Before the
Dated: July 7, 1998 In the Matter of FTC File No. P974102 The Electronic Messaging Association ("EMA") welcomes the opportunity to comment on the Federal Trade Commission's ("FTC" or "Commission") proposal to issue a policy statement on the applicability of various rules and guides to electronic media.(1) EMA believes that, in principle, there is no reason why consumer protection laws should not apply in cyberspace as they do to "real space." Indeed, enforcement of the Commission's regulations can play a major role in developing consumer confidence in electronic commerce. To this end, EMA urges the Commission to enforce firmly its regulations to protect consumers from fraud and deceptive practices online. However, the Commission should refrain from micro-managing online businesses in its effort to protect consumers. An even-handed application of existing rules to electronic commerce must take into account the distinct characteristics of different types of electronic communications, and avoid a "one-size-fits-all" approach that could inflict more harm than good. Rules and guides should create performance standards -- not proscriptive mandates. By enforcing prohibitions on fraudulent or deceptive practices, while giving businesses the flexibility to continue to innovate and harness ever-improving technology, the Commission can protect consumers without unduly interfering with the efficient conduct of the online marketplace. In particular, the Commission should differentiate between various forms of electronic communications when defining the terms "written," "writing," and "printed." The permanence of different types of electronic communications varies widely, and the ability to record these communications in a printed form can, in some instances, be problematic. Therefore, the Commission should carefully examine the current state of online communications, expect rapid and fundamental changes in the near future, and not make interpretations of these terms that fail to reflect the complexity and transitory nature of the electronic marketplace. In addition, the Commission should not extend its telemarketing rules to the different world of online communications. The Commission correctly found that statutory support for such a determination did not exist when the rules were enacted, and such support still does not exist. The telemarketing rules are meant to prohibit common deceptive or fraudulent practices by telephone-based marketers. Applying them to a new medium would cause confusion and injure legitimate businesses. Nor should the Commission attempt to expand its rules through an unprecedented broadening of the term "direct mail" to include non-hardcopy messages, which potentially could subject to regulation many businesses which currently do not otherwise engage in any form of telemarketing. I. EMA'S UNIQUE PERSPECTIVE EMA is a trade organization that represents the interests of almost 500 corporate "users" and "providers" of electronic messaging and commerce. "User" members of EMA participate in a wide variety of electronic messaging and electronic commerce and represent a number of industries including the aerospace, finance, health care, and petroleum industries. "Provider" members offer a wide range of telecommunications and computing services including electronic mail, networks, directories, computer facsimile, electronic data interchange, paging, groupware, voice mail, software development, and mainframe and mini computer manufacturing. On behalf of its members, EMA promotes electronic messaging and electronic commerce services in three primary ways: first, EMA assists in the definition, endorsement, development, demonstration, and implementation of all messaging standards, related operating conventions, and practices for electronic messaging and electronic commerce; second, EMA serves as an advocate for public policies that are favorable to electronic messaging and electronic commerce development; and third, EMA develops and hosts programs that promote a greater understanding and appreciation for all electronic messaging and electronic commerce services and technologies. Because EMA represents both consumers and providers of electronic messaging and commerce services, it has a unique perspective on consumer protection in the electronic marketplace. EMA understands that "we stand at a critical juncture in the development of electronic commerce,"(2) because "fraud and deception may deter consumers from acquiring a greater confidence in the Internet as a place to transact business."(3) At the same time, EMA recognizes that government regulations intended to protect against fraud can unreasonably and unnecessarily interfere with legitimate businesses if they attempt to micro-manage online services or are vague in application. II. FTC EFFORTS TO PROTECT CONSUMERS AGAINST FRAUDULENT AND DECEPTIVE CONDUCT ONLINE IS IMPORTANT TO THE DEVELOPMENT OF ELECTRONIC COMMERCE As the Commission has recognized, "[w]ith approximately 62 million people in the United States having access to the Internet, it is becoming an increasingly popular medium for advertising goods and services and for conducting commercial transactions."(4) As the number of online consumers increases, and as technology and infrastructure improvements allow business to communicate information more rapidly through new formats and with greater security, the amount of advertising and number of transactions occurring online will skyrocket. The goals of improving and expanding electronic commerce and achieving effective consumer protection are inextricably intertwined. The Commission's Associate Director of the Bureau of Consumer Protection has stated that if the trend of improved and expanding electronic commerce "and all the benefits that it implies are to continue, consumers must feel confident that the Internet is free from fraud. Nothing is more likely to undermine [consumers'] confidence than exploitation by scam artists using this new technology as yet another means to defraud consumers."(5) EMA agrees, and believes that addressing the applicability of the Commission's rules and guides included in the Request for Public Comments is a necessary and important prerequisite to achieving these twin goals. As EMA stated in its comments submitted yesterday to the NTIA regarding Internet privacy issues,(6) this Commission has an important responsibility in enforcing its regulations regarding fraudulent or deceptive conduct in cyberspace. EMA strongly supports the application of many of the rules involved in this proceeding to electronic media so long as doing so is consistent with the goals of treating electronic commerce in an even-handed manner while promoting greater consumer confidence in online commerce. The Commission should take care, however, not to micro-manage the operations of legitimate Internet-related businesses in its effort to defend against bad actors. In order to protect consumers without unnecessarily damaging the online marketplace, the Commission's policy statement must ensure flexibility for innovative online companies and allow then to make the most of their creative ideas and constantly advancing technology while protecting consumers. Overly invasive rules will merely slow the pace of development of electronic commerce as online business enterprises devote time and resources to complying with detailed regulations that quickly will become outdated. For example, the Commission should not dictate how Internet-related companies must accomplish "clear and conspicuous disclosures" by calling for specific font sizes, restricting hyperlinking, or otherwise insisting on or restricting the use of particular technologies or display techniques. The Request for Public Comments recognizes this risk of such rules, in stating that "[i]n proposing guidance in this area, the Commission is attempting to provide consumers with comprehensible disclosures to prevent deception, while not imposing undue burdens or restrictions on businesses in complying with the disclosure requirements."(7) EMA agrees that the best way to achieve the desired balance is to continue to examine factors such as unavoidability, access, proximity, prominence, non-distracting elements, repetition, and audio and video presentation in the context of individual disclosures, instead of issuing preemptive mandates that cover all disclosures. By specifying outcomes, rather than inputs, the Commission would give companies the flexibility to provide critical information to consumers, while not constraining these companies with generalized restrictions.(8) III. THE COMMISSION SHOULD DIFFERENTIATE BETWEEN THE MANY FORMS OF ELECTRONIC COMMUNICATIONS WHEN DEFINING "WRITING," "WRITTEN" AND "PRINTED" Interpreting many of the rules and guides involved in this proceeding to apply to online communications will benefit both consumers and legitimate Internet-related businesses. However, in its effort to achieve meaningful consumer protection rules the Commission should not treat all types of electronic communications alike. In particular, EMA believes that the proposal in the Request for Public Comments to "clarify that, when used in the Commission's rules and guides, the terms 'written,' "writing,' and 'printed' refer to information that is capable of being preserved in a tangible form and read, as opposed to an oral statement that is intangible and transitory"(9) is overly broad. While treating some online communications as "written" will result in better products and services for consumer and lower costs for businesses, the Commission's proposal raises potential problems by not taking into account the differing technical characteristics of different forms of electronic media. Although a wide range of electronic communications can be preserved and read, at least electronically, the Commission should not treat all these electronic communications as "writings." Technical characteristics differ among forms of electronic media. Although information in a CD-ROM is permanently stored once delivered to a consumer, other forms of electronic communications such as web pages, banner advertisements, Internet relay chat transmissions, and Internet telephony are characterized by varying levels of permanence in the eyes of consumers and businesses. For example, many web pages feature constantly changing banner advertisements that shift every few seconds. Others include Java technology to present ever-changing or moving text and information. It is by no means clear, for example, that an online business could readily "record" a particular moment in time on a website that features Java applets, streaming technology, and sequential banner advertisements accompanying other framed content. To treat these varied forms of electronic commerce identically, merely because they conceivably could be "recorded" and later read, would threaten to create confusion and uncertainty. Unless the Commission limits the reach of its policy statement, consumers and businesses will believe that any electronic communication that "is capable of being preserved in a tangible form and read," which could mean virtually all online communications, could trigger the responsibilities and penalties included in the rules and guides listed in the Request for Public Comments. EMA doubts that the Commission intends such a sweeping result, and certainly does not believe that such a result should emerge from anything less than a full-blown rulemaking proceeding. Accordingly, the Commission should not issue sweeping statements about the nature of particular forms of communication. Instead, the Commission should carefully explore the characteristics of each form of electronic communication, and tailor its policies accordingly. IV. THE COMMISSION SHOULD NOT EXTEND TELEMARKETING RULES TO ELECTRONIC COMMERCE As discussed above, EMA supports the Commission's efforts to expand the reach of many of its rules and guides into cyberspace. However, EMA strongly opposes any finding that telemarketing rules encompass online communications. Nor should the Commission extend telemarketing rules to electronic commerce via the "backdoor" of an expansive definition of "direct mail." As noted in the Request for Public Comments, "[d]uring the promulgation of the Telemarketing Sales Rule, the Commission stated that it did not have sufficient information to justify coverage of online services under the Rule's requirements."(10) The Commission came to this conclusion because there was no statutory support for extending the Telemarketing Sales Rule to electronic media either in the text of the rule or its legislative history. To the contrary, there was strong support for not extending the rule to these types of communication, including the testimony of EMA's president on this very issue before a FTC panel considering the telemarketing rules. Nonetheless, the Commission now states that its determination that the Telemarketing Sales Rule should not cover online services means only that "this Rule does not apply to transactions conducted entirely on the Internet."(11) Indeed, it seems to be suggesting that the telemarketing rules are affected by this current proceeding, as it includes those rules in the list of rules and guides affected,(12) and references the rules in its discussion of extending the meaning of the term "direct mail"(13) to cyberspace. EMA submits that the Commission is unwisely proposing to stretch the telemarketing rules to cover matters for which they were not designed or intended. This it should not do. There is no support for extending the telemarketing rules to any online services -- regardless of whether a transaction occurs entirely on the Internet or not. The telemarketing rules were designed to address a particular set of fraudulent and deceptive practices commonly employed by bad actors that engaged in telemarketing. The Commission worked with consumer groups and businesses carefully to craft rules that allowed the FTC to prosecute these bad actors without injuring the operations of legitimate businesses. It did so by targeting certain abusive practices that seemed, on the basis of an extensive record, distinctly characteristic of bad actors. To expand the telemarketing rules' reach to online communications, without accounting for the distinct characteristics of online commerce and in the absence of a similar extensive record of "bad actor" conduct, would be entirely improper. The Commission should not assume that the careful balance crafted for telephone conversations between a telemarketer and consumer would hold in the online world. The costs these rules impose on legitimate business, justified in the context of a telephone solicitation, are not justified in the context of an online solicitation. The most specific extension of the Telemarketing Sales Rule to electronic commerce appears in the proposal to define "targeted" forms of electronic communications as "direct mail" for purposes of the "call back" provision of 16 C.F.R. § 310.6(f).(14) As the Commission implicitly acknowledges, electronic mail, web pages, CD-ROM, and other electronic communications are not today deemed "direct mail" under the Telemarketing Sales Rule's provisions concerning calls initiated by customers in response to solicitations, or for any other purposes related to the rule. The proposal to define electronic communications as "direct mail" is inappropriate, and a change of this magnitude should not be attempted outside of a formal rulemaking procedure. First, this proposal would stretch the term "direct mail" beyond recognition. To EMA's knowledge, the term "direct mail" always has referred to paper-based correspondence by both the Commission and in general usage. The broader term, which would include telemarketing and forms of electronic commerce, is "direct marketing." Redefining "direct mail" to include non-paper-based forms of commerce would be a major substantive expansion of the existing rule. Changes of such magnitude require a rulemaking, not a policy statement. Second, determining that electronic advertisements fall under "direct mail" rules would be highly unwise policy. Online companies that tailor the content of their communications for particular viewers do not begin to raise the types of concerns that gave rise to the Telemarketing Sales Rule. For example, the Commission's suggestion that Web sites that track consumer's interests and then display related advertisements or content upon a return visit to the site are "direct mail"(15) is hardly an example of "bad actor" conduct. On the contrary, such practices have many beneficial qualities. Many businesses, such as book and music vendors or travel agents, automatically display advertisements and content in accord with known customer preferences to better serve those who visit their site. Such behavior improves the service consumers receive, is targeted at large sets of customers who share common interests, and often is accomplished automatically, without intentional targeting of an individual. It is comparable to an advertiser choosing to run a particular ad on a particular cable network, or during a particular type of sports program, or even in a particular place in a magazine - not to a telemarketing call. To designate such sites as "direct mail" is contrary to the general understanding of that term, and contrary to the best interests of consumers. Furthermore, by defining websites that tailor their content to suit consumer/viewer interests as "direct mail" the Commission would be asserting jurisdiction over vast numbers of businesses that are probably unaware that such action is contemplated. A business that today does not engage in telemarketing, but that attempts to serve its website viewers by tailoring advertisements to its known interests, would probably be very surprised to learn that its activities - intended to heighten the consumer enjoyment of its site - would subject it to rules aimed at bad actor telemarketers. The Commission should not expand the scope of businesses subject to its rules in this manner. The Commission has recognized in the past that it did not "have sufficient information to justify coverage of online services"(16) under telemarketing rules. Support for such coverage still does not exist. Therefore, the Commission should state specifically that the Telemarketing Sales Rule does not apply to electronic media in any way, and repeat that any change in this rule "will be handled separately, if needed."(17) In addition, the Commission should be careful to take a communication's individual attributes into account before labeling it "direct mail" for any other purpose. V. CONCLUSION EMA applauds the Commission's efforts to protect online consumers, and urges it to proceed in a manner consistent with these comments. The sound enforcement of rules against fraudulent or deceptive practices will help online consumers and legitimate businesses alike so long as businesses have the flexibility to carry out their responsibilities free of regulatory micromanagement. In addition, EMA appreciates the Commission's plan to hold a public workshop on these issues, and is interested in participating and further discussing all of these issues. EMA looks forward to contributing to this collaborative effort. Respectfully submitted, ELECTRONIC MESSAGING ASSOCIATION By: ______________________ James T. Bruce July 7, 1998 1. EMA submits these comments in response to the Federal Trade Commission's Request for Comments, published on May 6, 1998, in the Federal Register. 2. Prepared Statement of the Federal Trade Commission on "Consumer Protection in Cyberspace: Combating Fraud on the Internet," before the Telecommunications, Trade, and Consumer Protection Subcommittee of the House Committee on Commerce, United States House of Representatives, p. 9 (June 25, 1998) ("Harrington Statement"). 3. Id. 4. Proposed Rules, Federal Trade Commission, Interpretation of Rules and Guides for Electronic Media; Request for Comment, 63 FR 24996, 24997 (May 6, 1998) ("Request for Public Comments"). 5. Harrington Statement at 2. 6. Comments of Electronic Messaging Association, In the Matter of Notice and Request for Public Comment; Elements of Effective Self Regulation for the Protection of Privacy and Questions Related to Online Privacy, Docket No. 980422102-8102-01 (July 6, 1998 (Department of Commerce, National Telecommunications and Information Administration). 7. Request for Public Comments at 25001. 8. In particular, the Commission should not restrict the use of hyperlinking for disclosures. Disclosures, and other information, available through hyperlinking may allow businesses to present important materials in a fashion that is more easily digested by consumers. Hyperlinking allows consumers access to all information, but does not overwhelm them with all information at once, and provides more readable disclosures than the fine print in many standard written consumer contracts. 9. Request for Public Comments at 25000. 10. Id. at 25000 n.29. 11. Id. (emphasis added). 12. Id. at 25005 (Appendix). 13. Id. at 25000. 14. Id. The Commission stated that "[w]here the Commission's rules or guides refer to 'direct mail,' the proposed policy statement would state that the term refers to private communications, i.e., traditional mail as well as electronic communications that are individually addressed and capable of being received privately. This interpretation would clarify that direct mail includes those communications that are directed to particular individuals, such as facsimiles or e-mails, but not directed to the public at large, as are Internet bulletin boards." 15. Id. 16. Id. at 25000 n.29. 17. Id. |