Markets Wired

Federal Trade Commission Chairman William E. Kovacic and Commissioners Pamela Jones Harbour, Jon Leibowitz, and J. Thomas Rosch today presented FTC testimony before the U.S. Senate Committee on Commerce, Science, and Transportation, highlighting the agency’s accomplishments since the last FTC reauthorization hearing in September, and providing comments on the proposed “Federal Trade Commission Reauthorization Act of 2008.”
“The FTC is the only federal agency with both consumer protection and competition jurisdiction in broad sectors of the economy,” the testimony stated. “The agency enforces laws that prohibit anticompetitive mergers and acquisitions and business practices that are harmful to consumers because they are anticompetitive, deceptive, or unfair. The FTC also promotes informed consumer choice and understanding of the competitive process.”

The testimony recalled some FTC law enforcement actions since September, when the Commission last provided reauthorization testimony. Matters in the antitrust arena include:

• The FTC charged drug manufacturer Cephalon with unlawfully attempting to prevent competition for its branded drug, Provigil, by paying competing firms not to sell generic versions of the drug until 2012.
• Equitable Resources’ acquisition of the Peoples Natural Gas Company, a subsidiary of Dominion Resources, was abandoned as an FTC challenge to the deal was on appeal. The testimony noted that the Commission is continuing to examine and address a wide range of issues in the energy markets, including its new authority regarding manipulation of wholesale crude oil, gasoline, or petroleum distillate markets.
• The U.S. Court of Appeals for the Fifth Circuit upheld a 2005 Commission order requiring Chicago Bridge & Iron Co., N.V. and its CB&I subsidiary to divest assets acquired in 2001 from Pitt-Des Moines, Inc. used in the business of designing, engineering, and building field-erected cryogenic storage tanks. The court endorsed the Commission’s findings that the merged firms controlled over 70 percent of the market, and that entry into the market was unlikely given the high entry barriers based on the incumbents’ reputation and control of skilled crews.
• Consumer protection matters include:
• In November 2007, the FTC announced six settlements and a federal court action against companies that violated the Do Not Call provisions of the Telemarketing Sales Rule, resulting in millions of dollars in civil penalties for rule violations.
• In addressing data security issues, the agency initiated five cases; released a new online, interactive tutorial to educate businesses on sound data security practices; and hosted workshops on the private sector use of Social Security numbers and behavioral advertising. Following the workshop on behavioral advertising, the Commission staff released a proposed set of principles to guide the development of self-regulation in this area and is seeking comment on these principles.
• The Commission sent more than 200 warning letters to mortgage advertisers and the media outlets that carried their ads, regarding ads that may be deceptive in violation of the FTC Act or may violate the Truth In Lending Act. The FTC is investigating several mortgage advertisers and will continue to monitor claims made in mortgage advertising.
• The FTC announced three cases targeting mortgage foreclosure rescue scams, and three settlements against “payday lenders” who failed to provide consumers with annual percentage rate information, as required by law.
• In reviewing its environmental marketing guidelines, the Commission is holding public workshops on emerging green marketing topics, including a recent workshop on carbon offsets and renewable energy certificates and an upcoming workshop on green packaging.
• Last fall the agency used its US SAFE WEB Act authority to cooperate with foreign partners to combat a Canadian-based bogus lottery and prize-promotion scam, and an international spam enterprise.

Regarding the proposed “Federal Trade Commission Reauthorization Act of 2008,” the testimony described Commission support for efforts to increase the agency’s resources to meet its anticipated needs.

The proposed legislation would give the FTC authority to seek civil penalties for knowing violations of Section 5 of the FTC Act. In addressing this provision, the Commission reiterated its support for new authority to seek civil penalties in areas where its existing remedies are insufficient to achieve the law enforcement goal of deterrence. These areas include spyware, data security, and telephone records pretexting.

The proposed legislation would eliminate the requirement that the FTC refer civil penalty cases to the Department of Justice and would, instead, allow the FTC to file its own civil penalty cases in its own name. The Commission supports giving the FTC the authority to litigate its own civil penalty cases. The Commission also supports the portion of the proposed legislation that would allow the FTC to represent itself before the Supreme Court in the appeal of any litigation to which the FTC was a party.

The testimony also mentioned that the Commission generally supports provisions in the bill that would repeal the FTC Act’s exemption for certain non-profit entities. In some instances, the Commission’s inability to reach conduct of various non-profit entities has prevented the Commission from taking action against potentially anticompetitive conduct of non-profits engaged in business. And although the FTC has been successful in asserting jurisdiction against “sham” nonprofits, the testimony explained, the proposed legislation would help avoid protracted factual inquiries and litigation battles to establish jurisdiction over such entities.

The testimony noted that the telecommunications common carrier exemption bars the agency from reaching certain conduct by telecommunications companies. The Commission has testified in favor of the repeal of the exemption on several occasions and continues to endorse its repeal.

In addition, the testimony addressed a proposal in the bill that would give the FTC the ability to challenge practices that aid or abet violations of the FTC Act. Effective law enforcement often requires reaching not only the direct participants in unfair or deceptive practices, but also those who support and enable the direct participants to violate the law, the testimony explained. The need for this authority has become particularly clear in the Internet era, many new business models on the Internet involve numerous actors with murky and varying roles in complicated channels of distribution.

The proposed legislation provides mechanisms for the FTC to use streamlined procedures for rulemaking on consumer protection issues generally, and in particular for subprime mortgage lending and nontraditional mortgage loans. The testimony makes two main points on this issue. First, it states that, on many occasions in recent years, Congress has identified specific consumer protection issues requiring legislative and regulatory action, and has given the FTC the opportunity to issue rules on such issues using simpler rulemaking procedures. The Commission has supported this approach. Second, it states that the Commission has previously supported proposals to allow the FTC to use simplified rulemaking procedures to promulgate rules whenever federal financial regulators commence their own rulemaking under the FTC Act. This will help avoid application of inconsistent standards among regulated entities, improve interagency coordination, and ensure that any FTC rulemaking does not lag years behind that of other financial regulators.

The Commission vote authorizing the presentation of the testimony and its inclusion in the formal record was 4-0.

Copies of the testimony are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.