FEDERAL TRADE COMMISSION STATEMENT OF TIMOTHY J. MURIS, CHAIRMAN SUMMARY STATEMENT Senator HOLLINGS. We next have the Federal Trade Commission. We welcome you, Chairman Muris, and we would appreciate your statement at this time, which will be included in full. You can highlight it or deliver it as you wish. Mr. MURIS. Thank you very much, Mr. Chairman. As your letter requested, let me just briefly summarize my testimony. I appreciate the opportunity to appear before you today in support of our fiscal year 2003 appropriations request. Let me start by expressing my sincere thanks to the subcommittee and in particular to you, Mr. Chairman and Senator Gregg, for your strong support of the FTC in both antitrust and consumer protection. As you know, the FTC is the only Federal agency that has jurisdiction over both consumer protection and antitrust in broad areas of the economy. With credit to our excellent and dedicated staff, the FTC's record of protecting American consumers is impressive. We will continue to build on the successes of my predecessors. The most important word in understanding what we are doing at the FTC, I believe, is continuity with the past. We will continue to address competition and consumer protection issues with the same expertise and commitment as was the case under Bob Pitofsky. To accomplish our mission in fiscal year 2003, the FTC requests $176,599,000 and 1,074 FTE. Funding at this level would allow us to further our record of solid accomplishment on behalf of American consumers. A few highlights, I think, reveal the benefit of our role. In consumer protection, fighting fraud, especially on the Internet, remains a key priority. For example, we have cracked down on the sale of bogus bioterrorism-related products that sprung up after September 11. We sent 121 warning letters to Internet marketers of these products and most sites have eliminated their suspect claims. We targeted the most egregious of the remaining marketers for law enforcement action. Last month, we announced settlements with the marketers of a home test kit for anthrax and an online seller of a purported anthrax treatment product. We also have moved aggressively against diet deceptive claims about supplements on the Internet. We have taken action against fraud involving our telemarketing sales rule. Last fall, we achieved a settlement of over $8 million involving the pernicious practice of companies that had the consumer's credit card information, called the consumer, and did not tell them they had the information. Yesterday, we announced a $39 million order in a telemarketing sales case. We are planning many more cases on fraud, both online and off. We are increasing our efforts to have career fraudsters put in jail, and we are spending more money on the growing problem of crossborder fraud. We have also, Mr. Chairman, turned much greater attention to the issue of privacy, and we propose to do more in the future. We have recently proposed amendments to our telemarketing sales rule, including a national "do not call" list, and a proposal to deal with the pre-acquired account information that I mentioned. We have begun law enforcement in a new area with our Eli Lilly case involving promises of security made by companies. In that case, Eli Lilly inadvertently sent an e-mail with 600 e-mail addresses of individuals taking Prozac. They had promised to keep the information confidential. They had promised, in our opinion, to take reasonable steps for security and they did not. We accordingly achieved a consent agreement. We have also, for the first time, systematically begun to attack deceptive spam with a series of cases we brought last month and we have several more in the pipeline. We also, as requested by this committee, are continuing to monitor the marketing of violent media to children. We issued our third report last December and have another one coming this summer. On the antitrust side, despite the decline in the merger wave, we are still pursuing many cases. This fiscal year alone, the FTC has taken action in 10 cases. In non-merger antitrust, we have doubled our number of investigations. The pharmaceutical area is a particularly important area. We have what I call a first and second generation of cases and investigations. The first generation involves agreements between branded products and generic products to keep the generic products off the market. The Commission has brought three such cases. The second generation involves unilateral actions by branded companies to keep generic competition off the market. These cases, I think, promise enormous benefits for consumers. We recently were successful in an amicus brief that we filed involving the unilateral action where a branded company had tried to manipulate the FDA process to keep a generic_off the market. The District Court in New York accepted our analysis and rejected the branded company's arguments. We are pursuing many other cases in health care at all levels of health care competition. We have a consent agreement that we will announce soon. Also, as former Chairman Bob Pitofsky suggested to me, we are holding hearings to explore the complex relationship between intellectual property and antitrust. Mr. Chairman, let me briefly address the issue that has attracted much attention lately, which is this so-called clearance agreement with the Department of Justice's Antitrust Division. First, we are grateful that you have confidence in the FTC and want us to do more. In more than 50 years of clearance process agreements, no Member of Congress has ever taken such close interest in the proc ess. The reality, Mr. Chairman, is that we have two antitrust agencies enforcing the same antitrust law with the exact same standard. The law, however, states that only one agency can investigate a specific merger. Because of that, the agencies have agreed for decades that neither will proceed with an investigation unless one first clears the investigation to the other. This process worked well up until the 1990s. In the 1980s, for example, there were only, on average, about 10 disputes a year. Since then, however, there have been more than 80 disputes per year. There have been delays in the last 2 years of 3 weeks or more in one-quarter of the cases for which clearance was sought. When I arrived at the FTC last summer, there was a case where both agencies wanted to investigate and they had fought for over 1 year over who would do it. In that 1 year, neither could investigate. Bob Pitofsky and Joel Klein tried to fix this problem, but they could not agree on a solution. Now, I know there is concern about media mergers, but I want to make clear that the new clearance agreement does not affect which agency will do media mergers. Even without the new agreement, the Antitrust Division would have done media mergers. If we had not signed a new agreement, disputes would be governed by the 1993 agreement. That agreement said that the primary grounds for resolving clearance disputes is experience within the last 5 years. In media, the DOJ has a lot of experience and the FTC has very little. There are only two major FTC cases in the last several years. One is Turner-Time Warner, which is now outside the 5-year window contained in the 1993 agreement. The other is AOL-Time Warner. In that case, the clearance was so hotly contested that Chairman Pitofsky promised that if the FTC could do the deal, then the FTC would not count the experience in AOL-Time Warner in future clearance disputes. Now, even if we were to count AOL-Time Warner, in the last 5 years, the FTC has done only one major media deal and the Department of Justice has done six. The clearance agreement did do something different. It publicly announced in detail for the first time how the process would work. A secret process has become transparent. I believe this is a good Government initiative that will avoid investing resources in fighting with the DOJ. In fact, our predecessors, Joel Klein and Bob Pitofsky, wrote us a letter saying exactly that. PREPARED STATEMENT In summary, Mr. Chairman, I believe the role of the FTC is vital for consumers. I believe we do good work and I hope that you approve our full budget request. Thank you. [The statement follows:] PREPARED STATEMENT OF TIMOTHY J. MURIS INTRODUCTION Mr. Chairman, I am Timothy J. Muris, Chairman of the Federal Trade Commission. I am pleased to appear before the Subcommittee today to testify in support of the FTC's fiscal year 2003 Appropriation request.1 1 The written statement represents the views of the Federal Trade Commission. My oral presentation and responses are my own and do not necessarily reflect the views of the Commission or of any other Commissioner. The FTC is the only federal agency with both consumer protection and competition jurisdiction in broad sectors of the economy.2 We enforce laws that prohibit business practices that are anticompetitive, deceptive, or unfair to consumers, as well as promote informed consumer choice and public understanding of the competitive process. The work of the FTC is critical in protecting and strengthening free and open markets in the United States. The FTC's record is impressive. The agency has fulfilled its mission of protecting American consumers by pursuing an aggressive law enforcement program during rapid changes in the marketplace the past decade saw the largest merger wave in history, the rapid growth of technology, and the increasing globalization of the economy. Through the efforts of a dedicated and professional staff, the FTC has shouldered an increasing workload despite only modest increases in resources. I would like to thank the Chairman and members of the Subcommittee for their continued support of the Commission's mission. The guiding word at the FTC is "continuity." The agency continues aggressively to pursue law enforcement initiatives, launch consumer and business education campaigns, and organize forums to study and understand the changing marketplace, just as we have done for several years. We will continue to address competition and consumer protection issues in the evolving economy with the same expertise and commitment as before. Our competition mission continues to reflect the following widely shared consensus: (1) the purpose of antitrust is to protect consumers; (2) the mainstays of antitrust enforcement are horizontal cases-cases involving the business relations and activities of competitors; (3) in light of recent judicial decisions and economic learning, appropriate monopolization and vertical cases are an important part of the antitrust agenda; and (4) case selection should be guided by sound economic and legal analysis, and made with careful attention to the facts. The FTC is primarily a law enforcement agency, and we will continue aggressive enforcement of the antitrust laws within the agency's jurisdiction. The FTC is also an independent expert agency and a deliberative body, and is thus well suited to studying an evolving marketplace and developing antitrust policy-we will continue to hold public hearings, conduct studies, and issue reports to Congress and the public. Similarly, there is widespread agreement on how the FTC best carries out its consumer protection mission. Twenty years ago, the FTC shifted its emphasis toward more aggressive enforcement of the basic laws of consumer protection. The staple of our consumer protection mission is to identify and fight fraud and deception. The FTC monitors trends and developing issues in the marketplace to determine the most effective use of its resources. The FTC has become the national leader in consumer protection and partners with other law enforcement agencies at the federal, state, local, and international levels to maximize benefits for consumers. To accomplish our mission in fiscal year 2003, the FTC requests $176,599,000 and 1,074 FTE. These figures represent an increase over the current year of $20,617,000, but no additional FTE. Almost 25 percent of the requested dollar increase would be devoted to comply with proposed legislation requiring all federal agencies to begin funding directly certain retirement and health benefits. Funding at the requested level would allow the FTC to build on a record of solid achievement on behalf of American consumers. During fiscal year 2003, the FTC will address significant law enforcement and policy issues throughout the economy, devoting the major portion of its resources to those areas in which the agency can provide the greatest benefits to consumers. This testimony in support of our fiscal year 2003 appropriation highlights program priorities in the FTC's two missions. In the Consumer Protection Mission, we discuss Privacy; Internet Law Enforcement; Health, Safety, and Economic Injury; Media Violence, Gambling, and Children; Globalization; and Consumer Outreach. In the Maintaining Competition Mission, we discuss Merger Enforcement; Streamlining the Merger Review Process; Nonmerger Enforcement; Targeting Resources for Consumer Impact; and Outreach Efforts. The testimony concludes with a brief summary of the FTC's fiscal year 2003 appropriation request. 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 sector of the economy. Certain entities, such as depository institutions and common carriers, as well as at the business of insurance, are wholly or partially exempt from FTC jurisdiction. In addition to the FTC Act, the FTC has enforcement responsibilities under more than 40 additional statutes and more than 30 rules governing specific industries and practices. CONSUMER PROTECTION MISSION Privacy During fiscal year 2003, the FTC intends to devote significant resources to privacy protection. Consumers are deeply concerned about the privacy of their personal information, both online and offline. Although privacy concerns have been heightened by the rapid development of the Internet, they are by no means limited to the cyberworld. Consumers can be harmed as much by the thief who steals credit card information from a mailbox or dumpster as by the one who steals that information from a Web site. Of course, the nature of Internet technology may raise its own special set of issues. The FTC currently enforces a number of laws that address consumers' privacy,3 and intends to increase substantially the resources dedicated to privacy protection. Our initiatives in this area attempt to reduce the serious consequences that can result from the misuse of personal information and fall into three major categories: vigorous enforcement of existing laws, additional rulemaking, and continued consumer and business education. Privacy Law Enforcement The FTC will pursue law enforcement efforts in the following areas: -Enforcing privacy promises, focusing on cases involving sensitive information, transfers of information as part of a bankruptcy proceeding, and the failure of companies to meet commitments made under the Safe Harbor Program to comply with the European Commission's Directive on Data Protection.4 For example, in January 2002, the FTC accepted a consent order with Eli Lilly & Company to resolve allegations that Lilly violated the FTC Act. According to the complaint, Lilly claimed that it employed measures appropriate under the circumstances to protect the confidentiality of personal information obtained from consumers who visited its Prozac.com Web site, when in fact it did not.5 -Enforcing the Children's Online Privacy Protection Act (COPPA),6 which prohibits the collection of personally identifiable information from young children without their parents' consent. Since 2001, the Commission has brought a number of COPPA enforcement actions resulting in more than $100,000 in civil penalties.7 -Bringing actions against fraudulent or deceptive spammers. In February of this year, the Commission launched a crackdown on deceptive junk email, or "spam," and announced six settlements with seven defendants who allegedly continued 3 See, e.g., Federal Trade Commission Act, 15 U.S.C. §41 et seq. (prohibiting deceptive or unfair acts or practices, including violations of stated privacy policies); Fair Credit Reporting Act, 15 U.S.C. §1681 et seq. (addressing the accuracy, dissemination, and integrity of consumer reports); Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §6101 et seq. (including the Telemarketing Sales Rule, 16 C.F.R. Part 310) (prohibiting telemarketers from calling at odd hours, engaging in harassing patterns of calls, and failing to disclose the identity of the seller and purpose of the call); Children's Online Privacy Protection Act, 15 U.S.C. §6501 et seq. (prohibiting the collection of personally identifiable information from young children without their parents' consent); Identify Theft and Assumption Deterrence Act of 1998, 18 U.S.C. § 1028 (directing the FTC to collect identity theft complaints, refer them to the appropriate credit bureaus and law enforcement agencies, and provide victim assistance); Gramm-Leach-Bliley Act, 15 U.S.C. § 6801 et seq. (requiring financial institutions to provide notices to consumers and allowing consumers (with some exceptions) to choose whether their financial institutions may share their information with third parties). 4 The European Commission's Directive on Data Protection became effective in October 1998, and prohibits the transfer of personal data to non-European Union nations that do not meet the European “adequacy" standard for privacy protection. To bridge different privacy approaches between the United States and the EU, and to provide a streamlined means for U.S. organizations to comply with the Directive, the U.S. Department of Commerce, in consultation with the European Commission, developed a "Safe Harbor" framework, which was approved by the EU in July 2000. Companies that self-certify to the Department of Commerce that they comply with the Safe Harbor Principles may be deemed by the EU to provide "adequate" privacy protection under the EU Directive. The FTC will give priority to referrals of non-compliance with safe harbor principles from EU Member States. See Department of Commerce's Safe Harbor Website, www.export.gov/safeharbor. 5Eli Lilly & Co., No. 012-3214 (Jan. 18, 2002) (consent agreement accepted subject to public comment). 615 U.S.C. § 6501 et seq. 7 United States v. American Pop Corn Co., No. C02-4008DEO (N.D. Ia., Feb. 28, 2002) (consent decree); United States v. Lisa Frank, Inc., No. 01-1516-A (E.D. Va., Oct. 3, 2001) (consent decree); United States v. Looksmart, Ltd., No. 01-606-A (E.D. Va., Apr. 23, 2001) (consent decree); United States v. Bigmailbox.com, Inc., No. 01-605-A (E.D. Va., Apr. 23, 2001) (consent decree); United States v. Monarch Servs., Inc., No. AMD 01 CV 1165 (D. Md., Apr. 20, 2001) (consent decree). |