House Subcommittee Holds Hearing on State Impediments to E-Commerce
September 26, 2002. The House Commerce Committee's Subcommittee on Commerce, Trade and Consumer Protection held a hearing titled "State Impediments to E-Commerce: Consumer Protection or Veiled Protectionism?" The Subcommittee focused on three specific areas of e-commerce regulation: contact lenses, wine sales, and auctions.
Rep. Cliff Stearns (R-FL), the Chairman of the Subcommittee, presided. He stated that "It is essential that the growth of e-commerce is not stymied by laws and or regulation that were enacted or promulgated before the full scope of e-commerce was understood. Many of those state laws and regulations did and may still have important consumer protection objectives. However, it is imperative for the states to examine their laws and regulations that were intended to provide consumer protection but now hinder e-commerce."
After hearing from the panel of witnesses, Rep. Stearns (at right) stated that Congress should consider "preemption of state laws". Rep. Stearns is the sponsor of HR 2421, the Jurisdictional Certainty Over Digital Commerce Act. It would provide that "No State or political subdivision thereof may enact or enforce any law, rule, regulation, standard, or other provision having the force or effect of law that regulates, or has the effect of regulating, digital commercial transactions."
Rep. Charles Bass (R-NH) suggested that the Internet is inherently interstate, and hence, Congress is the only entity capable of regulating it.
Rep. Billy Tauzin (R-LA), the Chairman of the full Committee, did not participate in the hearing. However, he submitted a statement for the record in which he said that "We certainly must determine what kind of new consumer protections are needed for this digital economy. An example of this is the debate occurring in this Subcommittee over the issue of information privacy. We also must recognize that some consumer protections enacted long ago are not applicable for this new medium. Many laws on the books were designed under different circumstances for vastly different purposes, and can now threaten the development of e-commerce, with minimal or no offsetting benefit to consumers."
Rep. Edolphus Towns (D-NY), the ranking Democrat on the Subcommittee, spoke in support of state regulators. He first questioned why there were no representatives of states on the witness panel. (Rep. Stearns responded that many had been invited, but all refused to come.) Rep. Towns also questioned whether it is appropriate to sell contact lenses over the Internet.
Rep. Towns also spoke generally about Internet access and e-commerce. He said that "the digital divide is real", and that therefore "many people do not have the opportunity to participate in e-commerce". Rep. Towns was the only Democrat on the Subcommittee to participate in the hearing.
Tod Cohen of the auction website eBay said in his prepared statement that "sellers on eBay must charge prices that are competitive not just with other eBay sellers, but also with other on and offline retailers. Similarly, retailers in the traditional ``brick and mortar创 world can no longer base their prices merely on what their local market dictates -- they must now consider the price that consumers will pay on eBay and at other Internet sites."
Cohen said that "Such price competition is great for consumers, but troubling to the entrenched monopolists and oligopolists that have been able to set prices unfairly for years without repercussion. E-commerce forces them to face an unpleasant prospect: competition. In order to prevent or ``manage创 competition, these ``middlemen创 have used their allies in state and local government to apply existing laws and regulations to Internet companies in a discriminatory manner and to enact laws and regulations that treat interstate e-commerce companies differently from offline intrastate companies. They justify these new, discriminatory barriers with spurious claims that e-commerce may harm consumers. Far too often, though, these claims simply seek to mask the fact that the middlemen are just trying to protect their ``turf.创"
Rob Atkinson of the Progressive Policy Institute (PPI) presented the findings of a PPI study titled "Revenge of the Disintermediated: How the Middleman is Fighting E-Commerce and Hurting American Consumers". He stated in his prepared statement that "incumbent producers in a wide range of industries, including wine and beer wholesalers, auto dealers, travel agents, pharmacies, mortgage brokers, and others, are fighting against robust e-commerce competitors. The growth of laws and regulations many at the state level, that protect incumbent ``bricks and mortar创 companies from e-commerce competitors is a major threat to the growth of e-commerce."
David Sloane of the American Vintners Association presented the case that many states' liquor laws constitute economic protectionism which is harming small wineries and consumers. See, prepared statement.
Rep. George Radanovich (R-CA) is both a member of the Subcommittee, and the owner of a small winery in California. He said that within California, where wine may be sold over the Internet, "there is no sign of abuse" by underage drinkers.
Joe Zeidner of 1-800- CONTACTS argued the case against state regulation of the sale of contact lenses over the Internet. See, prepared statement.
Ed Cruz, Director of the Federal Trade Commission's (FTC) Office of Policy Planning, also testified. He presented the prepared statement of the FTC.
Cruz addressed, among other things, the FTC's prior action with respect to contact lenses. On March 27, 2002, the FTC filed a comment with the State of Connecticut regarding the sale of disposable replacement contact lenses over the Internet. The FTC wrote that "requiring stand alone sellers of replacement contact lenses to obtain Connecticut optician and optical establishment licenses would likely increase consumer costs while producing no offsetting health benefits" and "serve as a barrier to the expansion of Internet commerce". See also, story titled "FTC Backs Internet Sales of Contact Lenses" in TLJ Daily E-Mail Alert No. 399, March 29, 2002.
The FTC will conduct its own three day workshop on October 8-10 on certain types of regulatory barriers to e-commerce. See, FTC notice.