
permanently. In some states, credit freezes are available only to 
identity theft victims, while in others, any consumer can place a 
freeze. State laws also vary on how promptly consumer reporting 
agencies must set and release freezes and what charges, if any, they 
allow the consumer reporting agencies to impose for placing or lifting 
the freeze. Because the state credit freeze laws are quite recent, it 
is difficult to assess their impact at this time. The President's 
Identity Theft Task recommended in its April 2007 Strategic Plan that 
the Federal Government assess the impact and effectiveness of credit 
freeze laws and issue a report in the first quarter of 2008. FTC staff 
plans to implement this recommendation by studying state credit freeze 
laws and making any appropriate recommendations.

    Question 4. Does the Commission believe there are areas where 
Congress should further focus to protect consumers from identity theft?
    Answer. As the Commission has stated in testimony before Congress, 
the agency supports legislation that would require: (1) all companies 
that maintain sensitive consumer information to implement reasonable 
procedures to safeguard it, and (2) notice to consumers in the event of 
a data breach that creates a significant risk of identity theft. The 
significant risk standard balances the need to alert consumers to take 
protective steps in situations where it makes sense to do so, with 
concerns about ``over-notification.'' \3\ If consumers are flooded with 
notices, they may start to ignore them, including in those situations 
where the risk is high. Alternatively, some consumers may take 
unnecessary actions, such as closing accounts or placing fraud alerts, 
when there is little or no risk of identity theft.
    \3\ Commissioner Harbour believes that requiring breach 
notification only when the risk of identity theft is ``significant'' 
may establish an unduly high threshold to trigger consumers' rights for 
    In addition, any data security legislation should grant civil 
penalty authority to the Commission--authority that the Commission 
currently lacks in the data security area except in very narrow 
circumstances. Although many businesses have made progress in securing 
their data, some have not taken their responsibilities seriously 
enough. The prospect of civil penalties could significantly enhance 
deterrence in this area and prompt businesses to pay the appropriate 
level of attention to their data security practices.

    Question 5. What safeguards should a company like T.J. Maxx have in 
place to protect customers' data?
    Answer. The Commission's cases and educational materials provide 
detailed guidance about the practices the Commission regards as 
reasonable and appropriate for companies that handle sensitive consumer 
data. For example, the Commission's recent business guidance brochure, 
Protecting Personal Information, provides businesses of all types and 
sizes with practical advice on how to design and implement an effective 
data security plan. See http://www.ftc.gov/infosecurity. It is not tied 
to any particular law or regulation, and breaks down the data security 
challenge to five basic steps: First, ``take stock'' of the sensitive 
personal information you maintain--know what you are collecting. 
Second, ``scale down''--only maintain the personal information 
necessary to your business. Third, ``lock up'' the information that you 
do maintain--secure it through appropriate physical and electronic 
safeguards, employee training, and oversight of your service providers. 
Fourth, ``pitch,'' or properly dispose of, the information that you no 
longer need--for example, by shredding, burning, or otherwise 
destroying it. Finally, ``plan ahead'' for security incidents. Make 
sure your response is quick and effective by establishing procedures 
beforehand to secure any compromised data and notify the appropriate 
people of the incident.
    In addition, the Commission's 14 enforcement actions provide 
guidance regarding practices that the FTC has found to be inadequate to 
protect sensitive consumer information. For example, in the FTC's case 
against BJ's Wholesale Club (``BJ's''), the Commission alleged that 
BJ's engaged in a number of practices that, taken together, failed to 
provide reasonable security for sensitive credit card information, 
including: (1) failing to encrypt information while in transit or while 
stored on BJ's computer networks; (2) storing the information in files 
that could be accessed using a commonly known default user ID and 
password; (3) failing to use readily available security measures to 
limit access through wireless access points on the networks; (4) 
failing to employ measures sufficient to detect unauthorized access or 
to conduct security investigations; and (5) storing information for up 
to 30 days when BJ's no longer had a business need to keep the 

    Question 6. What can consumers do to protect themselves from 
identity theft?
    Answer. While nothing can entirely eliminate the risk of ID theft, 
consumers can minimize their risk if they manage their personal 
information carefully by:

   not providing information by phone/Internet/mail unless they 
        have initiated the contact

   shredding sensitive documents before discarding them

   guarding mail from theft

   only carrying essential documents in their wallet

   installing firewalls, anti-virus software and other 
        protections on their computers

   placing passwords on critical electronic files, as well as 
        financial accounts.

    Because identity theft may occur even when individuals have taken 
all reasonable precautions, we encourage consumers to check their 
credit reports regularly and review their billing statements and other 
financial accounts for evidence of misuse. By taking these measures, 
consumers can quickly discover possible misuse of their identity, and 
in doing so limit the impact of the crime. The FTC has developed 
extensive education materials on how consumers can protect themselves 
from identity theft, which can be found at www.ftc.gov/idtheft.

    Question 7. What viable options does Congress have to ensure that 
consumers remain protected under the National Do Not Call Registry? 
What further resources does the Commission need to maintain this 
program? Please explain how the current telemarketing fee structures 
work. Is this adequate to maintain the program? Are there any 
improvements that can be made?
    Answer. We appreciate the continued Congressional interest and 
support of the National Do Not Call Registry, including the ongoing 
appropriations and the introduction of renewed authorization 
legislation. We currently are considering potential improvements to the 
proposed authorization legislation, which we hope to discuss with the 
Committee in the near future.
    Pursuant to the Do-Not-Call Implementation Act, the Commission is 
authorized to collect fees from telemarketers who access the national 
registry. Under the current fee structure, telemarketers receive the 
first five area codes of data at no cost. Starting with the sixth area 
code, telemarketers are charged $62 per area code of data up to a 
maximum of $17,050 for the entire registry. The registry also provides 
access to exempt organizations at no cost. These are entities that are 
not required by law to access the registry or refrain from calling 
listed numbers but do so voluntarily in order to avoid calling 
consumers who have expressed their preference not to receive 
telemarketing calls. As a result of the current fee structure and 
appropriations, the Commission has sufficient funds to implement and 
enforce the ``do-not-call'' provisions of the Amended Telemarketing 
Sales Rule.

    Question 8. What is the FTC doing to educate consumers about the 
need to reregister with the Do Not Call Registry Program? Why doesn't 
the FTC allow these consumers to just stay on the list? Is 
Congressional action needed to ensure that consumers do not have to 
repeatedly reregister for the Program?
    Answer. As you know, the National Do Not Call Registry started 
accepting consumer registrations on June 27, 2003. Pursuant to the 
Final Rule for the Amended Telemarketing Sales Rule (Statement of Basis 
and Purpose), 68 Fed. Reg. 4580, 4640 (January 29, 2003), telephone 
numbers remain on the registry for 5 years from the date of the most 
recent registration. We are happy to discuss further with the Committee 
the issue of requiring consumers to re-register their telephone 
    Because registrations were initially accepted in June 2003, 
consumers will need to reregister their telephone numbers beginning in 
the Summer of 2008. In order to educate consumers about this 
requirement, the Commission is planning a consumer education campaign 
that will commence in the Spring of 2008. We will utilize various media 
outlets to remind consumers of the need to re-register their telephone 
numbers; how to register those numbers; how to verify that a number is 
registered; and when the registration will expire. The Commission has 
requested funds as part of its Fiscal Year 2008 appropriation to cover 
the expenses associated with this consumer education campaign, and 
staff has informed the Federal Communications Commission about our 

    Question 9. Do you think there are instances where Federal 
legislation is needed to address price gouging? What are the 
conditions, areas, or instances in which you think regulation would be 
    Answer. As the Commission has testified before a number of Senate 
and House committees \4\ and discussed in its Spring 2006 report on 
post-Katrina gasoline price gouging,\5\ a Federal price gouging law is 
undesirable for several reasons. The most important reason involves 
such a statute's predictable effects on markets and consumers in an 
area affected by a disaster such as the hurricanes of 2005. Because a 
price gouging law would impose a ceiling on prices, it could blunt the 
incentives for consumers to curb their demand for the product and also 
could discourage suppliers from sending more product into the affected 
market. Indeed, the experience following Hurricanes Katrina and Rita 
tends to illustrate the benefits of market forces. Because gasoline 
prices were allowed to fluctuate in accordance with changing supply and 
demand conditions in the Gulf states, consumers found ways to consume 
less gasoline, while suppliers--both domestic and foreign--brought 
large quantities of additional gasoline into the affected region.\6\ 
The result was that prices fell sharply a short time after the 
hurricanes. Our investigation of post-Katrina gasoline pricing stated 
that many of these beneficial supply and demand responses may not have 
occurred if Federal price gouging or other forms of price control 
legislation had been enforced across the board during the recovery 
period. Therefore, a genuine concern for the welfare of consumers 
militates against enactment of price-gouging legislation.\7\
    \4\ See, e.g., Prepared Statement of the Federal Trade Commission, 
FTC Investigation of Gasoline Price Manipulation and Post-Katrina 
Gasoline Price Increases, presented by Chairman Deborah Platt Majoras 
before the Committee on Commerce, Science, and Transportation, U.S. 
Senate (May 23, 2006).
    \5\ Federal Trade Commission, Investigation of Gasoline Price 
Manipulation and Post-Katrina Gasoline Price Increases, Part III 
(Spring 2006).
    \6\ Id. At 196 n. 64.
    \7\ But see concurring statement of Commissioner Jon Leibowitz 
(concluding that price gouging statutes, which almost invariably 
require a declared state of emergency or other triggering event, may 
serve a salutary purpose of discouraging profiteering in the aftermath 
of a disaster), available at http://www.ftc.gov/speeches/leibowitz/

    Question 10. Are there other areas of price gouging that you think 
the states are addressing in an appropriate manner?
    Answer. The Commission has observed in Congressional testimony 
that, if there is going to be enforcement of any price gouging laws, it 
makes the most sense for officials of state and local government to 
carry out that enforcement, since the overwhelming majority of 
instances of alleged price gouging occurs at the retail level.\8\ 
Several state legislatures have made a choice to pass legislation on 
this subject, and we respect their authority to do so. We would note, 
however, that local enforcement can create the same distortions of the 
market and the same injury to consumers as enforcement of a Federal 
price gouging law.\9\
    \8\ See, e.g., Prepared Statement of the Federal Trade Commission, 
Market Forces, Competitive Dynamics, and Gasoline Prices: FTC 
Initiatives to Protect Competitive Markets, presented by John H. 
Seesel, Associate General Counsel for Energy, before the Committee on 
Commerce, Science, and Transportation, U.S. Senate (Sept. 21, 2005).
    \9\ But see concurring statement of Commissioner Jon Leibowitz 
(stating that ``[a]s noted in the Report, twenty-nine states and the 
District of Columbia have price gouging laws that provide for either 
civil or criminal penalties and, in some situations, both . . . Though 
many complaints about retailer pricing were received and investigated 
at the state level in the wake of Hurricanes Katrina and Rita, charges 
were brought only against a select few. In other words, current state 
price gouging laws appear to have been used judiciously post disaster 
in a manner entirely unthreatening to the operation of the free 
market''), supra note 5, at concurring statement p. 2, n. 4.

    Question 11. Are the credit monitoring services providing a service 
to consumers that is valuable to them? I know several companies are 
purchasing credit monitoring services for people that have been exposed 
in identity breaches.
    Answer. Credit monitoring services--if promoted and sold in a 
truthful manner--can help consumers maintain an accurate credit file 
and provide them with valuable information for combating identity 
theft. For example, credit monitoring services may provide notice to 
consumers of any material change to one or more of their credit 
reports, such as creation of a new account or a change of address. 
Consumers who are risk-averse may choose to subscribe to monitoring 
services to enable them to detect signs of incipient identity theft or 
other changes to their credit status. These services are not the only 
way for consumers to monitor their credit files, however. The FACT Act 
gives every consumer the right to a free credit report from each of the 
three major credit reporting agencies once every 12 months. Consumers 
can stagger their requests from the three major agencies during the 12 
month period. This important right is another tool for consumers to 
protect themselves from identity theft.

    Question 12. Does the FTC think that the application of the Credit 
Repair Organizations Act or ``CROA'' to credit monitoring services is 
proper? If not, does the Commission invite a legislative clarification 
to the original CROA language?
    Answer. As a matter of policy, we do not see a basis for having 
credit monitoring services subject to all of CROA's specific 
prohibitions and requirements, which were intended to rein in 
fraudulent credit repair. In contrast, as mentioned in response to 
Question 11, credit monitoring services do offer benefits to consumers 
if promoted and sold in a truthful manner.
    Drafting a legislative clarification poses challenges for effective 
law enforcement. The breadth of the clarification must be considered 
carefully. In the past, private sector groups have proposed legislative 
language that would have exempted only credit reporting agencies from 
CROA requirements. Such a proposal would raise two significant issues. 
First, it could have a discriminatory effect on sellers of credit 
monitoring services not covered by the exemption, including legitimate 
companies that sell credit monitoring services but are not within the 
exempted class. These companies would remain governed by CROA and thus 
would be at a significant competitive disadvantage. For example, non-
exempted companies would be prohibited from accepting advance payment 
for their services and would have to offer customers a three-day 
cooling-off period, while exempted entities would not be so restricted.
    Second, depending on the breadth of the exemption, it could allow 
fraudulent credit repair firms to evade CROA. In enforcing CROA, we 
have encountered many apparently fraudulent credit repair operations 
that aggressively find and exploit existing exemptions in an attempt to 
escape the strictures of the statute.\10\
    \10\ See, e.g., FTC v. ICR Services, Inc., No. 03C 5532 (N.D. Ill. 
Aug. 8, 2003) (consent decree) (complaint alleged that defendant 
falsely organized as a 501(c)(3) tax-exempt organization to take 
advantage of CROA exemption for nonprofits); and United States v. Jack 
Schrold, No. 98-6212-CIV-ZLOCH (S.D. Fla. 1998) (stipulated judgment 
and order for permanent injunction) (complaint alleged that defendant 
attempted to circumvent CROA's prohibition against ``credit repair 
organizations'' charging money for services before the services are 
performed fully).
    Commission staff would be pleased to work with Congressional staff 
to provide technical comments on a legislative clarification that 
balances the competitive and enforcement concerns with the original 
goal of CROA which was to prohibit deceptive credit repair practices.

    Question 13. How was the definition of business opportunity 
crafted, and what exactly was it intended to capture?

    Question 14. Can you give some examples of direct sales companies 
that the FTC believes should not be covered by the rule?

    Question 15. How many comments did the FTC receive in response to 
the proposed rule, and what portion of those comments were negative?

    Question 16. What is the current status of the rulemaking? Is there 
an attempt to revise the definition so it is more narrowly and 
appropriately targeted? What is the likely timetable toward any 
progress on this effort?
    Answers to Questions 13-16. The Commission is currently engaged in 
an ongoing rulemaking proceeding concerning the Business Opportunity 
Rule. As stated in its Notice of Proposed Rulemaking, the Commission's 
aim is to craft a new Business Opportunity Rule that is narrowly 
tailored to address unfair or deceptive practices in the sale of 
business opportunities that result in substantial consumer injury. The 
proposed definition of ``business opportunity'' is intended to capture 
business opportunities that the Commission has identified over the 
course of its law enforcement experience as having a high proclivity 
for causing substantial consumer loss. These include vending machine 
and rack display business opportunities, which have been covered under 
the Franchise Rule and will continue to be covered by that Rule until a 
final Business Opportunity Rule is implemented.
    The proposed definition would also expand the scope of coverage to 
reach work-at-home schemes, pyramid schemes, and other types of 
business opportunities not within the scope of the current regulation. 
(The Franchise Rule covers only business opportunities costing the 
purchaser at least $500.)
    The rulemaking records contains approximately 17,000 comments, and 
staff is currently analyzing them. The staff will carefully consider 
these comments as it determines next steps in the ongoing Business 
Opportunity rulemaking proceeding. Unfortunately, the Commission is not 
in a position to respond in more detail to these questions because of 
the pending rulemaking proceeding.

    Question 17. Has the telecommunications common carriers exemption 
in the Federal Trade Commission Act created difficulties for the FTC in 
its mission to protect consumers? Does it make sense to maintain the 
exemption in light of the changing communications industry?
    Answer. Yes, the exemption has created difficulties, and the 
Commission does not believe it should be retained. The exemption is a 
relic of an era when telecommunications services providers were 
monopolies subject to close economic regulation by the Federal 
Communications Commission (FCC). In the last forty years, Congress and 
the FCC have eliminated most of the regime of economic regulation that 
once applied to the telecommunications carriers. Today, numerous 
providers of telecommunications services compete for consumers' 
business. Telecommunications firms have also expanded their offerings 
beyond traditional common carriage. The rationale behind the exemption, 
therefore, is now obsolete.
    The common carrier exemption is a serious impediment to our 
consumer protection enforcement efforts. Because of the exemption, 
consumers of many telecommunications services do not receive the 
benefit of FTC enforcement of the FTC Act's prohibitions against 
deceptive and unfair practices. We have found that the common carrier 
exemption frustrates effective consumer protection with respect to a 
wide array of activities in the telecommunications industry, including 
advertising and billing practices. Moreover, as illustrated by the 
broadband Internet access marketplace, technological advances have 
blurred the traditional boundaries between telecommunications, 
entertainment, and high technology. As the telecommunications and 
Internet industries continue to converge, the common carrier exemption 
is likely increasingly to frustrate the FTC's ability to stop deceptive 
and unfair acts and practices with respect to interconnected 
communications, information, entertainment, and payment services.

    Question 18. Recently, some broadband providers have stopped 
advertising an ``unlimited'' wireless data service because it was in 
fact limited to 5 GB (gigabytes) per month. While the cap was described 
in the service's terms and conditions, the marketing of the service was 
misleading. Has the FTC examined these advertising campaigns or other 
similar promotions that promise consumers more than the broadband 
service delivers?
    Answer. Over the last decade, the FTC has entered into consent 
agreements with a half dozen Internet Service Providers (``ISPs'') to 
resolve FTC allegations that their advertising, marketing, and billing 
practices were deceptive. FTC staff continues to monitor the practices 
of ISPs, including those offering broadband services, to ensure that 
consumers receive truthful and accurate information about the products 
and services offered. Staff uses a wide variety of tools to monitor 
ISPs' practices including reviewing consumer complaints, reviewing 
advertising and other marketing materials, and staying abreast of 
discussions within the industry, consumer groups, and academic circles 
about new and evolving business models for offering broadband services.
    The FTC's Internet Access Task Force held a two-day workshop in 
February to explore competition and consumer protection issues 
involving broadband services. One of the panels at the workshop focused 
solely on consumer protection issues, and addressed the importance of 
broadband providers clearly and conspicuously disclosing material 
information about their terms of service to consumers, including 
information about speed and bandwidth limits. To date, the agency has 
not brought any actions challenging conduct involving broadband 
services. However, in general, the same standards that prohibit 
deceptive and unfair trade practices by narrowband providers apply to 
practices by broadband providers. Of course, we cannot disclose whether 
or not any particular advertising campaign is currently under 

    Question 19. What is being done to ensure that consumers are 
getting the service speeds they are expecting when they sign up for 
broadband access?
    Answer. The Commission's Internet Access Task Force workshop 
included discussions on the importance of truthful and accurate 
representations to consumers about all material terms of their Internet 
access agreements, including claims about connection speeds. Again, we 
cannot disclose whether or not we have focused law enforcement 
attention on any specific campaign, but we will monitor practices in 
this area and take enforcement action as appropriate.
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to 
                         All FTC Commissioners
    Question 1. Many smokers are under the impression that ``light'' or 
``low tar'' tobacco products are not as harmful to their health. Is the 
Cambridge Filter Method (now known as the FTC Method) effective for 
measuring tar and nicotine levels in cigarettes? If not, is it in the 
public's best interest for the Federal Trade Commission to let tobacco 
companies advertise their products as ``light'' or ``low tar'' using 
this method?
    Answer. The Cambridge Filter Method, or FTC Method, determines 
yields of tar and nicotine using a smoking machine that smokes every 
brand of cigarettes the same way. However, the tar and nicotine ratings 
obtained using this method do not represent the amounts of tar and 
nicotine any particular smoker will receive from smoking a cigarette. 
It is impossible to tell from the tar and nicotine ratings how much tar 
and nicotine any individual smoker will get from smoking any particular 
cigarette. First, people do not smoke cigarettes the same way the 
smoking machine does. And second, no two people smoke cigarettes the 
same way. Moreover, any cigarettes that receive ``lower tar'' ratings 
when measured by this test method have filters with small vent holes in 
the sides to allow air to dilute the smoke in each puff. It is easy for 
smokers to cover the holes unknowingly, which results in their 
receiving higher amounts of tar and nicotine than the amount obtained 
using the machine. In addition, many smokers of cigarettes having lower 
nicotine ratings tend to compensate by taking deeper and more frequent 
    The Commission has been concerned for some time that the current 
test method may be misleading to individual consumers who rely on the 
ratings it produces as indicators of how much tar and nicotine they 
actually will get from their cigarettes. In light of these concerns, in 
1998, the Commission asked the U.S. Department of Health and Human 
Services (``HHS'') to review the test methodology and to offer 
recommendations as to whether and how the test method should be 
    \1\ Commissioner Harbour's view is that Congress should prohibit 
the use of any claims based on the FTC test method and that Congress 
should require improved testing and disclosures.
    Although the Commission brings a strong market-based expertise to 
its scrutiny of consumer protection matters, it does not have the 
specialized scientific expertise needed to design scientific test 
procedures. In light of this, in its 1999 Cigarette Report, the 
Commission recommended that Congress consider giving authority over 
cigarette testing to one of the Federal Government's science-based, 
public health agencies.

    Question 2. R.J. Reynolds Tobacco has recently introduced a new 
line of cigarettes called Camel No. 9. The advertising campaigns refer 
to the product as ``light and luscious'' and come in flashy hot-pink 
and minty-green teal packages. What is the Federal Trade Commission 
doing to make sure this product is not being marketed to children?
    Answer. The Commission is aware of the Camel No. 9 marketing 
campaign, and of the concerns that some public health groups have 
raised about the campaign. The Commission shares the concern that 
cigarettes should not be marketed to children and adolescents. The 
Commission could have authority to take action if there were evidence 
indicating that the campaign had a significant appeal to and effect on 
adolescents and/or children under the legal smoking age. Under such 
circumstances, there could be reason to believe the campaign was 
legally unfair under the FTC Act. It is unlikely that the Commission 
would have authority to take action if the facts showed that Camel No. 
9 cigarettes were targeted to adult females, absent evidence that the 
cigarettes were marketed in a manner that was deceptive or that there 
was a significant appeal to and effect on the illegal underage market.

    Question 3. Given the fact that the industry continued to advertise 
Camel cigarettes using the Joe Camel image despite the FTC's efforts in 
the 1980's to stop the campaign, do you believe that the FTC now has 
the kind of regulatory authority necessary to stop current or future 
harmful tobacco advertising, especially advertising aimed at children?
    Answer. Section 5 of the FTC Act gives the Commission authority to 
take action against advertising, including tobacco advertising, that is 
deceptive or unfair. The FTC's deception authority gives the Commission 
jurisdiction to take action against advertising claims that are false, 
misleading, unsubstantiated, or that fail to disclose material 
information needed to prevent the advertisement from misleading 
consumers. The Commission has used this authority, for example, to stop 
cigarette companies from making false and misleading claims about the 
serious adverse health effects of smoking.
    The Commission's unfairness jurisdiction gives it authority to take 
action against practices that cause or are likely to cause substantial 
injury that is not offset by countervailing benefits. In the Joe Camel 
litigation, the Commission used this authority to bring action against 
advertising that caused or was likely to cause substantial injury to 
children and adolescents under the age of 18.
    At the same time, the Commission does not have general authority to 
stop or limit advertising that is offensive or irresponsible, but not 
legally deceptive or unfair. Of course, the Commission does not condone 
sellers who market their products in an irresponsible fashion.
  Response to Written Questions Submitted by Hon. Claire McCaskill to 
                         All FTC Commissioners
    Question 1. I understand that letters from more than 500 
individuals, many of whom are Missouri constituents, including dairy 
producers, industry professional and consumers across the country, have 
been delivered to the FTC requesting action to stop reported deceptive 
milk labeling and advertising. How do you plan to respond to these 
    Answer. The FTC has heard from individuals, including dairy 
farmers, about their concerns regarding advertising that they allege 
makes misleading claims about the health and safety benefits of milk 
from cows that have not been treated with rBST (recombinant bovine 
somatotropin), a synthetic growth hormone manufactured by Monsanto. 
Many of these letters accompanied a complaint about this advertising 
filed by Monsanto Company on February 27, 2007. In the past week, the 
Commission has also received numerous post cards from dairy farmers 
requesting a status report on the agency's handling of the complaint. A 
copy of staff's letter responding to these post cards is attached. The 
Commission has also received a letter from a dairy farmer expressing 
concern about the Monsanto complaint and asserting that the public has 
the right to know whether rBST has been used in the milk production 
process. Although the Commission generally treats all such complaints 
as non-public, the Monsanto complaint has been placed on the public 
record at the company's request.
    Commission staff carefully review such complaints. Also, as with 
any matter that involves food labeling and advertising, the Commission 
shares jurisdiction with the Food and Drug Administration and 
coordinates closely with FDA staff in reviewing claims. FDA's expertise 
with respect to such claims is particularly important to the FTC's 
review, given that FDA approved the use of rBST and has subsequently 
issued interim guidance on voluntary labeling claims for milk and milk 
products from cows not treated with rBST.

Federal Trade Commission--Division of Advertising Practices
                                    Washington, DC, August 21, 2007
Jodie Z. Bernstein, Esq.,
Dana B. Rosenfeld, Esq.,
Bryan Cave LLP,
Washington, DC.

Re: Monsanto Company Complaint on rBST-Related Claims
FTC Matter No. 072-3080

Dear Ms. Bernstein and Ms. Rosenfeld:

    As you know, the submission that you filed with the Commission on 
February 27, 2007 on behalf of Monsanto Company, various dairy 
producers, and other interested parties was referred to the Division of 
Advertising Practices for review. I am writing to inform you of the 
staff's resolution of this matter.
    Monsanto requested that the FTC investigate allegedly misleading 
advertising and labeling claims relating to recombinant bovine 
somatotropin (``rBST''), a synthetic growth hormone manufactured by 
Monsanto and approved by FDA for use in dairy cows to increase milk 
production. While Monsanto acknowledges that milk processors and 
retailers ``have the right to inform customers about the use or non-use 
of rBST,'' it expresses concern about advertising and labeling claims 
that it believes may mislead consumers about the health and safety 
implications of rBST-use. Monsanto submits that consumers are being 
charged a premium for milk and other dairy products from cows not 
treated with rBST based on misleading claims that such milk and dairy 
products are healthier or safer for consumers than dairy products from 
cows treated with rBST.
    The staff has completed its review of your original submission and 
subsequent filings in this matter and has conducted an independent 
review of websites and other marketing materials by the milk processors 
and other parties that were referenced in those filings. The staff has 
also reviewed FDA's 1994 ``on the Voluntary Labeling of Milk and Milk 
Products From Cows That Have Not Been Treated With Recombinant Bovine 
Somatotropin'' \1\ and has consulted with FDA staff regarding the 
agency's policy on rBST-related labeling claims.\2\
    \1\ The 1994 Interim Guidance is available on FDA's website at 
    \2\ As you are aware, the FTC shares jurisdiction with FDA over 
food marketing. Under a liaison agreement between the two agencies, FDA 
has primary authority over the regulation of claims made in labeling 
and the FTC has primary authority over claims made in advertising.
    In approving rBST use to increase milk production, FDA determined 
that milk from rBST-treated cows is safe for human consumption and that 
there is ``no significant difference between milk from treated and 
untreated cows.'' Under its current policy, FDA does not object to food 
companies making labeling claims that they do not use rBST, provided 
the claims are truthful and that, in the context of the entire label, 
they do not mislead consumers to believe that milk from cows not 
treated with rBST is safer or of higher quality. To avoid misleading 
implications, FDA suggested in its 1994 interim guidance that claims 
about rBST be accompanied by information that puts the claim in its 
proper context. For example, a statement that milk is ``from cows not 
treated with rBST'' might be accompanied by the statement ``No 
significant difference has been shown between milk derived from rBST-
treated and non-rBST-treated cows.'' The guidance, however, does not 
require this accompanying statement and recognizes that proper context 
could also be achieved by conveying a firm's reasons (other than safety 
or quality) for choosing not to use milk from cows treated with rBST, 
so long as the label is truthful and not misleading.
    The FTC staff agrees with FDA that food companies may inform 
consumers in advertising, as in labeling, that they do not use rBST, 
but should be careful not to suggest a human health or safety benefit. 
At this time, there does not appear to be an adequate scientific basis 
for claims that milk from cows treated with rBST presents health or 
safety risks to consumers. In the absence of such scientific evidence, 
claims that suggest either directly or by implication any link between 
rBST use and human health and safety would be unsubstantiated and thus 
deceptive.\3\ The ``no significant difference'' disclaimer is one 
possible approach to ensure that statements that rBST has not been used 
do not convey misleading claims about health or safety.
    \3\ Because all milk naturally contains hormones, including natural 
BST, it could also be deceptive to suggest that the milk or dairy 
product itself, rather than the production process, is rBST-free or 
    The FTC staff has reviewed rBST-related claims for all of the 
companies referenced in the Monsanto submission and subsequent filings. 
Although many companies reference rBST in product labeling and on 
company websites, the staff did not find any examples of national or 
significant regional advertising campaigns that made express or implied 
claims linking rBST to human health and safety. In addition, the 
majority of websites for companies cited by Monsanto as making rBST-
related claims appear to include some variation of the ``no significant 
difference'' disclaimer.\4\ The staff did identify, however, a few 
instances of companies making unfounded health and safety claims about 
rBST, primarily on their websites. Some of these companies appear to be 
small, locally operated businesses. The staff has conveyed its concerns 
to the companies at issue, and those companies are in the process of 
revising their marketing materials.
    \4\ Some of these websites have already been modified since 
Monsanto's original submission to remove safety discussions and to 
include the ``no significant difference'' disclaimer.
    Given the limited nature and scope of advertising making rBST-
related health and safety claims and the willingness of the companies 
contacted by staff to make modifications to their advertising, we have 
determined that formal investigation and enforcement action is not 
warranted at this time. Please feel free to contact me if you have any 
questions regarding this matter.
            Very truly yours,
                                             Mary K. Engle,
                                                Associate Director.

    Question 2. Do you have a plan to bring an end to these deceptive 
advertising and marketing practices?
    Answer. As you are aware, the Commission is directed to act in the 
interest of all consumers to prevent unfair or deceptive advertising 
pursuant to the Federal Trade Commission Act, 15 U.S.C.  41-58. 
Should staff determine as a result of its review that there is a reason 
to believe that a violation of the FTC Act has occurred, we will make a 
decision at that point about the most appropriate course of action. In 
determining whether to take action, the Commission considers a number 
of factors, including the types of violations alleged and the nature 
and amount of consumer injury. We focus our efforts on those areas that 
may affect the greatest number of consumers, may pose a risk to 
consumers' health or safety, or may cause significant economic harm to 

    Question 3. If so, what is your timeline for implementing your 
    Answer. The staff is currently evaluating this complaint to 
determine what agency action, if any, is warranted in this matter. The 
timing of that evaluation and any subsequent action depends on many 
factors including the complexity of the issues and the availability of 
staff resources. The FTC Act and implementing regulations prohibit the 
public disclosure of more specific information regarding the existence 
or status of any particular staff investigation. In the event that the 
Commission determines that formal law enforcement action is warranted 
and votes to issue a complaint against one or more parties, or in the 
event that the staff takes other formal action to resolve the matter, 
we will notify the Committee promptly.

    Question 4. Are you taking any steps to communicate broadly to the 
industry about the standards for truthful non-deceptive advertising 
practices with respect to milk and dairy products?
    Answer. A central part of the Commission's mission is to 
communicate to industry about standards for truthful non-misleading 
advertising practices. The Commission has numerous business education 
pieces that provide guidance to advertisers, including guidance pieces 
relating to food advertising and to health-related claims. These pieces 
are available on the Commission's website and disseminated in a variety 
of other ways. In addition, as already noted, the FDA has provided 
specific interim guidance regarding the use of voluntary labeling 
claims about rBST. The FTC has not issued any specific additional 
guidance to industry on this issue.
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                       Hon. Deborah Platt Majoras
    Question 1. Chairwoman Majoras, given your stated opposition to any 
legislation relating to oil and gas price gouging, how do you propose 
protecting consumers from instances, such as those discovered following 
Katrina, in which refineries purposely short supply in order to 
increase prices?
    Answer. Our extensive investigation of post-Katrina price increases 
did not find instances in which refineries withheld supply in order to 
increase prices. We simultaneously conducted an investigation, as 
required by Section 1809 of the Energy Policy Act of 2005, to 
``determine if the price of gasoline [was] being artificially 
manipulated by reducing refinery capacity or by any other form of 
market manipulation or price gouging practices.'' \1\ We did not find 
any evidence of market manipulation by withholding supplies or by any 
other anticompetitive behavior. Our investigation concluded that ``no 
single refiner has a large enough market share to manipulate prices 
unilaterally through either underinvestment in capacity or reduction of 
refinery output,'' and the investigation revealed no evidence that any 
unilateral manipulation was occurring. The investigation also revealed 
no evidence that coordination to manipulate prices had occurred.\2\ In 
fact, the investigation found quite the opposite: ``After both Katrina 
and Rita, refineries unaffected by the hurricanes increased gasoline 
production and capacity utilization, consistent with behavior in a 
competitive market. The increase in gasoline output was most noticeable 
in the Midwest and on the East Coast, two regions of the country that 
experienced sizable price increases after the hurricanes.\3\
    \1\ Energy Policy Act of 2005, Pub. L. 109-58  1809, 119 Stat. 594 
    \2\ Federal Trade Commission, Investigation of Gasoline Price 
Manipulation and Post-Katrina Gasoline Price Increases 20 (Spring 
    \3\ Id. at 76.
    I strongly believe that the antitrust laws, as presently 
constituted and enforced, provide the best possible protection for 
consumers not only from collusive activity but also from unilateral 
actions by firms with market power designed to raise prices above 
competitive levels. Recent proposals to enact price gouging legislation 
are likely to have unanticipated consequences that will harm consumers: 
although a price gouging law might place an artificial cap on prices in 
the very short run, it is likely to exacerbate supply shortages in the 
longer run. In a competitive economy, prices are determined by the 
market forces of supply and demand, and that means that prices will 
rise--even absent any anticompetitive conduct--when supply is curtailed 
or demand spikes suddenly. We know, however, that rising and falling 
prices are the market mechanism that tempers consumer demand, induces 
more supply into the market, and thus brings the benefits of 
competition to consumers.
    Indeed, just as economic theory would predict, in the months after 
Hurricane Katrina made landfall, normal forces of supply and demand in 
petroleum product markets mitigated the dramatic post-hurricane price 
spike. Not only did the sudden rise in gasoline prices curb consumer 
demand--and thus immediately relieve the upward price pressure 
experienced in the aftermath of last year's Gulf Coast hurricanes--but 
higher gasoline prices also signaled suppliers to bring more product to 
the most severely affected areas of the country, further blunting the 
price increases. For example, imports of large quantities of gasoline 
to United States ports from European and other locations damped the 
price increases. In addition, because of increased refinery utilization 
and a shift in output from other products to gasoline, the production 
of gasoline increased at U.S. refineries outside the hurricane zone. 
This increase in gasoline production--which became profitable for these 
refineries precisely because of the post-hurricane gasoline price 
increase--ultimately led gasoline prices back down following the 
initial shock of the hurricanes.

    Question 2. Chairwoman Majoras, I appreciate that the Commission is 
continuing to study market irregularities that occurred in Eastern 
Washington during the Summer and early Fall months of 2006. On October 
19, 2006, you responded to my initial inquiry and on October 27, 2006, 
I responded asking you to delve further into a number of the 
irregularities highlighted in your initial report. With gas prices in 
Washington State and across the country on the rise again, those prices 
and this inquiry into them have once again become top issues for my 
constituents. You have indicated that a full study of this incident 
will take some time. Given the heightened impact of increasingly high 
gas prices not only to those in Washington State but also to entire 
country, what is the shortest possible time period within which this 
study could be completed?

    Question 3. According to the figures included in the Commission's 
October 19, 2006 letter, the reported retail prices for diesel in 
Spokane and Salt Lake City (SLC) track very closely, but retail 
gasoline prices in Spokane are often 10 to 15 cents per gallon (CPG) 
higher than in SLC--at one point, reaching 20 cents higher per gallon. 
Has the Commission assessed the cause for these retail price 
differentials between fuels?

    Question 4. The Commission's preliminary analysis offered the 
possibility that shifts in refinery output mix at PADD IV refineries 
account for the recent prices, above the Commission's predicted range 
for both Spokane and SLC. For the two-month period beginning August 15, 
2006, were there any refinery product allocation shifts or attendant 
downtimes that could account for the observed price effects?

    Question 5. The Commission speculated, based on third party sources 
including press accounts, that PADD IV experienced ``greater difficulty 
in handling this year's nationwide conversion to ultra-low sulfur 
diesel (ULSD) fuel.'' That raises the question of why PADD IV 
refineries experienced this problem, while other refineries nationwide 
(such as in PADD V) presumably did not. Were those conversion 
difficulties encountered by all PADD IV refineries, or a subset of 
those supplying Eastern Washington? I understand that refiners had 
years to prepare for the transition to ULSD, and would presume any 
individual refinery would know of its own impending transition issues. 
As such, why didn't parent companies with refineries across the country 
work to shift ULSD product from successful production areas to those 
with shortages?

    Question 6. The Commission's preliminary analysis concluded that 
exogenous supply factors account for all of the Spokane area's high gas 
prices. Did the Commission test this theory by comparing prices in 
small rural markets surrounding Spokane, which often have lower prices 
than the metropolitan area? I understand from the Commission's letter 
that the FTC's Gasoline and Diesel Price Monitoring Project monitors 
fuel price data from a number of these locales.

    Question 7. Did refineries in the PADD IV region derive profits 
higher than historic averages following supply shortages caused by 
difficulties transitioning to ULSD? In general, how have PADD IV 
refineries expanded output to meet growing demand in the Rocky Mountain 
    Answer to Questions 2-7. I am aware of and share your concerns 
about the impact of high gasoline prices on consumers in Washington 
State and around the country. Because the questions you raise are 
similar to questions originally included in your letter to me dated 
October 27, 2006, I appreciate your staff clarifying that you are 
expecting only one response to Questions 2-7. As discussed earlier this 
year with your staff, the general thrust of the questions, and the 
Commission's own observations, pointed to issues of broad interest with 
respect to bulk supply and demand conditions and practices in the 
Northwest. The FTC staff is examining these issues--a process that 
itself takes significant time and effort--but my plan is to have a 
response by the end of this year.

    Question 8. Chairwoman Majoras, Section 215 of the Fair and 
Accurate Credit Transactions Act of 2003 required the FTC to complete a 
study, within 2 years of enactment, on the potential disparate impact 
the use of credit scoring for insurance purposes has on protected 
classes of consumers. The study is still pending. What has caused the 
delay in the FTC completing the study? My understanding is that the 
data set the Commission has chosen to use for its analysis comes from 
an insurance industry-sponsored study. How is the Commission going to 
ensure that the data set provided is accurate and not biased? Will it 
be possible for third parties to verify that the data set provided by 
the insurers is accurate and not biased?
    Answer. Shortly after the enactment of the Fair and Accurate 
Transaction Act of 2003, the Commission commenced studying the impact 
of credit scoring for insurance purposes on consumers and competition. 
Because the study will prove valuable to policymakers considering a 
wide variety of issues related to credit scoring and insurance, the FTC 
has focused on developing a sound empirical basis, for the study. The 
Commission is committed to completing a valid study as soon as 
practicable. The main reason that the study has not been completed yet 
is that the agency staff has faced substantial logistical challenges in 
combining massive amounts of sensitive consumer information received 
from many different sources into its database. Late last Summer, FTC 
staff received the last critical information for this database. At this 
time, the agency staff is completing its analysis of the data and 
preparing the required report.
    The study will be methodologically sound and based on reliable and 
accurate data. It is correct that the core of the FTC's staff database 
is information a consulting firm compiled for an insurance industry 
study of the relationship between credit-based insurance scores and 
claims risk. Nevertheless, the FTC staff has confidence in the 
reliability of its database and results that will be drawn from it. 
First, insurers submitted the information knowing that the Commission 
could compel its production if the agency had any concerns the data had 
been manipulated and that it is unlawful to make false statements to 
the government. Second, because the FTC staff used Social Security 
Administration data on race, ethnicity, and national origin, and 
insurers do not have access to this critical information, it would be 
hard for them to manipulate the information in the database. Third, FTC 
staff has compared its information and results with other publicly 
available studies and independent data on the claims histories of the 
consumers in its database, which increases its confidence in the 
information's reliability and accuracy. Consequently, although third 
parties will not have an opportunity to verify independently the 
accuracy of the database information, which is confidential, the FTC 
staff is confident that third parties who review the study carefully 
will conclude that its methodology is sound and that the underlying 
data used are reliable and accurate.

    Question 9. Chairwoman Majoras, I applaud the Commission's ongoing 
efforts to reduce identity theft. The FTC is Co-Chair of the 
President's Identity Theft Task Force, which sent out its interim 
recommendations for public comment that were due on January 19, 2007. 
When will the interim recommendation be finalized?
    Answer. Attorney General Gonazales and I released the Task Force 
report, Combating Identity Theft: A Strategic Plan on April 23, 2007, a 
copy of which is attached.* The plan, as well as a 
supplemental volume that describes current and ongoing measures to 
address identity theft, can be accessed at www.idtheft.gov. The Plan 
contains 31 recommendations aimed at making it more difficult for 
thieves to steal sensitive consumer data, preventing the misuse of such 
data if it is stolen, improving tools for investigation and prosecution 
of identity theft crimes, and facilitating recovery for victims. The 
task force agencies and other governmental offices are now working on 
implementing the recommendations as expeditiously as possible.
    \*\ The information previously referred to is maintained in the 
Committee files.

    Question 10. Chairwoman Majoras, as we discussed, I am interested 
in understanding the links between meth crimes and identity theft 
crimes. Anecdotally, local law enforcement officials in Washington 
State have described to me the apparent linkages between these two 
crimes. I want to determine if there is data that can be used to 
identify relationships and patterns between these crimes that can 
assist law enforcement. That is the reason why I introduced a bill in 
the 109th Congress as well as an amendment to the Identity Theft 
Protection Act of 2005 that required a detailed analysis of the 
correlation between methamphetamine use and identity theft crimes. My 
amendment to the Identity Theft Protection Act of 2005 that will likely 
be included in the introduced version of the Identity Theft Protection 
Act of 2007 calls for the FTC, in conjunction with the Department of 
Justice and other Federal agencies, to undertake a study of the 
correlation between methamphetamine use and identity theft crimes. Do 
you envision any inter-agency coordination issues in having the FTC 
take the lead on this study?
    Answer. The FTC has worked effectively and collaboratively with the 
Department of Justice and the Federal criminal investigative agencies 
on various issues regarding identity theft, and would not foresee any 
coordination issues with respect to a study of the relationship between 
methamphetamine use and identity theft. As you know, the FTC is a civil 
agency with no direct criminal enforcement authority. Because our 
criminal enforcement partners have hands-on experience with the issues 
regarding methamphetamine labs and identity theft through their 
investigative and prosecutorial functions, they would be well-
positioned to lead such a study. The FTC, of course, would be prepared 
to provide whatever assistance and guidance it can for such a study.