How is the FTC Going to Regulate Electronic Commerce?
While most people agree that the Internet should be as free as possible of government regulation, a very good case can be made that government has the essential role in combating fraud on the Internet and elsewhere in electronic commerce. The question is how can government prevent fraud without prescribing the details of how legitimate electronic commerce is conducted? The Federal Trade Commission (FTC) has 42 existing consumer protection rules and guidelines aimed at preventing deceptive acts and practices in commerce generally, which it would like to apply to commerce in the electronic media, including e-mail, CD-ROM, and the Internet. The problem is that these traditional rules and guidelines are phrased in terms of "written," "printed" and "oral" materials, and "direct mail solicitations," so that the applicability to electronic commerce is ambiguous.
To apply these rules and guidelines that predate the creation of electronic commerce, the FTC must ensure that this ambiguity is removed. The FTC believes it has broad authority over advertising and marketing of products and services under section 5 of the FTC Act (15 U.S.C. 45(a)) as it prohibits "unfair or deceptive acts or practices in or affecting commerce." The FTC may initiate civil actions, seeking civil penalties, against any person who violates a rule "with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule." (emphasis added)
FTC Announcement: On May 6, 1998, the Federal Trade Commission outlined its general intent to apply these rules and guidelines to electronic media and sought public comment on the concept. (See Federal Register Notice Wednesday, May 6, 1998, page 24996).
The FTC concedes that there may have to be case by case modifications of specific rules to account for the differences in the media, but it is searching for generalized approaches. The FTC would also like comments on the advisability of convening a public workshop on the subject. The comments are due July 7, 1998. The intent of the FTC is to stimulate discussion, possibly have a public workshop, and then issue a policy statement followed, if necessary, with specific modifications to various rules and guidelines.
Note that in a footnote the FTC said that the Telemarketing Sales Rules would not, as a part of this proceeding, be applied to online services because during the promulgation of the rule the FTC concluded that it did not have sufficient information to justify its coverage. (EMA had in written and oral testimony opposed any such application.) The FTC now says that any inclusion of online services under the Telemarketing Sales Rules will be handled separately, if needed.
Danger for Industry: Although definitive FTC action is not imminent, there are two potential dangers for electronic commerce.
The first danger is that the FTC will impose its anti-fraud measures in a way that attempts to prescribe in detail how all electronic commerce is to be carried out. An example would be for the FTC to prescribe what information must be on a website and in what font the key disclosures should be written, so as to ensure consumer awareness of the disclosures. Such micro-regulation would stifle creativity and commerce on the Internet.
The second danger is the opposite problem, that the FTC will impose its 42 rules on electronic commerce without modifying them sufficiently individually to fit the electronic media. The result could be vague requirements that leave the business world unclear about what is required and vulnerable to enforcement actions. These 42 rules and guidelines range from addressing the marketing of specific products such as watches, leather and imitation leather, to marketing in general (Guides Against Deceptive Pricing, Telemarketing Sales Rule, and Informal Dispute Settlement Procedures.) The FTC may take a generalized approach that says, for example, apply the 42 rules to electronic commerce, but everywhere the rule speaks in terms of "written" or "printed" material, interpret this as meaning "information that is capable of being preserved in a tangible form and read, as opposed to an oral statement that is intangible and transitory." (The FTC proposed this as an example for comment in its Federal Register notice.) Would this include the audio text of a website that is preserved and can be repeated simply by clicking on the appropriate button?
As another example, the FTC suggests that it might interpret the rules on "direct mail" solicitations to include "communications that are directed to particular individuals, such as facsimiles or e-mail, but not directed to the public at large, as are Internet bulletin boards." Consequently, any e-mail solicitation could be covered by the direct mail rules and guidelines.
The FTC appears to realize that it is sailing close to the shoals in this inquiry because it poses over 30 questions to industry about how its 42 rules and guidelines should be applied to commerce via the electronic media.
Conclusion: This FTC process is likely to be tedious, and drawn out, but also of great importance if fraud in the electronic media is to be checked without micro-regulation. EMA has asked its members to examine the Federal Register notice and communicate to EMA any specific aspects that are especially troubling. EMA will be submitting a formal response to the FTC by July 7 and will continue to be active in future government/industry workshops.