|VOLUME I:||Remarks||WWW 101||Group 1||Group 2||Presentations||Group 3|
|VOLUME II:||Remarks||Group 4||Presentations||Group 5|
October 16, 1996
Lee Peeler, Esq.
Renardo Hicks, Esq.
MR. SCHULTZ: As somebody mentioned during the morning's discussion, the FDA is obviously not the only governmental body that is interested in the Internet and is looking at advertising promotion issues on the Internet.
In fact, both the Federal Trade Commission and the states have a very important role to play. So what we have designed is two presentations during the next 20 minutes or so, one from the Federal Trade Commission and the other from the state perspective.
The first speaker will be Lee Peeler who is the Associate Director for the Division of Advertising Practices at the Federal Trade Commission. I think, as many people here know, the FDA and the FTC divide advertising jurisdiction in a number of FDA-regulated products.
For example, over-the-counter drug advertising is regulated by the FTC. Prescription-drug advertising is regulated by the FDA. Food advertising is regulated by the FTC, but the food labeling is regulated by the FDA.
So our next speaker is Mr. Peeler. He heads the division that basically looks at claims about foods, over-the-counter drugs, cosmetics, alcohol, tobacco issues and environmental issues.
MR. PEELER: Thank you, Bill. It is a pleasure to be here today to participate in this conference. I want to congratulate FDA for holding a public meeting on this important timely issue. I hope some of the lessons that we are learning in the broader electronic market place will be helpful in evaluating the regulation of medical products on the net.
I should note at the outset, however, that the views I am expressing today are my own views and not necessarily the views of the Commission or any individual Commissioner.
As a new source of commerce, the Internet offers a tremendous potential of benefits to consumers in terms of both increased convenience, choices and information. However, along with such benefits come new risks to consumers including an increased risk from fraud and deception.
Indeed, one witness at an early FTC internet workshop described this by saying that you can't have the information superhighway without having superhighwaymen. Moreover, I think even for established businesses, this new environment poses some substantial compliance issues such as those being explored today at this conference.
Although the actual volume of commerce and advertising on the Internet today is relatively small, most observers expect to see it increase dramatically. Indeed, one witness at our earlier hearings expressed the view that the Internet would have as great an impact on advertising and marketing as any event since the introduction of television to that area.
At the FTC, we are attempting to prepare for this coming change in three ways. First, our own self education is a priority. The FTC has devoted substantial resources to educating its staff members about the Internet, its potential impact on consumer transactions and consumer protection.
We have held a number of hearings and a number of workshops designed to begin the process of developing what another witness called the "intellectual capital" that we will need to deal with consumer protection issues in this environment.
A Commission staff report entitled "Consumer Protection in the Emerging High-Tech Global Marketplace" was issued in December of 1995. You can get a copy of it off of our Worldwide Web Site, ftc.gov. Also on that site are transcripts of some of the other workshops and hearings that we have had in this area.
In addition to educating ourselves, we have also participated in joint training programs with our counterparts in the states. Last spring, for example, the Commission hosted a full day of Internet training for FTC staff, other federal attorneys and investigators and dozens of state representatives from the National Association of Attorneys General.
We are also currently conducting in-house training sessions on things like electronic payment systems and how to investigate fraud on the Internet.
After self education, our second goal has been the establishment of an enforcement presence on the Internet. The Commission's actions that have been brought to date have been designed to clearly establish the basic consumer-protection principles applying cyberspace just as they apply in traditional forms of advertising and marketing.
They have been designed to put all sellers on notice that the FTC will monitor this new marketplace, and, to date, most have involved cases of fraudulent on-line operators in areas such as credit repair, pyramid schemes and business opportunities.
Our work to date suggests that there are a number of new consumer-protection questions that will arise in this environment or, perhaps more properly stated, a number of new forms of older consumer-protection policy questions that will be increasingly complicated and important.
For example, one of the things we are doing is reviewing all of our existing rules to determine which ones should apply, can apply, do apply to the Internet environment. We are carefully looking at that issue to determine what is the fit for existing consumer-protection rules with this new technology.
The other thing we have done, as I said earlier, though, is try to send a very clear message of the basic provisions of the Federal Trade Commission Act that advertising and promotion must be truthful and claims must be substantiated applies with full force in this area.
Second, even within the general context of consumer-protection law, the Internet poses some new issues about how we will implement the general provisions of Section 5. For example, the term "clear and conspicuous disclosure" has an increasingly well established meaning in the context of print or t.v. advertising, but we are working just as FDA is to find out what it should mean in the Internet context.
Should it relate to an actual screen being reviewed? Should it relate to an actual screen that necessarily has to be seen as part of the transaction, or is just displaying an icon that will trigger the disclosure enough?
The answer to this question will likely depend on the nature and the importance of the information being disclosed. However, the general touchstone that the Commission staff will look for in this environment will be the same as in the traditional advertising, and that is what is the message that is being conveyed to consumers by the representations?
Third, Internet marketing and advertising is fundamentally different from traditional forms of broadcast advertising in the sense that the consumers often must seek it out rather than having it broadcast to them. Currently, some marketers address this problem by integrating advertising with content; for example, using a game, a story or other incentives for the consumer to visit their site.
In this environment, it may become harder to maintain the types of clear lines that exist between advertising and program content and other media such as t.v. Again, the FTC will likely look at the reactions of actual consumers to make judgments about at which point deception may occur.
Fourth, another method of attracting consumers to commercial sites will be narrow-casting, or micro-targeting. The idea here is to contact narrowly targeted consumers on the basis of their Internet activity or other information sources. Direct mail does this now, but the interactive nature of the Internet will greatly facilitate this process.
The question this raises for consumer protection however is where is this information coming from and what do consumers know about its collection and use. The industry has recognized these concerns and is working on self-regulatory guidelines about the collection and use of personal information.
Obviously, the topic of today's meeting suggests that the collection and use about a consumer's medical condition for marketing purposes will raise special concerns.
Finally, the fact that marketing and promotion on the Internet are not only national but global will present increasing challenges. We are already seeing problems with deceptive marketers moving offshore in telephone information-services industries and the telemarketing of goods and services which are regulated by Congressional statutes and FTC rules.
Thus, we are beginning efforts to ensure better cooperation with international consumer-protection agencies. Last month, for example, state enforcement officials, including a representative from the FDA Health Fraud Task Force, and state officials met in Vermont with Canadian officials to discuss ways to deal with cross-border fraud.
Clearly, your panel tomorrow on international cooperation will also make an important contribution to the discussion of this issue.
Another difference raised by the use of the Internet is that very small entities can become national advertisers at a very low cost. In contrast, to broadcast, the Internet takes much less resources to get a national audience and national exposure.
In addition to the relative ease of entry, there is also not a clear source of traditional gatekeeping function that is served by many media who examine advertising before it runs and, to a greater or lesser degree, attempt to prevent deceptive advertising from appearing.
This loss of the gatekeeper function served by traditional media will be added to by the number of marketers coming into this market that lack familiarity with some of the basics of consumer-protection issues. For this reason, we believe that both business and consumer education have to be a priority in the Internet context, and we are addressing this in a variety of ways.
Let me just mention two. One is that realizing that we cannot adequately reach the public on our own, we are seeking assistance from the private sector. We have received particularly favorable responses from an industry organization called Project Open, a part of the Interactive Services Association and its members such as America Online, AT&T, Microsoft, CompuServe, Prodigy and NetCom.
ISA and its members have provided testimony at our hearings and workshops and, in addition, some ISA members have committed to posting FTC public-service announcements online in an effort to warn consumers about the specific types of Internet fraud.
A second approach to take advantage of Internet's power is just to develop our own websites. We have recently posted two websites related to work at home and scholarship scams. Each website lays out a fake scam with catchy phrases and graphics and, as the person clicks along to the website, they finally come to a page that said, "If you are really interested in this, you are likely to have lost your money."
Finally, for some consumer-protection issues like privacy, the net's own technology may provide some assistance in terms of resolving issues. In our privacy discussions, for example, we have been told by the industry that the technology that is being developed to help screen indecent content from minors can also be adapted to address some of the privacy concerns that have been raised.
One of the things it can do is screen out sites that don't meet consumer-specified privacy specifications. The other thing it can do is limit what information, for example, a child user on the Internet can disclose. So, again, looking at this new medium in terms of its new technology to see what it means for consumer protection will be something that will be very important.
Thank you very much for the opportunity to address you. I look forward to the discussion.
MR. SCHULTZ: Historically, the states have principally been involved in the retail side of regulating FDA products. But, over the last 15 or 20 years, a number of states have become very active in areas such as food labeling and drug advertising.
I think, as we heard on the panel this morning, Pennsylvania is really taking the lead in looking at the questions about advertising on the Internet. So now we are going to hear from Renardo Hicks who is the Executive Deputy Attorney General in the State of Pennsylvania. He is the Director of the Public Protection Division which has jurisdiction over civil-rights enforcement, antitrust, charitable trust and the Bureau of Consumer Protection.
MR. HICKS: Thank you for the opportunity to be here. Following the lead of the distinguished Mr. Peeler, I am also here as a representative of the Pennsylvania Attorney General's Office and not necessarily as a representative of NAAG. However, I do chair a subcommittee of the National Association of Attorney Generals that deals with a number of these issues.
In fact, for the past year and a half or so, the attorneys general have been aggressively involved in trying to figure out responses to a number of issues associated with the Internet. In fact, you should be aware that these 39 states that I have talked about this morning have broken themselves up into committees that include one on privacy, one on criminal law that is really focussing on gambling, in particular.
The one I chair is online services and direct Internet access providers. It is a real long title but it is significant because online services are guys like AOL, CompuServe, Prodigy and those folks. And direct Internet access providers are different. Those are the people who provide software to get you straight to the Internet.
The online services, on the other hand, have a whole host of services much like what you find on the Internet that they are responsible for organizing and administering. There is sort of an evolution going so they are sort of merging into the same thing these days.
But we also have a committee on civil rights and a committee on training in general that is trying to train as many of us as possible on these issues in telecommunications medium. We have begun to work in collaboration with the FTC. In fact, FTC representatives are involved in most of these working groups, the Justice Department directly, the Secret Service and other federal and state agencies interested in these same issues.
That is why I was preaching this morning that collaboration is really going to be vitally important because in a sense, the Internet is like Dodge City. Do you understand what I mean by that? It is like the wild, wild West out there. And there is no online service responsible for managing and administering and controlling the Internet, but it is something that we have to be very concerned about.
The things that we have found on the Internet that give us concern on the state level include things like pyramid schemes which are a violation of most state consumer-protection laws; deceptive health claims. There are a lot of deceptive health claims that are not put on by manufacturers but they are put on by people who think they know something about it.
Deceptive advertising claims of various kinds; in fact, one of my favorite cases that we have dealt with recently, in collaboration with the FTC, is one involving a company called Zygon. Zygon is a company that made something called the Learning Machine.
The Learning Machine was basically a football helmet that you put on your head attached to a CD player that was supposed to download information directly into your brain. At least one Pennsylvania consumer bought one for himself and his son. We actually tried it on in the office and nobody got smarter, nobody learned Spanish or French or anything like that.
In fact, based on their placing this thing on the Internet, we went into state court and, somewhat to my surprise, sought an injunction to prevent this from coming into Pennsylvania. Our state court said, "Since you can't figure out another way to stop it from coming into Pennsylvania, you have to take it down completely."
So Zygon, the company, took it down from the Internet. But they had agents who put it up again, by themselves. So there is a problem there. There is a problem that we haven't quite figured out the answer to.
This is a personal comment and not necessarily one to be attributed to NAAG or the Attorney General's Office, but I believe that as we turn to the question of regulation--and this is coming from a regulator, too, folks--that it is going to be nearly impossible to completely regulate the Internet. No; it is going to be impossible to completely regulate the Internet.
I say that for a number of reasons. I say it because of the international influence on the Internet and because if we set up rules in the United States that dictate the way that people in the United States have to interact with the Internet, those rules don't necessarily apply to people in other countries.
I know that is the subject of tomorrow's presentation, but I am not going to be here tomorrow, so I had to get it out.
The other point that I think is significant is that there is a fine-line balancing act between the individual interest of business and this interest of government in regulating. It is a balancing act that we are really very, very conscious of.
There are some specific things, though, that I think regulators have a peculiar interest and need to be involved in. For example, the question of privacy, I think, is a very important one. The question of privacy, I think, is appropriate for regulators to be involved in, too.
By privacy, in particular, I mean the question of whether people should be able to sell information that they obtained about you to other people. As a practical matter, when someone hits on a webpage, there is a great deal of information that they can get about you just from that hit. Maybe we will talk about that more in the panel, but they can take that information, package it and sell it.
There is an organization called the Virtual Magistrate on the Internet. One of the very first cases on the Virtual Magistrate was one involving junk E-mail. There was a company on one of these major online services that collected E-mail addresses and sold them to other people so that advertisers could solicit without people's consent.
That is an issue that I think has to be addressed directly. The question of privacy related to personal medical information is one that is going to have to be dealt with as well.
There is, on one side, valuable benefit to having medical information about a person in a place where someone can get to it no matter where they are. So if your doctor is in Pennsylvania and you get hurt in California, a doctor in California can access your medical records and be able to have a historic frame of reference for treating you.
But, on the other hand, it would be a travesty if personal medical information was accessed without a person's consent and used to blackmail someone, for example, someone who is HIV positive, perhaps. That kind of information might not be appropriate to have disclosed.
The Direct Marketing Association, people I interact with on a frequent basis, says that customers have the right to know the identity of the marketers. They have a right to know who will use this information collected about them and they have a right to opt out of solicitations on E-mail.
I think--we don't always agree--but I think they are right on that point.
The other thing that I think is worth noting is that as you consider putting a webpage up on the Internet, that there is no such thing as complete security on the Internet. Let me say that again; there ain't no such thing as complete security on the Internet.
I mean that in two ways. I think that, as you connect your computer to a modum and your telephone line, there is an opportunity for a personal invasion into your house. It is possible for smart people to use that connection to the computer and the modum not only to access what you want them to access, but to access whatever else you have on your computer.
There are things being done to try and increase the security, like firewalls being built. Firewalls are getting more and more sophisticated. But as people consider putting something up on the Internet, they have to consider creating ways to secure other information that you don't want to give people access to.
The other security question that we in the states are particularly concerned about is financial information that people put on the Internet. Transactions can be conducted on the Internet. In fact, they are done on a daily basis. But just as one does on the telephone, you don't really want to put your credit-card number on the Internet.
You don't really want to put other kinds of personal financial information on the Internet because there are smart people who can get a hold of it and do other things with it that you might not approve of.
These areas are the principal preoccupation of many of the states. I must tell you, we are getting smarter and smarter in the way we conduct "investigations" on the Internet. We actually create false identities for people. We actually send people onto the Internet to search for various things. And we actually conduct transactions.
We pay the money, we get the product. I have two of those helmets in my office. They are useful from an educational point of view--not directly. But as individual agencies begin to deal with these questions, probably the most significant thing that I can urge is that we try and do what we can to deal with this together.
I also think it is important for us to keep this balance between the business--I think legitimate business interest--in the cultivation of the Internet and this governmental interest in the protection of its citizens.
MR. SCHULTZ: Thank you very much. My only question is how much do those helmets costs?