Internet

A look at the FTC

The FTC has had to adapt to the explosion of the Net and technology as well as a personnel overhaul. NEWS.COM interviews the commissioners.

From an overall market perspective, the railroad, sugar, oil, and computer industries don't appear to have much in common--except for the Federal Trade Commission's scrutiny of them all.

From trust busting to consumer protection, the FTC has historically used its authority to monitor competition practices in business and to crack down on swindlers.

But with the emergence of the Internet and the behemoth computer industry, the FTC has been forced to go back to school. Throughout the ranks, staff and commissioners alike have learned to surf the Net and examine the innards of computers to understand a microprocessor's importance within the complicated puzzle.

Intensifying the high-tech learning process is the fact that the FTC has been overhauled in the past year. Three of the five commissioners joined the agency in the past ten months--and there is still an opening to be filled with a non-Democrat (no more than three commissioners can be from the same political party).

Amidst the challenges, the agency has not shied away from the fast lane.

The FTC probed online privacy concerns when many others in the Beltway still associated "Web" with spiders. And in the wake of the Justice Department's antitrust case against Microsoft, the FTC followed its sister agency by taking on fellow computing giant Intel. The agency filed a lawsuit accusing the chip giant of anticompetitive practices.

The FTC's plunge into high-tech issues has not been without criticism, however.

For example, online privacy advocates have slammed the FTC for failing until this summer to recommend that Congress pass legislation to shield Net users' privacy, although the report only calls for laws to safeguard children's personal information.

A number of legal pundits also have poked holes in the FTC's case against Intel, saying it is based on untested theories that will be hard to prove.

Even so, if former commissioners' career paths are any indication, the regulators seem to get high-tech, and are subsequently making Silicon Valley friends during their terms.

Once the agency's Net guru, Clinton appointee Christine Varney resigned to lead the e-commerce practice group at the Washington law firm of Hogan & Hartson. Her clients now include the likes of Netscape Communications and coalitions such as the Online Privacy Alliance, which is pushing self-regulatory guidelines with regard to online data collection from consumers.

Last month, the Direct Marketing Association tapped former commissioner Roscoe Starek, a Bush appointee, to be its senior vice president for the catalog industry. The DMA also is a leading force in the push for voluntary standards--not laws--to safeguard surfers' private details. Starek, who left the FTC in December, will be a liaison with government agencies and is expected to help catalog companies expand their businesses on the Net.

CNET NEWS.COM sat down recently with the new commissioners at the FTC to uncover where their interests lie and how they see the agency's time-held authority converging with technology. For the record, all were mum about the case against Intel because the commission ultimately may serve as an appellate court in the case.

Setting the tone: Chairman Robert Pitofsky
Pitofsky was named commissioner in 1995, but his tenure with the agency dates back to 1973, when he was the director of the Bureau of Consumer Protection.

Although he is

 Robert Pitofsky
Robert Pitofsky
a Democrat, like most of the commissioners Pitofsky favors less government intervention and embraces the FTC's role to promote business while balancing the interests of fair competition and consumer protection.

Pitofsky has seen the climate of the FTC change with the onslaught of personal computers and e-commerce. Mirroring the culture of the high-tech industry, law firms routinely cherry-pick his seasoned senior staff. Similarly, young computer-literate staffers are leveraging their skills to climb the ranks.

Still, the chairman is convinced the FTC's antitrust authority and ability to bust businesses for unfair and deceptive practices transcends the digital age.

"There are aspects of the high-tech industries that are not like the oil and steel industries where the FTC set precedents. Changes are faster, barriers are easier to break down, and this industry is about ideas," he said.

"We don't want to create disincentives to innovate," he added. "I think we've been very cautious in this sector about the cases we bring. One of the virtues of antitrust is that it is market-flexible."

As the longest-standing commissioner at the FTC, Pitofsky has noticed a shift in how the agency expends its energies. The agency's staff has grown by 10 percent since 1991, but has had to review 300 percent as many mergers. Also, more people are needed to surf the Net looking for scams and reviewing whether sites have posted privacy policies.

"We are spending more resources on problems relating to the computer industry and the Internet," he said. "I don't take that as an indication that [the companies] are careless, but that it is a dynamic sector of the economy."

Scam buster: Commissioner Sheila Foster Anthony
A Clinton crony from Arkansas, Anthony's law career is steeped in federal regulation.

Before joining the

 Sheila F. Anthony
Sheila F. Anthony
FTC in September, she served as assistant attorney general for the Office of Legislative Affairs at the Justice Department. Surprisingly, her private practice specialty in unfair competition issues has not surfaced as her top interest at the FTC.

Instead, Anthony seems to be taking up Varney's reins and spearheading online consumer protection issues, fighting get-rich quick schemes such as pyramid marketing programs and deceptive claims passed though unsolicited commercial email.

"The Net enables fraud to happen faster, but it's old-fashioned fraud dressed up in high-tech garb," she said.

"Spam is irrepressible--I would like to do something about it," she said. "The messages come from fictitious names. It would be a useful thing if Congress could give us legislation to make it a crime to post an incorrect [return address] on unsolicited commercial email messages."

Aside from tackling the online consumer fraud issues, Anthony had to take a crash course in computer science at the FTC to apply her antitrust expertise to this arena.

"The networking issues are much more complex than in other types of industries," she said. "The interoperability issues are also unique because many manufacturers depend on others to make their products."

Reluctant regulator: Commissioner Orson Swindle
Don't let Swindle's podium-style desk, distinguished career as a Vietnam war hero, or down-home hospitality fool you. He knows all about this high-tech stuff, including the function of routers and SCSIs (small computer system interface).

Swindle is the

 Orson Swindle
Orson Swindle
only member of the commission who is not a lawyer (which is probably appealing to proponents of the free marketplace). But Swindle really stands out as the FTC's most reluctant regulator when it comes to online privacy, spam, and antitrust.

"Self-regulation is better than government regulation," said the former member of the Reagan administration, who managed national economic development as an assistant secretary at the Commerce Department.

"I think there is fair competition in the high-tech industry--our country is leading the world in high-tech development," he said. "There will be some things that are unfair. We'll look at that and make a good decision to always make sure we're not doing more harm than good."

In most cases, he said, technology moves too fast to regulate.

"It's like a boat on a rapid river," he said. "If we jump into it too fast, we'll miss the boat and won't change anything.

"Sometimes industry self-regulation doesn't get done fast enough," he noted. "But Americans are that way--we never do anything on time."

Early adopter: Commissioner Mozelle Thompson
Check the speaker list for most government events about online privacy these days, and you'll find Thompson's name.

Since he joined the FTC in December, Thompson has become the commission's Net privacy spokesman.

Armed with a

 Mozelle W. Thompson
Mozelle W. Thompson
scathing FTC report, he tells the online industry that regulation is eminent when it comes to collecting children's personal information without parental permission. There also could be an FTC crackdown if Net sites abuse the data they collect from adults, he warns.

Until 1996, Thompson was deputy assistant secretary of the Treasury, where he oversaw domestic spending and credit policies. He also has worked with an array of financial institutions--which is probably how he gained his knowledge of consumer data repositories.

Now Thompson is leading the charge at the FTC to safeguard the private details consumers increasingly ship over the Net. Industry's voluntary plans are not doing the trick, he said.

"We've given industry an opportunity to engage in self-regulation," he said. "They are short on enforcement.

"With regard to children, they need to get parental permission," he added. "And there are old-fashioned ways to do it, such as getting a permission slip by fax or having parents print it out and mail it in."

If privacy concerns remain, e-commerce will be hindered. "If people see a potential for harm, then people will stop using [the Net] for those purposes."

Fueling competition: Former Commissioner Mary Azcuenaga
The day after AT&T announced it was acquiring Tele-Communications Incorporated for $48 billion, FTC commissioner Azcuenaga might have been sorry she left her post early.

Azcuenaga stepped down in June, just three months shy of completing her seven-year term at the FTC.

It hasn't been determined whether Justice or the FTC will review the merger. But either way, Azcuenaga knows what regulators should investigate. Merger analysis is her pet issue, and with the growing convergence of telecommunications, PCs, the Net, and cable television, Azcuenaga is like a kid in a candy store.

Although she has left the FTC, the agency could draw insight from her careful examination of how mergers affect consumers, competition in a market segment, and the economy as a whole.

"The general approach is to find out what potential anticompetitive effect a merger could have," she explained.

"We go through the market and see which competitors will be affected, how difficult the merger will make it to enter the market, and what the cost barriers to entry are," she added. "You try to also identify how the merger will affect new markets that don't yet exist."

She says although merger analysis is very extensive, in the case of AT&T and TCI, regulators will try to determine if the deal will give the company too much control over of the "pipes" for the Net, cable, and telephone service.

Under a self-imposed quiet period, she wouldn't discuss the specifics of the FTC's case against Intel, which alleges the company has leveraged its dominance in the computer chip industry to force other companies to forfeit their intellectual property.

"People say we can't enforce these antitrust laws in the high-tech industry because the technology changes too fast, and that is something that is taken into consideration," she said. "But the high-tech area is not immune to antitrust and competition laws--although inclusive conduct makes it harder to catch."