FEDERALTRADECOMMISSIONPERFORMANCE REPORTFISCAL YEAR 1999EXECUTIVE SUMMARYThe Federal Trade Commission (FTC)is an independent law enforcementagency and the only federal agency withboth consumer protection andcompetition jurisdiction over broadsectors of the economy.We strive toenhance the smooth operation of themarketplace by eliminating acts orpractices that are unfair or deceptive. The FTC protects Americanconsumers in both domestic and worldmarketplaces. Our national experiencedemonstrates that competition amongproducers and accurate information inthe hands of consumers yields productsat the lowest prices, spurs innovation,and strengthens the economy.Our Strategic Plan defines the FTCsVision and Mission in two Goals:GOAL 1 Prevent fraud, deception, andunfair business practices inthe marketplace. GOAL 2 Prevent anticompetitivemergers and otheranticompetitive businesspractices in the marketplace.These Goals, with their correspondingObjectives and Performance Measures,help us assess our Performance.FTCS STRATEGIC PLANVISION: A U.S. economy characterized by vigorous competition among producers and consumeraccess to accurate information, yielding high quality products at low prices and encouragingefficiency, innovation, and consumer choice.MISSION: To prevent business practices that are anticompetitive or deceptive or unfair to consumers; toenhance informed consumer choice and public understanding of the competitive process;and to accomplish these missions without unduly burdening legitimate business activity.GOAL 1 Prevent fraud, deception, andunfair business practices inthe marketplace.OBJ ECTI VE 1.1 Identify fraud, deception, andunfair practices that causethe greatest consumer injury.OBJ ECTI VE 1.2 Stop fraud, deception, andunfair practices through lawenforcement.OBJ ECTI VE 1.3 Prevent consumer injurythrough education.GOAL 2 Prevent anticompetitive mergersand other anticompetitivebusiness practices in themarketplace.OBJ ECTI VE 2.1 Identify anticompetitive mergersand practices that cause thegreatest consumer injury.OBJ ECTI VE 2.2 Stop anticompetitive mergersand practices through lawenforcement.OBJ ECTI VE 2.3 Prevent consumer injury througheducation.2FY 1999 Performance Measures and TargetsGOAL 1 OBJ ECTI VE 1.1Measure 1.1.1:Cumulative number ofconsumer complaints and inquiries enteredin database.Target: 200,000Actual: 398,558 TOBJ ECTI VE 1.2Measure 1.2.1:Dollar savings forconsumers from FTC actions which stopfraud.Target: $200 millionActual: $454.1 million TMeasure 1.2.2:Percentage of targetedindustry brought into compliance throughlaw enforcement and self regulation.Target: 50-75%Actual: 78% TOBJ ECTI VE 1.3Measure 1.3.1:Number of educationpublications distributed to or accessedelectronically by consumers.Target: 7.25 millionActual: 8.589 million TT met or exceededtargetGOAL 2OBJ ECTI VE 2.1Measure 2.1.1:Average number of daysfor review of HSR-reported transactions.Target: 20Actual: 19 TMeasure 2.1.2:Number of nonmergerinvestigations opened per year.Target: 45-70Actual: 45 TOBJ ECTI VE 2.2Measure 2.2.1:Positive outcome of casesbrought by FTC due to alleged violations.Target: 80%Actual: 80%TMeasure 2.2.2:Dollar savings forconsumers resulting from FTC actions.Target: $200 millionActual: $1.2 billion TMeasure 2.2.3:Average time, in months,from proposed consent orders todivestitures.Target: 9Actual: 4 TOBJ ECTI VE 2.3Measure 2.3.1:Identify and survey FTC"customers" in the marketplace.Target: design surveyActual: design survey TFY 1999 AssessmentThe results of our FY 1999 activitiesreached, and in most cases exceeded,each of our Performance MeasureTargets. Highlights of our Performanceand its effect on consumers andbusinesses are: Saving consumers an estimated $1.7billion in 1999 from law enforcementactions to stop fraud and preventanticompetitive mergers, achieving anestimated consumer savings of $14for every $1 spent on agencyoperations.In addition, the FTCspresence in the marketplace detersmany fraudulent activities oranticompetitive mergers that couldresult in substantial, thoughunmeasurable, consumer savings. Protecting consumers and businesses3from anticompetitive mergerswhich raise prices and harmconsumer confidence by reviewing an unprecedented number andsize of proposed mergers andacquisitions. Bringing 61 Internet-related fraudenforcement actions in 1999, over100 since 1994. These actions havetargeted more than 300 corporateand individual defendants on behalfof millions of online consumers andsmall businesses.Further, theseactions have stopped some of thenewest, as well as the traditional,types of fraud used on the Internet tocon consumers. Receiving and processing nearly400,000 consumer complaints andinquiries into our ConsumerInformation System database since1997, and sharing fraud complaintswith over 220 law enforcementagencies via Consumer Sentinel, asecure Web site. Many complaints arenow received through the Internet and a new, toll-free consumerhelpline, 1-877-FTC-HELP,implemented in July 1999. This helpline allows individualsthroughout the United States to callwith questions or complaints andspeak to trained counselors. Educating consumers and businessesabout their rights and responsibili-ties, and alerting them to potentialfrauds, by distributing 8.6 millioneducational publications in print andonline and expanding our mediaoutreach programs. Advancing the public understandingof the merger reporting process andits importance to consumerconfidence and the economy byresponding to nearly 41,000telephone inquiries and issuing draftGuidelines for Collaboration AmongCompetitors.Chal l engesTwo developments have greatlyincreased the demands on the FTC thecontinuous growth of the Internet andthe dramatic increase in the number andsize of corporate mergers.Use of the Internet has grownexponentially since commercial Webbrowsers first became available in 1994 123 million Americans now use theInternet. Internet purchasing also isbooming and is forecasted to skyrocketfrom $20 billion in 1999 to $184 billion in2004. The FTC is working to protectconsumers and businesses against newhigh-tech frauds that use the Internet todefraud consumers. Halting cyberfraudand reviewing Internet-related issues toensure continued growth of the new e-commerce medium during the early yearsof the Internet's existence already ischallenging us and taxing our resources. Similarly, the corporate merger wavecontinues into its tenth straight yearwith the number of reported mergersrising from 1,529 in 1991 to 4,642 in1999. While this restructuring may benecessary for companies to compete inthe new global, high-tech marketplace,antitrust review is necessary to identifyand stop those combinations that coulddiminish competition in specific marketsas this restructuring proceeds.While the number of mergers hastripled in the past decade the dollarvalue of commerce affected by thesemergers is on an even steeper trajectory,increasing eleven-fold in total valueduring this period, from $169 billion to4$1.9 trillion. Overall, merger transactionsare increasingly larger and significantlymore complex, requiring more exactinganalysis when they raise competitiveissues. As a result, merger investigationand litigation are moreresource-intensive than before.To meet the challenges of theInternet, we have pursued acomprehensive program consisting ofsystematic analysis of the marketplace,law enforcement often in conjunctionwith federal, state, and local partners and consumer and business education. To meet the merger wave challenge, wework cooperatively with industry and theantitrust bar to assess what changes canbe made in merger investigations tomake the process efficient as possible.Also, we have undertaken a number ofinternal reforms to expedite mergerinvestigations and provide parties withmore complete information on the issuesthat give rise to an investigation.Strategi c Pl anni ng Conti nui ng the Process A major part of our Strategic Plan-ning is to continually re-evaluate ourObjectives, Performance Measures, andPerformance Targets to ensure that weare measuring the most appropriateindicators of our Performance and thatwe are correctly capturing this data. Forexample, in 1999, we concluded that twoof our Performance Measures underObjective 1.2 were better expressed asone aggregate Measure that moresuccinctly captures the results of ourefforts. Also, as part of our StrategicPlanning, our Inspector General (IG)reviewed the Performance Measures andfound that the methodology used tocollect certain Performance data could beimproved to increase the accuracy andconsistency of the information.The IGrecommends that, in order to preventthis weakness in the future, the FTCsGPRA Task Force define the rationalebehind each of the PerformanceMeasures by clearly articulating howconsumers/businesses are better offwhen the FTC meets or exceeds itsPerformance Targets. We will addressthose concerns as we continue to re-evaluate the validity of our PerformanceMeasures and Objectives.Although we face mountingchallenges especially from thecontinuing growth of the Internet and themerger wave we are able to addressthem more effectively because ofStrategic Planning. Through this processwe have assessed, and will continue toassess, the challenges and opportunitiesfacing the FTC and will position our-selves to be as innovative and aggressivein protecting consumers and businessesfrom unfair or deceptive acts orpractices.5Internet Cases and Percentage ofConsumer Protection FTE&&& &513 1361!!!!4%10%17%20%1996 1997 1998 1999010203040506070% of Consumer Protection FTE# of Internet Cases!&THE RESULTSGOAL 1 PREVENT FRAUD, DECEPTION, ANDUNFAIR BUSINESS PRACTICES IN THEMARKETPLACEThe FTC is the federal governmentsprimary consumer protection agency.While most federal agencies have juris-diction over a specific market sector, wehave broad law enforcement authorityover nearly the entire economy, includingbusiness and consumer transactions onthe Internet. Our goal is to protectconsumers by preventing fraud, decep-tion, and unfair business practices in themarketplace. We implement three inter-connected objectives to reach this broad-reaching goal. Identify fraud, deception, and unfairpractices that cause the greatestconsumer injury. Stop fraud, deception, and unfairpractices through law enforcement. Prevent consumer injury througheducation.First, we identify practices that causeconsumer injury by analyzing theconsumer complaint data collected in ourConsumer InformationSystem database andmonitoring the market-place, including theInternet. We then use thisinformation to target lawenforcement efforts. Ourlaw enforcement programaims to stop and deterfraud and deception and toincrease compliance withour consumer protection statutes toensure that consumers have accurateand complete information for theirpurchasing decisions. We target oureducation efforts to give consumers theinformation they need to protectthemselves from injury.One of the greatest challenges weface is safeguarding consumers in thenew electronic marketplace so they willhave the same confidence in this marketas they should in the traditionalmarketplace.The Internet has thepotential to deliver traditional goods andservices, often more conveniently, faster,and at lower prices than traditionalmedia. Online commerce promisesenormous benefits to consumers and theeconomy. Moreover, the Internet isstimulating the development ofinnovative products and services thatwere barely conceivable just a few yearsago and enabling consumers to tap intorich sources of information that they canuse to make better informed purchasingdecisions. There is real risk, however,that these benefits may notbe realized if consumersassociate the Internet withfraud operators. Fraud onthe Internet is an enormousconcern for the FTC, and ithas prompted a vigorousresponse using all the toolsat our disposal, including6law enforcement and education.7OBJECTIVE 1.1 IDENTIFY PRACTICES THATCAUSE CONSUMER INJURY To prevent fraud, deception, andunfair business practices in the market-place, we must first identify suchpractices, especially those that cause thegreatest consumer injury, where we canmake the greatest impact.Strategi esTo keep abreast of consumerprotection problems in the marketplace,the FTC is collecting and analyzing datafrom many sources.In 1997, weestablished the Consumer ResponseCenter to receive consumer complaintsand inquiries via mail, tele-phone, and the Internet. Atoll-free number establishedin 1999 (1-877-FTC-HELP)has made the agency evenmore accessible toconsumers across thenation. Partners such as theNational Fraud InformationCenter of the National Con-sumers League, Better BusinessBureaus, and the Canadian frauddatabase, PhoneBusters, also provide uswith the consumer complaint data theycollect. The information is entered intothe Consumer Information Systemdatabase and analyzed by FTC staff toidentify trends and patterns, new scams,and companies engaging in fraudulent,deceptive, and unfair business practices.This information is used to target FTClaw enforcement and education efforts.Also, the fraud complaints collected areshared with over 220 other lawenforcement agencies across the UnitedStates and Canada, via ConsumerSentinel, a secure Web site. The constantinput and analysis of fresh complaintdata have allowed the FTC to movequickly in some instances in a matterof weeks to stop practices before theycan do more harm to consumers.In addition to receiving and analyzingconsumer complaints, we monitor thegrowing marketplace by systematicallysurfing the Internet to identify Web sitesengaged in questionable practices. Todate the FTC has led or coordinated over20 Surf Days, uncovering some 4,000questionable sites.We also hold publichearings and workshops to help identifyemerging consumer protection issues inthe global economy.PerformanceMeasure andResul tsWe assessed our 1999impact by the total numberof consumer complaints andinquiries in the ConsumerInformation Systemdatabase. At the end of 1999, theseentries totaled nearly 400,000 almostdouble our target, which was establishedin 1998. This was due to the increasingnumber of complaints received via theInternet and the new toll-free telephonenumber, and the growing number ofpartners contributing complaints. On thebasis of this data including a spike inInternet fraud complaints we were ableto identify the top consumer frauds of1999 and effectively target our lawenforcement and education to theseareas, including online auction fraud,pyramid schemes, unauthorized billing(cramming), and travel scams. Ourbetter-than-expected results in capturingconsumer information has led us torevise our performance targets for thenext few years.Performance Measure 1.1.1Cumulative number of consumercomplaints and inquiries enteredinto database.FY 1999 Target: 200,000FY 1999 Actual: 398,558Met or Exceeded: T T8Cumulative Number of Consumer Complaints and Inquiries Entered Into Database1573996008001998 1999 2000 Est. 2001 Est.Cumulative Complaints & Inquiries (in thousands)

Performance Assessmentand Future TrendsIn our effort to identify fraud, decep-tion, and unfairbusiness practices,we focus lawenforcement andeducation effortson the mostserious consumerprotectionproblems. Wesearch our data-base forinformation thatenables us todetect illegalpractices andrespond quickly toprevent consumer injury. By collectingdata from, and sharing it with, ourpartners, we are able to enhance theeffectiveness of our own efforts and thoseof law enforcement agencies across thecountry and in Canada. To make thedatabase even more valuable, we plan toincrease our collection of informationfrom consumer agencies in othercountries. Building on our experiencewith Canadian members of ConsumerSentinel, we will work toward data-sharing agreements, for example, withthe members of the InternationalMarketing Supervision Network (IMSN),an organization consisting of consumerprotection agencies from more than twodozen countries. The IMSNs mission isto share information about cross-bordercommercial activities that could affectconsumer interests and to encourageinternational cooperation among lawenforcement agencies.We are designing a compatibledatabase dedicated to identity theft inresponse to the new responsibilities wehave been given under the Identity Theftand Assumption Deterrence Act of 1998.The Commission will receive and recordcomplaints by victims of identity theft,refer the complaints to the appropriatenational consumer reporting and lawenforcement agencies, analyze thecomplaint data toidentify trends, andundertake consumereducation about theidentity theftproblem.Assessing ourperformance usingthe number ofentries in ourconsumer complaintdatabase has provento be a reasonableindicator of ourability to identifyconsumer problems. Using the data toidentify trends and patterns, new scams,and individual companies engaged inillegal activities has quickly become thebedrock of our ability to effectively targetour law enforcement and educationefforts. Also, working with our partnersacross the country and in Canada tocollect data in one central locationincreases the value of each cluster ofdata by establishing patterns and givingus a broad view of what consumers arefacing in the expanding, globalmarketplace. The more data we have, thebetter able we are to see trends andcoordinate activities with other lawenforcers. The database allows us andour law enforcement partners to identifyand develop cases against fraudulentoperators more quickly and coordinateour efforts to achieve greater impact onpractices that cause consumer injury.For consumers, having one centralized,toll-free number to call gives them theopportunity to share their experiences9and contribute to law enforcement effortsto stop wrongdoers.When we revise our five-year strategicplan, we will revisit this performancemeasure to consider moving to anannual count of database entries versusa cumulative one. The use of acumulative count for 1999 is valid sincethe database has been in existence forapproximately two years. However, as thedata age, earlier entries will be lessuseful in identifying bad practices; thedata gleaned from recent entries willdetermine the targets of current lawenforcement and education efforts. Wewill also examine the potential forduplication of complaints; for example,an individual may send the samecomplaint to us and several of ourpartners. At this time, we do not believethis is to be a significant problem.10OBJECTIVE 1.2 STOP PRACTICES THAT CAUSECONSUMER INJURYOnce we identify fraud, deception,and unfair business practices in themarketplace, we focus our lawenforcement efforts on areas where wecan have the greatest impact forconsumers.Strategi esTo combat fraud, we focus on theareas identified through ourConsumer InformationSystem database and ourmonitoring of the traditionaland electronic marketplaces.Attacking telemarketing fraudcontinues to be a priority, asdoes protecting consumersfrom more traditional scamsthat have found new life onthe Internet, includinghealth-related fraud. The FTCalso is moving to protectconsumers and businessagainst new high-tech fraudsthrough our Internet RapidResponse Team.One of the most effectivetools in the battle against fraud has beenthe law enforcement sweep simultaneous law enforcement actionsagainst numerous defendants nationwidethat focus on a particular, widespreadtype of fraud. Each sweep is supportedby a creative education program aimed atpreventing future losses to the public.The FTC has led 50 sweeps in the pastfive years that have had a substantialimpact on reducing fraud and raisingconsumer awareness. In the nonfraud area, we work toensure that there is compliance with ourconsumer protection statutes. Usinginformation from our database andmonitoring national advertising, we areable to target our law enforcement toareas that create the greatest risks toconsumer health, safety, and economicwell-being. We often work with industryand interested groups to encourage self-regulation and private initiatives, whereappropriate, in lieu of regulation or lawenforcement. Performance Measuresand Resul tsOur goal in 1999 was tosave consumers over $200million by stopping fraud.We estimate that we morethan doubled that amountwith our actions savingconsumers approximately$454 million.One largescheme with estimatedannual fraudulent sales of$180 million, and threeothers with estimated salesof close to $50 million each,boosted our impact to anunanticipated level. Bypublicizing our successes, we seek toincrease consumer confidence in themarketplace. Consumer savings aremeasured on the basis of the estimatedannual fraudulent sales of defendants inthe 12 months prior to filing a complaint.The law enforcement actions included inthis measure were taken againstfraudulent operators, who range fromindividuals or small companies to scamartists operating large schemes on theInternet. Our experience in most cases isthat once we file a complaint in federaldistrict court and obtain a court order,the defendants stop their fraudulentpractices; if they fail to comply, they aresubject tocontempt actions. Thus, inPerformance Measure 1.2.1Dollar savings for consumers fromFTC actions which stop fraud.FY 1999 Target: $200 millionFY 1999 Actual: $454.1millionMet or Exceeded: T TPerformance Measure 1.2.2Percentage of targeted industrybrought into compliance throughlaw enforcement or self regulation.FY 1999 Target: 50% - 75%FY 1999 Actual: 78%Met or Exceeded: T T11stopping these frauds, we stop furtherconsumer losses to these defendants.In the nonfraud area, our goal was toincrease compliance with the lawsagainst deceptive and unfair practices,and thereby ensure that consumers havemore accurate and complete informationfor their purchasing decisions. We targetindustries where misleading or unfairpractices are widespread, and work tosignificantly improve the level ofcompliance through law enforcement orself-regulatory programs over a two-yearperiod. In 1999, we planned to bring 50%to 75% of the noncomplying members intargeted industries into compliancethrough law enforcement or self-regulatory programs. In 1997, wetargeted industries whose majormembers were not in compliance withthe law, including: auto leasing, onlineservice providers, engine treatments, aircleaners, credit counseling, onlineadvertising directed to children,refractive eye care surgery, and alcoholadvertising. By taking law enforcementactions and encouraging self-regulatoryprograms across these industries, wewere able to achieve an average increasein compliance of 78%.This percentage isslightly higher than anticipated becausewe achieved a 98% to 100% compliancerate in three of the targeted industries.Performance Assessmentand Future TrendsThe boom in e-commerce has yieldedfertile ground for fraud. Internettechnology is the latest magnet to drawopportunistic predators. The rapid rise inthe number of consumer complaintsrelated to online fraud and deceptionbears this out: in 1997, the FTC receivedfewer than 1,000 Internet fraudcomplaints to our database; a year later,the number had increased eightfold. In1999, over 18,600 complaints roughly24% of all fraud complaints logged inthat year related to online fraud anddeception. We expect this number tocontinue to grow, and in response, wewill increase our efforts to slow onlinefraud and prevent consumer injury.We are well on the way to achievingour goal of saving consumers $1 billionover five years; our goal in fiscal year2000 is to save consumers over $250million. We do not anticipate repeatingthe savings reached in fiscal year 1999,where one scheme alone had estimatedannual fraudulent sales of $180 million.As our expertise in high and newtechnologies grows, we will be better ableto detect and deter Internet fraud beforethese schemes take hold. By stoppingfraudulent operators early, measuredsavings in each case may fall; however,the true savings to consumers will beenormous. This effort, combined withstrategies such as law enforcementsweeps, demonstrates that our commit-ment to preventing consumer injury isstrong and effective.While fighting fraud is a major lawenforcement priority, we also focusresources on compliance both offlineand online with traditional advertisinglaw and FTC Rules and Guides. Asreported, directing our law enforcementand self-regulatory efforts to industriestargeted in 1997 was an effectivestrategy. We are in the second year ofevaluating results in industries targetedin 1998, and have begun efforts toincrease compliance in those targeted in1999. Early indicators suggest that wewill reach our goal for 2000 and 2001.Concentrating efforts on industriesidentified by our database andmarketplace monitoring is proving to bean effective tool in significantly improvingcompliance by industry members andpreventing consumer injury.12OBJECTIVE 1.3 PREVENT CONSUMER INJURYTHROUGH EDUCATIONConsumer and business education isthe first line of defense against fraud anddeception and a top priority of the FTC.Strategi esOur database helps usfocus our education effortson areas where fraud,deception, unfair practices,and information gaps arecausing the greatest injury.Each major law enforcementinitiative is supported by acomprehensive and creative self-helpeducation program. Consumers are giventhe tools they need to spot potentiallyfraudulent and other illegal promotions,and businesses are advised about how tocomply with the law. As with our lawenforcement, more of our educationefforts now involve the Internet. We notonly address consumer issues involvingthe Internet, such as shopping online,but we also use the Internet as a tool toreach consumers, for example, throughour Web sites, online banner publicservice announcements, and onlinedistribution of news consumers canuse. We coordinate with hundreds ofprivate and public partners to provideinformation about specific promotions,products, and services. In 1999, the FTCtook the lead in organizing the firstNational Consumer Protection Week, aninitiative sponsored by a broad coalitionof public and private consumerprotection advocates. In addition to theFTCs own Web site (www.ftc.gov), www.consumer.gov, which the FTCinitiated and continues to manage, offersone-stop access to consumer informationfrom 135 federal partners.Performance Measureand Resul tsWe measured our impact inthe education area bytracking the number ofpublications we distributedto the public. In 1999, theFTC distributedapproximately 8.6 millionpublications: 6 million printpublications and 2.6 millionthrough the FTC Web site. We surpassedour goal of 7.25 million publications bywell over 1 million. We can attribute ourhigh dissemination rates to increasedmarketing activity to and among ourcustomers and partners, and the manypublications sent directly to consumerswho call, write, or e-mail our ConsumerResponse Center. In addition, thenumber of publications accessed byconsumers through our Web siteincreased by 1 million over 1998. Ourreach nationwide was extended by moreaggressive outreach and promotion ofFTC materials and our new toll-freenumber, and the increasing number ofconsumers who are online.We usedinformation from our database to targetour education programs to problemareas, such as Internet fraud; healthservices and products fraud includingonline pharmaceuticals, home testingkits, dietary supplements, and weightmanagement;and home improvementand direct mail fraud. The growingnumber of telephone calls and theincreased use of our Web sitedemonstrate that our efforts havecreated a greater awareness of consumerissues. In turn consumers will, to someextent, be able to protect themselvesPerformance Measure 1.3.1Number of education publicationsdistributed to or accessedelectronically by consumers.FY 1999 Target: 7.25 millionFY 1999 Actual: 8.589 millionMet or Exceeded: T T13against fraud and deception in themarketplace.Performance Assessmentand Future TrendsThe FTC seeks to alert as manyconsumers as possible to the telltalesigns of fraud, deception, and unfairbusiness practices, and other criticalconsumer protection issues. Use of theInternet to disseminate informationabout fraud and technology-relatedmatters is integral to the FTCseducation, deterrence, and enforcementefforts and has allowed the agency toreach vast numbers of consumers andbusinesses quickly, simply, and at lowcost. The FTC has been at the forefrontof using the Internet to educate andempower consumers. This trend willaccelerate in the future.Our measure of the number ofpublications distributed is an accurateindicator of our impact in educatingconsumers, although it does not fullycapture the millions of FTC publicationsdistributed by our customers andpartners, and downloaded from theInternet. In the future, we expect thenumber of print publications wedistribute to decline and the number ofpublications accessed through theInternet to increase as more consumersand businesses go online. The growth inthe number of publications viewed onlinein 1996 and 1999 (140,000 versus 2.5million) tells the story of the Internetscoming of age as a mainstream mediumand certainly its importance to any large-scale dissemination effort. Capitalizingon this trend, we will increase our use ofthe FTCs Web site, www.ftc.gov, and themulti-agency Web site,www.consumer.gov, to efficiently andeffectively reach consumers, businesses,law enforcement officials, and the media.Increasing the visibility of the FTC asthe nations consumer protectionchampion not only helps consumersbetter protect themselves, but alsoencourages consumers to provide theFTC with more and better complaintdata. That, in turn, will make our lawenforcement and education efforts moreeffective.14Merger Transactions1,5291,5891,8462,3052,8163,0873,7024,7284,6421991 1992 1993 1994 1995 1996 1997 1998 1999Merger Transactions ReportedGOAL 2 PREVENT ANTICOMPETITIVE MERGERSAND OTHER ANTICOMPETITIVEBUSINESS PRACTICES IN THEMARKETPLACECompetition among sellers in an openmarketplace results in lower prices forconsumers, leads to high qualityproducts and services, maximizesconsumer choice, and spurs thediscovery and development of beneficialnew products and services. Anticompetitive mergers, and otherpractices that diminish competition, denyconsumers these benefits.Thus, it is ourgoal to protect consumers from suchthreats and promote vigorouscompetition by preventing mergers thatwould diminish competition, and otheranticompetitive practices.We applythree objectives to achieve this goal. Identify anticompetitive mergers andpractices that cause the greatestconsumer injury. Stop anticompetitive mergers andpractices through law enforcement. Prevent consumer injury througheducation.First, we identify anticompetitivemergers and business practices throughthe application of sophisticated economicanalysis andthorough factualinvestigation todistinguish betweenconduct thatthreatens theoperation of freemarkets andconduct thatpromotes andadvances theiroperation.Thisstep is criticalbecause in anygiven circumstance the activity inquestion, such as a merger, may beeither beneficial by enabling sellers tobe more efficient and pass those savingsalong to consumers or harmful byenabling sellers to reduce the output oftheir product and raise the price toconsumers.Thus, indiscriminate or ill-considered intervention into themarketplace may do more harm thangood.Second, once we identify ananticompetitive merger or businesspractice, we take enforcement actionunder the antitrust laws to prevent it,either through an administrativechallenge or in federal court.In manyinstances we are able to reach a consentagreement with the affected parties thatprevents the anticompetitive activity.Third, we seek to preventanticompetitive activity by educatingbusiness and consumers about theantitrust laws. Increased knowledge andunderstanding on the part of businessesfacilitates their efforts to comply with thelaw.Increasedknowledge andunderstanding onthe part ofconsumers enablesthem to identifyanticompetitiveactivity more readilyand to bring suchactivity to ourattention forpossibleenforcement action.15OBJECTIVE 2.1 IDENTIFY ANTICOMPETITIVEMERGERS AND PRACTICES THATCAUSE CONSUMER INJURYTo prevent anticompetitive mergersand other anticompetitive businesspractices, we must first determine whichmergers and business practices areanticompetitive.Strategi esTo achieve this objective, the FTC (1)identifies the mergers and businesspractices that should be examined forantitrust consequences, and (2) conductsan inquiry appropriate to thecircumstances of each matter todetermine whether to pursueenforcement action.As a collateralaspect of this objective, we try to conductour inquiry in a way that minimizes anycost or inconvenience tobusinesses.The premergernotification requirements ofthe Hart-Scott-Rodino (HSR)Act provide us the primarymeans for identifyingpotentially anticompetitivemergers.The FTCsPremerger Notification Officereviews all filings made forproposed mergers,acquisitions, and jointventures and performspreliminary antitrust reviewfor every transaction that is filed with theFTC.We work to complete these reviewsas quickly and as efficiently as possible,both to conserve our available resourcesto devote to other work, and to minimizethe delay imposed on businesses as aresult of the HSR requirements.We also use trade press and othernews articles, consumer and competitorcomplaints, hearings, economic studies,and other means toidentify potentiallyanticompetitive practices other thanmergers that may harm consumers.Inparticular, we focus on emerging trendsin the economy, technology, and themarketplace.Performance Measuresand Resul tsWe measure our success inidentifying anticompetitive mergers bythe average number of days we devote toreviewing actions reported to us underthe HSR premergernotification program.Thismeasure is importantbecause it reflects theefficiency with which weconduct these reviews. When the review of reportedactions is completed quicklyand efficiently, we conserveavailable resources that canbe devoted to otherimportant activities.Inaddition, a prompt reviewbetter serves economicgrowth, because it allowsbusinesses to proceed withmergers and acquisitions that pose noantitrust issues with minimal delay.Despite a high volume of reportedtransactions, we continued our emphasison expediting our preliminary reviews. We established as a goal an averagereview time of 20 days for transactionsreported under HSR.We were able toexceed that goal in 1999, completing ourPerformance Measure 2.1.1Average number of days for reviewof HSR-reported transactions.FY 1999 Target: 20 daysFY 1999 Actual: 19 daysMet or Exceeded: T TPerformance Measure 2.1.2Number of nonmergerinvestigations opened per year.FY 1999 Target: 45 - 70FY 1999 Actual: 45Met or Exceeded: T T16review of HSR reported actions in anaverage of 19 days.In 1999, we received notification of4,642 proposed transactions inaccordance with the HSR notification andfiling requirements.This volume oftransactions reflects the ongoing wave ofmerger activity that has been takingplace over the past several years.Thenumber of reported transactions in 1999represents a decrease of approximately2% from the 4,728 transactions reportedin 1998, but remains at a level morethan three times the number of reportedmerger transactions in 1991.Mergers reported under the HSR Actvary tremendously in their complexityand potential anticompetitive effect.Wecontinue to review and prepare ananalytical summary of each reportedtransaction.In most cases, the agencycan make a reasonable judgment aboutwhether a merger has the potential to beanticompetitive or not within a few daysof filing, simply by reviewing theseanalyses, based on materials filed withthe HSR notification.The agencysMerger Screening Committee, comprisedof senior officials of the Bureaus ofCompetition and Economics, reviewsthose transactions that raise moredifficult questions.If the Committeedetermines that more information isneeded in a matter, it calls for a moreextensive investigation, often includingthe issuance of a request for additionalinformation from the parties.In 1999, we allowed 3,148 of thereported transactions, approximately70%, to proceed before the end of thestatutory 30-day waiting period.Fromall of the transactions, we opened 278preliminary investigations and issuedrequests for additional information in 45proposed transactions to obtaininformation to assist the attorneys andeconomists in conducting theirinvestigations.We also measure our success inidentifying anticompetitive practices thatcause consumer injury by counting thenumber of nonmerger investigationsopened during the year.This measuredirectly reflects our enforcement activity. While we do not take enforcement actionin every matter we investigate, becausewe often conclude that the practice inquestion is not anticompetitive, it isaxiomatic that a thorough investigationalways precedes any order to a businessthat it must cease and desist aparticular anticompetitive activity.We established a goal of opening 45to 70 nonmerger investigations over thecourse of the year.In 1999, we opened45 such investigations, a number withinthe range of our goal, albeit at the lowerend.Performance Assessmentand Future TrendsWe were able to exceed oneperformance goal reducing the averagereview time for HSR reportedtransactions and to meet the otherperformance goal initiation ofinvestigations into potentiallyanticompetitive activity other thanmergers despite the continuation of therecord-setting pace of corporate mergersand acquisitions.In the future,continuing to assess each reportedtransaction through our structuredreview process, and to do so as quicklyand efficiently as possible, will continueto be among our highest priorities.We remain cognizant of thecontinuing potential for anticompetitiveactivity not involving mergers and of theimportance of our efforts to identify suchactivity.Although we met our goal onthis performance measure, two factors17limited our ability to exceed theminimum level.First, the continuinghigh level of merger activity, describedabove, demanded an extremely largeshare of the resources devoted to ourmaintaining competition mission. Second, of the resources remaining fornonmerger investigation andenforcement, a substantial proportionwere properly devoted to preparations foradministrative litigation in the Intel Corp.case, which was among the mostimportant nonmerger matters addressedby the agency in some time.In thefuture, we expect, at a minimum, tomaintain the historic level of nonmergerinvestigations, even if the current level ofmerger activity continues, and toincrease our activity when merger-related resource demands subside.In addition to achieving these specificperformance goals, we continue our workto accomplish this objective througheconomic research designed to improveour understanding of those marketsituations where antitrust activity wouldresult in a more competitive market.Weconcluded a study of the pharmaceuticalindustry to help us understand the rapidchanges taking place in this industry andwhat these changes might mean forantitrust policy; as well as studies of theeffects of franchise transfers and mergersin the carbonated soft drink bottlingindustry.Studies of how the entry ofbranded generic drugs has influencedthe pricing and sales of branded drugs,and the aftermath of hospital mergersthat were not challenged are ongoing.18OBJECTIVE 2.2 STOP ANTICOMPETITIVEMERGERS AND PRACTICESTHROUGH LAW ENFORCEMENTLaw enforcement represents the mostdirect method by which the Commissionpursues its goal of preventinganticompetitive mergers and otheranticompetitive business practices.Strategi esTo stop suspect mergers andpractices through law enforcement, ourpreferred strategy that is, the mosteffective and cost-efficient strategy is toprevent such mergers before they occur. We implement this strategy primarilythrough our authority to seek injunctiverelief under Section 13(b) of the FederalTrade Commission Act.Often we areable to resolve the competitive problemthrough consent proceedings withouthaving to seek such an injunction. Where injunctive relief is inappropriateor unavailable, we may rely on ouradministrative remedial powers to seekto restore competition lost as a result ofa merger that could not be prevented. Whether achieved by consent or in anadministrative proceeding, the principalremedy is divestiture of assets sufficientto preserve or restore competition,although we have also employed conductremedies where appropriate.To accomplish this objective, weemphasize (1) thorough investigation, aswell as sophisticated legal and economicanalysis to ensure we reach an accurateassessment of the illegality of the activityin question, and (2) comprehensivepreparation for litigation before anAdministrative Law Judge or in federalcourt.While we frequently resolvematters through settlement (or, in thecase of mergers, through the partiesabandonment of the anticompetitivetransaction), our ability to do so dependsin large measure on opposing counselsrecognition and appreciation of ourpreparedness to achieve the neededresult thorough litigation, if necessary.In addition, when resolvinganticompetitive mergers and practicesthrough settlement, we are placingincreasing emphasis on crafting remediesthat will successfully eliminate theanticompetitive effects of the activity inquestion, and do so in a timely fashion.We employ our law enforcementauthority to stop anticompetitive mergersand practices both directly andindirectly.Through direct legalchallenges to specific anticompetitivetransactions, we save consumersmillions of dollars annually by preventingsuch transactions from taking place orby arranging for restructuring of thetransaction to eliminate theanticompetitive effects.In addition, such challengesindirectly serve our objective by servingas legal precedent and demonstrating tothe business and legal communities thatthe agency can and will successfully takelegal action to block anticompetitivetransactions.This deterrent effectprevents many anticompetitive mergersand acquisitions from even beingproposed.Another part of our strategy is tostudy the remedies used in antitrustcases, particularly divestiture ordersused to resolve merger cases.Our studyfocuses in particular on what makesdivestiture orders more or less effective,19and on how to expedite the completion ofcurative divestitures.We are continuing to refine andimprove our skills in litigation, economicanalysis, and negotiation throughongoing training for staff.Finally, we try to ensurethat administrative litigationand adjudication reach atimely resolution.PerformanceMeasures andResul tsWe measure our successin stopping anticompetitivemergers and practicesthrough law enforcement bythe percentage of successfuloutcomes in enforcementactions. This measure isimportant not only becauseit directly reflects whetherwe stopped, or failed to stop,the anticompetitive mergersand practices we challenged, but alsowhether we are effectively utilizing thelimited resources available to the agency.We established as a goal a positiveoutcome in 80% of the enforcementactions brought by the agency tochallenge anticompetitive mergers orpractices.We were able to meet this goalin 1999, reaching a successfulsettlement agreement or persuadingparties not to proceed with ananticompetitive acquisition in more than80% of the matters we challenged.TheCommission authorized 23 proposedconsent orders in 1999.In addition,parties to proposed mergers abandonedtheir transactions in ten instancesfollowing our investigation, and twotransactions were reconstructed afterour investigations to avoid possibleantitrust violations.We established as another goal directdollar savings to consumers of at least$200 million as a result of our preventionof anticompetitive mergers that wouldhave raised prices by that amount.Incalculating these savings,we take into considerationthe size of the marketsinvolved, the percentageincrease in price that wouldlikely have resulted from themerger, and the likelyduration of the priceincrease.1The importanceand relevance of thismeasure is self-evident.Weexceeded our goal by a widemargin in 1999, preventingmergers that would havecost consumers $1.2 billionhad they been allowed toproceed.We also established as agoal a reduction of theaverage time needed tocomplete divestituresrequired by consent orders, to ninemonths from approval of a proposedconsent order to completion of the1We derive these estimates from a thoroughanalysis of company documents and detailedpricing data, which FTC attorneys andeconomists routinely conduct as part of theirinvestigations.In some cases, the availableinformation allows us to estimate withspecificity the extent to which prices would riseas a result of an anticompetitive merger.Wherewe do not have such definitive information, weconservatively estimate that an anticompetitivemerger would lead to a price increase of at leastone percent absent enforcement action, lastingfor two years.The methodology used isexplained in the analytical guidelines used bythe FTC and the Department of Justice for theanalysis of horizontal mergers.See U.S. Dept.of Justice and Federal Trade Commission,Horizontal Merger Guidelines 1.1, 1.2.Performance Measure 2.2.1Positive outcome of cases brought byFTC due to alleged violations.FY 1999 Target: 80%FY 1999 Actual: 80%Met or Exceeded: T TPerformance Measure 2.2.2Dollar savings for consumersresulting from FTC actions.FY 1999 Target: $200 millionFY 1999 Actual: $1.2 billionMet or Exceeded: T TPerformance Measure 2.2.3Average time, in months, fromproposed consent orders todivestitures.FY 1999 Target: 9 monthsFY 1999 Actual: 4 monthsMet or Exceeded: T T20Dollar Value of Merger Transactions$0.17 $0.17$0.22$0.37$0.51$0.68$0.78$1.44$1.851991 1992 1993 1994 1995 1996 1997 1998 1999Dollar Value (in trillions)divestiture.This measure is importantbecause delay in the divestiture of assetsthat are the subject of a consent decreeoften results in a decline in thecompetitive viability of the assets.Toavoid delay, we increasingly seek eitherup-front purchase and salesagreements or divestiture orders thatlimit the time in which divestiture reliefis accomplished to the minimumnecessary. As a result, we substantiallyexceeded our goal, reducing the averagetime needed to complete divestitures in1999 to four months, down from anaverage of 15 months in 1996.In addition, in 1999 we released AStudy of the Commissions DivestitureProcess, a staff report evaluating theresults of a study of divestiture ordersentered between 1990 and 1994.Thereport discusses a number of factors thatresult in divestiture being more or lesssuccessful, which will assist the agencyin crafting more effective divestitureconsent orders in the future.PerformanceAssessmentand FutureTrends In 1999, we achieveda positive outcome inmore than 80% of thecases brought by theagency, and we expect tocontinue to do so in the future.In addition, based upon advice fromour Inspector General, we are developinga more representative means forevaluating this performance measure in2000.We realistically do not expect tosucceed in every case.A lawenforcement agency that prevails in eachand every litigated matter, for example, may do so because it pursues only thecases that are easiest to win. Enforcement authorities such as the FTCshould not shy away from difficult cases,which are not uncommon in antitrustlaw. The FTC will continue to bring lawenforcement actions where it has reasonto believe that the merger or practice inquestion is illegal and harms consumers,even where litigation risks may exist.We exceeded our performance goal of$200 million in consumer savingsthrough the prevention of anticompetitivemergers by a factor of six, achievingsavings of an estimated $1.2 billion in1999.Because the amount of consumersavings achieved in any one year islargely dependent on the size and natureof transactions proposed, the amount ofsavings in 1999 may not be typical (dueto the large supermarket and wholesalegasoline mergers the we reviewed).However, based on our first year ofmeasuring consumer savings for GPRA,we expect the amount of consumersavings resulting fromthe FTCsantitrust enforcementactivity to remain high. Therefore, we believe it isappropriate to raise ourgoal to $500 million in2000.We alsosubstantially exceededour performance goal byaccomplishingdivestitures within anaverage of four months,compared to the goal of nine months. Based on our increased knowledge of theimportance of accomplishing divestituresquickly and policy changes aimed atachieving that result, we expect that theaverage time required to completedivestitures will continue to besubstantially less than nine months.2122OBJECTIVE 2.3 PREVENT CONSUMER INJURYTHROUGH EDUCATION In addition to its law enforcementactivity, the FTC seeks to enhanceunderstanding of the operation of themarketplace by educating the businesscommunity about the antitrust laws.Strategi esWe pursue this objective throughguidance to the businesscommunity; outreachefforts to Federal, stateand local agencies,business groups andconsumers; developmentand publication ofantitrust guidelines andpolicy statements; andspeeches andpublications.Throughthese mechanisms, wepublicize the antitrust lawand our enforcementintentions, with the likelyresult of deterring futureanticompetitive behavior.Our enforcement program is mademore effective by public awareness ofwhat factors are likely to be challengedas law violations.Through publicreleases of Commission decisions invarious media such as press releases,Web page publications, and speeches,the public facts underlying Commissionactions provide bases for companies toevaluate the likelihood that othertransactions would likely face challenge.As a complement to our enforcementactivity, we also advise other state andfederal government officials about thepossible effect that various regulatoryproposals may have on competition inthe relevant marketplace.Performance Measuresand Resul tsOur success in educating thebusiness community about the antitrustlaws is also determined in part by thetimeliness with which we providedneeded advice.Accordingly,one measure in accomplishingthis objective is the length oftime required to provideadvisory opinions related toissues in the health careindustry.We set a goal ofproviding such advisoryopinions within 90 days of ourreceipt of a request, and weexceeded that goal byproviding advisory opinions inan average of 63 days.PerformanceAssessment and FutureTrendsWe were able to meet oneperformance goal designing a customersurvey and to exceed the otherperformance goal providing advisoryopinions relating to health care within 90days of receipt of a request. Upon furtherconsideration of the use of a generalsurvey, we are exploring whether oureducation efforts would be betterevaluated by measuring the number ofcontacts we have with our primarystakeholders.In addition to achieving these specificperformance goals, we worked toaccomplish this objective in a number ofPerformance Measure 2.3.1Identify and survey FTC customersin the marketplace.FY 1999 Target: design surveyFY 1999 Actual: design surveyMet or Exceeded: T TPerformance Measure 2.3.2Average number of days to issueadvisory opinions in health care area.FY 1999 Target: 90 daysFY 1999 Actual: 63 daysMet or Exceeded: T T23other ways, including the following: With the Department of JusticeAntitrust Division, we issued draftAntitrust Guidelines forCollaborations Among Competitors. We assisted understanding of andcompliance with the HSR Act throughwritten guidance, such as PremergerRules, formal interpretations, thePremerger Notification Source Book,and three Premerger Guides. Our Premerger Staff handled nearly41,000 telephone inquires from thepublic. We now post on the FTCs websiteHSR-related information, including alist of early terminations. The FTC and the Department ofJustice promoted federal and statecooperation by issuance of a jointprotocol for our coordinatedinvestigations. We routinely communicated with thepublic through press releasesdescribing specific events. We maintained effective internationaloutreach and coordination effortswith foreign competition authorities. The Bureau of Economics circulatedeconomic papers on competitionissues.We strongly believe in the importance ofthese outreach activities and willcontinue to place emphasis in this areain future years.Finally, because the Commission andits staff have a great deal of expertiseabout competition and about thecompetitive effect of proposed laws, rulesor regulations of other governmentalbodies, they are often invited to commenton such proposals.For instance, weprovided advice to state utilitycommissions and to the Federal EnergyRegulatory Commission about alternativeways they could structure the rules thatwill guide the deregulation of electricitytransmission and generation to allowcompetition in wholesale and retail salesof electric power.Other recent examplesof competition advocacy commentsinclude those filed before the NorthCarolina Legislature regardingrestrictions on distribution choices ofmotor vehicle manufacturers, andcomments to the Illinois and NorthCarolina legislatures regarding thecompetitive effects of mandatingexclusive distributorships for alcoholicbeverages.2During 1999, we consolidated two Performance Measures into Performance Measure 1.2.2.TheseMeasures read as follows:Increase compliance in areas targeted for law enforcement. and Increasecompliance in targeted self-regulated areas.Targets for these Measures were 20% and 10%,respectively.24AppendixFY 1999 Performance MeasuresFY 1999TargetFY 1999ActualMet orExceededGoal 1:Prevent fraud, deception, and unfair business practices in the marketplace.Objective 1.1Identify fraud, deception, and unfair practices that cause the greatest consumer injury:Measure 1.1.1:Cumulative number of consumercomplaints and inquiries entered in database.200,000 398,558T TObjective 1.2Stop fraud, deception and unfair practices through law enforcement:Measure 1.2.1: Dollar savings for consumers from FTCactions which stop fraud.$200million$454.1millionT TMeasure 1.2.2: Percentage of targeted industry broughtinto compliance through law enforcement and selfregulation.250-75% 78%T TObjective 1.3Prevent consumer injury through education:Measure 1.3.1:Number of education publicationsdistributed to or accessed electronically by consumers.7.25million8.589millionT TGoal 2:Prevent anticompetitive mergers and other anticompetitive business practices in themarketplace.Objective 2.1Identify anticompetitive mergers and practices that cause the greatest consumer injury:Measure 2.1.1:Average number of days for review ofHSR-reported transactions.20 19T TMeasure 2.1.2:Number of nonmerger investigationsopened per year.45 to 70 45T TObjective 2.2Stop anticompetitive mergers and practices through law enforcement:Measure 2.2.1:Positive outcome of cases brought by FTCdue to alleged violations.80% 80%T TMeasure 2.2.2:Dollar savings for consumers resultingfrom FTC actions.$200million$1.2billionT TMeasure 2.2.3:Average time, in months, from proposedconsent orders to divestitures.9 4T TObjective 2.3Prevent consumer injury through education:Measure 2.3.1:Identify and survey FTC "customers" in themarketplace.designsurveydesignsurveyT TGoal 1:Prevent fraud, deception, and unfair business practices in the marketplace.25Measure 2.3.2:Average number of days to issue advisoryopinions in health care area.90 63T T