SUMMARYThe Federal Trade Commission (FTC) ischargedwithprotectingconsumersfromfraud,deception,andunfairpracticesinthemarketplace.Theagencyaddressescurrentissuesofimportancetocon-sumers,includingidentitytheft,tele-marketing fraud, Internet fraud, and creditreporting.TheFTCusestargetedlawenforcementactionsandconsumerandbusiness education to protect the public.Weworktoensurethatconsumershaveaccurate information for their purchasingdecisions, and can have confidence in thetraditional and electronic marketplaces.TheFTCalsohasalongtraditionofmaintaining a competitive marketplace forbothconsumersandbusinesses.Weenforcethelawsthatprohibitanticom-petitivemergersandbusinesspractices.Freeandopencompetitionisthecornerstoneofoureconomy,bringingconsumers the benefits of low prices, highqualityproductsandservices,andin-novation.Weworktoremoverestrictionsontheengineofcompetitionsothatmarketscanfunctionattheirbest.Wefocus particularly on market segments thatmattermosttoconsumers:healthcare,prescription drugs, grocery retailing, hightech,andenergy.Bypromotingvigorouscompetitionintheseandothermarkets,we can help to ensure a strong economy.Oureducationalmaterials,aswellasinformation about the FTCs activities, canbe found on our Web site, www.ftc.gov.About the FTCThe FTC is an independent agency thatreportstoCongressonitsactions.Itisheaded by five Commissioners, nominatedbythePresidentandconfirmedbytheSenate, each serving staggered seven-yearterms.ThePresidentselectsoneCom-missionertoactasChairman.NomorethanthreeCommissionerscanbeofthesamepoliticalparty.TheFTChastwomajor bureaus, Consumer Protection andCompetition, supported by the Bureau ofEconomicsandregionalandmissionsupport offices.TheBureauofConsumerProtectionschargeistoprotectconsumersagainstfraudulent, deceptive, or unfair practices.ThisBureauenforcesavarietyofconsumerprotectionandcreditlawsenactedbyCongress,aswellastraderegulationrulesissuedbytheCom-mission.Itsactionsincludeindividualcompany and industry-wide investigations,administrative and federal court litigation,rulemakingproceedings,andconsumerand business education.The FTCs antitrust arm, the Bureau ofCompetition,seekstopreventanti-compet i t i vemer ger sandot heranticompetitivebusinesspracticesinthemarketplace.ThisBureaupromotescon-sumersfreedomtochoosegoodsandservicesinacompetitivemarketplaceatprice and quality levels that fit their needs.Italsofostersopportunityforbusinessesby ensuring competitive markets.The Bureau of Economics helps the twomissionbureausevaluatetheeconomicimpactoftheiractions.Todoso,thisBureauprovideseconomicanalysisandsupporttoantitrustandconsumerprotection investigations and rulemakings.It also analyzes the impact of governmentregulation on competition and consumersandprovidesCongress,theExecutiveBranch,andthepublicwitheconomicanalysis of market processes as they relatetoantitrust,consumerprotection,andregulation.2The FTCs regional offices coversevengeographic areas. The regional offices workwith the Bureaus of Consumer Protectionand Competition to conduct investigationsand litigation; provide advice to state andlocalofficialsonthecompetitiveimpli-cationsofproposedactions;recommendcases;providelocaloutreachservicestoconsumersandbusinesspersons;andcoordinate activities with local, state, andregionalauthorities.FTCregionalofficesfrequentlysponsorconferencesforsmallbusinesses,localauthorities,andconsumer groups.The mission support offices consist ofmanagement and administrative functions;theseofficesprovideneededservicestosupport the operations of the agency.Strategic PlanOur Strategic Plan sets forth the FTCsVisionandMissionwithrespecttotwogoals.Thesegoals,andtheircorre-sponding objectives (see Figure 1), are theframeworkfortheactivitieswepursueduringthecourseofeachyear.Ourperformance measures help us assess theimpact of our annual activities.FIGURE 1FTCS STRATEGIC PLANVISION: A U.S. economy characterized by vigorous competition among producers and consumer access to accurateinformation,yieldinghighqualityproductsatlowpricesandencouragingefficiency,innovation,andconsumer choice.MISSION: Toprevent businesspracticesthatareanticompetitiveor deceptiveorunfair toconsumers;toenhanceinformed consumer choice and public understanding of the competitive process; and to accomplish thesemissions without unduly burdening legitimate business activity.GOAL 1 Preventfraud,deception, andunfairbusinesspracticesinthemarketplace.OBJECTIVE 1.1 Identifyfraud,deception, andunfairpracticesthatcausethegreatest consumer injury.OBJECTIVE 1.2 Stopfraud,deception,and unfairpractices through law enforcement.OBJECTIVE 1.3 Preventconsumerinjury througheducation.GOAL 2 Preventanticompetitivemergers andotheranticompetitivebusinesspractices in the marketplace.OBJECTIVE 2.1 Identifyanticompetitivemergers andpracticesthatcausethegreatestconsumer injury.OBJECTIVE 2.2 Stopanticompetitivemergers andpractices through law enforcement.OBJECTIVE 2.3 Preventconsumerinjury througheducation.32001 HighlightsDuring2001,theFTCsactivitiesbenefitted consumers and businesses.Wewere successful in achieving or exceedingthe majority of the performance targets weusetomeasureoureffectiveness.High-lights of our 2001 results include: C Savingconsumersanestimated$3.1billion1throughlawenforcementactions a savings of over $21 for each$1 appropriated for FTC operations.Inaddition,theFTCslawenforcementactivitiesandconsumereducationeffortsdetermanyfraudulentoranticompetitivepracticesthatlikelyresultinsubstantial,thoughun-measurable, consumer savings.C Usingthemorethan430,000con-sumer complaints we received in 2001totargetourlawenforcementandeducationeffortstothemostseriousproblemsaffectingconsumers,andsharing these complaints with over 400law enforcement partners.C Providingaccesstothe131,000identity theft complaints and inquiriestomorethan235lawenforcementmemberstohelpthemidentifyandtargetthemostseriousconsumerproblems in this area.C Saving consumers more than $2 billiondollars on fuel and utility bills throughmergerenforcementactionsinvolvinggasoline and other petroleum products,andelectricityandnaturalgastrans-mission.C Facilitatingconsumersaccesstoimportantmedications-includingtakingactionsresultinginthepre-servationofongoingdevelopmentofnewdrugs,blockingcollusionamongcompetitors, and removal impedimentstothetimelyavailabilityoflower-costgeneric drugs.C Identifyingapproximately200firmsengaginginpretexting,apracticethroughwhichcompaniesobtainandsell consumers asset or bank accountinformation to third parties. Firms weresentletterswarningthemtodis-continue this privacy-related violation;we followed up by filing complaints infederal court charging some companieswithcontinuingthispracticedespitethe warning.C BringingthefirstcasesenforcingthenewlyeffectiveChildrensOnlinePrivacyProtectionRulethatprotectschildrenundertheageof13;de-fendants paid fines totaling $100,000.C Securing a settlementto protect com-petitioninthegrowingbroadbandmarket for Internet services.C Expandingoutreachtoconsumersbylaunching two new Web sites to collectandshareconsumercomplaintinformation:Public Sentinel, to providethepublicwithconsumerfraudandidentitythefttrenddataandinformation; and www.econsumer.gov,toenhanceconsumerprotectionandconfidenceinglobale-commerce.Inaddition,theFTCisintheprocessoflaunchinganotherWebsite,SoldierSentinel,topermitmilitaryservicememberstoenterconsumercom-plaints and receive education materialsonline.1A preliminary consumer savings estimate of$3.3billionwasincludedintheFY2003CongressionalBudgetJustificationmaterials.However,afterafinalreconciliationofthedata,thefinalconsumersavingsestimateis$3.1billion.4The FTCs 2001 performance providedsi gnif icantbenef i tstoAmeri canconsumers,andthecostoftheagencysoperationsisasoundinvestmentforconsumers and businesses. We effectivelymanage our resources and serve the pub-lic.Ourinternalcontrolreviewprogram,along with our Inspector Generals auditsandotherindependentreviews,playsasignificantroleinensuringeffectiveandresponsive agency operations.Figure 2FY 2001 Performance Measures and TargetsGOAL 1 OBJECTIVE 1.1Measure 1.1.1: Annual number ofconsumer complaints and inquiriesentered into database.Target: 350,000Actual: 430,000 TOBJECTIVE 1.2Measure 1.2.1:Dollar savings forconsumers from FTC actions which stopfraud.Target: $400 millionActual: $487 million TMeasure 1.2.2: Total expenditures ofdeceptive or unfair advertising campaignsstopped.Target: $300 millionActual: $86 million OBJECTIVE 1.3Measure 1.3.1:Number of educationpublications distributed to or accessedelectronically by consumers.Target: 10 millionActual: 15 million TT met or exceeded targetGOAL 2OBJECTIVE 2.1Measure 2.1.1: Percent of HSR secondrequests resulting in enforcement action.Target: 50%Actual: 68% TMeasure 2.1.2:Number of nonmergerinvestigations opened per year.Target: 45-70Actual: 56 TOBJECTIVE 2.2Measure 2.2.1:Positive outcome of casesbrought by FTC due to alleged violations.Target: 80%Actual: 94% TMeasure 2.2.2:Dollar savings for consumersresulting from FTC actions stoppinganticompetitive mergers.Target: $800 millionActual: $2.5 billion TMeasure 2.2.3:Dollar savings for consumersresulting from FTC actions stoppinganticompetitive nomerger activity.Target: $200 millionActual: $157 millionOBJECTIVE 2.3Measure 2.3.1: Quantify number ofeducation and outreach efforts.Determine baselineMeasure 2.3.2:Quantify number of hits onantitrust information on FTC Web site.Determine baseline52001 Assessment Measuring PerformanceThrough ResultsAmajorfeatureofourstrategicplanningprocessisthecontinualreevaluation of our objectives, performancemeasures, and performance targets.Thisprocess gives us the opportunity to assessourimpactonthemarketplaceandevaluate how well we are doing our job ofprotecting the American consumer. It alsoallows us to determine if our measures areaccurateindicatorsoftheresultsofourperformance (see Figure 2).As previously discussed, our StrategicPlan is based upon two goals: preventingfraud,deception,andunfairbusinesspracticesinthemarketplace(ConsumerProtection),andpreventinganticompeti-tivemergersandotheranticompetitivebusinesspracticesinthemarketplace(MaintainingCompetition).Wehavede-veloped measures for both of our goals andtheir corresponding objectives.Under Goal 1, the results of our effortsunder the first objective are measured bythenumberofconsumercomplaintsandinquiries added to the Consumer Informa-tion System database (Measure 1.1.1).Themore data we have, the better able we caneffectivelyspotwide-rangingtrends,quicklyidentifyemergingscams,andefficientlycoordinateactivitieswithotherlawenforcers.In2001,weaddedmorethan 430,000 entries, exceeding our targetof350,000byapproximately23%.Thisgrowthreflectstheincreasinginterestoforganizationsincontributingcomplaintdatatoourdatabase,whichgivesusabroaderviewofwhatconsumersareexperiencing.Thesecondconsumerprotectionob-jective has two measures, one for our lawenforcementeffortsrelatedtostoppingfraudandoneforourotherlawenforcementornonfraudefforts.Theformerisourkeyconsumerprotectionmeasure(1.2.1).Our2001targetwastosaveconsumersover$400millionbystopping fraud. We surpassed this target,withouractionssavingconsumersanestimated $487 million.Our five-year goalfortheperiod2001-2005istosaveconsumers$2billion,oranaverageof$400 million per year.Performance measure (1.2.2) addressesthelawenforcementeffortstostopdeceptiveorunfairpractices.In2001,anewmeasurewasusedthatlooksatthevalue of the deceptive or unfair advertisingcampaigns we are able to stop.Our target,basedonouryear2000results,wastoreduceconsumerinjurybystoppingcampaignsthathadcombinedmediaexpenditurestotaling$300million.However,westoppedonly$86millionofexpendituresofdeceptiveorunfairad-vertising campaigns in 2001, or 29% of ourtarget,whichledustore-examinethemeasure and the target. We found that thebaseyear2000includedfinalordershaltingseverallargenationaladvertisingcampaigns. However, in 2001, nearly halfofouradvertisingcaseswithfinalordersinvolved companies that used the Internetorotherlow-costalternativestoconductadvertisingcampaigns.Afterstudyingtheseresultsandadvertisingtrendsingeneral, we have reset our target to $100million in 2002. Through our continuousself-evaluationprocess,wewillcloselymonitorthisareaandexplorewhetherthere are other measures that will allow usto more effectively evaluate our impact inthe nonfraud area, including our efforts toprotect consumers privacy.Underthethirdconsumerprotectionobjective, we measure our impact by track-ing the number of consumer and businesseducationpublicationswedistributedtothepublic(Measure1.3.1).Trackingthedistribution of publications in response to6consumerrequestsgivesusanapprox-imate idea of how many consumers believeour information will prove useful. In 2001,theFTCdistributedapproximately15million publications: 5.4 million print pub-lications and 9.6 million through the FTCWeb site.This is the second year in whichelectronic distribution surpassed print dis-tribution.Weexceededourgoalof10millionpublicationsbyapproximately5million,dueprimarilytoanunexpectedincreaseinthenumberofpublicationsaccessed online. Our reach nationwide wasextendedbyaggressiveoutreachandpromotionofFTCmaterialsandourtoll-free numbers.UnderGoal2,weadoptedanewmeasure under the first Maintaining Com-petitionobjective(Measure2.1.1)thatallows us to evaluate oureffectiveness inscreeningHSRpremergernotificationfilingstoidentifythosethatmostlikelypresent antitrust concerns. Success in thismeasure benefits consumers by targetingresources toward transactions most likelytohaveanticompetitiveeffects.Ourpre-liminarytargetwasthatatleast50%ofHSRrequestsforadditionalinformationwouldresultinenforcementaction.Weexceededthatfigure,withenforcementactionstakenin68%oftheHSRin-vestigations. We will continue to evaluateour target for this measure, and will makeappropriateadjustmentsbasedonourongoing experience.Thesecondmeasureunderthisob-jective(Measure2.1.2)-thenumberofnonmerger investigations opened per year-helpsusassessoureffortstobroadenouridentificationofanticompetitivecon-duct in the market.Our goal has been toopen45to70nonmergerinvestigationsoverthecourseofeachyear,arangereflectingthenumberofnonmergerinvestigationsopenedinyearspriorto2000,whenwedivertedresourcesawayfromnonmergerworktorespondtoanunprecedented level of merger activity. Wemet our target, opening 56 investigations,morethandoublethe25investigationsopened in 2000.For the second objective, we use threemeasures to gauge our success in stoppinganticompetitivemergersandpracticesthroughlawenforcement.Thefirst(Measure 2.2.1) addresses the percentageof anticompetitive mergers and practices inwhich we achieved relief through litigation,reachedasuccessfulsettlementagree-ment, or persuaded parties not to proceedwithananticompetitiveacquisition.Weseek to obtain a positive result in at least80% such matters in which we determinethatamergeroracourseofconductisanticompetitive.Wewereabletoexceedourgoalin2001,byachievingapositiveresult in approximately 94% of the mattersinwhichweidentifiedanantitrustproblem. While we expect to prevail nearlyall the time in our enforcement actions, weremainwillingtoundertakechallengingcases that may result in losses.Within the last year, we increased ourannualtargetfordollarsavingstocon-sumers resulting from FTC merger actions(Measure 2.2.2) from $500 million to $800million.In2001,wesavedconsumersapproximately $2.5 billion, keeping us wellon course to achieve our goal of $4 billionindirectsavingstoconsumersoverthefive-year period 2001-2005. In addition, weaddedanewperformancemeasurein2001relatingtoconsumersavingsresultingfromFTCnonmergerenforce-ment actions (Measure 2.2.3).Our goal forthismeasureistoachieve$1billionindirect savings to consumers over the five-yearperiod2001-2005bystoppinganti-competitive practices that would result inhigherconsumerpricesifallowedtocontinue.Meetingthefive-yeargoalrequiresanaverageof$200millionperyearinconsumersavings.In2001,wesaved consumers $157 million.Althoughthe 2001 result is somewhat less than theyearlyaverageof$200millionneededto7achievethefive-yeargoal,weexpecttoreachthefive-yeargoalbyachievinggreater savings in subsequent years.Together,consumersavingsresultingfrom merger and nonmerger enforcementrepresent our key maintaining competitionmeasures. Actual results in any given yearmayvarybasedonthelevelofmergeractivitytakingplace,thenatureofthetransactions, and the industries in whichweidentifyantitrustconcerns.In2001,ourmergerandnonmergerenforcementactions saved consumers a total of about$2.6billion,asignificantportionofourcombined five-year goal.Underthethirdobjectivewereplacedboth performance measures for 2001. Thenewmeasures,relatingtoeducationandoutreachactivitiesbyFTCpersonnel(Measure2.3.1)andthefrequencyofthepublicsaccesstoimportantantitrust-relatedcontentontheFTCsWebsite(Measure2.3.2),moredirectlyreflectoursuccessinpreventingconsumerinjurythrough education of the public. Becausewe did not systematically collect this infor-mationbefore2001,wehavenotyetsettargetsforthesenewmeasuresbutwehave collected data to use as a baseline forevaluatingfutureperformance.In2001,wecompletedatotalof141publicoutreacheffortsandreceivedmorethan2.6 million hits on antitrust information onthe FTCs Web site. Through our outreachefforts,theFTCpublicizestheantitrustlaw and our enforcement intentions, withthelikelyresultofdeterringfutureanti-competitive behavior.Ongoing ChallengesThe FTC is a small agency with a largemission.Demands on the agency have in-creased dramatically over the past decadeascommercehasbecomeincreasinglyelectronic and the economy has gone high-techandglobal.AlthoughtheFTCcon-tinues to be successful in protecting con-sumers,wefacechallengesinthiscomplex,high-tech,globalmarketplace.Emergingissuessuchasenforcingthepromisesmadetoconsumersabouttheprivacy of their personal information andmaintaining competition among companiesoperatinginthisexpandingmarketplacehave risen to the forefront.The FTC currently enforces a numberoflawsthataddressconsumersprivacy.Privacyofpersonalinformationisimpor-tantandcompaniesthatmakespecificpromises to consumers about the privacyof their information need to live up to thesepromises. Doing so will enhance the con-fidencethatconsumershaveinthemarketplace.TheFTCisconcernedwiththe misuse of personal information and iscommittedtobothlawenforcementandeducationinthisarea.Tomeetthischallenge,theFTCisincreasingtheresources dedicated to privacy protection.The areas of focus include: telemarketing,unsolicitede-mail(spam),IDTheft,andpretexting,aswellasenforcementoftheChildrensOnlinePrivacyProtectionAct,theGramm-Leach-BlileyAct,theTelemarketing Sales Rule, and Section 5 ofthe Federal Trade Commission Act.A major privacy initiative is the FTCsproposaltoestablishanationalDo-Not-Call list by amending its regulations undertheTelemarketingandConsumerFraudand Abuse Prevention Act. The purpose ofanationallististoenhanceprivacybyprotecting consumers from unwanted andoftenintrusivetelemarketingcalls.Currently,consumerswhodonotwanttelemarketers to call them must rely on apatchwork of do-not-call lists administeredby states and the private sector. The FTCsnationallistwouldenableconsumers,throughonephonecall,toremovetheirnamefromnumeroustelemarketinglistsnationwide.8During the past several years, a stag-geringlevelofmergeractivitydominatedourantitrustagenda,withthenumber,size,andscopeofproposedmergersleapingtonewhighsyearafteryear.Althoughthevolumeofmergersabatedsomewhatin2001,thesize,scope,andcomplexityofmergerscontinuestoincrease.Forexample,justthreeofthemergers we investigated in 2001 togetherwereworthaboutathirdofatrilliondollars.Asinglelargetransactionmayinvolvedozensofoverlapsindifferentcombinations of products and geographicmarkets,eachofwhichmayrequirein-vestigation.In addition, as the economy evolves, weincreasinglyencountermergersinvolvinghi gh-technol ogymarkets,complexscientificresearchanddevelopment,andintellectual property. This trend requires acommensurate expansion of our expertiseinmarketsinvolvingscienceandtech-nology, along with thoughtful examinationoftheintersectionofantitrustandintel-lectualpropertylaw.Thus,forexample,the FTC and Department of Justice Anti-trustDivisionhavebegunaseriesofhearingsfocusingontheimplicationsofcompetition and patent law and policy.Amendments to the Hart-Scott-RodinoAct (HSR Act), which require companies toreport certain proposed mergers to the FTCandDepartmentofJustice(whichjointlyenforcetheantitrustlaws),tookeffectin2001.Theamendmentsraisedthedollarthresholds determining which mergers aresubject to the reporting requirement, butdid not change the substantive standard oflegalityundertheantitrustlaws.Asaresult,fewermergersarereportedtousunderHSR.Transactionsthatraiseantitrustconcernsareverylikelytobeamongthosereported.Nevertheless,weareincreasingoureffortstomonitormarketplace developments and take actionon non-reportable mergers that could stillharm consumers, and we will not hesitatetochallengeanalready-consummatedmerger where necessary.AlthoughtheFTCfaceschallengesespeciallyaddressingconsumerprivacyissuesandmaintainingcompetitioninagrowing global and electronic marketplaceweareabletoaddressthemmoreeffectivelythroughstrategicplanning,performancemanagement,andresultsmeasurement. Using these processes, wewillcontinuetoassessandreassessthechallengesandopportunitiesfacingtheFTC. Our aim is to continue as a citizen-centeredandresults-orientedagencypositioned to be innovative and aggressiveinprotectingconsumersandbusinessesfromfraudulent,unfair,deceptive,andanticompetitive acts or practices.9THE RESULTSGOAL 1PREVENTFRAUD, DECEPTION, ANDUNFAIRBUSINESSPRACTICESINTHEMARKETPLACECongress has charged the FTC with thebroadest legislative mandate of any federalconsumer protection agency.While mostfederal consumer protection agencies havejurisdiction over a specific market sector,wepossessbroadlawenforcementauthoritythatencompassessignificantsegments of the economy, including busi-nessandconsumertransactionsontheInternet. Our goal is to protect consumersby preventing fraud, deception, and unfairbusiness practices in the marketplace. Weimplementthreerelatedobjectivestoachieve this broad-reaching goal.1. Identifyfraud,deception,andunfairpractices that cause the greatest con-sumer injury.2. Stop fraud, deception, and unfair prac-tices through law enforcement.3. Prevent consumer injury through edu-cation.First, we identify practices that causeconsumerinjurybyanalyzingthecon-sumercomplaintdatacollectedinourConsumerInformationSystemdatabase,holding public discussions, and monitoringthemarketplace,includingtheInternet.Next, we use this information to target lawenforcement efforts. Our law enforcementprogram aims to stop and deter fraud anddeception, protect consumers privacy, andincreasecompliancewithourconsumerprotectionstatutestoensurethatconsumers have accurate information fortheirpurchasingdecisions.Finally,wetargetoureducationeffortstogiveconsumerstheinformationtheyneedtoprotect themselves from injury.One of the greatest challenges we faceasthenation'sleadingconsumerpro-tection agency is safeguarding consumersin the new electronic marketplace so theywillhavethesameconfidencethattheyenjoyinthetraditionalmarketplace.Onlinecommercehasthepotentialtodeliver goods and services, often more con-veniently, faster, and at lower prices thantraditionalbricksandmortaroperators.Onlinecommercepromisesenormousbenefitstoconsumersandtheeconomy.Moreover,theInternetisstimulatingthedevelopmentofinnovativeproductsandservices that were barely conceivable justa few years ago and is enabling consumersto tap into rich sources of information thattheycanusetomakebetterinformedpurchasing decisions. There is real risk, however, that thesebenefits may not be realized if consumersassociatetheInternetwithfraudopera-tors. The boom in e-commerce has openedupfertilegroundforfraud.IntheFTC'sexperience,fraudulentoperatorsareal-waysamongthefirsttoappreciatethepotential of a new technology to exploit anddeceive consumers. Of particular concernis thatInternet health fraud continues toplague consumers looking for solutions toserioushealth-relatedillnesses.Insum,we are using all the tools at our disposal,such as our consumer complaint databasetohelpustargetareasofconsumerproblems,andourlawenforcementand10educationeffortstorespondquicklyandvigorously to these problems. Privacyofpersonalinformationisimportantandcompaniesthatmakespecificpromisestoconsumersaboutprivacyneedalsotoliveuptothosepromises. This adds to the confidence con-sumers have in the marketplace. The FTCis concerned with the misuse of personalinformation and is fully committed to bothenforcementandeducationinthisarea.Forexample,intheareaofchildrensprivacy, the FTC is charged with enforcingtheChildrensOnlinePrivacyProtectionAct and its implementing Rule which waseffectiveinApril2000.In2001,webrought our first cases challenging allegedrule violations. The FTC also continued anextensiveeducationcampaignonchil-drensprivacydirectedtobusinesses,parents and educators. The FTCs comprehensive review of theTelemarketingSalesRulerevealedwide-spreadconsumerfrustrationoverun-wanted telephone solicitations, which somesee as a violation of privacy in their home.Toaddressthisconcern,theFTChasproposedamendmentstotheRuletoestablish a National Do-Not-Call Registry.Iftheproposalisadopted,consumerswould be able to make one call to registertheirpreferencenottoreceivenumeroustelemarketing calls.11OBJECTIVE 1.1 IDENTIFYPRACTICES THATCAUSE CONSUMER INJURYTo prevent fraud, deception, and unfairbusiness practices in the marketplace, wefirst must identify such practices, especial-ly those that cause the greatest consumerinjury,wherewecanmakethegreatestimpact.StrategiesTo identify consumer protection prob-lems,theFTCcollectsandanalyzesdatafrommanysources.OurConsumerResponseCenternowreceivesroughly10,000 consumer complaints and inquiriesa week via a toll-free number (1-877-FTC-HELP),mail,andtheInternet.PartnerssuchastheNationalFraudInformationCenter of the National Consumers League,theInternetFraudComplaintCenter,Better Business Bureaus, andthe Canadian fraud database,PhoneBusters,alsoprovideuswiththeconsumercom-plaint data they collect. All ofthisinformationisenteredintotheConsumerInfor-mation System database andanalyzedbyFTCstafftoidentifytrendsandtargetfraudulent,deceptive,andunfairbusinesspractices.Wesharethefraud complaints that we collect with morethan 400 other law enforcement agenciesacrosstheUnitedStates,Canada,andAustralia via an encrypted Web site calledConsumerSentinel.AlthoughtheFTCisnotempoweredtoactonbehalfofindividual consumers, consumer complaintdata obtained through Consumer SentinelenablestheFTCanditsotherlawenforcementpartnerstocoordinatetheirenforcementefforts,andtospottrendsandtargetthemostseriousconsumerproblems.SummaryandtrenddataaresharedwiththepubliconourPublicSentinel Web site (consumer.gov/sentinel)createdin2001.Theconstantinputandanalysisoffreshcomplaintdatahaveallowed the FTC to move quickly in someinstancesinamatterofweekstostopillegalpracticesbeforetheycausemoreharm to consumers.In 2001, we created a public Web siteforConsumerSentinel,consumer.gov/sentinel,thatprovidesconsumerfraudandidentitythefttrenddataandinfor-mation on how Consumer Sentinel servesthepublic.WearealsoworkingwiththeDepartmentofDefensetolaunchanewsitethatwillallowmilitaryservicemem-bers to enter complaints online and receiveconsumereducationmaterials.Thiscomplaint data will be added to our Con-sumerSentineldatabaseandwillbetrackedbytheDefenseDe-partment,whichwillthenbeabletoaddressthemostprevalentformsofconsumerharm affecting its personnel.Consumers can call our toll-f reenumber,1-877-ID-THEFT, to get information onandreportidentitytheftandreceiveguidanceonthestepstheycantake to resolve credit and other problemsthat may have resulted from identity theft.Bytheendof2001,wereceivedapprox-imately 4,000 calls a week, nearly doublethe amount we received in 2000. The FTCwillusethedataitcollectsfromcon-sumerstospotpatternsthatcanhelpcriminallawenforcementagenciespro-secuteperpetratorsandhelpbusinessesavoidthefinancialconsequencesofidentitytheft.Tofurtherhelpconsumersdealwiththecrime,theFTCreleasedauniversal ID Theft Affidavit that victims ofidentitytheftcansubmittomanyPerformance Measure 1.1.1Annualnumberofconsumercomplaintsandinquiriesenteredinto database.FY 2001 Target: 350,000FY 2001 Actual: 430,000Met or Exceeded:T12companies,simplifyingtheprocessofalertingcompanieswhenafraudulentaccounthasbeenopenedintheirname.Although most ID theft cases are criminal,theFTCstaffsystematicallyexaminescomplaintdataforcivilcaseswithinitsjurisdictionandwillbringthosecaseswhereappropriate.CriminalcasesareidentifiedbyourjointFTC/U.S.SecretService Case Referral Program and strongleads are referred to regional task forces,manyledbythe SecretServiceFinancialCrimes Division.Besidesreceivingandanalyzingcon-sumer complaints, we monitor the growingonlinemarketplacethroughSurfDays,whenweandpartnerorganizationssys-tematicallysurftheInternettoidentifyWebsitesengagedinquestionablepractices.Todate,theFTChasledorcoordinated34SurfDays.Asaresult ofthese Surf Days, more than 4,800 warninglettershavebeensenttoWeboperatorswith questionable business practices. If aWeb operator ignores the warning, we mayfilesuit.TheFTCalsohostspublicworkshops to explore cutting-edge issues.In 2001, we held 17 such conferences andworkshopsonavarietyofconsumerandbusiness issues. For example, we hosted ahighlysuccessfulIdentityTheftvictimsworkshop with more than 170 participants- victims, consumer advocates, representa-tives of the financial services industry andcreditbureaus,andlawenforcementagencies-todiscusskeyproblemsfacedbyidentitytheftvictimsandtodevelopjoint initiatives addressing those problems.Performance Measureand ResultsTo assess our effectiveness in identify-ing fraudulent and deceptive practices, wemeasuredthenumberofconsumercomplaintsandinquiriesaddedtotheConsumerInformationSystemdatabase.The more data we have, the better able weare to effectively spot wide-ranging trends,quicklyidentifyemergingscams,andefficientlycoordinateactivitieswithotherlawenforcers.In2001,weaddedmorethan 430,000 entries, exceeding our targetof350,000byapproximately23%.Thisreflectstheincreasinginterestoforgani-zationsincontributingcomplaintdatatoourdatabase,whichgivesusabroaderview of what consumers are experiencing.Thedatabaseallowsusandourlawenforcementpartnerstoidentifyanddevelop cases against fraudulent operatorsand leverages our impact on practices thatcausethegreatestconsumerinjury.Byanalyzingconsumercomplaints,wecanidentifyandrefineourenforcementandeducation efforts to target the most seriousconsumer problems. These include: iden-titytheft,onlineauctionfraud,Internetserviceproviderscams,unauthorizedbillingscams,pyramidandotherinvest-ment schemes, travel and vacation fraud,pay-per-call solicitation frauds, high-techInternet-basedfraud,andhealthcarefraud.Performance Assessmentand Future TrendsNotonlydoesourdatabasehelpusidentifythemostseriousconsumerpro-tection problems, it quickly informs us ofemergingscamssothatwecanmoverapidlytostopconsumerinjury.Inaddition,bycollectingdatafromcon-sumers and othersources and sharing itwith our law enforcement partners, we areable to coordinate and, thus, augment theeffectiveness of law enforcement agenciesacrossthecountryandinCanadaandAustralia.Tomakethedatabaseevenmorevaluable,wecontinuetopursueenhancements to increase our collection ofinformationfromconsumeragenciesinother countries. For example, we launcheda Web site named econsumer.gov with ourpartnersintheInternationalMarketingSupervisionNetwork,aninternational13groupthatidentifiesandsharesinfor-mationaboutworldwideconsumerpro-tectionissues.Througheconsumer.gov,consumersinthe15participatingcoun-triescanfilecomplaintsusinganonlineform and obtain consumer education ma-terials.Lawenforcementmemberscanaccess a nonpublic site to obtain specificinformationaboutthecomplaintsthatconsumers have filed.We continue to increase our capacity toanalyzedataquicklythroughdatabaseenhancements that improve our ability torespond to frauds and identity theft earlier,and thus prevent greater consumer injury.For example, Consumer Sentinel, our lawenforcement encrypted Web site, containsa new alert function that flags suspectsunderinvestigationforotherSentinelmembers.Othernewfeaturesprovidegreaterflexibilityinsortingandviewingsearch results, and contact information fordomesticfinancialtaskforcesandinter-national consumer fraud agencies. We alsohave enhanced our database to track andanalyzeprivacy-relatedcomplaintsmoreeffectively.Thesenewtoolswillhelplawenforcers more effectively and successfullyinvestigatefraudandpursueillegalac-tivity.InFTCsexperience,assessingourperformance using the number of entriesaddedtoourconsumercomplaintdata-base is a reasonable indicator of our abilitytoidentifyconsumerproblems.Forex-ample, we use consumer complaint data inall of our fraud cases to identify, initiate,anddevelopinvestigations.In2001,wechanged this measure from the cumulativenumberofconsumercomplaintsandin-quiries to an annual count of entries addedto our database. This change was based onourobservationthatconstantlyaddingfresh information to the database is criticaltoitseffectivenessanditsvaluetolawenforcement. As described previously, themoreinformationwehave,thebetterweand our Sentinel partners can do our jobs.Collecting data from diverse sources in onecentral location also increases the value ofthe data by giving us an even broader viewof what consumers are experiencing. In2002,wewillcontinuetoexploreemergingprivacyissuesandworkwithindustry,consumergroups,andotherstakeholders.Wealsowillenhanceourconsumer complaint database to track andanalyzeprivacy-relatedcomplaintsmoreeffectively.In2002,wewillexplorecre-ating a new performance measure that willhelp us evaluate our results in the privacyarena.14OBJECTIVE 1.2 STOPPRACTICESTHAT CAUSECONSUMER INJURYOnce we identify fraud, deception, andunfairbusinesspracticesinthemarket-place, we focus our law enforcement effortson areas where we canhave the greatestimpact for consumers.StrategiesThe FTC plays a vital role in protectingconsumers privacy, emphasizing both en-forcementandeducation.Wefocusontelemarketing,unsolicitede-mail(SPAM),identity theft, and pretexting,as well as enforcement of theChildrensOnlinePrivacyProtectionAct,theGramm-Leach-BlileyAct,andtheTelemarketingSalesRuleaswellasSection5oftheFederalTradeCommissionAct.Obtainingconsumersprivatefinancialinformationunderfalsepretenses-apracticeknownaspre-texting - violates the Gramm-Leach-Bliley Act. In 2001, theCommissionfileditsfirstactions in U.S. District Courtstohalttheoperationsofinformationbrokerswhousefalsepre-tenses,f raudulentstatements,orimpersonationtoillegallyobtaincon-sumers confidential information - such asbank balances - and sell it. In each of thecases, the court temporarily enjoined thedefendantfromcontinuingtheillegalpracticesandimposedanassetfreezepending final resolution of the cases.In2002,theFTCwillreceiveandreviewcommentsonproposedamend-mentstotheTelemarketingSalesRule.Twooftheseproposalsrelatedirectlytoprivacy.First,theFTChasproposedestablishingaNationalDo-Not-CallRegistry.Iftheproposalisadopted,consumers would be able to make one calltoregistertheirpreferencenottoreceivetelemarketingcalls.Telemarketerswouldbe prohibited from calling consumers whohadregisteredtheirtelephonenumberswiththeFTCwithoutspecificapprovalfromtheconsumer.AsecondproposedamendmenttotheTelemarketingSalesRulewouldaddresstheuseofpre-acquiredaccountinformation.Accountinformationpre-acquiredfromsourcesother than the consumer can be misused,causingconsumerstoincurunauthorizedchargesontheir accounts.Telemarketingfraudcon-tinuestobealawenforce-mentpriority,asdoespro-tecting consumers from moretraditionalscamsthathavemoved to the Internet, includ-inghealth-relatedfraud.In2002,wealsointendtoin-creaseourenforcementac-tivitiesagainstfraudulentanddeceptivespam(un-solicitede-mail)promotingchainletters,pyramidschemes,orotherkinds of get-rich-quick schemes that cancausesubstantialeconomicinjurytoconsumers.Oneofthemosteffectivetoolsinthebattleagainstfraudhasbeenthelawenforcement sweep - simultaneous law en-forcement actions by federal, state, and/orlocalpartnersagainstnumerousdefend-ants nationwide that focus on a particular,widespreadtypeoffraud.Eachsweepissupportedbyconsumereducationaimedatpreventingfuturelossestothepublic.Since our first sweep in 1995, the FTC anditspartnershavebrought1,831lawen-Performance Measure 1.2.1DollarsavingsforconsumersfromFTC actions which stop fraud.FY 2001 Target: $400 millionFY 2001 Actual: $487 millionMet or Exceeded:TPerformance Measure 1.2.2Totalexpendituresofdeceptiveorunfairadverti si ngcampaignsstopped.FY 2001 Target: $300 millionFY 2001 Actual: $86 million15forcementactionsin60sweepsagainstfraudulentoperators.Thistotalincludes410casesbroughtbytheFTCalone.In2001, the FTC led 5 sweeps resulting in atotalof229actions,including39FTCcases for every case the FTC brought ourpartnersbroughtalmost5more.Wewillcontinuetousesweepstoleverageourresourcesnotonlybyreducingfraudthroughadditionallawenforcementactions,butbyfurtherraisingconsumerawarenessbygeneratingmorelocal,regional, and international interest.Inthenonfraudarea,weworktoen-surecompliancewithourconsumerpro-tectionstatutes.Givenourbroadjuris-diction and limited resources, we focus onthemostseriousproblems,usingvariedenforcementtoolsandencouragingself-regulationinappropriatesituations.In-formationobtainedfromourConsumerInformationSystemdatabaseandfrommonitoring national advertising enables ustofocusourlawenforcementactionsonareasthatposethegreatestriskstoconsumerhealth,safety,andeconomicwell-being.Inlieuofregulationorlawenforcement,weworkwithindustryandinterestedgroupstosupportprivateini-tiatives where appropriate.Performance Measuresand ResultsOurgoalin2001wastosavecon-sumersmorethan$400millionbystopping fraud. We surpassed this target,withouractionssavingconsumersanestimated $487 million. Consumer savingsare measured on the basis of the estimatedannualfraudulentsalesofdefendantsinthe 12 months prior to filing a complaint.The total dollar value of fraudulent sales isanapproximatemeasurebecauseinthemajority of all fraud cases we pursue, theconsumerpays moneyand receives noth-ingofvalueinreturn.Thesavingscal-culationactuallymayunderestimatetheFTCs impact because it assumes that thefraudwouldhavecontinuedforonlyonemore year; however, it provides a uniformmethodforcalculatingsavingsandmini-mizes speculation about the likely durationof the fraud. The law enforcement actionsincludedinthismeasureweretakenagainst fraudulent operators ranging fromindividualsorsmallcompaniestoscamartistsoperatinglargeschemesontheInternet. Our experience in most cases isthatoncewefileacomplaintinfederaldistrict court and obtain a court order, thedefendants stop their fraudulent practices;iftheyfailtocomply,theyaresubjecttocontempt actions. Thus, in stopping thesefrauds, we stop further consumer losses tothese defendants. By publicizing these lawenforcement actions and distributing con-sumereducationmaterials,weseektoincreaseconsumerconfidenceinthemarketplace. In the non-fraud area, our goal was toreduceconsumerinjurybystoppingdeceptive or unfair advertising campaignswith combined media expenditures totaling$300 million. This measure is based on theassumptionthatadvertisersseektoin-creasesalesbyatleastasmuchastheyspend on advertising, and that the more acompanyspendsonanadvertisingcam-paign, the more widespread the deceptiveorunfairmessage.Westopped$86million, or 29% of our goal.This is a newmeasurethatwasfirstimplementedin2001andourtargetwassetusingdatafromthepreviousyear.Thebaseyear2000 included final orders halting severallargenationaladvertisingcampaigns.In2001,nearlyhalfofournonfraudcaseswith final orders involved companies thatusedtheInternetorotherlow-costalternativestoconductadvertisingcam-paigns.Aproposedchangeinthismeasurement is discussed below.16Performance Assessmentand Future TrendsDrawingonConsumerSentineldata,Internet fraud is significant andgrowing.We are targeting the most pervasive onlinefraudandmovingquicklytostoplarge,fast-growing Internet scams. In 2001, theCommissionbrought50casesinvolvingfraudulentordeceptivemarketingprac-ticesrelatedtotheInternet,bringingthetotal number of Internet cases filed by theFTC since 1994 to 200. We expect fraud tocontinue to grow as the use of the Internetrises and, in response, we will increase oureffortstoslowonlinefraudandpreventconsumer injury.In our five-year strategic plan, our goalistosaveconsumersonaverage$400million a year, or $2 billion over five years.We based this on savings achieved in 1999and2000andthetypesoffraudweareobservinginthemarketplace.Inpar-ticular,onlinefraudhasthepotentialtoreachconsumersworldwideandcausegreat economic injury. As our expertise inhighandnewtechnologiesdevelops,wewillbebetterabletodetectanddeteronlinefraudbeforetheseschemestakehold.Bystoppingfraudulentoperatorsearly, measured savings in each case mayfall; however, the quick response results inlessinjurytoconsumers.Thiseffort,combinedwithstrategiessuchaslawenforcementsweeps,demonstratesoureffectivenessinpreventingconsumerinjury.Inadditiontofightingfraud,wealsofocusoncompliancewithtraditionalad-vertising law and FTC Rules andGuides.Weworkcooperativelywithourlawen-forcement partners, industry, and con-sumergroupstoextendthereachofourefforts to increase compliance. The scopeofourcurrentandupcomingprioritiesspansourbroadjurisdiction,andthisbroadjurisdictionmakesitdifficulttomeasuretheoverallimpactofournon-fraudactivities.Weareexploringusingnewperformancemeasuresfocusingonour impact in more narrowly defined areas.Nonetheless, we will continue to use busi-ness and consumer education, as well asselectiveenforcement,toensurebroadcompliancewiththeconsumercreditstatutes,theMailandTelephoneOrderRule, and other rules andregulations weenforce.As stated, we did not meet our target ofstopping $300 million in deceptive or un-fairadvertisingcampaigns.Westopped$86million,or29%ofourgoal.Afterstudyingthoseresultsandcurrentin-dustry practices, we have reset our targetto $100 million for 2002 and 2003 for thefollowing reasons. First, since this measurewas established, the FTC has increased itsemphasis on taking action against decep-tiveInternetadvertisingclaims.Internetadvertising is broadly disseminated, but isconsiderablylessexpensivethantradi-tionaladvertising.Second,anumberofadvertisersarenowusingmanyalter-natives to traditional advertising and it isdifficult,if not impossible, for us to mea-suretheimpactoftheseefforts.Finally,better monitoring has increased the FTCseffectivenessatstoppingsomelargeadvertisingcampaignsearlyon.Wewillcontinue to closely monitor this area, andagain, will explore whether there are othermeasures that will allow us to more effec-tively evaluate our impact in the nonfraudarea,includingoureffortstoprotectconsumers privacy.17OBJECTIVE 1.3 PREVENTCONSUMER INJURYTHROUGH EDUCATIONConsumerandbusinesseducationisthe first line of defense against fraud anddeception and a top priority of the FTC.StrategiesTheFTCiscommittedtousingeducationandoutreachascost-effectivemethodsofpreventingconsumerinjury,increasing business compliance, and add-inganextradimensiontoourlawen-forcementprogram.Virtuallyeverycon-sumer protection effort contains an educa-tionalcomponent,fromcompliancesurfsandlawenforcementsweepstotheannouncementofnewrulesandregu-lations.Throughreports,publications,Websites,mediaevents,speeches,andcollaborativeactivitieswithotherorgani-zations, the FTC reaches tensof millions of consumers andbusinesseseveryyear.In2001,weconductedapprox-imately40educationalcam-paignscoveringtraditionalsubjectssuchascreditcardprotection,carelabeling,directmail,pyramid schemes, and scholarship scams;high-techsubjectssuchasonlineshopping,daytrading,domainnameregistration, free PC offers, Internet serviceproviders,andinternationalmodemdialing; and timely subjects such as cross-borderfraud,virtualhealthtreatments,predatorylending,energyefficiency,disasterplans,andcharitablegivingfollowingtheSeptember11thterroristattacks.OurConsumerInformationSystemdatabasehelpsustailoroureducationeffortstoareaswherefraud,deception,unfair practices, and information gaps arecausingthegreatestinjury.Consumersaregiventhetoolstheyneedtospotpotentiallyfraudulentandotherillegalpromotions, and businesses are advised astohowthey cancomplywiththelaw.Aswithourlawenforcement,moreofoureducation efforts now involve the Internet.We not only address consumer issues in-volvingtheInternet,suchasshoppingonline,butwealsousetheInternetasatooltoreachconsumers,forexample,throughourWebsites,onlinebannerpublic service announcements, and onlinedistribution of news consumers can use.We coordinate with hundreds of privateand public partners to provide informationaboutspecificpromotions,products,andservices.TheFTCalsocontinuestomanagetheconsumer.gov Web site and torecruitnewagencymemberstoparticipateinthesite,whichoffersone-stopaccesstofederalconsumerinfor-mation. In 2001, the FTC tooktheleadforthethirdcon-secutiveyearinorganizingNational Consumer ProtectionWeek.Thisyearsthemecampaignwasabusivelendingpractices.Ourpartnerorganizers were the National Association ofConsumerAgencyAdministrators,AARP,theNationalConsumersLeague,theCouncilofBetterBusinessBureaus,theConsumer Federation of America, the U.S.PostalService, the U.S. Postal InspectionService,theNationalAssociationofAttorneys General, and the Department ofJustice.TheFTCalsocontinuedtoincreaseitsfederalagencypartnershipbase for consumer.gov, with a total of 179agencies now participating. In2001, theWebsitereceivedmorethan986,000unique visits and nearly 2,050,000 pageviews;italsobecametheportalforPerformance Measure 1.3.1Numberofeducationpublicationsdistributedtooraccessedelectronically by consumers.FY 2001 Target: 10 millionFY 2001 Actual: 15 millionMet or Exceeded:T18consumerinformationprovidedbythefederalgovernmentthroughFirstGov,apublic-private partnership.Performance Measureand ResultsWe gauge our impact under this objec-tive by tracking the number of consumerandbusinesseducationpublicationswedistributed to the public. Ideally, we wouldliketomeasuretheextenttowhichoureducationalmaterialsimproveconsumerunderstandingandhelpthemgetbettervaluefortheirmoney.Thiswouldbeextremely difficult to measure,but track-ingthedistributionsofpublicationsinresponse to consumer requests gives us arough idea of how many consumers believeour information will prove useful. In 2001,theFTCdistributedapproximately15million publications: 5.4 million print pub-lications and 9.6 million through the con-sumerprotectionWebpageontheFTCWeb site. This is the second year in whichelectronic distribution surpassed print dis-tribution.Weexceededourgoalof10millionpublicationsbyapproximately5million, due primarily to an increase of4millionor71%inthenumberofpubli-cations accessed online. Our reach nation-wide was extended by more aggressive out-reach and promotion of FTC materials andourtoll-freenumbers.Weusedinforma-tionfromourdatabasetotargetoureducation campaigns to serious consumerproblems.Performance Assessmentand Future TrendsTheFTCseekstoalertasmanycon-sumers as possible to the telltale signs offraud,deception,andunfairbusinesspractices,andothercriticalconsumerprotectionissues.UseoftheInternettodisseminate information about fraud andtechnology-related matters plays an inte-gralroleintheFTCseducation,deterrence,andenforcementefforts,per-mitting the agency to reach vast numbersofconsumersandbusinessesquickly,simply, and at low cost. As demonstratedbyouronlinedistributiontotal,theFTChas successfully promoted and led the useoftheInternettoeducateandempowerconsumers,atrendthatweexpecttoaccelerate in the future.Ourmeasureofthenumberofpubli-cationsdistributedbytheFTCindicatesourimpactineducatingconsumers,althoughitdoesnotfullycapturethemillionsofFTCpublicationsthataredistributed to consumers by others. Whilethenumberofprintpublicationswedis-tributeremainedrelativelystatic,thenumber of publications accessed throughtheInternethassoaredasmorecon-sumers and businesses go online. In 1996,we distributed only 140,000 publicationsonline.In 2001, we distributed 9.6 millionthroughourtheInternetWebsitealone.ThesestatisticsillustratetheInternetscomingofageasamainstreammediumand highlight its usefulness in any large-scale educational effort. Consequently, wewill increase our use of the FTCs Web site,ftc.gov,andthemulti-agencyWebsite,consumer.gov, to reach consumers, busi-nesses, law enforcement officials, and themedia more efficiently and effectively.Inthenextyear,wewillcontinuetofocusconsumerandbusinesseducationefforts on areas identified by our consumercomplaintdatabaseswhereinformationgapscausethegreatestinjury,suchasglobalization,Internetscams,fraudulentschemes, and identity theft.In the privacyarea,wewilluseanapproachthathasprovensuccessfulinthepastbyestablishinganoutreachprogramtoincreaseconsumerawarenessofandbusinesscompliancewiththeprivacyinformationrequiredbytheGramm-Leach-BlileyAct.Wewillcontinuetocreativelyusetechnology,includingnew19interactivemedia,toextendthereachofconsumer and business education.Finally,CensusdatashowsthattheUnitedStateshasalargeandgrowingSpanish-speakingpopulation.Becausethese consumers may not speak English orarenon-nativespeakersofthelanguage,theymaybemoresusceptibletothenuancesandcomplexitiesofdisclosures,advertisements,orotheraspectsofcon-sumer transactions.In order to meet theneedsofthisvulnerablegroup,theFTCwill assess what areas of consumer educa-tion would be most beneficial to them, andidentifytopicswhereSpanishlanguagematerials are not already provided by othergovernment agencies.IncreasingthevisibilityoftheFTCasthenationsconsumerprotectioncham-pionnotonlyhelpsconsumersbetterprotectthemselves,butalsoencouragesconsumers to providethe FTC with moreandbettercomplaintdata.That,inturn,willmakeourlawenforcementandedu-cation efforts even more effective.20GOAL 2 PREVENTANTICOMPETITIVE MERGERSAND OTHER ANTICOMPETITIVE BUSINESSPRACTICES IN THE MARKETPLACECompetition among sellers in an openmarketplaceresultsinlowerpricesforconsumers, leads to high quality productsand services, maximizes consumer choice,and spurs the discovery and developmentofbeneficialnewproductsandservices.Anticompetitive mergers, and other prac-ticesthatdiminishcompetition,denyconsumersthesebenefits,andareillegalunder the antitrust laws. Thus, the FTCsgoal is to promote vigorous competition byapplyingtheantitrustlawsto(1)preventanticompetitivemergersand(2)stopbusinesspracti cesthatdiminishcompetition,suchasagreementsamongcompetitors about prices or other aspectsof competition. We refer to these two typesoflawenforcementasmergerandnonmerger enforcement, respectively. Weapplythreerelatedobjectivestoachievethis broad-reaching goal.1. Identifyanticompetitivemergersandpractices that cause the greatest con-sumer injury.2. Stop anticompetitive mergers and prac-tices through law enforcement.3. Prevent consumer injury through edu-cation.First, we identify potentially or actuallyanticompetitivemergersandbusinesspracticesbyconductingthoroughfactualinvestigation and applying economic analy-sistodistinguishbetweenactionsthatthreaten the operation of free markets andthosethatarebenignorprocompetitive.Thisstepiscriticalbecauseamergerorbusinesspracticemaybeeitherneutral,beneficial(byenablingsellerstobemoreefficientandpassthosesavingsalongtoconsumers),orharmful(byenablingsel-lers to reduce the output of their productandraisethepricetoconsumers).Thus,indiscriminateorill-consideredinterven-tionintothemarketplacemaydomoreharm than good.Second, once we identify a potentiallyoractuallyanticompetitivemergerorbusinesspractice,wetakeenforcementaction under the antitrust laws to stop it,either through an administrative challengeor in federal court. In many instances, weare able to reach a consent agreement thatremediesourcompetitiveconcernswhileavoiding litigation.Third,weseektopreventanticom-petitiveactivitybyeducatingbusinessesandconsumersabouttheantitrustlawsand the FTCs efforts to ensure competitivemarkets. Increased knowledge and under-standingonthepartofbusinessesfacilitatetheireffortstocomplywiththelaw.Increasedknowledgeandunder-standing on the part of consumers enablethemtoidentifyanticompetitiveactivitymore readily and to bring such activity toourattentionforpossibleenforcementaction.21OBJECTIVE 2.1 IDENTIFY ANTICOMPETITIVEMERGERS AND PRACTICES THATCAUSE CONSUMER INJURYTo prevent anticompetitive mergers andanticompetitive business conduct, we mustfirstdeterminewhichmergersandbusi-ness practices are anticompetitive.StrategiesToachievethisobjective,theFTCidentifies the mergers and business prac-ticesthatshouldbeexaminedaspoten-tiallyanticompetitive,andconductsaninquirytodeterminewhethertopursueenf or cementacti on. Acollateral, but important, con-sideration is that we conductourinquiryinawaythatminimizesthecostorincon-venience to businesses.The premerger notificationrequirementsoftheHart-Scott-Rodino (HSR) Act are ourprimary means for identifyingpotentiallyanticompetitivemergers,acquisitions,andjoint ventures (which we refertocollectivelyasmergers).TheHSRActrequirescompaniestoreportcertainproposedmergerstotheFTCandDepartmentofJustice(which jointly enforce the antitrustlaws),andwaitforaspecifiedperiod(usually 30 days) to allow antitrust review.Weexamineeachtransactionreportedunderthisrequirement.Weusevariousothermeanstoidentifypotentiallyanti-competitive mergers that are not subject tothe HSR reporting requirements.After a decade of rapid growth, overallmergeractivityslowedsomewhatduring2001, but the FTCs merger review work-load remained very high. Amendments tothe HSR Act, effective in 2001, raised thethresholdsthatdeterminewhetheratransactionissubjecttothenotificationrequirement.Thischange,alongwithaslowerpaceofeconomicactivity,signifi-cantly reduced the number of HSR filings,from an all-time high of 4,926 in 2000 to2,376 in 2001.The change in HSR filing thresholds didnot change the standard of legality underthe antitrust laws, however. While the vastmajority of potentially problematic mergerscontinuetobesubjecttotherevisedHSRfilingrequire-ments,smallermergertrans-actionsmaystillbeanti-competitive. After the increaseinreportingthresholds,webegan to devote more effort toidentifyingnon-reportablemergersthatmayharm(orhave harmed) competition.WedothisbymonitoringthetradepressandInternetre-sourcestostayinformedofindustry developments, follow-inguponcaseleadsfromCongressionaloffices,otherExecutive branch agencies, and state andlocal governments, and encouraging con-sumers, businesses, and the bar to notifytheFTCofpossiblyanticompetitivemer-gers.Despitethechangeinreportingthresholds,thenumberofproposedmergers requiring investigation did not fallappreciably.Weopened195mergerin-vestigationsin2001,adecreaseoflessthan eight percent from 2000.Theabatementinthepaceofmergeractivityin2001wasmorethanoffsetbythe continuing increase in the size, scope,Performance Measure 2.1.1PercentofHSRsecondrequestsresulting in enforcement action. FY 2001 Target: 50%FY 2001 Actual: 68%Met or Exceeded:TPerformance Measure 2.1.2N u mb e r o f n o n me r g e rinvestigations opened per year.FY 2001 Target: 45 - 70FY 2001 Actual: 56Met or Exceeded:T22andcomplexityofmergertransactions.Large, multifaceted transactions - the onesthatremainsubjecttoHSR-aremorelikely to raise antitrust issues, and thoseissuesmayinvolveanumberofseparateproductandgeographicmarkets,eachrequiring separate analysis.We work to complete the review of eachfilingasquicklyandasefficientlyaspossible,bothtoconserveouravailableresources to devote to other work, and tominimize the delay imposed on businessesby the HSR requirements.In most cases,we can make a reasonable judgment aboutwhether a merger has the potential to beanticompetitive or not within a few days ofa filing, based on materials filed with theHSRnotification.Thestafffurtherexaminestransactionsthatraisemoredifficultquestions,andmaypresentthemattertotheFTCsMergerScreeningCommittee,comprisingseniorofficialsoftheBureausofCompetitionandEco-nomics. If the Committee determines thatmore information is needed in a matter, itauthorizes a more extensive investigation,generallyincludingtheissuanceofaformalrequestundertheHSRActforadditional information from the parties (asecond request).Theissuanceofasecondrequestex-tendsthepartieswaitingperiod,usuallyuntil30daysaftertheycomplywiththerequestforinformation.Followinganinternalreviewoftheagencyssecondrequest process, called for by the amend-mentstotheHSRAct,theCommissionadoptedmeasurestoreduceburdenanddelays in second request matters. The newmeasuresincludeaprocessforseekingmodificationsorclarificationsofsecondrequests,andexpeditedsenior-levelinternal review of disagreements betweenmerging parties and agency staff; stream-linedinternalprocedurestoeliminateunnecessaryburdensandunduedelays;andimplementationofasystematicmanagement status-check on the progressofnegotiationsonsecondrequestmodifications.Thesemeasureswerere-ported by the FTC to Congress on June 19,2001.Because of the typical complexity of thesecondrequestissues,andthefactthatthestatutecontemplatesonlyonesuchrequestperfiling,aninvestigationex-tended by the issuance of a second requestalmost always requires significantly moreinvestmentofresources,byboththeagency and the parties. Thus, we seek toidentifyasmanyofthecompetitivelyharmlesstransactionsaspossiblewithinthe initial waiting period. In 2001, the FTCandtheDepartmentofJusticepermittedmorethan95%ofthereportedtrans-actions to proceed by the end of the initialwaiting period.Performance Measuresand ResultsWe used two performance measures togauge how well we achieved this objectivein 2001, one of which - the percentage ofmattersinvolvingasecondrequestthatresulted in enforcement action - was newthisyear.Previously,wemeasuredoursuccessinidentifyinganticompetitivemergers in terms of the average number ofdayswedevotedtoreviewingactionsreportedtousundertheHSRpremergernotificationprogram.Thismeasurere-flectedtheefficiencywithwhichweconductthesereviews,butnotoureffectiveness. While efficiency is important-quickcompletionofourreviewsofreportedtransactionshelpstoconserveFTC resources, reduces associated burdenonbusinesses,andallowsbeneficialmergersto proceedsooner-wesoughtameasure that would relate more directly tothe core objective.Westrivetodeterminewhichofthemanymergertransactionsweencounterare likely to cause consumer injury and23therefore warrant full investigation.Whenwe issue second requests and investigatethoroughly, we can determine the effect ofa transaction on competition with greaterconfidence.ButgiventhelevelofFTCresources necessary for such an investiga-tion,andthecostanddelayimposedonbusinesses,wemustselectthetrans-actions to review with great care. If we dothissuccessfully,theresultingoutcomewill be enforcement action (consent agree-ment,preliminaryinjunction,ortheparties abandonment of the transaction inlight of antitrust concerns) in a significantpercentage of the merger investigations inwhichweissueasecondrequest.Atthesame time, we recognize that too narrow afocus pursuing only those transactions inwhichanantitrustproblemisrelativelyobviouscouldallowothertransactionsthat may be similarly harmful, but in moresubtle ways, to proceed unchallenged.Thus, our aim is to achieve balance.Tomakethebestuseofourresources,weseektolimittheissuanceofsecondrequestsonlytothosefewtransactionsthatwebelievearelikelycandidatesforenforcement action. To gauge our success,wemeasuredthepercentageofmattersinvolving a second request that ultimatelyresultedinenforcementaction.Aper-centage of at least 50% indicates that wesucceededinidentifyingproblematictransactionswithoutcastingournettoowidely.Atthesametime,averyhighpercentage of second requests resulting inenforcement action might suggest that weneedtoreviewourpoliciesandpracticestoensurethatwearenotapplyingtoorestrictive a standard. In 2001, we believeweachievedthedesiredbalance.Weissuedsecondrequestsin34mergertransactions, and 23 of those 34 matters,or 68%, resulted in enforcement action.In addition to mergers, the FTC focusesonanticompetitivepracticesthatcauseconsumer injury. We measure our successinidentifyingpossiblyillegalconductbycountingthenumberofnonmergerinvestigationsopened.While,themereopening of a formal investigation does notsignalthepresenceofanticompetitiveconduct,wedorequirepreliminaryevi-dence and a viable legal/economic theoryofconsumerharmasaprerequisitetoopeninganinvestigation.Wescreenhundreds of allegations of illegal conducteachyear,butfewpresentsufficientgroundsforformalinvestigation.There-fore, the number of investigations we openreflects our ability to identify conduct thatmaybeanticompetitive,alongwiththelevel of resources we are able to devote tothis area.The year 2001 was successful in termsofidentifyinganticompetitiveconductinthe market. Our goal has been to open 45to70nonmergerinvestigationsoverthecourse of each year, a range reflecting thenumberofnewnonmergerinvestigationsopened in recent years. We met this goal,opening 56 nonmerger investigations (morethan double the 25 investigations openedin 2000).Performance Assessmentand Future TrendsOurinitialexperiencewithournewperformancemeasuresrevealedsomemethodologicalissues.Forexample,second request investigations often extendbeyondfiscalyearboundaries-invest-igationsofabouthalfofthe27secondrequestsissuedduring2001werestillpending at the end of the year. In addition,counting only those investigations in whichasecondrequestwasissuedandthematterwasconcludedwithinthesameyearcouldskewtheresults,becausemattersultimatelyresultinginenforce-mentactionfrequentlyrequireamorelengthyinvestigation.Webelievethatbasingthemeasureontheuniverseofinvestigationscompletedduringafiscal24year,regardlessofwhenthesecondrequest was issued, is most logical.In2001,theFTCtookenforcementactionin68%ofthesecondrequestmergerinvestigationsconcludedduringthe year. We initially set a target of at least50%,whichweexceededbyasignificantmargin.Sinceourgoal,however,istobalance the need to identify all potentiallyanticompetitive mergers, while also mini-mizingtheburdensthatthesecondrequestimposesonbusinesses,apercentageapproaching100%wouldbecauseforconcernbecausethatwouldsuggest the possibility of our having failedto pursue illegal mergers.Uponreview,wehaverealizedthatmergermattersconcludedin2001included many that were very difficult andcomplex. Thus, we do not believe that ourhaving taken enforcement action in 68% ofthe matters involving a second request istheresultofhavingselectedonlysimplecases to pursue. It is more likely that ourinitialtargetwastoocautious.Wemakesignificant efforts to clear mergers, wherepossible,duringthepreliminarywaitingperiod,toavoidencumberingbusinesseswithcostsanddelaysassociatedwithasecondrequestincompetitivelybenigntransactions.Wewillcontinuetoassessourperformancetargetunderthismeasure during 2002.Following2000,ayearwithanun-precedented level of merger activity, 2001markedtherestorationofourhistoricbalanceofresourceallocationsbetweenmergerandnonmergeractivity.The56newnonmergerinvestigationsopenedin2001areparticularlysignificantwhencomparedtothe25newnonmergerinvestigationsopenedin2000.Therestorationofresourcesthathadbeendiverted to merger work allowed us to takeamoreproactiveapproachtoidentifypossible source of anticompetitive conductin2001.Asinthepast,wefocusedourefforts on sectors of the economy that mostaffectconsumers.Thus,wefocusedonlikelyanticompetitivepatentextensionstrategies in the pharmaceutical industry,apracticethatcandenyconsumerssignificant cost savings from generic drugs.We also began to look more systematicallyatthepossibilityofrestraintsoncom-petitionamonggroupsofprofessionalsresultingfrompracticesofprofessionalassociations.Possibleanticompetitiveabuseofthestandardsettingprocessinthe computer technology and other sectorswas an additional priority area. Finally, theagencyestablishedtwotaskforcestoexaminethescopeofexemptionstotheantitrustlawstoidentitypossiblecate-goriesofharmfulconductthatmaypurportedly be, but are not in fact, exemptfrom the antitrust laws.More generally, we improve our abilitytoidentifyanticompetitivemergersandpractices that harm consumers by expand-ingourknowledgeandunderstandingofnewandevolvingantitrustpolicyissues.Astheeconomyevolves-withnewproductsandservices,aswellasnewmethods of conducting commercial activity- so must antitrust. In 2001, for example,theFTCconductedasecondpublicworkshoptoexplorecompetitionpolicyissuesrelatedtobusiness-to-business(B2B)andbusiness-to-consumer(B2C)electronic commerce, continuing the dialogbegunatapriorworkshop.TheagencyalsoheldaconferenceinAugust2001,focusingonfactorthataffectthepriceofrefined petroleum products. We also heldaroundtablewithprominentIndustrialOrganizationeconomiststoidentifyempirical economic research that could bedone to help us better protect consumersand competition.25OBJECTIVE 2.2 ST OP AN T I C OMP E T I T I V EMERGERSANDPRACTICESTHROUGH LAW ENFORCEMENTLaw enforcement represents the mostdirectmethodbywhichtheCommissionpursuesitsgoalofpreventinganticom-petitive mergers and anticompetitive busi-ness practices.StrategiesTostoppotentiallyanti-competitivemergersandpracticesthroughlawen-forcement,weseeklegalremedies under the antitrustlaws,throughfederalcourtaction,administrativepro-ceedings, or negotiated settle-ments.Formergers,ourpreferredstrategy-thatis,themosteffectiveandcost-efficientstrategy-istopre-vent such mergers before theyoccur.Weimplementthisstrategyprimarilythroughour authority to seek a federalcourtinjunctionpreventingthetransaction.Inmanycases, we are able to resolve acompetiti veconcernbynegot iat ingac onse ntagreementbeforehavingtoseekaninjunction.Insomeinstances,such as when a merger has already beenconsummated,wecanrelyontheFTCsinternal administrative remedial powers torestore competition lost as a result of themerger.Inmanycases,thecompetitiveproblemrelatestoonlyaportionofthetransaction,soadivestitureofassetssufficienttopreserveorrestorecom-petition,whichwillallowother,com-petitivelyneutralorbeneficialaspectsofthemergertogoforward,isfrequentlyasuccessful remedy.In nonmerger matters, we seek to stopongoingactivitythatharmscompetition.To do so, we may ask the Commission toinitiate administrative proceedings beforean Administrative Law Judge to challengetheconductandestablish abasisforanorder that the respondents (the parties totheproceeding)ceaseanddesisttheconduct.TheCommissionalsohasauthoritytoseekreliefinfederalcourts,though this israrely used innonmergermatters.Again,we are often able to negotiatea consent agreement with therespondentsthatremediesthe problem without resort tolitigation.Inbothmergerandnon-mergermatters,weem-phasizethoroughinvesti-gation,aswellassophisti-catedlegalandeconomicanalysis,toensureweaccuratelyassessthepo-tentialforcompetitiveharmresultingfromthetrans-actionorconducti nquestion.WhentheCom-missionconcludesthatthelikelihoodofsuchharmindicatesalawviolation,andnosettlementispossible,theCommissionauthorizesthestafftolitigate the matter. We prepare thoroughlyforlitigation,whetherbeforeanAdmin-istrative Law Judge or in federal court. ThehighpercentageofsettlementsinFTCantitrust cases (or, in the case of mergers,theparties abandonmentoftheanticompetitivetransaction)results,inlargemeasure,fromourreadinesstoPerformance Measure 2.2.1Positive outcome of cases brought byFTC due to alleged violations.FY 2001 Target: 80%FY 2001 Actual: 94%Met or Exceeded:TPerformance Measure 2.2.2Dollarsavingsforconsumersresulting from FTC actions stoppinganticompetitive mergers.FY 2001 Target: $800 millionFY 2001 Actual: $2.5 billionMet or Exceeded:TPerformance Measure 2.2.3Dollarsavingsforconsumersresulting from FTC actions stoppinganticompetitive nonmerger activity.FY 2001 Target: $200 millionFY 2001 Actual: $157 million26obtain the needed relief through litigation,if necessary.Weplaceincreasingemphasisoncraftingremediesthatwillsuccessfullyeliminate the anticompetitive effects of theactivity in question, and do so in a timelyfashion.As part of this strategy, we studyandevaluatetheremediesusedinpastantitrustcases,particularlydivestitureorders used to resolve merger cases. Thisongoingprocessfocusesonwhatmakesdivestitureordersmosteffectiveinpre-servingorrestoringcompetition,andonhow to expedite the completion of curativedivestitures.Wealsostudycurrentoremergingtopicsinvolvingpossibleantitrusten-forcement to develop policy positions. Forexample,inearly2001theFTCissuedreports summarizing the results of work-shops held in 2000 relating to two currentantitrusttopics,slottingallowancesandbusiness-to-business(B2B)electronicmarketplaces.Asecondworkshoptoexplore competition policy issues related toB2Bandbusiness-to-consumer(B2C)electroniccommercetookplaceinMay2001. Additional work relating to slottingallowances is also underway. The learningderived from these workshops, as well asfromeconomicresearchonvariouscompetition issues, will provide a founda-tion for future enforcement initiatives.Otherstrategiesincludeongoingtrainingprogramsforourattorneystodeveloptheirskillsandmaximizetheireffectiveness in litigation, negotiation, andotherareas. We also work to ensure thatadministrative litigation and adjudicationreachatimelyresolution,sothatchal-lengedrestrictionsoncompetitionareremoved without undue delay. Finally, we make our law enforcementpresencevisibleinordertoserveourobjectivethroughdeterrence.Eachsuc-cessfulenforcementactionnotonlypromotescompetitioninthespecificmarket(s)atissue,butalsoservestocommunicatetothebusinessandlegalcommunitiesthattheFTCcanandwillmove successfully to challenge the type ofmergertransactionorconductatissue.We explain the relevant facts and issues indetailinsettledcasesinpublishedAnalyses to Aid Public Comment so thenature of the problem is clear. In addition,litigated decisions serve as legal precedent,uponwhichwecanrelyinfutureenforcement actions. This deterrent effectpreventsmanyanticompetitivemergersandacquisitionsfromevenbeingpro-posed.Performance Measuresand ResultsWeusethreemeasurestogaugeoursuccessinstoppingpotentiallyanti-competitive mergers and practices throughlaw enforcement. These measures include(1) the percentage of successful outcomeswhenwechallengeanticompetitivemergersandpractices,(2)theamountofsavingstoconsumersresultingfromourmergerenforcementefforts,and(3)theamount of savings to consumers resultingfrom our nonmerger enforcement efforts, anew performance measure for 2001.Economic theory and evidence demon-stratethatcompetitionresultsinlowerprices, better quality, and more innovationinmarkets.Thus,weproducebeneficialoutcomeswhenwepreservecompetitionbyobtainingpositiveresults.Weseektoobtain a positive resultin at least 80% ofthe matters in which we determine that amergeroracourseofconductisanti-competitive.Positiveresultsincludethepartiesabandonmentofananticom-petitivetransactionafterweidentifyantitrust concerns, a consent agreement toresolve antitrust concerns, or a successfulchallenge in court. A negative result occurswhenpartiesrefusetosettleantitrust27concerns raised by the agency and we areunsuccessfulinobtainingreliefthroughthe courts.Because positive results lead to bene-ficialoutcomes,itisimportantthatweusuallysucceedwhenwechallengeanticompetitive mergers and practices. Wedonothelpconsumersifwedonotsucceedinpersuadingacourttoblockmerger,forexample,eitherbecausewefailedtopresentourcaseadequatelyorbecausethemergerturnsoutnottobeanticompetitive. This is not to say that theFTC,oranylawenforcementagency,should win every case. Some cases involvevery close questions, on which reasonableminds can and do differ. Other cases maybeverydifficultfromalitigationstand-point,andalloftheFTCsantitrustchallengesaredefendedbyhighlycom-petentandwell-financedcounsel.Theagencyshouldnotshyawayfromchallengingcasesthatmayresultinoccasionallosses,aslongastheoverallrecord is successful.Wefarexceededourgoalin2001,achieving relief through litigation, reachingasuccessfulsettlementagreement,orpersuading parties not to proceed with ananticompetitiveacquisitioninapproxi-mately 94% of the matters we challenged.TheCommissionapproved20proposedadministrative consent agreements and weobtainedfederalcourtapprovalofoneadditionalsettlement.Wealsoobtainedsought-afterreliefinfourofsixlitigatedmatters,allofwhichwereconcludedin2001.Inaddition,partiestoproposedmergersabandonedtheirtransactionsinfour instances following our investigation.Thus,wewereabletoobtainapositiveresult in 29 ofthe 31 instances in whichwesoughttostoporpreventadverseeffects on competition in the marketplace.In2001,westayedoncoursetoachieveourgoalof$4billionindirectdollar savings to consumers over the five-year period 2001-2005 through preventionofanticompetitivemergers.Meetingthefive-year goal requires an average of $800millionperyearinconsumersavings.Mergerenforcementsavesconsumersmoney by preventing price increases thatlikely would have occurred due to the lossofcompetitionifthemergerhadgoneforward unchallenged. In calculating thesesavings, we take into consideration the sizeofthemarketsinvolved,thepercentageincreaseinpricethatwouldlikelyhaveresultedfromthemerger,andthelikelydurationofthepriceincrease.2Weex-ceeded our goal by a wide margin in 2001,saving consumers $2.5 billion by stoppinganticompetitivemergersorrequiringdivestitures to preserve competition.Wehavedecidedtostopformallymeasuringtheaveragetimeneededtocomplete divestitures required by consentorders.Timely completion of divestitureshelps to ensure that the competition thatexistedbeforethemergercontinues,by2Wederivetheseestimatesfromathoroughanalysisofcompanydocumentsanddetailedpricing data, which FTC attorneys and economistsroutinely conduct as part of their investigations.In some cases, the available information allows ustoestimatewithspecificitytheextenttowhichprices would rise as a result of an anticompetitivemerger.Wherewedonothavesuchspecificinformation,weconservativelyestimatethatananticompetitivemergerwouldleadtoapriceincreaseofatleast1%,absentenforcementaction,lastingfortwoyears.Themethodologyused is based on the analytical guidelines used bytheFTCandtheDepartmentofJusticefortheanalysis of horizontal mergers.See U.S. Dept. ofJustice and Federal Trade Commission, HorizontalMerger Guidelines 1.1, 1.2.While we cannotpredictpriceincreasesfollowingamergerwithabsolutecertainty,thedataandanalyticalframework are the same as those that courts relyupon in deciding merger cases.Moreover, priceincreasesgreaterthantheconservativeonepercent estimate, in at least some cases (a highlylikelyscenario),wouldoffsettheoccasionalinstanceinwhichatleastaonepercentpriceincrease would not have materialized.28avoidingdelaysthatmightdepletetheviabilityoftheassetstobedivested.Policiesandpracticesputinplaceinrecent years to expedite divestitures havebecomeacceptedandwell-established,however,sowebelievethattimelydivestitures will continue to be the norm.In 2001, to focus our renewed attentiontononmergerenforcement,webegantomeasure consumer savings resulting fromnonmergerenforcementactivities.Thetrackingofnonmergerconsumersavingsunderscorestheimportanceofournon-merger enforcement work, which has beenovershadowedsomewhatbymergerac-tivity in recent years.Webaseournonmergerconsumersavingsestimatesonindustryandcom-pany data obtained in our investigations.Becausethetypesofactivityinvolvedinnonmerger cases vary considerably, no onemethodologyrepresentsanidealwaytocomputeconsumersavings.Instead,weseektodevelopaconservativeestimatebasedonthespecificfactsandcir-cumstancesinvolved in each case.Eachestimate is reviewed by at least one seniorattorneyandeconomisttoensureconsistency,reasonableness,andaccu-racy.Incaseswhereitisnotpossibletomeasure directly the amount of consumersavings resulting from enforcement action,we conservatively use a default estimateof1%oftheamountofsales(i.e.,a1%priceincreasemultipliedbysales)intheaffected market(s) for one year. Most often,the cost to consumers from anticompetitiveactivity exceeds 1% of the amount of sales,andtheanticompetitiveeffectmaycon-tinue well beyond one year in the absenceof enforcement action.3Ourgoalistoachieve$1billionindirect dollar savings to consumers over thefive-yearperiod2001-2005bystoppinganticompetitivepracticesthatwouldcostconsumers at least that much if allowed tocontinue.Meetingthefive-yeargoalre-quires an average of $200 million per yearin consumer savings. In calculating thesesavings, we take into consideration the sizeofthemarketsinvolved,thepercentageincreaseinpricethatwouldlikelyhaveresultedfromthemerger,andthelikelyduration of the price increase. In 2001, weobtainedconsumersavingsofapprox-imately $157 million in nonmerger actions.Performance Assessmentand Future Trends In2001,weachievedapositiveoutcomeinapproximately94%ofthechallengesinitiatedbytheagency(e.g.,courtordersinlitigatedcasesandnegotiatedsettlements),exceedingbyasignificantmarginourgoalofan80%successrate.Thislevelofsuccesswasdue, in part, to the high percentage of ourcases that were resolved through consentagreement.Thisdoesnotdiminishtheaccomplishment, however, because we aremore likely to obtain settlements when thepartiesseethatourcasewouldlikelyprevailincourt.Werealisticallydonotexpecttosucceedineverylitigatedcase,however.Alawenforcementagencythatprevails in every litigated matter may do sobecause it pursues only the cases that areeasiest to win. Particularly given the FTCsresponsibilitytoaidinantitrustpolicydevelopment, we will sometimes undertakedifficultcaseswithnoclearprecedent.The FTC will continue to bring law enforce-ment actions where it has reason to believe3For mergers, the default estimate is that ananticompetitive price increase would also amountto 1%, but would last for two years instead of one.While it would probably be defensible to use thetwoyearstandardfornonmergermatters,thedecisiontouseonlyoneyear,atleastinitially,reflectsourcautiousapproachinmeasuringconsumersavings,aswellastheabsenceofanauthoritycomparabletotheHorizontalMergerGuidelines in the nonmerger area.29that the merger or practice in question isunlawfulandharmsconsumers,evenwherelitigationrisksmayexist.Thus,inyearsinwhichlitigatedcasesmakeupalargerproportionofthetotalnumberofresolvedcases,oursuccessratemaybecloser to the target of 80%.Our consumer savings of $2.5 billion inmergercasesexceededbyasubstantialmargin the $800 million in average annualsavings needed to reach our five-year goalof $4 billion. We raised the annual targetfrom$500millionto$800millionlastyear, and this years performance suggeststhatafurtherincreasemaybeinorder.Asnotedinourlastperformancereport,however, the amount of consumer savingsachieved in any one year is highly depen-dentonthepatternofcorporatemergeractivity,includingthesizeandnatureoftransactionsproposedinthatyear.4Forexample, a single case accounted for morethan half of the consumer savings figure in2001.Accordingly,wedonotanticipatefurtherraisingtheannualaverageper-formancetargetonthismeasureatthistime.We obtained $157 million in consumersavingsinnonmergermattersin2001.Again,wecautionedlastyearthatdif-ferences in opportunities from year to yearwouldlikelyresultinvariableresultsonthis measure.5 Although the 2001 result issomewhat less than the yearly average of$200millionneededtoachievethefive-year goal, we will still reach that goal witha slightly higher average savings rate overthe remaining four years.The result for2001 is consistent with the necessary shiftinfocustowardmergersinrecentyearsdue the record-setting number and dollarvalueofproposedtransactions.Withthemerger/nonmergerbalanceshiftingbacktoward historical norms, we expect greaternonmergersavingsin2002andbeyond.As explained elsewhere, the level of mergeractivity in 2000 resulted in the opening ofonly25nonmergerinvestigationsthatyear.Werecordconsumersavingsonlywhenafinalresultisachieved.Sincenonmerger antitrust matters typically takeasmuchasayearormoretocomplete(moreiflitigationisinvolved),fewerinvestigationsbeguninYear1willlikelyresult in fewer completed cases in Years 2and3.Thus,thenonmergerconsumersavingsachievedin2001resultedfromonly five cases, an unusually low number.With more investigations in the pipeline,weanticipatealargernumberofcon-cludednonmergercases(andassociatedconsumersavings)in2002.Wewillreevaluateourtargetasourexperiencewith this new performance measure grows.Overall,weobtainedatotalof$2.65billion in combined merger and nonmergersavings, a figure that places the FTC wellon track to achieve the combined five-yeargoal of $5 billion. While shifting patterns ofmergeractivitymayaffecthowFTCantitrustresourcesareutilized,andconsequentlytheoutputaccordingtomergerandnonmergermeasures,whatremainsunchangedisthattheFTCsantitrust enforcement program returns toconsumersmanydollarsinsavingsforevery dollar in agency operations.4See Federal Trade Commission PerformanceReport for Fiscal Year 2000 at 23 (Mar. 31, 2001).5Id. at 24.30OBJECTIVE 2.3 PREVENTCONSUMER INJURYTHROUGH EDUCATIONInadditiontoitslawenforcementactivity,theFTCprovidessubstantialin-formation to the business community andconsumers about the role of antitrust laws,andbusinessesobligationsunderthoselaws.StrategiesThe FTC uses education and outreachto help prevent consumer injury, increasebusinesscompliance,andaugmentourlawenforcementefforts.Wepursuethisstrategy through guidance to the businesscommunity;outreacheffortstofederal,stateandlocalagencies,businessgroupsand consumers; developmentandpublicationofantitrustguidelinesandpolicystate-ments;andspeechesandpublications.Throughthesemechanisms, we publicize theantitrust law and our enforce-mentintentions,withthelikelyresultofdeterringfutureanticompetitivebe-havior.Ourlawenforcementeffortsarealsomademore effective by public awarenessofwhattypesofconductarelikelytobechallengedaslawviolations.ThroughpressreleasesofFTCactionsandpubli-cationofrelatedmaterialsontheagencyWeb site, the public facts underlying FTCactionsprovidebasesforcompaniestoevaluatethelikelihoodthatothertrans-actions would likely face challenge.Inaddition,theFTCeducatesthepublicthroughCongressionaltestimony(suchastheCommissionsMay2001testimonyontheeffectofpatentsettle-mentsoncompetitioninthepharma-ceuticalmarketplace);conf erences,hearings,andworkshops(suchastheAugust2001conferenceonfactorsaffectingthepriceofrefinedpetroleumproducts);advisoryopinions(suchasaDecember 2000 letter to a hospital groupadvisingontheapplicabilityoftheRobinson-Patman Act to hospital salesofpharmaceuticalstotheirretiredem-ployees); economic research papers (suchasaJanuary2001studyofgeographicmarketsinhospitalmergercases);andreports (such as a September 2001 reportoncompetitionandconsumerprotectioni s sue sari si ngf r omel e ct r i ci t yderegulation).As a complement to ourenforcementactivity,wealsoadviseotherfederaland state government offi-cialsaboutthepossibleeffect that various regula-toryproposalsmayhaveon competition (such as arecentlettercommentingon the effect of restrictingnon-attorneysfrompar-ticipationinrealestateclosings).Thisapproachisbroaderthanantitrust because it involves persuasion onpolicyissueswherecompetitionisinvolved,buttheantitrustlawsmaynotnecessarily reach.Performance Measuresand ResultsIn 2001, we used two new performancemeasures to more directly reflect our effec-tivenessinpreventingconsumerinjurythrougheducationandoutreachtothepublic.EducationservestoleveragetheFTCs enforcement resources by explainingPerformance Measure 2.3.1Quantifynumberofeducationandoutreach efforts. FY 2001 Target:Determine baselineFY 2001 Actual:141 Performance Measure 2.3.2Quantifynumberofhitsonantitrustinformation on FTC web site. FY 2001 Target:Determine baselineFY 2001 Actual: 2.6 million31thescopeoftheantitrustlaws,demon-strating that the FTC is active in bringingenforcement actions against certain typesofmergersandpractices,andsignalingfutureenforcementintentionsallofwhich serve to deter harmful marketplaceactivity.Just as citizens benefit from theeffectofthelocalcoponthebeatindeterringcrime,consumersultimatelybenefit when the FTC makes its presencevisible.We measured our effectiveness in edu-cating the public about the antitrust lawsandtheFTCsenforcementactivities,policies,andprioritiesbytrackingthenumberofpublicoutreacheffortsinwritten(e.g.,guidelinesandpolicystatements)ororal(e.g.,speechesandtestimony) form. Although this measure ofactivitydoesnotdirectlyrelatetoout-comesinthemarketplace,thereisevidencethatsuccessincommunicatingenforcement priorities has a strong impactonthelevelofanticompetitiveactivitytakingplace.6Becausewedidnotsys-tematically collect this information before2001, we have not set a target yet but havecollected data to use as a baseline in eval-uatingfutureperformance.In2001,wecompletedatotalof141separatepublicoutreach efforts.Second,withtheimportanceoftheInternet as a vital source of information intodays society, we believe that the numberofhitsonantitrusteducationandoutreach material on the FTCs Web site isanimportantindiciumofoursuccessineducatingthepublicandinstimulatingpublicinterestinourwork.UseoftheInternet to disseminate information aboutantitrustandothercompetition-relatedmatters plays an integral role in the FTCseducationanddeterrenceefforts,per-mittingtheagencytoconveyawealthofinformationquickly,simply,andin-expensivelytothebusinessandlegalcommunities,andtoconsumers.Thismeasuremoredirectlyreflectsoureffec-tivenessbecauseitisnotbasedonFTCactions,butontheactionsofourconstituencies. That is, the level of activityon our Web site depends to a large degreeon the scope, utility, and reliability of theinformationmadeavailablethere.Peoplewill revisit the site to the extent that whattheyfindthereisofvalue.Butifthematerial presented were irrelevant, difficultto understand, or misleading, then interestinthesiteinevitablywoulddiminish.Because we did not systematically collectthis information before 2001 we have notset a performance target yet, but we havecollecteddatatouseasabaselineinevaluatingfutureperformance.In2001,we recorded more than 2.6 million hits onantitrustinformationontheFTCsWebsite.Performance Assessmentand Future TrendsWe will compare future performance onthe two new measures against the perfor-mance in 2001.Based on experience, wemayrefineoneorbothmeasurestoincreasetheirutilityinmeasuringandmotivating our performance. As describedabove,ourpubliceducationeffortstakemanydifferentforms,andthusarenotfullyrevealedbythesummarystatistics.TheFTCisstronglycommittedtotheimportance of education and outreach andwillcontinuetoplaceemphasisonandexpand our activities in this area in futureyears.6SeeAmericanBarAssociationSectionofAntitrustLaw,TheStateofFederalAntitrustEnforcement - 2001, 11 (Jan. 2001) (. . . privatecomplianceeffortsareacriticalprophylacticagainstanticompetitivebehavior,andtheeffectivenessofprivatecomplianceeffortsisdirectly affected by the nature and clarity of thecommunication of enforcement priorities.).32AppendixFY 2001 Performance MeasuresFY 2001TargetFY 2001ActualMet 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: Annual number of consumer complaints andinquiries entered into database.350,000 430,000 TObjective 1.2Stop fraud, deception and unfair practices through law enforcement:Measure 1.2.1:Dollar savings for consumers from FTCactions which stop fraud.$400million$487millionTMeasure 1.2.2: Total expenditures of deceptive or unfairadvertising campaigns stopped.$300million$86millionsee textObjective 1.3Prevent consumer injury through education:Measure 1.3.1:Number of education publicationsdistributed to or accessed electronically by consumers.10million15millionTGoal 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: Percent of HSR second requests resulting inenforcement action.50% 68% TMeasure 2.1.2:Number of nonmerger investigations openedper year.45 to 70 56 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% 94% TMeasure 2.2.2:Dollar savings for consumers resulting fromFTC actions stopping anticompetitive mergers.$800million$2.5billionTMeasure 2.2.3: Dollar savings for consumers resulting fromFTC actions stopping anticompetitive nonmerger activity. $200million$157millionsee textObjective 2.3Prevent consumer injury through education:Measure 2.3.1: Quantify number of education and outreachefforts. determinebaseline141 TMeasure 2.3.2: Quantify number of hits on antitrustinformation on FTC Web site.determinebaseline2.6 million T