[Federal Register Volume 60, Number 80 (Wednesday, April 26, 1995)]
[Rules and Regulations]
[Pages 20402-20428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10116]
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DEPARTMENT OF THE TREASURY
Bureau of Alcohol, Tobacco and Firearms
27 CFR Parts 6, 8, 10 and 11
[T.D. ATF-364, Re: Notice No. 794 and Notice No. 796]
RIN 1512-AB10
Unfair Trade Practices Under the Federal Alcohol Administration
Act (93F-003P)
AGENCY: Bureau of Alcohol, Tobacco and Firearms (ATF), Treasury.
ACTION: Final rule, Treasury decision.
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SUMMARY: The Bureau of Alcohol, Tobacco and Firearms (ATF) is amending
trade practice regulations under the Federal Alcohol Administration
(FAA) Act on tied-house, exclusive outlets, commercial bribery, and
consignment sales by adding standards for enforcing the ``exclusion''
element where appropriate. Under the FAA Act, ``exclusion, in whole or
in part, of distilled spirits, wine, or malt beverages, sold or offered
for sale by other persons'' is a necessary element of a violation of
the tied-house, exclusive outlets or commercial bribery provisions. In
this final rule, ATF promulgates a framework for establishing
``exclusion,'' identifies promotional practices which result in control
of a retailer or in exclusion under the Act, identifies factors which
will apply in evaluating exclusion, and identifies those practices for
which there is no likelihood that exclusion will result and for which
the Bureau will not take action (safe harbors). Other regulatory
amendments are also made as a result of an ATF review of the
regulations and an industry petition submitted in 1992.
EFFECTIVE DATE: May 26, 1995.
FOR FURTHER INFORMATION CONTACT: James R. Crandall, Coordinator, Market
Compliance Branch, 650 Massachusetts Avenue, NW, Washington, DC 20226;
telephone (202) 927-8100.
SUPPLEMENTARY INFORMATION:
Background
The Federal Alcohol Administration Act
The Federal Alcohol Administration Act (hereinafter referred to as
FAA Act [[Page 20403]] or Act) provides for Federal regulation of the
alcoholic beverage industry. The FAA Act contains particular
restrictions that are unique to the alcoholic beverage industry and
reflects Congress' concern with a variety of trade practices and abuses
that took place before, during and immediately after Prohibition. This
final rule amends regulations under four parts of the statute,
Exclusive Outlet (27 U.S.C. 205(a)), Tied-House (27 U.S.C. 205(b)),
Commercial Bribery (27 U.S.C. 205(c)), and Consignment Sales (27 U.S.C.
205(d)). The supplementary information is divided into two sections.
The first section deals with the subject of exclusion, and the second
section covers other changes implemented as a result of an internal
review of trade practice regulations and an industry petition.
Exclusion
One element which is necessary for these practices (other than
consignment sales) to result in violation of Federal law is
``exclusion, in whole or in part, of distilled spirits, wine, or malt
beverages, sold or offered for sale by other persons.''
Although exclusion is not defined in the FAA Act or in the current
implementing regulations at 27 CFR Parts 6, 8 and 10, ATF has, in the
past, held that ``exclusion in part'' includes simply causing retailers
to purchase less of a competing brand than they otherwise would have
bought.
In Fedway Associates, Inc., et al. v. United States Treasury,
Bureau of Alcohol, Tobacco and Firearms, 976 F.2d 1416 (DC Cir. 1992)
(Fedway), however, the United States Court of Appeals for the District
of Columbia Circuit held that Congress had intended something more than
just a retailer purchasing less of a competing brand than it otherwise
would have. For a violation to occur there must also be a tie or link
between a supplier and retailer that at least threatens the retailer's
independence (that is, in addition to affecting the retailer's
purchasing pattern).
The court based this conclusion on several points. The court said
``exclusion'' means to exclude a rival product from the marketplace by
some direct action of the violator. Merely taking some action which
influences a retailer not to purchase a rival product is not exclusion
under the Act if the retailer's response is the result of a free
economic choice. This interpretation of exclusion as meaning the
shutting out or expelling of a rival's product, according to the court,
is consistent with conduct addressed by the Act such as tied-house,
commercial bribery and exclusive outlets. Any broader interpretation
would, in the view of the court, likely result in restriction of pro-
competitive activities.
The Fedway court was concerned that ATF enforcement actions could
hinder legitimate competitive activities. Consequently, the opinion
states that if ATF suspects a particular practice places retailer
independence at risk then the agency must provide substantial support
backing up its suspicion. The court recognized the utility of the
rulemaking process to provide evidence which substantially supports the
conclusion that a particular practice either actually or potentially
threatens retailer independence.
Factual or substantive proof is necessary, the court stated, to
ensure that the Government does not take an overly-broad enforcement
posture in its efforts to prevent potential threats to retailer
independence and risk outlawing conduct that fosters a competitive
alcohol market. In the Fedway proceeding, the court held this factual
basis was not met because the only datum or evidence presented was the
fact that certain retailers purchased less of a rival product.
In summary, the court offered the following guidance about this
statutory element:
Congress, we are satisfied, used ``exclusion'' to indicate
placement of retailer independence at risk by means of a ``tie'' or
``link'' between the wholesaler and the retailer or by any other
means of wholesaler control.
[We demand] a factual showing that retailer independence is
potentially threatened * * *.
[ATF should] take reasonable account of both policy interests
underlying the [trade practice] provisions * * * that the alcohol
industry requires special oversight and regulation * * * and the
value of pro-competitive wholesale promotions. This value derives
not only from the traditional benefits of competition in terms of
lower prices and improved quality, but also * * * from the fact that
a competitive alcohol market helps deter the formation of a corrupt
black market.
Finally, in arriving at a reasonable interpretation of
``exclusion'' * * * the Bureau must take care to distinguish
rationally between those promotions it decides are lawful and those
it decides are not.
Notice of Proposed Rulemaking
On April 26, 1994, ATF published Notice No. 794 (59 FR 21698),
proposing amendments to the trade practice regulations to address the
concerns of the Fedway court and to make other changes suggested by its
internal review and the industry petition. Notice No. 794 solicited
comments on these proposed changes by June 27, 1994. The comment due
date was extended to July 27, 1994 by Notice No. 796 (59 FR 29215).
ATF emphasizes that the revision of the trade practices regulations
is an ongoing process. Any interested person may petition ATF under 27
CFR 71.41(c) for a rule change.
Comments on Notice of Proposed Rulemaking
ATF received 1,347 letters of comment on Notice No. 794, containing
a total of 1,593 signatures. Comments were submitted by alcoholic
beverage producers, importers, wholesalers, retailers, trade
associations, related businesses, consumers and government agencies.
National trade associations who commented on trade practices
include:
American Brandy Association
American Vintners Association (AVA)
Beer Institute
Brewers' Association of America (BAA)
Distilled Spirits Council of the United States (DISCUS)
Institute for Brewing Studies
National Alcohol Beverage Control Association (NABCA)
National Association of Beverage Importers (NABI)
National Association of Beverage Retailers (NABR)
National Association of Convenience Stores (NACS)
National Beer Wholesalers Association (NBWA)
Presidents' Forum of the Beverage Alcohol Industry (the Forum)
The National Wine Coalition
Wine and Spirits Wholesalers of America (WSWA)
Wine Institute
Summary of Proposals, Comments and Changes Incorporated in this Final
Rule
The following paragraphs provide a summary of ATF's original
proposals, the comments received on each as a result of Notice No. 794,
and an explanation of ATF's decision concerning each issue. Proposals
which concern a general topic will be addressed first, followed by
discussion of proposals concerning individual sections of the
regulations.
Proposed New Subparts on Exclusion
ATF proposed amendments and additions to the regulations on the
subject of exclusion which follow a framework which ATF believes is
consistent with the statutory interpretation of exclusion adopted by
the Fedway court as well as similar concerns previously raised in
Foremost Sales Promotions, Inc. v. Director, [[Page 20404]] Bureau of
Alcohol, Tobacco and Firearms, 860 F.2d 229 (7th Cir., 1988)
(Foremost). The courts in both Fedway and Foremost found that
``exclusion'' as used in the FAA Act cannot occur without a
relationship or arrangement between the industry member and the
retailer which actually or potentially threatens the retailer's
independence.
ATF proposed to amend regulatory parts of Title 27 CFR relating to
exclusive outlet (Part 8), tied-house (Part 6), and commercial bribery
(Part 10), by adding new subparts on exclusion. Even though the
exclusive outlet provision was not involved in the Fedway or Foremost
decisions, the provision is impacted by the decisions since the
provision requires the showing of exclusion in order for a violation to
arise.
ATF proposed a two-step framework to describe exclusion, in whole
or in part, of distilled spirits, wine or malt beverages sold or
offered for sale by others as occurring (1) when a practice places
retailer independence at risk by means of a tie or link between the
industry member and retailer or by any other means of industry control
over the retailer, and (2) such a practice by an industry member,
whether direct, indirect, or through an affiliate, results in the
retailer purchasing less than it otherwise would have of a competitor's
product. The proposed regulations included a set of criteria by which
ATF will determine the existence of the first element. These criteria
include the duration of the practice or promotion, the degree to which
a practice involves an industry member in the day-to-day operations of
a retailer, and, in some cases, the non-discrimination feature of the
practice where it is available to all retailers. Exclusion under the
Act will exist when ATF can establish the presence of both of these
elements.
General Comments on Exclusion
While some commenters expressed support for the approach ATF took
in the proposed rule, others objected to certain areas of the
proposals. For example, NABI stated it was ``disappointed to see BATF
reassert the so-called `hair trigger' or `one bottle less' test for
determining exclusion. Proposed section 6.152(a)(2) was pointedly
rejected by the court in Fedway, yet BATF drags up this albatross once
again.'' Secondly, NABI quoted the Fedway decision which said the ``* *
* definition of the `exclusion' criterion must also recognize
adequately--as the agency's current definition does not--the value of
pro-competitive wholesale promotion.'' The DISCUS comment stated
similar concerns and asked that the second element, relating to
retailer purchases, be deleted.
ATF disagrees with the DISCUS/NABI comment about the second part of
ATF's two-step framework of exclusion (Secs. 6.151(a)(2), 8.51(a)(2),
and 10.51(a)(2)) where ATF states that a practice must result in a
retailer or trade buyer purchasing less than it would have of
competitor's product for exclusion to occur. On this subject, the
Fedway court stated:
The Bureau explains that the phrase means that the inducement in
question must be successful, i.e., it must in fact cause retailers
to buy comparatively less from competitors--a minimal requirement,
to be sure, but not a meaningless one.
It was the showing of this minimal requirement in conjunction with
evidence that a particular practice threatens retailer independence
that the court held is exclusion under the Act. Under the two-step
framework, exclusion is present only if both parts or elements of the
framework are established. If ATF were to drop the second element as
requested by NABI and DISCUS, then ATF could prove exclusion under the
Act without ever showing that a competing industry member's products
were actually excluded in whole or in part. While this would ease ATF's
burden in proving a violation it would ignore the statutory requirement
of ``exclusion, in whole or in part'' which by its terms requires some
impact on a retailer's purchases.
Regarding NABI's second observation, ATF's goal in airing these
proposals and soliciting interested persons' response was to develop a
public record showing why certain practices are anticompetitive, in
that they threaten retailer independence, and why other practices do
not threaten retailer independence. (In the context of commercial
bribery, the trade buyer's independence is evaluated.) Relying on all
of the comments received, ATF has made adjustments to its original
proposals and developed a final rule which it believes does, as Fedway
directed, ``distinguish rationally between those promotions it decides
are lawful and those it decides are not.''
The Federal Trade Commission (FTC) staff (rather than the
Commission or Commissioners) submitted comments on the general approach
to exclusion. While the staff concurs that the threat to retailer
independence analysis is consistent with promoting a competitive
market, they recommend that ATF adopt more of a market share or
``market power'' approach.
Before responding to the particular FTC staff comments, ATF feels
it is necessary to point out that the FAA Act is concerned with the
impact of a particular marketing practice on an individual retailer and
not on the entire retail market in any particular locality (e.g.,
``relevant market''). The latter market focus is the concern of the
antitrust laws enforced by the FTC and explains why the vertical
restraint framework applied by the FTC is not relevant to an FAA Act
analysis. Congress deemed the general antitrust laws insufficient to
address the unique unfair trade practice problems in the alcoholic
beverage industry. This is why the FAA Act itself does not contain the
term ``competitive'' unlike the general antitrust laws: an absence
acknowledged by the FTC staff. Instead, the Act focuses on the
transactions between an industry member and ``any retailer'' or ``any
trade buyer.''
The FTC staff comments implicitly recognize this difference when
they state that the FAA Act speaks in terms of supplier power over
retailers rather than simply a supplier's market share or power. If the
proper focus of the FAA Act were market share or power, then the Act
would be identical to the general antitrust laws rather than merely
``analogous'' as Congress intended.
Turning to the particular comments, the staff objects to the second
part of the general approach to exclusion that requires ATF to show the
retailer purchased less of a competitor's product than it would have,
as a result of a supplier's promotional practices. The FTC staff
suggests that this is ``ambiguous'' since there may be many legitimate
reasons explaining a decrease in a retailer's purchases. The FTC staff
also suggests that the FAA Act does not require the fact of reduced
purchases as an element of a statutory violation.
In promulgating the regulation on the exclusion approach, ATF is
not concluding that a mere reduction in purchases results in a
violation. ATF has deliberately taken a narrow approach to ensure that
legitimate competition is not hindered. The fact of reduced purchases
is only relevant when that fact results from a supplier practice that
creates a tie or link (or other method of control) that threatens
retailer independence. By requiring this nexus, ATF is ensuring that
reduced purchase situations resulting from free economic choice or pro-
competitive marketing practices are not pursued as a violation.
ATF believes that the FAA Act mandates a consideration of whether
the retailer's purchases have been impacted by a practice because the
statute speaks of ``exclusion, in whole or in part'' of a competing
supplier's products as a [[Page 20405]] result of a transaction between
the industry member and any retailer. As noted above, the Fedway court
recognized this impact as ``a minimal requirement, to be sure, but not
a meaningless one.'' (The FTC staff also commented on the criteria used
to evaluate exclusion, and those comments will be discussed in that
section.)
Finally, E. & J. Gallo Winery, in its comment, noted that the
Fedway court did not ``question ATF's authority to strike at threats to
retailer independence in their incipiency, before harm occurred.''
Their comment quoted the Fedway court's demand that ATF make a
``factual showing that retailer independence is potentially
threatened.'' The Wine Institute also noted the Fedway court demanded
only ``a factual showing that retailer independence is potentially
threatened.'' These comments caused ATF to review its proposed rule and
amend the discussion of exclusion, in general, to address this
potential threat by adding ``places (or has the potential to place)
retailer independence at risk'' in each subpart on exclusion. This
revision is consistent with the discussion of the exclusion standard in
both the Fedway and Foremost decisions, since those decisions refer to
potential threats.
Practices Which Place Retailer or Trade Buyer Independence at Risk and
Practices Not Resulting in Exclusion
In each part, ATF proposed to identify certain practices which the
rulemaking record and judicial precedent indicate place retailer
independence at risk by their very existence. When such practices are
undertaken, ATF would determine through the course of an investigation
whether the other part of the exclusion element relating to the actual
impact on a retailer's purchases is present. In the exclusive outlet
and commercial bribery regulations, ATF also proposed sections for
discussion of practices not resulting in exclusion. In the tied-house
regulations, ATF proposed to revise and expand the Subpart D exceptions
to provide safe harbors.
Exclusive Outlet
Section 105(a) of the FAA Act makes it unlawful for an industry
member to require, by agreement or otherwise, any retailer engaged in
the sale of alcoholic beverages to purchase any such product from such
person to the exclusion in whole or in part of alcoholic beverages sold
or offered for sale by other persons in interstate or foreign commerce,
provided one of the three interstate or foreign commerce jurisdictional
clauses is met.
Retailer independence is threatened in an exclusive outlet
arrangement when the ability of the retailer to decide which brands of
alcoholic beverages to purchase is restricted or impeded. In the Fedway
context, the question is whether any restriction negates the retailer's
free economic choice or has been utilized by the industry member to
restrict such choice.
In that regard, ATF proposed adding a new section 8.52 to identify
two practices that clearly result in exclusion under section 105(a) of
the Act. The first practice involves purchases of distilled spirits,
wine, or malt beverages by a retailer as a result, directly or
indirectly, of a threat or act of physical or economic harm by the
selling industry member. The second practice involves contracts between
an industry member and a retailer which require the retailer to
purchase distilled spirits, wine or malt beverages from that industry
member and expressly restrict the retailer from purchasing, in whole or
in part, such products from another industry member. In both
situations, exclusion of a competitor's products results directly from
the arrangement or the contract without any action by the retailer.
Further, ATF has always viewed an exclusive outlet arrangement as
including a situation where the retailer offers exclusivity privileges
and the industry member accepts that offer. In other words, it does not
matter whether the requirement originates with the industry member or
the retailer; rather, the requirement is within the exclusive outlet
prohibition so long as it is understood as part of the bargain. This
position was enunciated in Industry Circulars 75-20 and 76-18,
concerning sales to the U.S. military or other trade buyers. By
availing itself of the requirement offer, the industry member has, in
effect, specifically conditioned the promotional arrangement on this
understanding.
ATF also proposed to add a new section 8.53 to describe practices
not resulting in exclusion. Only one practice was identified in the
proposed rule, a supply contract for one year or less, under which an
industry member agrees to sell alcoholic beverage products to a
retailer on an ``as needed'' basis provided that the retailer is not
required to purchase any minimum quantity of such products. Commenters
Hinman & Carmichael expressed concern that retailers' private label
wine supply contracts would not be within this safe harbor, since they
often last for more than a year. The commenters state there are
legitimate business reasons for the longer duration of the contract,
such as the time needed for product development and promotion and wine
production. After consideration, ATF believes the one year duration is
appropriate since the supply contracts which ATF has reviewed have
involved that timeframe. ATF is concerned that supply contracts for
three years involve a continuing relationship that has a potential,
under certain circumstances, for tying that retailer to the industry
member. Nevertheless, the fact that longer contracts are outside this
safe harbor does not foreclose their use; it only means that ATF will
apply the criteria in section 8.54 to these situations. Sections 8.52
and 8.53 are adopted without change in the final rule.
Part 6--``Tied-House''
Section 105(b) of the FAA Act makes it unlawful for an industry
member to induce through any of the following means, any retailer
engaged in the sale of alcoholic beverages to purchase any such
products from such person to the exclusion in whole or in part of
alcoholic beverages sold or offered for sale by other persons in
interstate or foreign commerce, provided one of the three
jurisdictional clauses is met:
(1) By acquiring or holding any interest in any license with
respect to the premises of the retailer; or
(2) By acquiring any interest in real or personal property owned,
occupied, or used by the retailer in the conduct of the business; or
(3) By furnishing, giving, renting, lending, or selling to the
retailer, any equipment, fixtures, signs, supplies, money, or other
things of value, subject to the exceptions prescribed by regulations,
having due regard to public health, the quantity and value of articles
involved, established trade customs not contrary to the public interest
and the purposes of the subsection; or
(4) By paying or crediting the retailer for any advertising,
display, or distribution service; or
(5) By guaranteeing any loan or repayment of any financial
obligation of the retailer; or
(6) By extending to the retailer credit for a period in excess of
the credit period usual and customary to the industry for the
particular class of transactions as ascertained by the Secretary and
prescribed by regulation; or
(7) By requiring the retailer to take and dispose of a certain
quota of any of such products.
Retailer independence can be threatened in a tied-house arrangement
between an industry member and a [[Page 20406]] retailer when the
arrangement involves a continuing business relationship which restricts
the retailer's ability to make free economic choices on which brands of
products to purchase. In effect, competition is restricted because the
retailer who is dependent on or tied to an industry member cannot make
free and rational business choices on whether to make a current
purchase from another industry member based on current business
considerations such as consumer demand or lower prices offered by the
competition.
The proposed regulations identified threats to a retailer's
independence which include: a wholesaler's partial ownership of a
retailer, sales where the wholesaler conditions the purchase of one
distilled spirits product on the retailer purchasing another distilled
spirits product at the same time, and wholesaler control over the
retailer through controlling the resetting of the products on a
retailer's premises.
Commenters on the other practices listed in Sec. 6.152 requested
several amendments to these practices. The law firm of Schreiber,
Simmons, MacKnight & Tweedy, commenting on behalf of an Asian brewer,
expressed concern that because of the way paragraph (c) is worded, it
appears that partial ownership of a retailer by an industry member is
automatically deemed to put retailer independence at risk. E. & J.
Gallo Winery also commented on this section, recommending that ATF
allow industry members to own small amounts of stock in publicly traded
retailers. ATF revised the wording of this section to show use of the
ownership of a less than 100 percent interest in a retailer to
influence the retailer's purchases is the act deemed to put retailer
independence at risk, not partial ownership alone.
With respect to all the practices listed in proposed Sec. 6.152,
ATF will also be required to determine whether the practice results in
the retailer purchasing less than it otherwise would have of a
competitor's product.
ATF also proposed to revise and consolidate several of the
provisions contained in Subpart D of Part 6 of the current regulations
which find that certain practices will not result in exclusion under
the tied-house provisions (that is, safe harbors).
The classification of these practices in Subpart D of Part 6 is
intended to provide guidance to the regulated industry so that
legitimate product marketing programs can be developed without the
uncertainty of a potential Federal enforcement action. Legitimate
product marketing encourages competition, by large and small businesses
alike, on the basis of price, product quality and service. (Proposed
revisions to these regulatory exceptions and related comments are
examined in detail in the discussion of changes to individual sections,
below.)
Commercial Bribery
Section 105(c) of the FAA Act makes it unlawful for an industry
member to induce through any of the following means, any trade buyer
engaged in the sale of alcoholic beverages, to purchase any such
products from such person to the exclusion in whole or in part of
alcoholic beverages sold or offered for sale by other persons in
interstate or foreign commerce, provided one of the three
jurisdictional clauses is met:
(1) By commercial bribery; or
(2) By offering or giving any bonus, premium, or compensation to
any officer, or employee, or representative of the trade buyer.
Commercial bribery situations involve the receipt of money or a
premium by an officer, employee, or representative of the trade buyer.
Payments made directly to business entities (i.e., the corporation,
partnership, or individual owning the business) for the use of the
business do not constitute a commercial bribe. The independence of the
trade buyer is threatened in a commercial bribery situation because the
officer, employee, or representative of the trade buyer is making a
purchasing decision as a result of the money or premium received
personally and not based on business or marketing factors which further
the interests of the trade buyer itself.
Proposed section 10.52 identifies promotional conduct by an
industry member that involves the payment of money or another premium
to an employee or representative of a trade buyer without the knowledge
of the trade buyer as practices under the Act that place trade buyer
independence at risk. The Fedway court noted that previous case law
upheld as actionable these types of payments. These payments were
viewed as anti-competitive because one competitor gained a competitive
advantage over another competitor by reason of a ``secret and corrupt
dealing with employees or agents of prospective purchasers.'' See,
American Distilling Co. v. Wisconsin Liquor Co., 104 F.2d 582 (7th Cir.
1939). Even where such practices exist, ATF would still be required to
demonstrate that they affect the trade buyer's purchases in order to
establish exclusion. With respect to those practices not mentioned
herein, ATF would be required to demonstrate the existence of both of
the elements of exclusion set forth above.
ATF also proposed adding a new section 10.53 to discuss practices
which do not place trade buyer independence at risk, but proposed no
specific examples.
These two sections were adopted in the final rule without any
changes.
Criteria for Determining Retailer or Trade Buyer Independence
ATF proposed adding Secs. 6.153, 8.54 and 10.54 to list criteria by
which ATF would evaluate whether or not a particular practice places
retailer or trade buyer independence at risk. Elements which have
repeatedly been mentioned in court cases are degree of control
exercised over trade buyers' purchasing decisions, duration of the
practice, indiscriminateness and contractual or other enforceable
requirements. The goal of regulating trade practices in the alcoholic
beverage industry has been identified as healthy competition in order
to insure the best possible price, quality and selection for the
consumer and to prevent formation of a corrupt black market.
The proposed criteria are indications that a particular practice,
other than those in sections 6.152 and 8.52, places retailer
independence at risk. A practice need not meet all of the criteria
specified in order to place retailer independence at risk. The proposed
criteria are:
(a) The practice restricts or hampers the free economic choice of a
retailer to decide which products to purchase and the quantity in which
to purchase them for sale to consumers.
(b) The industry member obligates the retailer to participate in
the promotion to obtain the industry member's product.
(c) The retailer has a continuing obligation to purchase or
otherwise promote the industry member's product.
(d) The retailer has a commitment not to terminate its relationship
with the industry member with respect to purchase of the industry
member's products.
(e) The practice involves the industry member in the day-to-day
operations of the retailer. For example, the industry member controls
the retailer's decisions on which brand of products to purchase, the
pricing of products, or the manner in which the products will be
displayed on the retailer's premises.
(f) The practice is discriminatory in that it is not offered to all
retailers in the local market on the same terms without business
reasons present to justify the difference in treatment. [[Page 20407]]
In the case of commercial bribery, the risk to the wholesale or
retail trade buyer's independence is evaluated using similar criteria
in section 10.54. A number of commenters expressed concern that ATF's
application of these criteria to wholesaler trade buyers was overly
broad and could disrupt legitimate franchise arrangements or
``promotional partnerships'' between industry members and their
wholesaler trade buyers. In response, ATF wishes to emphasize that the
only ``practices'' being evaluated in section 10.54 are commercial
bribery or the offering or giving of a bonus, premium, or compensation
to any individual officer, or employee, or representative of the trade
buyer. Transactions with the trade buyer entity are not in question
here, unless circumstances indicate the trade buyer entity is merely a
conduit between the industry member and the individual.
In their comment, DISCUS proposed an alternative to these criteria,
which they called ``guidelines for evaluating exclusion.'' To some
extent, these guidelines paraphrased the general principles enunciated
in proposed Secs. 6.152, 8.52 and 10.52, but stated them in terms that
narrow their application to specific factual situations. The final rule
retains the general principles in its criteria rather than the more
limited guidelines proposed in the DISCUS comment, since the industry
is provided clearer guidance by the use of principles of general
application rather than more narrow factual characterizations.
The FTC staff also addressed the criteria ATF will apply in
evaluating a promotional practice not otherwise covered in another
regulation. In general, the FTC staff criticized the criteria since
they feel that each one of the criteria could be a feature of a normal
commercial relationship under the right circumstances. Rather than
recommend different criteria, the FTC staff again returns to their view
that the factor of market share or ``market power'' is the proper
approach.
For the reasons discussed under ``Exclusion, in general'' above, a
market share or ``market power'' approach is not consistent with the
statutory language of the FAA Act or Congress' intent in enacting the
unfair trade practice provisions. Rather, ATF has developed these
criteria based on the factors stressed by the various Federal courts
that have addressed violations of the unfair trade practice provisions.
No one factor is determinative. To the extent that applying a
particular factor in a particular case will result in restricting a
pro-competitive practice, the factor will not be applied in evaluating
that practice. This is clearly a case-by-case determination. However,
the FTC staff suggestion that a criterion does not in all cases
demonstrate a tie or link that threatens retailer independence does not
render the factor irrelevant in those cases where it is evidence of
such a tie or link.
After reviewing the FTC staff comments, ATF determined, for reasons
of clarity, that criterion (a) in Secs. 6.153, 8.54 and 10.54 should
read ``which products or what quantity'' (the proposed rule read
``which products and what quantity''). ATF has changed the final rule
accordingly.
Slotting Fees
In Notice No. 794, ATF proposed adding slotting fees to two areas
of the regulations: first, as an example of a practice which has the
potential to threaten a retailer's independence (proposed section
6.152), and second, as ``other than a bona fide sale'' (proposed
section 11.24). Slotting fees were described in Notice No. 794 as fees
paid to a retailer in order to obtain premium shelf space. ATF sought
comments on whether slotting fees should be addressed in tied-house
and/or consignment sale regulations. In the notice, ATF requested data
and information on the effect of such fees, rather than solely
statements of preference by a particular commenter.
Slotting fees, also referred to as slotting allowances, are not
specifically addressed in the current FAA Act regulations. In the past,
ATF interpreted such fees as ``things of value'' given to retailers or
as ``paying or crediting the retailer for any advertising, display or
distribution service'' and investigated slotting fee arrangements as
potential violations of the tied-house provisions of the FAA Act, 27
U.S.C. 205(b)(3) or 205(b)(4).
ATF received 1,347 letters of comment on Notice No. 794, containing
a total of 1,593 signatures; of these, 1,309 letters (1,554
signatures), expressed support for ATF's stated position on slotting
fees. Several trade associations who supported ATF's proposed treatment
of slotting allowances enclosed substantive and detailed analyses on
the subject by authorities outside the alcoholic beverage industry in
addition to their own comments. The Wine Institute submitted a
statement prepared by Paul N. Bloom, Professor of Marketing at the
University of North Carolina at Chapel Hill (``Bloom''). The Beer
Institute submitted statements prepared by David P. Kaplan, President
of Capital Economics, a Washington, D.C., economic research and
consulting firm (``Kaplan'') and Robert Goodale, Deputy Secretary of
Commerce for the State of North Carolina (``Goodale''). The Brewers
Association of America submitted a statement by Gregory T. Gundlach, of
the College of Business Administration , University of Notre Dame
(``Gundlach''). Most other commenters who supported the ATF proposal
commented with conclusory statements that slotting fees are anti-
competitive, but submitted no accompanying data in support of these
conclusions.
The commenters supporting the proposed rule did so from a number of
different perspectives. Approximately 1,130 of the letters written in
support of ATF's proposed rules on slotting addressed only that issue.
Most of these letters came from beer wholesalers, and many stated
simply that slotting fees should continue to be considered a potential
violation in both the tied-house and consignment sales regulations. The
reasons given included the statements that slotting fees will hurt
competition, reduce consumer choice, discriminate against small
businesses and raise costs in an already tight market. However, no
supporting evidence was furnished in most of these letters. A few of
these commenters went on to describe likely costs in terms of money,
lost jobs, or product failures from their experience with soft drinks
or snacks.
Of the commenters who wrote only about slotting, 71 requested that
ATF expand its definition of slotting to encompass ``purchasing,
renting or maintaining display and storage space as well as shelf
space.''
ATF also received four comments from individual consumers who
expressed concern that slotting allowances may have the effect of
dampening innovation, especially in the fledgling domestic craft
brewing industry, by making the cost of introducing a new product
prohibitively high.
In identical letters, six commenters identifying themselves as
small retailers expressed concern that ``slotting fees would give giant
retailers more money to drive me out of business.''
Five commenters argued in favor of a change in ATF's proposed
treatment of slotting fees. These commenters were the National
Association of Convenience Stores (NACS), the Minnesota Licensed
Beverage Association, Inc. (MLBA), The Kansas Retail Liquor Dealers
Association, Inc., the Circle K Corporation, which owns and operates
convenience stores, and The Chapter House, a brewpub. NACS
[[Page 20408]] and the Circle K corporation both argued that slotting
fees are simply reimbursement for the expenses incurred by a retailer
when it stocks a new product or moves a product already in stock to a
more prominent location, including rearranging warehouses, changing
accounting and inventory control systems, and planning new displays and
shelf arrangements. No specific examples or data were submitted. NACS
cited the high number of new products introduced each year and argued
that slotting fees enable the products to be available to consumers at
the retail premises. However, no marketing data or studies were
submitted in support of this purported effect. MLBA and the Chapter
House both noted that consumers, by their purchases, ultimately control
the retailer's purchasing decisions, whether or not slotting fees are
paid.
Evaluation of Comments on Slotting Fees
In examining slotting allowances or fees, also called ``display
fees,'' ``introductory allowances,'' ``pay-to-stay fees,'' ``stocking
allowances,'' ``annual renewal fees,'' ``up front fees,'' ``maintenance
fees,'' ``push money,'' and ``failure fees,'' ATF has relied heavily
upon the aforementioned statements by Bloom, Kaplan, Goodale and
Gundlach, since so little objective data was submitted with the other
comments. Where material from these statements is cited, ATF will
include a reference to the author and page number.
In his statement, Bloom (page 15) notes that slotting fees ``have
become entrenched, with both grocery manufacturers and retailers
expecting these fees to be a part of every transaction involving a new
product.'' Since these fees have become so commonplace in other
industries and are not being treated as illegal in those industries, it
is appropriate to review ATF's reasons for believing they should
continue to be prohibited in the alcoholic beverage industry.
Fedway directed ATF to consider the benefits of legitimate
competitive practices in evaluating whether a practice is exclusionary.
Several of the statements addressed this aspect of slotting fees. One
expected benefit of fair competition is that it will result in better
quality, selection or prices for consumers. Goodale (page 8) says
slotting allowances ``do not benefit consumers. Retailers do not pass
on the proceeds from slotting allowances in the form of lower prices
for the favored products. Moreover, competition by slotting allowances
may actually tend to displace competition in other forms more likely to
be passed on to consumers, such as lower prices to retailers, special
promotions, or coupons. To the extent that they reduce the availability
or visibility of competing products, slotting allowances also reduce
consumer choice.''
Many commenters expressed concern that allocation of shelf space to
products under slotting fee agreements is not based on perceived
consumer demand, but on money factors. These concerns appear to be
borne out by the expert statements and the published material attached
to them. Several made the distinction between ``pull'' marketing, in
which the supplier uses advertising, coupons, and other means to create
consumer demand, and ``push'' marketing, in which the supplier
essentially pays the retailer to ``push'' the product by guaranteeing
its availability and prominence at retail outlets. Slotting fees,
sometimes called ``push money'' fall into this latter category. In
Fedway, the court acknowledged the ``general belief that cheap and
plentiful alcohol is not an unmitigated social good (as opposed, say,
to cheap and plentiful home heating oil or shoes) suggest[s] that the
alcohol industry requires special oversight and regulation.'' There is
at least a perceived danger in allowing slotting fees in the alcoholic
beverage industry that heavily promoted products would be
overrepresented or ``pushed'' at the retail level.
Bloom (pages 4 through 6 and page 23) points out that ``the
channels of distribution through which an industry member may market
its beverages are far more limited than those faced by a manufacturer
of other beverages or of other unregulated consumer products.''
Availability of retail outlets for alcoholic beverages is ``restricted
in number and location, by state licensing requirements'' and
``manufacturers in this industry may not sell their goods through mail
order in many states.'' Bloom states the argument that there are
alternative retail outlets (that is, that a supplier barred from
selling to one customer may sell to others) does not apply in the
alcoholic beverage industry because of these factors.
One of ATF's proposed criteria for determining retailer
independence, that is, whether the practice has a discriminatory
aspect, also has a bearing on the evaluation of the impact of this
rulemaking on small businesses under the Regulatory Flexibility Act.
Bloom (page 11) states that ``some argue that slotting fees may be
beneficial to small business, by offering the opportunity for an
untested product to `buy' its way into a retailer. I consider this view
somewhat naive, since, even if such an opportunity exists in theory, it
is not a realistic or practical one for most small or start-up
businesses. These are precisely the companies that cannot win the
bidding war for retail space because they do not have the funding to
pay hundreds of thousands of dollars in up-front fees. It is highly
relevant that small food manufacturers have been among the most vocal
opponents of slotting fees.'' Bloom further notes ``since slotting fees
usually bear little relation to the costs of a retailer or wholesaler,
often causing manufacturers to pay different amounts to different
resellers to stock the same item, such fees can adversely affect small
retailers as well.'' (page 25--emphasis in original.) Goodale (page 6)
makes a similar observation: ``Individual stores and smaller chains
have considerably less or no leverage and consequently receive
disproportionately less in 'slotting allowances,' if any at all.''
Kaplan (pages 18 and 19) discusses competition and performance in
the beer and wine industries. ``By any standard, both industries have
exhibited healthy competition and excellent performance under a
regulatory regime in which slotting allowances were clearly prohibited.
The healthy level of industry performance strongly suggests that
material alterations to the regulatory treatment of slotting allowances
and other long-prohibited trade practices should be approached
cautiously.'' Bloom (pages 5 and 6) also notes, despite ``the vigor of
competition in the industry, however, the * * * regulatory structure,
by directing competition and creating entry barriers, can sometimes
make it more difficult to market products in the alcoholic beverage
industry than in others. Accordingly, marketing practices which may be
benign in other industries may have severe adverse consequences in this
one.''
Kaplan (pages 4 and 5) performs a comparison between ATF's criteria
to determine whether a practice places retailer independence at risk
and the characteristics of slotting allowances. Kaplan states, ``[i]n
my opinion, the payment of a slotting allowance by a supplier restricts
or hampers the retailer's choice of which products to purchase (during
the time period in which the shelf space has been purchased or rented),
represents a continuing obligation on behalf of the retailer to
purchase and stock the supplier's product, represents a commitment by
the retailer not to terminate its relationship with the supplier with
respect to purchase of the supplier's products, reduces the amount
[[Page 20409]] of shelf space available for competing products, and
generally results in a reduction in the sales of the displaced
products.'' Goodale (pages 6 and 7) performs a similar analysis, with
similar findings. He adds that ``[s]lotting allowances involve
manufacturers in the day-to-day decisions of the retailer regarding
what products the retailer will purchase and how products will be
displayed in the store. Payment of slotting allowances is almost always
discriminatory among retailers in any given area.''
With particular reference to the continuing character of the
obligation, and the danger of a tie or link between the industry member
and the retailer, Bloom (page 7) states that ``manufacturers often make
continuing payments to retailers and wholesalers either to keep a
product on the shelves or in the warehouse when the product does not
sell in the volume expected by the retailers, or to obtain preferential
display space. In other words, manufacturers may be required to make
ongoing payments even after they have paid the entry fee and even if
the product sells well. These are referred to as `pay-to-stay' fees.
``Goodale (page 6) noted ``Manufacturers pay slotting allowances
only with the agreement of retailers to provide their products some
benefit or favorable treatment. A slotting allowance is part of a
mutually binding contract between manufacturer and retailer. Thus, a
retailer that accepts a slotting allowance is obligated to fulfill the
terms of its agreement with the paying manufacturer. Moreover,
retailers do not treat this obligation lightly. A retailer that did not
fulfill its part of a slotting allowance agreement would quickly
acquire a reputation as a `welcher' that would damage its ability to
collect slotting allowances in the future. Thus, retailers have a
strong incentive to honor their commitment to favor the paying
manufacturer's product.'' Bearing out this notion of an incentive to
favor a supplier who pays slotting fees, Bloom attached an article from
Journal of Public Policy and Marketing by Joseph P. Cannon and Paul N.
Bloom, called ``Are Slotting Allowances Legal Under the Antitrust
Laws?'' The article noted:
Whether slotting allowances have served as anticompetitive
weapons or insurance fees, grocery chains have benefited from their
existence. Historically, profits rarely exceeded 1 percent of sales,
but the last several years have seen profits in the 2 percent range
[Sullivan 1989].
Although the article noted there were other contributing factors in
this striking increase in profitability, a retailer would be reluctant
to give up any practice which contributes to such an increase. Goodale
(page 6), stated that, for large retailers, ``slotting allowances are a
major source of revenue, accounting for perhaps more than 10% of after-
tax profits.'' This underscores the potential for a retailer to become
dependent on a slotting fee arrangement, thus creating the tie or link
which is an element of exclusion.
Nature and Effect of Slotting Fees
The proposed description of slotting fees in Sec. 6.152(b), read,
in part, ``purchasing or renting specific shelf space * * * where such
purchase reduces the availability of other shelf space for the
distilled spirits, wine or malt beverages of another industry member.''
As noted earlier in the discussion of the comments on slotting, a
number of commenters requested that this definition be expanded because
slotting fees cover more than just the purchase of specific shelf
space.
Goodale (pages 8 and 9) states ``in my view, the slotting allowance
provision in Sec. 6.152(b) of the NPR is too narrow. The reference to
`purchasing or renting specific shelf space' would not include many of
the slotting allowance arrangements discussed above that have the same
adverse effect on retailer independence. The draft regulation should be
modified to make clear that all forms of slotting allowance
arrangements will be treated as putting retailer independence at risk,
as in fact they most certainly do.'' The slotting practices listed by
Goodale (pages 2 through 4) were:
Payments made by manufacturers to retailers and wholesalers to
set up a new item in their store or warehouse.
Payments made by manufacturers to retailers in return for an
obligation to, for some agreed-upon period of time:
Allocate a specified quantity of shelf or refrigerator space to
the manufacturer's product;
Allocate a favorable shelf or display position to the
manufacturer's product (aisle end or eye level, for instance);
Feature the manufacturer's products in advertising and displays
during times of peak demand, such as holidays;
Set aside warehouse or backroom space on the retail premises for
storage of the manufacturer's product, to reduce the number of
deliveries and facilitate restocking of the store shelves;
In some product categories (greeting cards and light bulbs, for
example) the retailer may carry one manufacturer's product
exclusively.
Based upon the evidence noted, ATF believes that slotting fees put
retailer independence at risk, and proposed Sec. 6.152(b) is adopted in
this final rule, with two changes. In the final rule, ATF has expanded
the description of slotting fees to more accurately reflect the variety
of practices which come under this category. ATF also dropped the
condition that the purchase of shelf space reduce the availability of
space for competitors' products from Sec. 6.152(b), since that factor
must always be shown within the framework discussed in
Sec. 6.151(a)(2).
Slotting Fees as Consignment Sales
In Notice No. 794, ATF proposed to classify payment of slotting
allowances as ``not a bona fide sale'' in the consignment sale
regulations in Part 11. This classification grows out of the
description of consignment sales in 27 U.S.C. 205(d), ``to sell * * *
on consignment or under conditional sale or with the privilege of
return or on any basis otherwise than a bona fide sale.'' ATF argued
the practical effect of ``slotting allowances'' is to refund, in whole
or in part, the purchase price of a product that has not been sold, in
proportion to the period of time that it remains unsold.
At a minimum, payment of ``slotting allowances'' may reimburse the
trade buyer for the cost of shelf space occupied by the industry
member's products. In addition, it may also compensate the trade buyer
for the lost opportunity cost of having capital tied up in inventory
acquired from the industry member. Ultimately, the amount refunded by
this mechanism can, over any specified period of time, be the economic
equivalent of simply buying back a product at the end of that period of
time.
ATF believes that its regulations should address all arrangements
that clearly embody the substance of the ``consignment sale'' practice
proscribed by Congress, and not merely particular forms of that
practice. Therefore, ATF proposed to amend its regulations to specify
payment of ``slotting allowances'' from an industry member to a trade
buyer is a form of consignment sale.
NACS, in its comment, stated that slotting allowances cannot be
equated with consignment sales. They argue that it is unlikely that,
even over time, the slotting allowances would be the equivalent of the
wholesale price, and that ATF cannot presume ``that slotting allowances
would have this effect in all circumstances.''
Other commenters offered contrasting views on this subject. E. & J.
Gallo Winery cited remarks by FTC Commissioner Deborah K. Owen on the
subject of slotting fees. She called them [[Page 20410]] a ``form of
insurance for the retailer * * * [which] reduce, and perhaps eliminate
his risk--or at least transfer some of it to the producer--by charging
a fee that, essentially, provides indemnification from the loss of
profits that would arise if the new product fails to sell well.''
Statements submitted by retailers opposing ATF's proposals on slotting
fees corroborated that slotting fees do serve the function of shifting
the risk of loss back to the supplier/wholesaler.
Kaplan (page 13) describes ``failure fees.'' ``These fees are being
paid if a `new product does not meet sales expectations.''' Kaplan's
example described a grocery chain which reportedly asks its suppliers
to agree, under contract, to cover the retail cost of merchandise
remaining unsold after a 120-day introductory period if the product has
not met its weekly volume target. The supplier ``has the option'' of
removing the remaining inventory.
Bloom (page 17) said ``a manufacturer which performs poorly is
often able to `pay to stay,' and make up for the shortfall in profits
contributed.'' Bloom went on to describe slotting fees in the grocery
industry as ``a form of `insurance' for retailers. It is well-
recognized that retailers have reduced the risk of carrying new
products by charging slotting fees. Indeed, several [interviewees]
suggested that many supermarkets may not be in the risky grocery
business anymore. Instead, they see some supermarket chains as
essentially being in the real estate business, selling and leasing
shelf space to manufacturers.''
In view of these comments, ATF believes the purported use and
purpose of slotting fees clearly demonstrate that a sale which involves
a slotting fee is ``not a bona fide sale.'' Proposed Sec. 11.24 is
retained in the final rule, but amended to reflect the broader
description of slotting fees adopted in Sec. 6.152(b).
Slotting Fees as Commercial Bribery or Exclusive Outlet
Although there was no formal request for inclusion of slotting fees
under the commercial bribery part of the regulations, a number of
commenters characterized slotting fees as bribery or ``payola.'' As
discussed earlier, the FAA prohibition of commercial bribery relates to
the offering or giving of a bribe, bonus, premium or compensation to
any individual officer, employee or representative of a trade buyer,
and not to the trade buyer entity. As slotting fees have been described
in the comments, they appear to be transactions with the entity, and
not with an individual. If an investigation disclosed payments to an
individual for influencing the display or stocking of a product, ATF
would pursue that as a case of commercial bribery, if the other
necessary criteria were met.
Coors Brewing Company suggested adding a new section to Part 8--
Exclusive Outlets, to prohibit slotting allowances, saying a slotting
allowance ``necessarily involves a requirement imposed upon a retailer
by a voluntary agreement.'' ATF disagrees; slotting allowance
agreements appear to be limited to manner of display or stocking of
product, not to exclusivity of purchase, which is the focus of the
exclusive outlet rules. Certainly, if ATF found an industry member was
requiring a retailer to purchase its products to the exclusion of
similar products sold or offered for sale by other industry members as
part of a slotting fee arrangement, ATF would also pursue the exclusive
outlet aspect of the case.
Other Proposed Changes
ATF proposed to revise or add regulations in 27 CFR Parts 6, 8, 10,
and 11, in areas suggested by the industry petition and in areas
identified by ATF as appropriate for rulemaking. The proposed revisions
and additions are discussed below.
In 1988, ATF designated an agency task force to review the trade
practice regulations and ATF's enforcement experience, since 1980, and
determine whether revisions were needed. ATF determined that certain
regulations could be modified or clarified to provide guidance to the
industry on ATF's interpretations of the trade practice statute. Such
guidance has been provided by rulings and industry circulars. Notice
No. 794 proposed incorporating these rulings and industry circulars
into the regulations.
In addition to changes identified in the Bureau's own review, this
notice responded to changes suggested in a February, 1992, petition
filed by representatives of the Distilled Spirits Council of the United
States, Inc. (DISCUS), the National Association of Beverage Importers,
Inc. (NABI), Wine and Spirits Wholesalers of America, Inc. (WSWA), the
National Licensed Beverage Association (NLBA), and the National Liquor
Stores Association, Inc. (NLSA). This petition superseded an earlier
petition filed by DISCUS and NABI with ATF. ATF suggested that DISCUS
and NABI work with all segments of the alcohol beverage industry to
reach a consensus concerning the various proposals to revise the trade
practice regulations. The 1992 petition reflects a culmination of that
effort by the supplier, wholesaler, and retailer organizations noted
above.
Scope of Parts 6, 8, 10 and 11
ATF proposed to revise Secs. 6.1, 8.1, 10.1 and 11.1 to reflect the
recodification of the Federal Alcohol Administration Act which included
renumbering the trade practice section from section 5 to section 105
and to better reflect the function of the proposed regulations. No
commenters objected to these changes, and they are adopted as proposed.
DISCUS suggested removing the sentence ``This part does not attempt to
enumerate all of the practices which may be a violation * * *'' from
each of these sections, but gave no reason for this suggestion. This
sentence was retained in each part because it is an accurate statement;
each part does not list all of the practices which can result in a
violation. The deletion of this sentence would mislead a person into
believing that each part constitutes a complete or exhaustive list of
every practice within the trade practice proscriptions.
Sections 6.3 and 8.3, Application
Although ATF had proposed no change to Sec. 6.3(b) or Sec. 8.3(b),
the National Alcohol Beverage Control Association (NABCA) renewed its
request (originally aired during the last trade practice rulemaking in
1980) that all control states be categorized as wholesalers, even if
they meet the definition of retailer contained in sections 6.11 and
8.11. NABCA states in the comment submitted on its behalf by Tendler,
Goldgerg, Biggins & Geltzer, that this simplification is needed because
Control State arrangements vary widely from State to State and create a
confusing ``patchwork'' of rules. ATF maintains its 1980 position that
there is no statutory authority for such a change. Therefore, no change
is made in these sections in the final rule.
Administrative Provisions in Parts 6, 8, 10 and 11
Section 102(c) of the FAA Act (27 U.S.C. 202(c)) incorporates by
reference the provisions of sections 49 and 50 of Title 15, U.S.C. of
the Federal Trade Commission Act which vests in ATF investigative
subpoena authority and the right to examine and copy relevant data
subject to an FAA Act investigation. In addition, section 102(d)
provides authority to require such reports as are necessary to
effectuate the purposes of the statute. ATF proposed adding new
regulations at 27 CFR 6.5, 8.5, 10.5 and 11.5 delegating these
[[Page 20411]] authorities to specific officials. There were numerous
comments on these two proposals, and they will be addressed separately
below:
Examination and Subpoena
Pursuant to 15 U.S.C. 49 and 50 as made applicable by section
102(c), ATF may examine, at all reasonable times, any documentary
evidence which is necessary to determine whether the person,
partnership, or corporation being investigated or proceeded against
violated the FAA Act. The right to examine includes the right to copy
any such documentary evidence. In addition, section 49 authorizes the
issuance of a subpoena for any person, partnership, or corporation to
produce records or give testimony relevant to an investigation of a
violation of the FAA Act. ATF proposed to delegate the authority to
examine and copy records to the Director or any ATF officer, and to
delegate the authority to issue subpoenas to the Director. Sixty two
commenters (many using similar language, as if following a sample
letter) questioned the need for this provision and ATF's interpretation
of the statute. Other commenters requested that ATF explain the reasons
for its authority for using the subpoena power in investigations.
Many of the commenters cited Serr v. Sullivan 270 F. Supp. 544
(E.D. Pa. 1967), aff'd 390 F. 2d 619 (3d Cir. 1968) (Serr), for the
proposition that ATF does not have the authority to use subpoenas in
connection with any type of investigation prior to the issuance of an
order to show cause against a basic permit.
Subsequent to the Serr decision, in consultation with the
Department of Justice, ATF concluded that it would not follow the
decision outside the 3rd circuit and planned to litigate the issue in
another circuit. ATF has continued to use its subpoena power in other
circuits and has not been challenged.
In Serr, the court narrowly interpreted the incorporation by
reference in 27 U.S.C. 202(c) of the investigatory subpoena authorized
under the Federal Trade Commission Act. The Serr decision held that
Congress provided no express investigation power to the agency
administering the FAA Act and, therefore, the subpoena authority could
only be used in an administrative proceeding against a basic permit
pursuant to 27 U.S.C. 204. The court based this conclusion on the fact
that other Federal statutes containing similar incorporations of the
Federal Trade Commission Act subpoena power contained express
provisions authorizing investigations and, additionally, Congress had
expressly rejected an investigation provision in the FAA Act.
A review of other Federal statutes cited by the court reveals that
the power to conduct investigations into possible violations is granted
either in conjunction with the broader power to call for general fact
finding investigations, or supplemental to a third party complaint
system of enforcement, or both. The court's summary conclusions about
these investigation powers did not entail an analysis of the types of
``investigations'' contemplated by these other provisions. ATF does not
conduct these types of general fact finding investigations or use a
third party complaint system. Instead, ATF traditionally conducts
investigations into specific violations by specific industry members.
Likewise, the investigation provision rejected by Congress
authorized the agency to make investigations and studies with reports
to the President and Congress on the production, distribution and
consumption of alcoholic beverages. The provision did not address the
power of the agency to conduct specific investigations into whether an
industry member violated a specific provision of the FAA Act.
Therefore, the failure of Congress to enact this provision indicates
nothing about Congress' intent on whether the administrating agency
could conduct an investigation to determine whether the industry member
violated the statute. It is fair to conclude that Congress intended
that the administering agency have routine investigatory authority as
an inherent part of the given ``duties and powers'' to administer and
enforce the unfair trade practice provisions when there is reason to
believe that an industry member violated the FAA Act.
Finally, the court's conclusion that suspension or revocation of
basic permits is sufficient for effective enforcement of the Act fails
to recognize that the FAA Act contains other enforcement mechanisms
such as injunctions, consent decrees, and offers in compromise which
are used outside of an administrative proceeding against a basic
permit, as well as ignores the fact that brewers do not hold basic
permits. Such reasoning also fails to recognize that an investigation
is a pre-requisite to developing adequate facts to support issuing an
order to show cause that alleges a specific violation. For all of these
reasons, it is illogical to conclude that Congress, on the one hand,
gave the administering agency these other traditional enforcement
mechanisms and authorized the use of other Government agencies and the
submission of reports under 27 U.S.C. 202(b) and (d) and, on the other
hand, denied the same agency the inherent authority to conduct
traditional investigations into whether an industry member has violated
a specific trade practice provision. Accordingly, ATF has retained the
proposed examination and subpoena provisions in Parts 6, 8, 10 and 11
of the final rule.
One change was made in these provisions in the final rule because
ATF noted some industry concern that these powers will be used for
``fishing,'' rather than as part of a specific investigation. ATF has
added language to require a showing that the requested evidence may
reasonably be expected to yield information relevant to a violation of
the statute by a particular industry member being investigated under
the Act.
Report of Promotional Activities
In addition, pursuant to section 102(d) of the FAA Act, new
regulations were proposed in Secs. 6.5, 8.5, and 10.5, authorizing the
regional director (compliance) to require a letter report from industry
members regarding information on sponsorships, advertisements,
promotions, and other activities conducted by, or on behalf of, or
benefiting the industry member. The reporting requirement would be used
on a case-by-case basis, rather than as a recurrent and periodic
reporting requirement such as a monthly report of activities applying
to all industry members. ATF did not propose adding a reporting
requirement in Part 11, Consignment Sales.
Most of the 66 comments on this section described the subject
reports as ``advertising reports'' and noted that ATF already had
``abundant'' authority to regulate advertising. The remainder of the
comments on this report addressed three main areas: The perjury
statement requirement, the delegation to the regional director
(compliance) and the absence of limits or safeguards.
The proposed rule required that the letter report be ``executed
under the penalties of perjury.'' Commenters were critical of this
requirement because, they pointed out, perjury carries a criminal
penalty, whereas most practices which are under investigation, if found
to be violations, would be handled administratively. ATF is retaining
this requirement in the final rule for consistency with requirements
for other documents filed under the FAA Act regulations, such as
applications for basic permits and certificates of label approval.
Further, even if the perjury statement were not required, giving a
false statement in a document presented to a government
[[Page 20412]] official and relied on by that official is still a
criminal offense under 18 U.S.C. 1001.
In the proposed rule, ATF delegated authority for requiring this
report to the regional director (compliance). Several commenters
expressed concern that these reports could be required at any time,
without any justification, and that the policy for requiring such
reports might vary from region to region. ATF addressed these concerns
by revising the final rule to authorize the Deputy Associate Director
(Regulatory Enforcement Programs) to require these reports, and by
adding language to the section specifying that the reports would only
be required as part of an investigation. Further, the final rule also
provides that the report shall cover a period of no more than three
years.
Several commenters expressed the opinion that ATF had understated
the time needed to comply with this requirement, but since no
alternative time burden estimate was offered, ATF is retaining the one
hour estimated burden in the final rule. Comments on this estimate may
be submitted to the address shown in the Paperwork Reduction Act
section of the supporting data.
Meaning of Terms Revisions in Parts 6, 8, 10 and 11
ATF proposed to add the terms ``ATF officer'' and ``Director'' to
the definitions in 27 CFR 6.11, 8.11, 10.11, and 11.11 to correspond to
the terms in the proposed administrative provisions in Secs. 6.5, 8.5,
10.5, and 11.5, discussed above. ATF also proposed adding the term
``Regional director (compliance)'' to the definitions in 27 CFR 6.11,
8.11 and 10.11 to correspond to the term in the proposed administrative
provisions. In view of the change in this delegation in the final rule,
a definition for ``Deputy Associate Director (Regulatory Enforcement
Programs)'' has been substituted.
ATF proposed to define the term ``brand'' in 27 CFR 6.11, since a
number of dollar limitations on things of value which may lawfully be
given to retailers is on a ``per brand'' basis. The definition proposed
was drawn from ATF Ruling 81-1, Q.B. 1981-2, page 27, excluding changes
in the color or design of the label. Commenters on this issue were
divided.
While most commenters supported narrowing the definition of the
word ``brand'' as proposed, Hinman & Carmichael, attorneys, noted in
their comment that label color is sometimes used to distinguish
``different quality designations of similar products produced by the
same manufacturer,'' and suggested adding ``different quality standard
or grade'' to the list of examples of different brands. ATF believes
the items listed in the proposed definition, such as age and alcohol
content, should address most such differences.
NBWA and the President's Forum of the Beverage Alcohol Industry
both commented that the proposed increase in the dollar limits in Part
6, Subpart D, combined with such a broad definition of the term
``brand,'' would have an anticompetitive effect by allowing industry
members with diverse brand portfolios to give a large number of
valuable items to retailers. As discussed later in the supplementary
information, a number of commenters expressed concern about the large
proposed increase in the dollar limitations, but did not comment on the
proposed definition of brand. Since ATF has decided to address these
concerns by raising the dollar limitations less than originally
proposed, it will not be necessary to further narrow the proposed
definition of ``brand.''
NBWA expressed concern that beverage varieties ``have proliferated
at an unprecedented rate'' and that ``even the most subtle variation in
the product line would be construed to create another `brand''' under
our proposed definition. NBWA further stated in their comment that the
``whole matter of what constitutes a brand is at the center of
controversy and litigation across the country.'' They suggested airing
this issue in a separate rulemaking and, if a definition is adopted at
all, specifying that the definition is only intended to apply to Part
6. In view of this comment, ATF has decided to adopt the definition of
brand as proposed, with the addition of a note in the definition that
it only applies to the administration of the exceptions in Part 6.
Although the petitioners suggested revising the definition of
``retailer'' in 27 CFR Parts 6 and 8, ATF proposed no changes in this
definition. The petitioners suggested removing the language which
specifies that a wholesaler who makes incidental retail sales
representing less than 5 percent of its sales during the preceding two
months shall not be considered a retailer. The petitioners state that a
supplier cannot know whether the wholesaler's retail sales are within
the 5 percent limitation and suggest eliminating that standard. The
petitioners also believe that the definition of ``retailer'' should be
clarified in order to ensure that this definition is consistent with
Sec. 6.2 which defines the territorial extent of Part 6 of the
regulations.
ATF believes that removal of the 5 percent limitation would make
the definition too broad. For example, without the percent limitations,
a wholesaler who makes a single sale to a consumer is deemed to be a
retailer. Also, the petitioners' proposed definition would exclude, as
a retailer, someone within the United States who makes sales for
consumption outside of the United States; i.e., a duty free shop. The
FAA Act itself does not allow this type of exception to the territorial
coverage of the law. Therefore, ATF did not agree with this proposal,
and proposed no change to the definition of ``retailer.'' DISCUS, in
their comment on the proposed rules, reiterated the request for these
revisions, but presented no new arguments. No other comments addressed
the definition of the word ``retailer.'' For the same reasons, ATF did
not propose conforming amendments to the definition of ``retailer
establishment.'' ATF holds to its comments as expressed in Notice No.
794, and made no changes to these definitions in the final rule.
ATF proposed to change the term ``retailer establishment'' in 27
CFR 6.11 to ``retail establishment'', since that is the term used in 27
CFR Part 6 regulations. The term ``retail establishment'' in 27 CFR
8.11 will be removed because the term is not used in 27 CFR Part 8
regulations. No commenters objected to these proposals, and they were
adopted in the final rule. Since the term ``retailer'' is being added
to Part 11, ATF has added a definition for that term in section 11.11
which conforms to the definition in 6.11.
Discussion of Changes to Individual Sections
Sections 6.25 through 6.33, Interest in Retail Licensee
The petitioners stated that these sections of the regulations
provide identical treatment concerning an interest of an industry
member in a license with respect to a retailer's premises (Sections
6.25-6.27) and in real or personal property owned, occupied, or used by
the retailer in the conduct of the business (Sections 6.31-6.33). The
petitioners proposed combining the provisions which they believe
parallel each other (Sections 6.25 and 6.31; 6.26 and 6.32; and 6.27
and 6.33).
ATF does not believe that the provisions of Secs. 6.25 through 6.33
should be combined in the various ways proposed by the petitioners.
From a structural point of view, merging Secs. 6.25 through 6.33
fundamentally alters the organization of Subpart C of Part 6.
[[Page 20413]] Subpart C is divided into topics (with titles) which
parallel sections 105(b)(1) through (7) of the FAA Act. The proposed
merger of the corresponding sections will mean that the regulations
applicable to an interest in retail property under section 105(b)(2)
will be contained in a group of the regulations categorized under an
interest in a retail license under section 105(b)(1). ATF believes that
it may be confusing for a person or industry representative relying on
the Part 6 regulations to look under the regulations on a retail
license for a regulation relating to an interest in retail property.
ATF proposed no change with respect to this request, received no
additional requests for such a merger, and makes no such change in the
final rule.
Further, the petitioners recommended clarifying changes to existing
regulations to ensure that there is no misunderstanding that a
violation of the FAA Act does not occur merely upon a finding of the
existence of the means to induce. The petitioners believe that the
wording of several existing regulations describing various means to
induce results in industry confusion since such sections are written in
terms describing ``prohibited means to induce.''
The petitioners believe that the term ``prohibited'' should be
deleted from such sections in order to avoid any contention or
confusion that this provision, read separately from section 6.21,
allows for finding a violation of the FAA Act without also establishing
that the means to induce results in exclusion. While the petitioners
recognize that these sections are subject to the general application
provisions of section 6.21, which states that these means to induce are
unlawful only if they result in exclusion, they believe such a change
will help reduce the possibility of industry confusion on this issue.
The same request was made concerning Secs. 6.31, 6.41, 6.51, 6.61, 6.65
and 6.71, which all contain similar language.
ATF proposed to amend Secs. 6.25, 6.27, 6.31, 6.33, 6.41, 6.51,
6.61, 6.65 and 6.71 by replacing the word ``prohibited,'' with the
phrase, ``a means to induce,'' in order to correspond with the wording
of the FAA Act. No objections to this change were received, and it is
adopted in the final rule.
Section 6.42, Third Party Arrangements
ATF's review of its regulations disclosed that some confusion
exists over the breadth of the proscription on indirect means to
induce. Some industry members incorrectly view the two examples in
Sec. 6.42 as exclusive of the situations covered by the regulation.
Additionally, ATF believes some industry members interpret the examples
as meaning the third party receiving the means to induce must be an
agent of an individual retailer.
By enacting the phrase ``directly or indirectly or through an
affiliate,'' Congress intended the broadest possible application of the
proscriptions of the FAA Act. The term ``indirectly'' encompasses more
than simply trade practice activities with agents of retailers. It
covers such activities with any representative of a retailer or
industry member, whether or not such representative is technically an
agent of the retailer or industry member. Thus, an industry member
providing the means to induce to any third party who will pass the
means on to the retailer, or use them in a manner to benefit the
retailer, is indirectly providing the means to induce to the retailer.
Accordingly, ATF proposed adding a sentence to Sec. 6.42 to clarify
that the examples are simply illustrative and not exclusive of the
situations resulting in indirect inducements. ATF also proposed to
revise the final sentence for clarity.
Several commenters expressed concern that ATF appeared to hold
industry members responsible for any inducement provided to a retailer
by a third party, whether or not the industry member knew or intended
that it would be provided. In response to these comments, ATF revised
the section to clarify that an inducement will not arise where the
thing of value was furnished to a retailer by a third party without the
knowledge or intent of the industry member, or the industry member did
not reasonably foresee that the thing of value would be furnished to a
retailer. In evaluating the second point of this exception, ATF will
determine if the item given was of such a nature or character that the
industry member could reasonably foresee that it would be furnished to
a retailer.
Section 6.43, Sale of Equipment
The petitioners recommended deleting the last sentence of
Sec. 6.43, which states that negotiation by an industry member of a
special price to a retailer for equipment from an equipment company is
a thing of value. They argued that this negotiation should not be
considered a thing of value unless the industry member subsidizes the
special price. ATF disagreed since the thing of value is not the
special price, but the service provided by the industry member in
negotiating with the equipment company, or using its influence on
behalf of the retailer. In the past, ATF has experienced cases in which
a retailer, believing that it received special price consideration,
altered its buying patterns resulting in exclusion of a competitor's
products. ATF did not propose deleting this language, but did propose a
conforming change to the cross-reference.
In its comment, DISCUS reiterated the petitioners' request for
deletion of the last sentence, but did not present any new information.
ATF maintains its position that the last sentence of Sec. 6.43
describes a service which is a thing of value (that is, a means to
induce a retailers' purchases) and should not be deleted. No comments
were received objecting to the change in cross reference, so that
change is adopted in the final rule.
Section 6.46, Outside Signs
ATF proposed to repeal this section and add a new Sec. 6.102 to
allow industry members to furnish outside signs to retailers as an
exception in subpart D. As discussed under Sec. 6.102, ATF received
mixed comments on this proposal and has made some changes to Sec. 6.102
as it appears in the final rule. Accordingly, Sec. 6.46 is deleted by
the final rule.
Section 6.47, Items Intended for Consumers
The petitioners recommended deleting this section because they
believe that it is redundant and unnecessary in light of Sec. 6.93 and
their proposed revisions to Sec. 6.87.
ATF proposed to remove this section since the general prohibition
in Sec. 6.41 covers things of value not specifically excepted in
Subpart D. ATF proposed to allow certain items listed in Sec. 6.47 by
listing them in the proposed revision of Sec. 6.84, Point of sale
advertising and consumer advertising specialties. No negative comments
were received on this proposal, and the section is removed in the final
rule.
Section 6.51, General
ATF proposed revising this section to replace the word
``prohibited'' with the phrase ``means to induce.'' No adverse public
comments on this proposal were received, but a commenter within ATF
pointed out that the regulation should be further clarified. A review
of the history of the section shows that it is intended to cover two
situations, reimbursements to a retailer for advertising or display
services directly provided by the retailer, and reimbursements for such
services if purchased by the retailer from a third party. The final
rule is revised accordingly. [[Page 20414]]
Section 6.52, Cooperative Advertising
ATF proposed deleting the phrase ``placed by the retailer'' from
this section and cross-referencing Sec. 6.52 to Sec. 6.98, Advertising
Service. DISCUS, in its comment, requested that the section be retained
in its present form.
Upon review, ATF concurs. The phrase ``placed by the retailer''
should be retained in Sec. 6.52, since the section is based on 27
U.S.C. 205(b)(4), and advertisements placed by the industry member
would be evaluated as ``things of value'' under 27 U.S.C. 205(b)(3).
Further, it is not appropriate to cross-reference Sec. 6.52 to
Sec. 6.98, which is an exception under 205(b)(3). ATF withdraws its
proposal; no change is made to this section in the final rule.
Section 6.67, Sales to a Retailer Whose Account is in Arrears
ATF's current position is contained in Revenue Ruling 54-162, 1954-
1 C.B. 340. On August 1, 1979, ATF proposed a regulation (Notice No.
327, 44 FR 45298) on credit arrears which would have provided that a
supplier could continue to sell to a retailer, with unpaid purchases
existing in excess of 30 days, without violating the extension of
credit provision if the retailer either made payments in accordance
with Revenue Ruling 54-162 or the amount of arrears did not exceed an
average purchase by the retailer from the supplier over the preceding 4
month period.
Commenters at the time objected to the proposal stating that it
would require extensive bookkeeping checks or it might force repayment
of large outstanding debts in order to keep dealing with a wholesaler.
Several commenters recommended that ATF simply adhere to the credit
requirements imposed by State law. ATF withdrew the proposal (T.D. ATF-
74, 45 FR 63242, September 23, 1980) from further consideration. In
Notice No. 794, ATF again proposed to adopt in the regulations the
position stated in Revenue Ruling 54-162. However, comments on other
possible approaches were solicited.
Several commenters endorsed the proposed change as set forth in
Notice No. 794 and some opposed allowing industry members to extend
credit to retailers at all. Other commenters again suggested that State
law be the guideline on extension of credit. E. & J. Gallo Winery, in
its comment, suggested that ATF allow industry members to accept cash
on delivery instead of cash with the order, to be more consistent with
most State credit laws. After reviewing the comments, ATF believes it
is appropriate to incorporate its longstanding policy as stated in
Revenue Ruling 54-162 into the regulations.
ATF has adopted the proposed rule, but modified it to show that a
sale to a retailer who is in arrears is not a means to induce ``so long
as the retailer pays in advance or on delivery'' for that current order
and to show that it applies only to products as defined in Sec. 6.11.
Where State rules are more restrictive than the Federal rules,
retailers and industry members must still comply with State law.
Section 6.71, Quota Sales and Section 6.72, Tie-In Sales
In addition to the language change to Sec. 6.71 discussed under
Sec. 6.41, the petitioners proposed to eliminate the tie-in prohibition
in Sec. 6.72 and consolidate the remaining provisions into Sec. 6.71.
The petitioners recommended deleting the first two sentences of
Sec. 6.72 because they believed that there is no statutory basis for
this regulation under the FAA Act. The petitioners stated that the
classic ``tying relationship'' prohibited by the antitrust laws is not
addressed by section 105 of the FAA Act notwithstanding that subsection
105(b) of the FAA Act bears the heading ``Tied-House.'' The petitioners
further stated that prohibitions against tie-in agreements are covered
adequately by the Federal antitrust laws.
The tie-in sale described in the regulations is a form of quota
sale covered by the Act. Moreover, ATF feels that Sec. 6.71 and
Sec. 6.72 are distinct from one another and should be kept separate to
insure clarity and foster understanding of the regulations. The fact
that another Federal law may also apply to such a practice is not
relevant to whether such a practice is covered by the FAA Act. In
enacting the FAA Act, Congress expressly decided that reliance on the
more general antitrust laws was inadequate in this field. Finally, ATF
proposed revising Sec. 6.72 to cover expressly a particular type of
transaction as a tie-in sale.
DISCUS reiterated the requests from the petition in its comment.
ATF sees no reason to change its position on these sections. DISCUS, E.
& J. Gallo Winery, and Hinman and Carmichael all asked that ATF clarify
Sec. 6.72 to show that it does not cover combination packaging allowed
in Sec. 6.93. The combination packaging addressed in Sec. 6.93 involves
combinations of alcoholic beverages with nonalcoholic products, whereas
Sec. 6.72 addresses combinations of alcoholic beverages only since this
section deals only with ``products'' as defined in section 6.11. A
cross reference to Sec. 6.93 was added for clarification.
Subpart D--Exceptions
Many changes discussed in the first section of the Supplementary
Information on Exclusion affect this subpart. The discussion which
follows is limited to specific requests by the industry or findings of
ATF's own internal review which were not discussed in that earlier
section.
Section 6.81, General
The petitioners proposed amending Sec. 6.81(a) by deleting the
second sentence which prohibits an industry member from conditioning
the providing of items or services allowed under Subpart D on the
purchase of distilled spirits, wine, or malt beverages. ATF agreed this
prohibition is not necessary for most items, and proposed to remove the
prohibition from the general section and place it in the specific
sections where such conditioning has been a concern, for instance,
Sec. 6.83 on product displays. No one commented specifically on this
proposal. While ATF agrees to delete the general prohibition, industry
members should be aware that abusive conditioning will be evaluated as
a quota sale under 27 U.S.C. 205(b)(7).
Section 6.81(b), Recordkeeping requirements, requires industry
members to maintain certain records which can be used to substantiate
claims that items provided to retailers are within the Subpart D
exceptions to the tied-house prohibitions. The petitioners proposed
deleting Sec. 6.81(b) in its entirety, thereby eliminating all
recordkeeping requirements. The petitioners stated that ``(t)his change
should be adopted because the FAA Act neither provides nor suggests
that any such requirements can be imposed.''
The petitioners further stated that if it is decided not to delete
Sec. 6.81(b) in its entirety, they recommend the addition of language
to this paragraph to make it clear that no separate violation of the
FAA Act shall arise from the failure of an industry member to maintain
records in accordance with the requirements of Sec. 6.81(b). The
petitioners believe that the FAA Act neither creates nor supports the
existence of any such violation of the FAA Act.
In Notice No. 794, ATF did not propose to eliminate the requirement
to keep records which substantiate industry members' claims that items
provided retailers are within the exceptions of Subpart D. Such a
change would negate ATF's capability to verify
[[Page 20415]] compliance with the dollar limitations and any other
requirements of Subpart D. The limitations in each exception section of
the regulations would be unenforceable if ATF had no way to verify
compliance with the requirements of such exceptions. ATF did propose to
add a sentence to Sec. 6.81(b) to state that, where an industry member
fails to keep the required records, such industry member is not
eligible for the regulatory exception in that particular transaction.
No separate recordkeeping violation would be charged.
In its comment, DISCUS continued to request elimination of
Sec. 6.81(b) in its entirety, but said if Sec. 6.81(b) is retained, ATF
should amend it to allow industry members to use unspecified other
means to show compliance. ATF disagrees, since the recordkeeping
requirement as written gives considerable flexibility to the industry
member. No specific form or record has been prescribed, as long as the
industry member can provide information an ATF officer would need to
verify that a promotion is within the scope of Subpart D. ATF is
adopting Sec. 6.81 as proposed, except for some minor editing changes
suggested by the Federal Register.
Section 6.82, Cost Adjustment Factor
While the petitioners did not request a specific change to this
section, they requested that ATF explore alternate methods which would
be cost effective for ATF to convey this information in a manner that
continues to ensure that all permittees are apprised of the annual
dollar adjustments. Instead, ATF proposed to delete this section,
increase the dollar limitations and periodically review the amounts if
necessary.
Although a few commenters supported the proposal, most objected to
the size of the proposed increase in the dollar limitations. For
instance, on product displays, ATF had proposed to increase the
limitation from $160 (1994 adjusted rate) to $500. Many commenters who
characterized themselves as small or medium size businesses said they
simply could not afford to compete with large industry members if their
competitors were providing displays worth $500 per brand.
After a thorough review of the comments, ATF concurs that such a
large increase could create the sort of tie or link identified by
Fedway. ATF has determined that making a smaller increase in the dollar
amounts is appropriate. The final rule deletes this section as proposed
in Notice No. 794.
Section 6.83, Product Displays
The petitioners recommended amending the definition of product
display to substitute ``* * * and similar items the primary function of
which is to hold, display or shelve consumer products'' for ``* * * and
the like,'' which appears in the current regulation. ATF proposed this
change, but used the phrase ``hold and display'' for clarity.
The petitioners also requested that ATF amend the dollar limitation
in the regulation to reflect the current adjusted rate of $160.
Instead, ATF proposed changing the dollar limit to $500 per brand at
any one time per retail establishment, from the current $100 (as
adjusted) per brand at any one time per retail establishment.
Although the general prohibition against an industry member
imposing conditions on receipt of items allowed in Subpart D has been
removed from Sec. 6.81, ATF proposed adding a statement to Sec. 6.83
that giving or selling product displays may be conditioned upon the
purchase of the distilled spirits, wine or malt beverage product
advertised thereon in a quantity only necessary for the initial
completion of the product display. From the mid-1960s to the 1980
recodification of the trade practice regulations, conditioning was
allowed for window or other interior displays. Industry members have
long argued that they should be allowed to condition receipt of product
displays on the purchase of a limited quantity of the product
advertised. ATF also proposed to delete the language which allows
lending or renting of product displays in the current regulation. Such
a continuing tie would not be consistent with the intent of the Act. In
making these proposals, ATF believed the dollar limit of $500 per
brand, coupled with the requirements for permanently inscribed
advertising and transfer of ownership of product displays to the
retailer minimizes the inducement value to the retailer. The
combination of these factors would allow product displays to be
excepted from the regulations of Part 6, and would be the basis for
allowing the industry member to condition receipt of such materials as
described above.
Commenters requested a number of amendments to this proposed
section. First, E. & J. Gallo Winery noted that in the preamble, ATF
had said Sec. 6.83 would allow conditioning product displays upon the
purchase of the product advertised thereon in a quantity only necessary
for the initial completion of the product display, and yet the
regulatory text omitted the word ``initial.'' This omission is
corrected in the final rule.
In the proposed amendment to Sec. 6.83, ATF eliminated the words
``furnish, loan or rent.'' DISCUS requested reinstatement of these
options, but ATF maintains its position that allowing lending or
renting of product displays creates a tie or link which is inconsistent
with the goals of the FAA Act. As a result of the Fedway decision, any
element of a promotion which indicates a continuing character is
subject to greater scrutiny.
Several other commenters, among them the American Brandy
Association, expressed concern that the higher dollar limit would allow
a large industry member to ``install a new $500 display every week in a
specific store.'' For the reasons discussed here and under Sec. 6.82,
the dollar limit has been set at $300. That dollar limit and the
aforementioned amendment to allow only outright giving or selling of
displays should also prevent the sort of monopolization of retail
premises feared by these commenters.
Finally, several commenters requested substitution of the word
``securely'' for the word ``permanently'' in describing how the
advertising material would be inscribed or affixed to the product
display. They argued that, when they give or sell a product display,
they cannot control the actions of a retailer, who may choose to remove
such advertising material. ATF will use the phrase ``permanently
inscribed or securely affixed'' in this section and in Sec. 6.84.
However, ATF will revisit this subject in later rulemaking if abuses
are found.
Section 6.84, Point of Sale Advertising and Consumer Advertising
Specialties
Promotions and practices currently allowed under the regulatory
exceptions to the tied-house provisions are safe harbors. Notice No.
794 proposed a revision to those exceptions which would combine several
of the current exceptions into one general regulatory section. The
approach of having a single general section addressing all of the
similar activities gives greater flexibility to the industry.
The proposed regulations combine the exceptions listed in
Secs. 6.84, 6.85, 6.86 and 6.87 (inside signs, retailer advertising
specialties, wine lists and consumer advertising specialties), into a
revised Sec. 6.84, Point of sale advertising and consumer advertising
specialties. Items intended for consumers currently identified in
section 6.47 are also included in the proposed listing of exceptions.
The petitioners requested that ATF amend the dollar limitation to
[[Page 20416]] reflect the adjusted rates, but instead, under ATF's
proposed revision there will be no limit to the dollar value of the
specified point of sale (POS) materials furnished by an industry member
to a retail establishment.
The petitioners also requested that the term ``wine lists'' be
expanded to include all alcoholic beverages. Instead, the proposed 6.84
permits all lists or menus, subject to the conditions in paragraph (c)
of the section.
Several commenters on these proposals requested that ATF limit
lists or menus to alcoholic beverage lists or menus. On review, ATF
concurs that there is more of a continuing character and more potential
for industry member involvement in day to day operations at a retailer
if full menus are allowed, and has revised this portion of the final
rule accordingly.
DISCUS requested that ``mechanical devices,'' which had been
permitted under ``inside signs'' in the current regulations but had
been omitted from the proposed rule, be reinstated, and that the rule
be further expanded to include ``electronic devices.'' After
considering this and related comments, ATF has revised the definition
of ``point of sale advertising materials'' to eliminate the
distinctions (inside signs and retailer advertising specialties) within
that definition and simply list examples. In that context, ATF has
added ``inside signs (electric, mechanical or otherwise)'' to the
listing of point of sale advertising materials in the final rule. The
restriction of electronic devices to signs is consistent with the
current regulatory approach and prevents abuses which could occur if
all electronic devices were allowed (since the point of sale section
contains no dollar limitations).
In their comment, E. & J. Gallo Winery suggested that the condition
in Sec. 6.84(c)(2) need not be limited to retailer and consumer
advertising specialties, and ATF concurs. In the final rule, the
condition applies to all point of sale materials and consumer
advertising specialties.
The Forum and the American Brandy Association suggested an annual
dollar limit per retail location. In the past, some of the items listed
in this section had a limitation and others did not. ATF does not
believe, given the nature of the items described and the requirement
for substantial advertising material, that furnishing such items would
create a tie or link between the industry member and the retailer. In
the final rule, ATF imposes no dollar limit, but will revisit this
subject if abuses are found.
Section 6.85, Temporary Retailers
ATF proposed adding a new section which will allow furnishing
things of value to a temporary retailer. The proposed regulations
recognize that certain retail activities of a temporary nature, such as
weekend events and community festivals, are so minor in the retail
marketplace so as not to justify Federal intervention; rather, State
agencies can regulate these situations to prevent abuses. There were
numerous comments concerning this section.
DISCUS suggested extending the provisions to cover things of value
given to a retailer for a ``temporary event.'' ATF disagrees; the
reason for excepting temporary retailers was that their short-term
existence as a retailer did not justify Federal intervention. However,
since a permanent retailer can operate at a ``temporary event,'' it is
proper to apply the trade practice provisions to the industry member's
dealings with those retailers. A number of commenters opposed allowing
any special privileges to temporary retail dealers. ATF believes that
the impact of giving things of value to temporary retailers, within the
limitations of the proposed rule, would not be disruptive to the retail
marketplace. However, the issue will be revisited if substantial abuses
are found. NABCA suggested there may be conflicts between ATF's
definition of a temporary retailer and any definition in State rules.
After considering the comments, ATF has amended the section to show
that the definition of temporary retailers applies only for purposes of
administration of the tied-house rules.
Section 6.88, Glassware--Section 6.89, Tapping Accessories--Section
6.90, Supplies--Section 6.97, Coil Cleaning Service
The petitioners recommended that these four sections be combined in
a new Sec. 6.88, under the title ``Equipment and supplies,'' because
they deal with similar types of merchandise and impose similar
conditions. As with other Subpart D exceptions which combine similar
types of merchandise, (viz., Secs. 6.83, 6.87 and 6.89), the
petitioners felt that combining these items in one section will enhance
the simplicity and clarity of the rules.
The petitioners also recommended several other revisions to this
consolidated section:
Extend coil cleaning service from ``a retailer of wine or malt
beverages'' to ``a retailer'' to provide equal treatment for wine,
malt beverages and distilled spirits;
Substitute the term ``dispensing accessories'' in Sec. 6.88 for
``tapping accessories'' because the former term more accurately
describes the modern type of accessories falling within this
category and reflects present marketplace practices where, for
example, wine also is served by dispensing equipment;
Add cold plates to the list of examples of ``dispensing
accessories'' and,
Allow carbon dioxide gas or ice to be sold at a price not less
than the cost to the industry member who initially purchased it.
While the petitioners' proposal to combine various sections into
one all inclusive section covering equipment and supplies is
structurally logical and the terminology change from tapping equipment
to dispensing equipment has merit, some of the items listed in the
petition have not in the past been recognized as exceptions by ATF.
ATF proposed consolidating these sections with the following
additional changes. ATF proposed to revise the definition of glassware
to include similar containers made of materials other than glass. The
proposed regulation also specifies that the industry member must pass
on the cost of initial installation of equipment to the retailer.
The proposed regulation expanded the original coil cleaning service
exception currently in Sec. 6.97 to cover distilled spirits, as well as
wine and malt beverages. Keeping the coils clean and free of
contamination is clearly in the interest of public health. Therefore,
it is in the public interest to allow such services without a dollar
limit.
The current regulation allows industry members to sell carbon
dioxide gas to retailers. The regulation does not provide for the sale
of other gases, such as nitrogen, which are used in various existing
alcoholic beverage dispensing systems. ATF proposed modifying this
regulatory section to allow industry members to sell any gas to a
retailer provided it is used in a beverage dispensing system. This
proposal should not be viewed as sanctioning treatment which would
change still wine to sparkling wine.
Comments on these proposals were generally favorable, and the
regulation is adopted as proposed. Forum members, in their comment,
stated the extension of coil cleaning service to distilled spirits is
unnecessary, since spirits have a longer shelf life and a higher
alcohol content. The provision was retained, to be used at the option
of the industry member. DISCUS asked that ATF amend the definition of
equipment and supplies by changing the word ``means'' to the phrase
``includes, but is not limited to.'' The use of the proposed phrase
would add an element of uncertainty and indefiniteness to the scope of
the exception. Therefore, ATF [[Page 20417]] retained the more limited
wording of the proposed rule, to emphasize that the exception is
limited to these items.
Section 6.91, Samples
The current section allows an industry member to furnish or give
samples of distilled spirits, wine or malt beverages to a retailer. The
petitioners recommended amending this section to provide that industry
members may furnish a maximum of 750 milliliters (mls.) of distilled
spirits samples to qualifying retailers, rather than the obsolete 500
milliliter (ml.) container cited in the regulation. They further
requested that the third sentence of this section, which limits the
size of a sample of spirits given to a State or a subdivision of a
State to 2 liters, should be eliminated in its entirety.
ATF agreed with the petitioners that the reference to the obsolete
500 ml size be replaced, but proposed a maximum of 3 liters for
distilled spirits. ATF also proposed amending the current regulation by
limiting the number of commonly owned retail establishments (not to
exceed four per retailer) which can be given samples. This amendment
would allow for a control State or chain retailer to receive sufficient
samples to determine whether to purchase a product.
Comments on these proposed changes were mixed. The American Brandy
Association opposed any revision to this section. DISCUS supported the
change to a spirits sample size of 3 liters and WSWA favored a sample
size of 750 ml, since that is the most common commercial package size.
ATF has decided to retain its proposal to allow a sample size of 3
liters for spirits.
The proposal to limit the number of samples which may be given to a
``chain'' of retail outlets met with a number of adverse comments.
NABCA, Hinman & Carmichael, DISCUS and Wine Institute all noted that
first, individual outlets within a chain may have the ability to
request that certain items be purchased, even though the order is
placed centrally; and second, that samples are also provided to
retailers so their personnel can be sufficiently familiar with a brand
to recommend or use it. Limiting samples to four outlets per chain
would restrict an industry member's ability to promote its products. In
light of these comments, ATF is removing the proposed limitation in the
number of samples which may be given to a chain from the final rule.
Several commenters also addressed an area which had not been
changed in the proposed amendment. E. & J. Gallo Winery and Hinman &
Carmichael both noted that, in an industry as dynamic as the alcoholic
beverage industry, it is not practical to limit samples to retailers
who have not previously purchased a brand from an industry member. They
suggested a time limit of six months or a year. The final rule has been
changed to allow samples to be given to a retailer who has not
purchased the brand from the industry member within the last 12 months.
Section 6.92, Newspaper Cuts
In Notice No. 794, ATF proposed to change the word ``loaned'' to
the word ``lent'' in this section. However, in view of the change to
Sec. 6.84, which eliminates the options of renting or lending product
displays, ATF has determined that for consistency, this section should
permit only permanent transfers. Therefore, the words ``furnished,''
``loaned'' and ``rented'' have been removed from this section.
Section 6.93, Combination Packages
In general, section 6.93 addresses combination packages where an
industry member packages a non-alcoholic item with distilled spirits,
wine, or malt beverages and, in particular, paragraph (c) requires that
the cost of the combination package be passed on to the retailer. The
petitioners recommend deleting paragraph (c) of section 6.93 because
they feel the condition imposed by the paragraph is really a pricing
decision outside of ATF's regulation under the FAA Act.
ATF proposed removing all the conditions currently imposed on
combination packages. Some commenters supported this proposal, but
NABCA expressed concern that, as written, the exception could be used
as a subterfuge to deliver non-alcohol items to the retailer with no
intention that they be passed along to consumers. Accordingly, ATF has
amended this section in the final rule to clarify that the combination
packages must be intended for sale to consumers.
Section 6.94, Educational Seminars
ATF proposed to clarify the final sentence, ``This does not
authorize an industry member to pay a retailer's expenses in
conjunction with an educational seminar.'' by adding the explanatory
phrase ``(such as travel, lodging, and meals).''
Many commenters objected to excluding meals and, upon consideration
of the comments, ATF has decided to adopt a revised final rule which
will permit an industry member to provide nominal hospitality in
conjunction with an educational seminar.
Section 6.96, Consumer Promotions
ATF proposed revising the text of section 6.96(a), Coupons, to make
the language consistent with the other sections and to simplify the
conditions. Hinman & Carmichael noted that the restriction in paragraph
(a)(1) of the proposed rule, that redemption of the coupons may not be
limited to a particular retailer or group of retailers, could be read
as preventing promotions by small producers who have a limited area of
distribution, or regional promotions by larger producers. This
restriction, which is also in the current Sec. 6.96(a), was intended to
prevent the benefit of a promotion from going to specific, named
retailers. ATF modified the provision in the final rule to require that
all retailers within the market where the offer is made may redeem such
coupons.
Section 6.98, Advertising Service
The petitioners recommended adding the clause ``except where the
exclusive retailer in the state is a state agency'' to paragraph (a) to
read as follows:
``(a) The advertisement does not also contain the retail price of
the product, except where the exclusive retailer in the state is a
state agency, and * * *''
The petitioners argue that the objectives of section 105(b) of the
FAA Act are not served by prohibiting industry members from advertising
control States' prices. The petitioners' proposed revision would permit
an industry member to advertise a control State's state-wide retail
prices as determined by that State for product sold within the State.
The petitioners feel that in such circumstances, there is no
possibility of any ``inducement'' or ``exclusion'' that would
contravene the intent or purpose of the FAA Act.
ATF proposed amending the current regulation in accordance with the
industry request, modified to reflect situations in which the sole
retailer in a jurisdiction is a State or local agency. ATF also
proposed to delete the condition that an advertisement placed by an
industry member may not mention events or promotions at a retail
establishment.
In response to several comments, ATF is modifying the final rule to
specify ``State or political subdivision of a State,'' for consistency
with the language in other sections of the regulations. DISCUS
suggested using the term ``unaffiliated'' rather than ``two or more''
retailers, to make it clear that an advertisement can not list outlets
of a single chain, and that change was adopted. NABCA additionally
requested that the final rule show that prices may [[Page 20418]] be
listed for ``a private retailer acting as an agent'' for a State or
local agency. ATF is not adopting this suggestion at this time. The
trend toward privatization of State agency sales is an evolving area.
States which are privatizing are doing so in various ways. Therefore,
it is not possible to set a single rule which will cover these changes.
Section 6.99, Stocking, Rotation, and Pricing Service
The petitioners recommended revising this section to allow industry
members to ``recommend shelf plans.'' The petitioners stated that this
revision would permit an industry member to provide services to a
retailer consistent with present day marketplace realities. ATF
proposed to amend this section in line with the petitioners' proposal.
Most commenters approved of this proposal, and it is adopted as
proposed. However, serious concerns were raised by Kendall-Jackson
Winery and American Vintners' Association about the potential for abuse
of shelf plans or schematics, through biased analysis of retailer needs
or by an industry member supplying additional services which are not
hereby authorized. ATF will revisit this subject if it appears the new
exception is being abused or creating a situation in which a retailer
becomes dependent on a single industry member's purchasing advice.
Section 6.100, Participation in Retailer Association Activities
Section 6.100 permits industry members to participate in retailer
association activities under certain circumstances. Paragraphs (b) and
(d) permit rental of display booth space and purchase of tickets or
payment of registration fees, respectively. Each of these paragraphs
contains the phrase ``if * * * not excessive and * * * the same as paid
by all exhibitors.'' ATF proposed amending the section to delete ``not
excessive'' and specifying the fees must be the same as the fees paid
by all exhibitors ``at that event.'' ATF also proposed raising the
limitation for payments for advertisements in programs or brochures
authorized by paragraph (e) from $100 (as adjusted) to $500.
Several commenters objected to the large increase in the dollar
limitation, as discussed earlier. ATF is revising the dollar limit to
$300 in the final rule. NABCA pointed out that at some retailer
activities, there are no exhibitors, so the term ``exhibitors'' may not
always be appropriate in paragraph (d). ATF concurs, and has
substituted the phrase, ``attendees, participants or exhibitors'' in
the final rule.
Section 6.101, Merchandise
Paragraph (a) currently provides that an industry member who also
is engaged in business as a bona fide vendor of other merchandise may
sell such merchandise to a retailer if three conditions are met, the
first of which is that the merchandise is ``sold at its fair market
value.'' The petitioners recommended changing this condition to state
that the merchandise is ``furnished, distributed, or sold according to
the custom and practice of that business.'' The petitioners also
recommended eliminating paragraph (b) regarding things of value covered
in other sections of Part 6 since they believe it is redundant and
unnecessary in light of other sections of Subpart D.
ATF did not propose either of these changes. Section 6.101 excepts
sales transactions by industry members who are engaged in the business
as bona fide vendors of other merchandise in addition to alcoholic
beverages. This section sanctions sales of other merchandise to
retailers in addition to alcoholic beverages if the merchandise is sold
at its fair market value, not in combination with distilled spirits,
wines, or malt beverages, and the merchandise is itemized separately on
the industry member's invoices and other records. The records are
necessary so that ATF can determine the real cost of the merchandise to
the industry member and whether the industry member is reselling the
merchandise to retailers at its fair market value. Likewise, ATF needs
these records to determine whether the industry member is a bona fide
vendor of the merchandise or whether it is using the merchandise as a
means to induce.
Accordingly, ATF proposed to revise the records requirement of the
regulation to state that, first, acquisition costs must appear on the
industry member's purchase invoices (available upon request to ATF)
and, second, the merchandise and the distilled spirits, wines, or malt
beverages sold to the retailer in a single sales transaction must be
itemized separately on the same invoice.
DISCUS, in its comment reiterated the petitioners' original
requests for changes, and noted ATF's proposal to require alcoholic
beverages and other merchandise to be shown on the same invoice was not
practical. WSWA commented further:
* * * [W]e support the objective of assuring an audit trail when
other items are offered for sale in conjunction with alcoholic
beverages. We view as impractical and unnecessarily burdensome the
proposal to require that ``merchandise and distilled spirits, wines
or malt beverages sold in a single transaction'' be ``itemized
separately on the same invoice covering the sales transaction.''
Inventory systems commonly print invoices that sequence items
sold by their warehouse location. Alcohol beverages are routinely
stored separately from other items. It is not unusual for delivery
of non-alcoholic items to be made on separate days or by a separate,
but affiliated company having its own invoicing system. Furthermore,
some states forbid using the same invoice for alcohol beverages and
other items.
It should be sufficient to require that invoices for sales of
other items with alcohol beverages to a retailer be maintained in a
manner similar to invoices for alcohol beverages.
In response to these comments, ATF is removing the requirement for
showing alcoholic beverages and other merchandise on the same invoice.
Instead, the final rule will require that the sale price of each
commodity be on the records covering the transaction. ATF still
believes the change requested by DISCUS, from ``sold at its fair market
value'' to ``furnished, distributed or sold according to the custom and
practice of that business'' is not appropriate. The requested language
appears to sanction giving things of value (other merchandise) to
retailers, in direct conflict with the statute. Additionally, the
phrase ``custom and practice'' is vague and does not provide clarity to
the industry member relying on the regulations. Paragraph (b), which
DISCUS advocates removing, is also retained in the final rule.
Hinman & Carmichael expressed a different concern in their comment
on the proposed revision to Sec. 6.101:
Section 6.72 allows certain combination sales of alcoholic
brands or products, but Sec. 6.101 seems to take this away if the
producer is also a producer (as opposed to a vendor) of nonalcoholic
beverage products. A fairly common marketing situation in California
is the packaging of gift packs of wine and olive oil, or wine and
another commodity produced by the winery. In this situation, there
is no acquisition cost to report.
ATF has modified the wording of the section to make it clear that
the exception applies to industry members who are bona fide producers
or vendors of other merchandise, if the conditions are met. As stated
earlier, Sec. 6.72 only applies to ``products'' that are distilled
spirits, wine or malt beverages. In addition, in response to this
comment and a request by DISCUS, a cross reference to the exception for
combination packaging under Sec. 6.93 has been added. [[Page 20419]]
Section 6.102, Outside Signs
ATF proposed a new section allowing outside signs in certain
circumstances and with a $500 limit. A few commenters opposed any
change in ATF's treatment of outside signs, while others, while not
opposing the proposal, expressed concern that the proposed rule did not
contain adequate safeguards against abuse. These commenters recommended
including various conditions and limitations in proposed Sec. 6.102,
among them:
Requiring that the product or the industry member's name appear
on the sign for consistency with other exceptions under Subpart D;
Lowering the dollar limitation, though no specific amount was
proposed;
Clarifying whether the word ``furnished'' includes leasing;
Specifying frequency with which signs may be provided;
Stating whether industry members may pool this allowance to
provide a sign worth more than the dollar limitation and limiting
the number of brands which may appear on a sign;
Limiting the location of the sign to the wall or roof of a
building adjacent to or occupied by a retailer, or stating whether
retail premises include roofs and parking lots; and
Specifying whether the industry member may pay for installation,
repair and maintenance of the sign.
After a careful review of the comments, ATF has decided to adopt a
modified version of Sec. 6.102 which permits signs to be given or sold
on the following conditions:
(a) The sign must bear conspicuous and substantial advertising
matter about the product or the industry member which is permanently
inscribed or securely affixed,
(b) The retailer is not compensated, directly or indirectly such as
through a sign company, for displaying the signs, and
(c) The cost of the signs may not exceed $400.
These changes were made to take into account the concerns expressed
by the commenters and to make this section more consistent with the
rest of Subpart D. Interested parties may petition ATF in the future to
reconsider the conditions under which outside signs may be provided to
retailers.
27 CFR Part 8, Exclusive Outlet
New administrative provisions and definition changes were discussed
previously.
Section 8.23, Third Party Arrangements
The current regulation can be interpreted to mean that a violation
of the section could occur if a third party requires the retailer to
use an industry member's product without the knowledge of the industry
member. ATF proposed clarifying that the industry member's requirement,
by agreement or otherwise, with a third party is necessary to violate
this section. However, the requirement need not originate with the
industry member. If the industry member knows or is aware that the
third party controlling the retailer extends such a requirement with
respect to the products of the industry member making payments under
the arrangement, and the industry member avails itself of such
requirement, then the requirement within the proscription of the FAA
Act is present.
As discussed in relation to the comments on Sec. 6.42, ATF concurs
that the industry member must know or be able to expect that the
retailer will be controlled by the third party, in other words, that
the industry member will have ``the benefit of the deal.'' This is not
a new position; ATF published Industry Circular 75-16 to discuss this
interpretation of the exclusive outlet rules. The proposed language is
adopted in the final rule.
27 CFR Part 10, Commercial Bribery
New administrative provisions and definition changes were discussed
previously.
Section 10.4, Jurisdictional Limits
ATF proposed amending this section to correct the wording of
paragraph (a)(1), which appeared in error in ATF TD-74 on September 3,
1980 (45 FR 63242). There were no objections, and this proposal is
adopted in the final rule.
Section 10.23, Gifts or Payments to Wholesalers
While no specific change was proposed to this section, ATF asked
for comments as to whether the purpose of the section should be
clarified. ATF gave an example of a sales representative incentive
program which it views as an instance of commercial bribery since it
involves the furnishing of a premium or bonus to an employee of a trade
buyer: An industry member and a trade buyer meet to discuss, among
other things, upcoming programs to promote a particular product or
products. They agree that specific promotions will be run over a period
of time. Some of these agreed upon promotions include sales incentive
programs in which sales representatives can win money and/or prizes. At
the conclusion of the meeting, the parties agree or understand, or it
is implied, that all or part of the funding for these sales
representative incentive programs will come from monies that have been
or will be provided by the industry member, usually under the guise of
unrestricted funds.
Several commenters addressed this issue, and cited ATF Ruling 77-17
as allowing the sort of promotion described in the example above. ATF
disagrees with this interpretation of ATF Ruling 77-17, and notes that
ATF Ruling 77-17 became obsolete when the regulations in 27 CFR Part 10
were originally issued in 1980 (T.D. ATF-74 45 FR 63251). In situations
where the industry member and the trade buyer have agreed upon the
promotions benefiting employees and other representatives and such
promotions are funded by the industry member, it cannot be said that
the money is being furnished to the entity in any context other than as
a conduit for the employee or representative. No change was made to the
language of Sec. 10.23 in the final rule.
27 CFR Part 11, Consignment Sales
New administrative provisions and definition changes were discussed
previously.
Section 11.24, Other than Bona Fide Sale
Section 105(d) of the Act addresses ``consignment sales.'' Section
105(d) describes consignment sales to include conditional sales (i.e.,
where an industry member is not paid for products until they are sold
by a trade buyer); sales with a privilege of return (i.e., where an
industry member agrees to repurchase products that remain unsold by the
trade buyer at the end of a specified period of time); and other sales
on any basis otherwise than a bona fide sale.
Consignment sales are essentially arrangements pursuant to which
the risk, or cost, of non-sale of a product is retained by an industry
member, or transferred from a trade buyer back to an industry member at
the expiration of a specified time period. ATF proposed adding a new
Sec. 11.24 to the consignment sale regulations to specify certain other
arrangements, in addition to conditional sales and sales with a
privilege of return, in which the risk of non-sale is transferred from
the trade buyer back to the industry member and which therefore do not
constitute bona fide sales. The only example proposed was the payment
of ``slotting allowances,'' which were discussed at length earlier in
this supplemental information.
After a review of the comments, ATF has decided the proposed
language should be modified to include purchase [[Page 20420]] or
rental of display, storage, floor or warehouse space at premises owned
or controlled by a retailer. ATF substituted the term ``retailer'' for
``trade buyer'' in this provision to clarify its application.
Section 11.32, Defective Products
The current regulation specifically allows products which are
unmarketable for specific reasons to be exchanged for an equal quantity
of identical products, but is silent as to whether such products may be
returned for cash or credit. Industry Circular 81-11 states that a
return of such products for cash or credit is not precluded by
Sec. 11.32. ATF proposed changing this regulation to incorporate the
provisions of Industry Circular 81-11 into the section. The proposed
revision also deleted references to mutilated and missing strip stamps
since they are no longer a requirement. No objection to these changes
was received, however, DISCUS pointed out that allowing returns for
mutilated or missing tamper evident closures would ``clearly serve the
public interest.'' ATF concurs and has incorporated that language in
the final rule.
Section 11.34, Products Which May No Longer Be Lawfully Sold
ATF proposed revising the current regulation to allow the return of
a product if, due to a change in law or regulation over which the trade
buyer has no control, a particular size or brand is no longer permitted
to be sold. The addition of the phrase ``over which the trade buyer has
no control'' was intended to address situations in which the trade
buyer is a State agency with the authority to delist a particular
product.
The Forum comment said this section, as proposed, and the preamble
discussion were confusing. ATF intended to make it clear that by
administratively delisting a particular product, a State or a political
subdivision of a State acting as a trade buyer could not gain a right
of return that would not be available to a commercial trade buyer. On
review, ATF notes that a State legislature may have other, legitimate,
reasons for prohibiting sale of a particular product, so the wording of
the section has been changed from ``law or regulation'' to ``regulation
or administrative procedure.''
Section 11.35, Termination of Business
ATF is revising this section to cite Sec. 11.39 instead of the
incorrect Sec. 11.40 citation.
Obsolete Rulings and Circulars
The following revenue ruling, ATF rulings and industry circulars
are incorporated into the regulations or superseded by amended
regulations; they will become obsolete on the effective date of these
regulations: Revenue Ruling 54-162, 1954-1 C.B. 340; ATF Ruling 81-1,
1981-2 ATF Q.B. 27 and ATF Ruling 81-6, 1981-4 ATF Q.B. 23; Industry
Circulars 81-7, 81-11 and 86-16. ATF Ruling 77-17 was made obsolete by
T.D. ATF-74 (45 FR 63242), effective November 24, 1980, but a number of
commenters cited it in this rulemaking.
Executive Order 12866
It has been determined that this final rule is not a significant
regulatory action as defined by Executive Order 12866. Therefore, a
Regulatory Assessment is not required.
Regulatory Flexibility Act
It is hereby certified under the provisions of section 3 of the
Regulatory Flexibility Act (5 U.S.C. 605(b)) that this final rule will
not have a significant economic impact on a substantial number of small
entities. Accordingly, a regulatory flexibility analysis is not
required. In Notice No. 794, we specifically asked for comments as to
whether small businesses would be significantly affected by our
proposals. Wine Institute, the one commenter who addressed this issue,
stated that the rules, as proposed, would not have a significant impact
on a substantial number of small entities. A majority of the commenters
who wrote in support of our proposals concerning slotting fees said
that any change in our policy would have a significant adverse impact
on their small businesses. The final rule adopts the proposals in this
area, so there should be no adverse impact.
A final area of concern to commenters was ATF's proposal to raise
dollar limits on things of value which may be given to retailers under
Subpart D of Part 6. ATF proposed raising the limit on certain
promotional items from $160 to $500, and a number of commenters noted
this large an increase would place small and medium size businesses at
a competitive disadvantage. In view of these comments, ATF is adopting
a limit of $300, a more moderate increase over the existing dollar
limit.
Paperwork Reduction Act
The collection of information contained in this final rule has been
approved by the Office of Management and Budget for review in
accordance with the Paperwork Reduction Act of 1980 (44 U.S.C.
3504(h)). Comments on the collection of information should be directed
to the Office of Management and Budget, Attention: Desk Officer for the
Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms,
Office of Information and Regulatory Affairs, Washington, DC 20503,
with copies to: Reports Management Officer, Information Programs
Branch, Room 3450, Bureau of Alcohol, Tobacco and Firearms, 650
Massachusetts Avenue, NW, Washington, DC 20226.
The collection of information in this regulation is in 27 CFR Parts
6, 8, and 10. This information is required by ATF to protect the public
interest and ensure fair trade competition in the alcoholic beverage
industry. The information will be used to analyze promotional
activities as part of an investigation. The likely respondents are
industry members.
The authority to require reports which is stated in this final rule
is to be used on a case-by-case basis only, and does not apply to
industry members in general. The estimated number of respondents in any
given year is 20, with one report being required from each respondent.
The estimated average annual burden associated with this collection of
information is 1 hour per respondent.
Drafting Information
The principal author of this document is Marjorie Ruhf, Wine, Beer,
Spirits and Regulations Branch, Bureau of Alcohol, Tobacco and
Firearms. However, other personnel of ATF and the Treasury Department
participated in developing the document.
List of Subjects
27 CFR Part 6
Advertising, Alcohol and alcoholic beverages, Antitrust, Credit and
trade practices.
27 CFR Part 8
Alcohol and alcoholic beverages, Antitrust, and Trade practices.
27 CFR Part 10
Alcohol and alcoholic beverages, Antitrust, and Trade practices.
27 CFR Part 11
Alcohol and alcoholic beverages, Antitrust, and Trade practices.
Issuance
Title 27, Chapter I, is amended as follows:
PART 6--``TIED-HOUSE''
Paragraph 1. The authority citation for part 6 is revised to read
as follows:
[[Page 20421]] Authority: 15 U.S.C. 49-50; 27 U.S.C. 202 and
205; 44 U.S.C. 3504(h).
Par. 2. Section 6.1 is revised to read as follows:
Sec. 6.1 General.
The regulations in this part, issued pursuant to section 105 of the
Federal Alcohol Administration Act (27 U.S.C. 205), specify practices
that are means to induce under section 105(b) of the Act, criteria for
determining whether a practice is a violation of section 105(b) of the
Act, and exceptions to section 105(b) of the Act. This part does not
attempt to enumerate all of the practices that may result in a
violation of section 105(b) of the Act. Nothing in this part shall
operate to exempt any person from the requirements of any State law or
regulation.
Sec. 6.4 [Amended]
Par. 3. Section 6.4 is amended by removing the reference to
``section 5(b) of the Federal Alcohol Administration Act'' where it
appears in paragraph (b) and replacing it with a reference to ``section
105(b) of the Federal Alcohol Administration Act''.
Par. 4. Section 6.5 is added to subpart A to read as follows:
Sec. 6.5 Administrative provisions.
(a) General. The Act makes applicable the provisions including
penalties of sections 49 and 50 of Title 15, United States Code, to the
jurisdiction, powers and duties of the Director under this Act, and to
any person (whether or not a corporation) subject to the provisions of
law administered by the Director under this Act. The Act also provides
that the Director is authorized to require, in such manner and such
form as he or she shall prescribe, such reports as are necessary to
carry out the powers and duties under this chapter.
(b) Examination and Subpoena. The Director or any authorized ATF
officers shall at all reasonable times have access to, for the purpose
of examination, and the right to copy any documentary evidence of any
person, partnership, or corporation being investigated or proceeded
against. The Director shall also have the power to require by subpoena
the attendance and testimony of witnesses and the production of all
such documentary evidence relating to any matter under investigation,
upon a satisfactory showing that the requested evidence may reasonably
be expected to yield information relevant to any matter being
investigated under the Act.
(c) Reports required by the Deputy Associate Director (Regulatory
Enforcement Programs).
(1) General. The Deputy Associate Director (Regulatory Enforcement
Programs) may, as part of a trade practice investigation of an industry
member, require such industry member to submit a written report
containing information on sponsorships, advertisements, promotions, and
other activities pertaining to its business subject to the Act
conducted by, or on behalf of, or benefiting the industry member.
(2) Preparation. The report will be prepared by the industry member
in letter form, executed under the penalties of perjury, and will
contain the information specified by the Deputy Associate Director
(Regulatory Enforcement Programs). The period covered by the report
will not exceed three years.
(3) Filing. The report will be filed in accordance with the
instructions of the Deputy Associate Director (Regulatory Enforcement
Programs).
(Approved by the Office of Management and Budget under control
number 1512-0392)
Par. 5. Section 6.11 is amended by adding the definitions for ``ATF
officer,'' ``brand,'' ``Deputy Associate Director (Regulatory
Enforcement Programs)'' and ``Director'' and by removing the term
``retailer establishment'' and adding in its place ``retail
establishment'' and placing it in appropriate alphabetical order.
Sec. 6.11 Meaning of terms.
* * * * *
ATF officer. An officer or employee of the Bureau of Alcohol,
Tobacco and Firearms (ATF) authorized to perform any function relating
to the administration or enforcement of this part Brand. For purposes
of administering this part, the term ``brand'' refers to differences in
the brand name of a product or in the nature of a product. Examples of
different brands are products having a different brand name or class,
type, or kind designation; appellation of origin (wine); vintage date
(wine); age (distilled spirits); or percentage of alcohol. Differences
in packaging such as difference in label design or color, or a
different style, type or size of container are not considered different
brands.
Deputy Associate Director (Regulatory Enforcement Programs). The
principal ATF headquarters official responsible for administering
regulations in this part. Director. The Director, Bureau of Alcohol,
Tobacco and Firearms, the Department of the Treasury, Washington, DC.
* * * * *
Par. 6. Section 6.25 is revised to read as follows:
Sec. 6.25 General.
The act by an industry member of acquiring or holding any interest
in any license (State, county or municipal) with respect to the
premises of a retailer constitutes a means to induce within the meaning
of the Act.
Par. 7. Section 6.27 is amended by revising paragraph (a) to read
as follows:
Sec. 6.27 Proprietary interest.
(a) Complete ownership. Outright ownership of a retail business by
an industry member is not an interest which may result in a violation
of section 105(b)(1) of the Act.
* * * * *
Par. 8. Section 6.31 is revised to read as follows:
Sec. 6.31 General.
The act by an industry member of acquiring an interest in real or
personal property owned, occupied, or used by the retailer in the
conduct of business constitutes a means to induce within the meaning of
the Act.
Par. 9. Section 6.33 is amended by revising paragraph (a) to read
as follows:
Sec. 6.33 Proprietary interest.
(a) Complete ownership. Outright ownership of a retail business by
an industry member is not an interest that may result in a violation of
section 105(b)(2) of the Act.
* * * * *
Par. 10. Section 6.41 is revised to read as follows:
Sec. 6.41 General.
Subject to the exceptions listed in Subpart D, the act by an
industry member of furnishing, giving, renting, lending, or selling any
equipment, fixtures, signs, supplies, money, services, or other things
of value to a retailer constitutes a means to induce within the meaning
of the Act.
Par. 11. Section 6.42 is revised to read as follows:
Sec. 6.42 Indirect inducement through third party arrangements.
(a) General. The furnishing, giving, renting, lending, or selling
of equipment, fixtures, signs, supplies, money, services, or other
thing of value by an industry member to a third party, where the
benefits resulting from such things of value flow to individual
retailers, is the indirect furnishing of a thing of value within the
meaning of the Act. Indirect furnishing of a thing of value includes,
but is not limited to, making payments for advertising to a retailer
association or a display [[Page 20422]]
company where the resulting benefits flow to individual retailers.
(b) Exceptions. An indirect inducement will not arise where the
thing of value was furnished to a retailer by the third party without
the knowledge or intent of the industry member, or the industry member
did not reasonably foresee that the thing of value would have been
furnished to a retailer. Things which may lawfully be furnished, given,
rented, lent, or sold by industry members to retailers under subpart D
may also be furnished directly by a third party to a retailer.
Sec. 6.43 [Amended]
Par. 12. Section 6.43 is amended by removing the reference
``Secs. 6.88 and 6.89,'' where it appears in the first sentence and
replacing it with ``Sec. 6.88,''.
Secs. 6.46 and 6.47 [Removed and reserved]
Par. 13. Sections 6.46 and 6.47 are removed and reserved.
Par. 14. Section 6.51 is revised to read as follows:
Sec. 6.51 General.
The act by an industry member of paying or crediting a retailer for
any advertising, display, or distribution service constitutes a means
to induce within the meaning of the Act, whether or not the
advertising, display, or distribution service received by the industry
member in these instances is commensurate with the amount paid
therefor. This includes payments or credits to retailers that are
merely reimbursements, in full or in part, for such services purchased
by a retailer from a third party.
Par. 15. Section 6.61 is revised to read as follows:
Sec. 6.61 Guaranteeing loans.
The act by an industry member of guaranteeing any loan or the
repayment of any financial obligation of a retailer constitutes a means
to induce within the meaning of the Act.
Par. 16. Section 6.65 is revised to read as follows:
Sec. 6.65 General.
Extension of credit by an industry member to a retailer for a
period of time in excess of 30 days from the date of delivery
constitutes a means to induce within the meaning of the Act.
Par. 17. The text of Sec. 6.67 is added to read as follows:
Sec. 6.67 Sales to retailer whose account is in arrears.
An extension of credit (for product purchases) by an industry
member to a retailer whose account is in arrears does not constitute a
means to induce within the meaning of the Act so long as such retailer
pays in advance or on delivery an amount equal to or greater than the
value of each order, regardless of the manner in which the industry
member applies the payment in its records.
Par. 18. Section 6.71 is revised to read as follows:
Sec. 6.71 Quota sales.
The act by an industry member of requiring a retailer to take and
dispose of any quota of distilled spirits, wine, or malt beverages
constitutes a means to induce within the meaning of the Act.
Par. 19. Section 6.72 is revised to read as follows:
Sec. 6.72 ``Tie-in'' sales.
The act by an industry member of requiring that a retailer purchase
one product (as defined in Sec. 6.11) in order to obtain another
constitutes a means to induce within the meaning of the Act. This
includes the requirement to take a minimum quantity of a product in
standard packaging in order to obtain the same product in some type of
premium package, i.e., a distinctive decanter, or wooden or tin box.
This also includes combination sales if one or more products may be
purchased only in combination with other products and not individually.
However, an industry member is not precluded from selling two or more
kinds or brands of products to a retailer at a special combination
price, provided the retailer has the option of purchasing either
product at the usual price, and the retailer is not required to
purchase any product it does not want. See Sec. 6.93 for combination
packaging of products plus non-alcoholic items.
Par. 20. Section 6.81 is revised to read as follows:
Sec. 6.81 General.
(a) Application. Section 105(b)(3) of the Act enumerates means to
induce that may be unlawful under the subsection, subject to such
exceptions as are prescribed in regulations, having due regard for
public health, the quantity and value of articles involved, established
trade customs not contrary to the public interest, and the purposes of
that section. This subpart implements section 105(b)(3) of the Act and
identifies the practices that are exceptions to section 105(b)(3) of
the Act. An industry member may furnish a retailer equipment, inside
signs, supplies, services, or other things of value, under the
conditions and within the limitations prescribed in this subpart.
(b) Recordkeeping Requirements.
(1) Industry members shall keep and maintain records on the permit
or brewery premises, for a three year period, of all items furnished to
retailers under Secs. 6.83, 6.88, 6.91, 6.96(a), and 6.100 and the
commercial records required under Sec. 6.101. Commercial records or
invoices may be used to satisfy this recordkeeping requirement if all
required information is shown. These records shall show:
(i) The name and address of the retailer receiving the item;
(ii) The date furnished;
(iii) The item furnished;
(iv) The industry member's cost of the item furnished (determined
by the manufacturer's invoice price); and
(v) Charges to the retailer for any item.
(2) Although no separate recordkeeping violation results, an
industry member who fails to keep such records is not eligible for the
exception claimed.
(Approved by the Office of Management and Budget under control
number 1512-0392)
Sec. 6.82 [Removed and Reserved]
Par. 21. Section 6.82 is removed and reserved.
Par. 22. Section 6.83 is revised to read as follows:
Sec. 6.83 Product displays.
(a) General. The act by an industry member of giving or selling
product displays to a retailer does not constitute a means to induce
within the meaning of section 105(b)(3) of the Act provided that the
conditions prescribed in paragraph (c) of this section are met.
(b) Definition. ``Product display'' means any wine racks, bins,
barrels, casks, shelving, or similar items the primary function of
which is to hold and display consumer products.
(c) Conditions and limitations.
(1) The total value of all product displays given or sold by an
industry member under paragraph (a) of this section may not exceed $300
per brand at any one time in any one retail establishment. Industry
members may not pool or combine dollar limitations in order to provide
a retailer a product display valued in excess of $300 per brand. The
value of a product display is the actual cost to the industry member
who initially purchased it. Transportation and installation costs are
excluded.
(2) All product displays must bear conspicuous and substantial
advertising matter on the product or the industry member which is
permanently inscribed or securely affixed. The name and address of the
retailer may appear on the product displays.
(3) The giving or selling of such product displays may be
conditioned upon the purchase of the distilled [[Page 20423]] spirits,
wine, or malt beverages advertised on those displays in a quantity
necessary for the initial completion of such display. No other
condition can be imposed by the industry member on the retailer in
order for the retailer to receive or obtain the product display.
Par. 23. Section 6.84 is revised to read as follows:
Sec. 6.84 Point of sale advertising materials and consumer advertising
specialties.
(a) General. The act by an industry member of giving or selling
point of sale advertising materials and consumer advertising
specialties to a retailer does not constitute a means to induce within
the meaning of section 105(b)(3) of the Act provided that the
conditions prescribed in paragraph (c) of this section are met.
(b) Definitions.
(1) Point of sale advertising materials are items designed to be
used within a retail establishment to attract consumer attention to the
products of the industry member. Such materials include, but are not
limited to: posters, placards, designs, inside signs (electric,
mechanical or otherwise), window decorations, trays, coasters, mats,
menu cards, meal checks, paper napkins, foam scrapers, back bar mats,
thermometers, clocks, calendars, and alcoholic beverage lists or menus.
(2) Consumer advertising specialties are items that are designed to
be carried away by the consumer, such as trading stamps, nonalcoholic
mixers, pouring racks, ash trays, bottle or can openers, cork screws,
shopping bags, matches, printed recipes, pamphlets, cards, leaflets,
blotters, post cards, pencils, shirts, caps, and visors.
(c) Conditions and limitations.
(1) All point of sale advertising materials and consumer
advertising specialties must bear conspicuous and substantial
advertising matter about the product or the industry member which is
permanently inscribed or securely affixed. The name and address of the
retailer may appear on the point of sale advertising materials.
(2) The industry member may not directly or indirectly pay or
credit the retailer for using or distributing these materials or for
any expense incidental to their use.
Par. 24. Section 6.85 is revised to read as follows:
Sec. 6.85 Temporary retailers.
(a) General. The furnishing of things of value to a temporary
retailer does not constitute a means to induce within the meaning of
section 105(b)(3) of the Act.
(b) Definition. For purposes of administering this part, a
temporary retailer is a dealer who is not engaged in business as a
retailer for more than four consecutive days per event, and for not
more than five events in a calendar year.
Secs. 6.86 and 6.87 [Removed and reserved]
Par. 25. Sections 6.86 and 6.87 are removed and reserved.
Par. 26. Section 6.88 is revised to read as follows:
Sec. 6.88 Equipment and supplies.
(a) General. The act by an industry member of selling equipment or
supplies to a retailer does not constitute a means to induce within the
meaning of section 105(b)(3) of the Act if the equipment or supplies
are sold at a price not less than the cost to the industry member who
initially purchased them, and if the price is collected within 30 days
of the date of the sale. The act by an industry member of installing
dispensing accessories at the retailer's establishment does not
constitute a means to induce within the meaning of the Act as long as
the retailer bears the cost of initial installation. The act by an
industry member of furnishing, giving, or selling coil cleaning service
to a retailer of distilled spirits, wine, or malt beverages does not
constitute a means to induce within the meaning of section 105(b)(3) of
the Act.
(b) Definition. ``Equipment and supplies'' means glassware (or
similar containers made of other material), dispensing accessories,
carbon dioxide (and other gasses used in dispensing equipment) or ice.
``Dispensing accessories'' include items such as standards, faucets,
cold plates, rods, vents, taps, tap standards, hoses, washers,
couplings, gas gauges, vent tongues, shanks, and check valves.
Secs. 6.89 and 6.90 [Removed and reserved]
Par. 27. Sections 6.89 and 6.90 are removed and reserved.
Par. 28. Section 6.91 is revised to read as follows:
Sec. 6.91 Samples.
The act by an industry member of furnishing or giving a sample of
distilled spirits, wine, or malt beverages to a retailer who has not
purchased the brand from that industry member within the last 12 months
does not constitute a means to induce within the meaning of section
105(b)(3) of the Act. For each retail establishment the industry member
may give not more than 3 gallons of any brand of malt beverage, not
more than 3 liters of any brand of wine, and not more than 3 liters of
distilled spirits. If a particular product is not available in a size
within the quantity limitations of this section, an industry member may
furnish to a retailer the next larger size.
Par. 29. Section 6.92 is revised to read as follows:
Sec. 6.92 Newspaper cuts.
Newspaper cuts, mats, or engraved blocks for use in retailers'
advertisements may be given or sold by an industry member to a retailer
selling the industry member's products.
Par. 30. Section 6.93 is revised to read as follows:
Sec. 6.93 Combination packaging.
The act by an industry member of packaging and distributing
distilled spirits, wine, or malt beverages in combination with other
(non-alcoholic) items for sale to consumers does not constitute a means
to induce within the meaning of section 105(b)(3) of the Act.
Par. 31. Section 6.94 is amended by adding the phrase ``(such as
travel and lodging)'' before the period in the final sentence of the
section, and by adding a new sentence at the end of the section to read
as follows:
Sec. 6.94 Educational seminars.
* * * This does not preclude providing nominal hospitality during
the event.
* * * * *
Par. 32. Section 6.96 is amended by revising paragraph (a) to read
as follows:
Sec. 6.96 Consumer promotions.
(a) Coupons. The act by an industry member of furnishing to
consumers coupons which are redeemable at a retail establishment does
not constitute a means to induce within the meaning of section
105(b)(3) of the Act, provided the following conditions are met:
(1) All retailers within the market where the coupon offer is made
may redeem such coupons; and
(2) An industry member may not reimburse a retailer for more than
the face value of all coupons redeemed, plus a usual and customary
handling fee for the redemption of coupons.
* * * * *
Sec. 6.97 [Removed and reserved]
Par. 33. Section 6.97 is removed and reserved.
Par. 34. Section 6.98 is revised to read as follows:
Sec. 6.98 Advertising service.
The listing of the names and addresses of two or more unaffiliated
retailers selling the products of an industry member in an
advertisement of that industry member does not
[[Page 20424]] constitute a means to induce within the meaning of
section 105(b)(3) of the Act, provided:
(a) The advertisement does not also contain the retail price of the
product (except where the exclusive retailer in the jurisdiction is a
State or a political subdivision of a State), and
(b) The listing is the only reference to the retailers in the
advertisement and is relatively inconspicuous in relation to the
advertisement as a whole, and
(c) The advertisement does not refer only to one retailer or only
to retail establishments controlled directly or indirectly by the same
retailer, except where the retailer is an agency of a State or a
political subdivision of a State.
Par. 35. Section 6.99 is revised to read as follows:
Sec. 6.99 Stocking, rotation, and pricing service.
(a) General. Industry members may, at a retail establishment,
stock, rotate and affix the price to distilled spirits, wine, or malt
beverages which they sell, provided products of other industry members
are not altered or disturbed. The rearranging or resetting of all or
part of a store or liquor department is not hereby authorized.
(b) Shelf plan and shelf schematics. The act by an industry member
of providing a recommended shelf plan or shelf schematic for distilled
spirits, wine, or malt beverages does not constitute a means to induce
within the meaning of section 105(b)(3) of the Act.
Par. 36. Section 6.100 is revised to read as follows:
Sec. 6.100 Participation in retailer association activities.
The following acts by an industry member participating in retailer
association activities do not constitute a means to induce within the
meaning of section 105(b)(3) of the Act:
(a) Displaying its products at a convention or trade show;
(b) Renting display booth space if the rental fee is the same as
paid by all exhibitors at the event;
(c) Providing its own hospitality which is independent from
association sponsored activities;
(d) Purchasing tickets to functions and paying registration fees if
the payments or fees are the same as paid by all attendees,
participants or exhibitors at the event; and
(e) Making payments for advertisements in programs or brochures
issued by retailer associations at a convention or trade show if the
total payments made by an industry member for all such advertisements
do not exceed $300 per year for any retailer association.
Par. 37. Section 6.101 is revised to read as follows:
Sec. 6.101 Merchandise.
(a) General. The act by an industry member, who is also in business
as a bona fide producer or vendor of other merchandise (for example,
groceries or pharmaceuticals), of selling that merchandise to a
retailer does not constitute a means to induce within the meaning of
section 105(b)(3) of the Act, provided:
(1) The merchandise is sold at its fair market value;
(2) The merchandise is not sold in combination with distilled
spirits, wines, or malt beverages (except as provided in Sec. 6.93);
(3) The industry member's acquisition or production costs of the
merchandise appears on the industry member's purchase invoices or other
records; and
(4) The individual selling prices of merchandise and distilled
spirits, wines, or malt beverages sold in a single transaction can be
determined from commercial documents covering the sales transaction.
(b) Things of value covered in other sections of this part. The act
by an industry member of providing equipment, fixtures, signs,
glassware, supplies, services, and advertising specialties to retailers
does not constitute a means to induce within the meaning of section
105(b)(3) of the Act only as provided in other sections within this
part.
Par. 37a. Section 6.102 is added to read as follows:
Sec. 6.102 Outside signs.
The act by an industry member of giving or selling outside signs to
a retailer does not constitute a means to induce within the meaning of
section 105(b)(3) of the Act provided that:
(a) The sign must bear conspicuous and substantial advertising
matter about the product or the industry member which is permanently
inscribed or securely affixed;
(b) The retailer is not compensated, directly or indirectly such as
through a sign company, for displaying the signs; and
(c) The cost of the signs may not exceed $400.
Par. 38. Part 6 is amended by adding a new subpart E to read as
follows:
Subpart E--Exclusion
Sec.
6.151 Exclusion, in general.
6.152 Practices which put retailer independence at risk.
6.153 Criteria for determining retailer independence.
Subpart E--Exclusion
Sec. 6.151 Exclusion, in general.
(a) Exclusion, in whole or in part occurs:
(1) When a practice by an industry member, whether direct,
indirect, or through an affiliate, places (or has the potential to
place) retailer independence at risk by means of a tie or link between
the industry member and retailer or by any other means of industry
member control over the retailer; and
(2) Such practice results in the retailer purchasing less than it
would have of a competitor's product.
(b) Section 6.152 lists practices that create a tie or link that
places retailer independence at risk. Section 6.153 lists the criteria
used for determining whether other practices can put retailer
independence at risk.
Sec. 6.152 Practices which put retailer independence at risk.
The practices specified in this section put retailer independence
at risk. The practices specified here are examples and do not
constitute a complete list of those practices that put retailer
independence at risk.
(a) The act by an industry member of resetting stock on a
retailer's premises (other than stock offered for sale by the industry
member).
(b) The act by an industry member of purchasing or renting display,
shelf, storage or warehouse space (i.e. slotting allowance).
(c) Ownership by an industry member of less than a 100 percent
interest in a retailer, where such ownership is used to influence the
purchases of the retailer.
(d) The act by an industry member of requiring a retailer to
purchase one alcoholic beverage product in order to be allowed to
purchase another alcoholic beverage product at the same time.
Sec. 6.153 Criteria for determining retailer independence.
The criteria specified in this section are indications that a
particular practice, other than those in Sec. 6.152, places retailer
independence at risk. A practice need not meet all of the criteria
specified in this section in order to place retailer independence at
risk.
(a) The practice restricts or hampers the free economic choice of a
retailer to decide which products to purchase or the quantity in which
to purchase them for sale to consumers.
(b) The industry member obligates the retailer to participate in
the promotion to obtain the industry member's product. [[Page 20425]]
(c) The retailer has a continuing obligation to purchase or
otherwise promote the industry member's product.
(d) The retailer has a commitment not to terminate its relationship
with the industry member with respect to purchase of the industry
member's products.
(e) The practice involves the industry member in the day-to-day
operations of the retailer. For example, the industry member controls
the retailer's decisions on which brand of products to purchase, the
pricing of products, or the manner in which the products will be
displayed on the retailer's premises.
(f) The practice is discriminatory in that it is not offered to all
retailers in the local market on the same terms without business
reasons present to justify the difference in treatment.
PART 8--EXCLUSIVE OUTLETS
Par. 39. The authority citation for part 8 is revised to read as
follows:
Authority: 15 U.S.C. 49-50; 27 U.S.C. 202 and 205; 44 U.S.C.
3504(h).
Par. 40. Section 8.1 is revised to read as follows:
Sec. 8.1 General.
The regulations in this part, issued pursuant to section 105 of the
Federal Alcohol Administration Act (27 U.S.C. 205), specify
arrangements which are exclusive outlets under section 105(a) of the
Act and criteria for determining whether a practice is a violation of
section 105(a) of the Act. This part does not attempt to enumerate all
of the practices prohibited by section 105(a) of the Act. Nothing in
this part shall operate to exempt any person from the requirements of
any State law or regulation.
Par. 41. Section 8.5 is added to subpart A to read as follows:
Sec. 8.5 Administrative provisions.
(a) General. The Act makes applicable the provisions including
penalties of sections 49 and 50 of Title 15, United States Code, to the
jurisdiction, powers and duties of the Director under this Act, and to
any person (whether or not a corporation) subject to the provisions of
law administered by the Director under this Act. The Act also provides
that the Director is authorized to require, in such manner and such
form as he or she shall prescribe, such reports as are necessary to
carry out the powers and duties under this chapter.
(b) Examination and Subpoena. The Director or any authorized ATF
officers shall at all reasonable times have access to, for the purpose
of examination, and the right to copy any documentary evidence of any
person, partnership, or corporation being investigated or proceeded
against. The Director shall also have the power to require by subpoena
the attendance and testimony of witnesses and the production of all
such documentary evidence relating to any matter under investigation,
upon a satisfactory showing that the requested evidence may reasonably
be expected to yield information relevant to any matter being
investigated under the Act.
(c) Reports required by the Deputy Associate Director (Regulatory
Enforcement Programs).
(1) General. The Deputy Associate Director (Regulatory Enforcement
Programs) may, as part of a trade practice investigation of an industry
member, require such industry member to submit a written report
containing information on sponsorships, advertisements, promotions, and
other activities pertaining to its business subject to the Act
conducted by, or on behalf of, or benefiting the industry member.
(2) Preparation. The report will be prepared by the industry member
in letter form, executed under the penalties of perjury, and will
contain the information specified by the Deputy Associate Director
(Regulatory Enforcement Programs). The period covered by the report
will not exceed three years.
(3) Filing. The report will be filed in accordance with the
instructions of the Deputy Associate Director (Regulatory Enforcement
Programs).
(Approved by the Office of Management and Budget under control
number 1512-0392)
Par. 42. Section 8.11 is amended by removing the definition for the
term ``retail establishment'' and by adding definitions for ``ATF
officer,'' ``Deputy Associate Director (Regulatory Enforcement
Programs)'' and ``Director'' as follows:
Sec. 8.11 Meaning of terms.
* * * * *
ATF officer. An officer or employee of the Bureau of Alcohol,
Tobacco and Firearms (ATF) authorized to perform any function relating
to the administration or enforcement of this part.
Deputy Associate Director (Regulatory Enforcement Programs). The
principal ATF headquarters official responsible for administering
regulations in this part.
Director. The Director, Bureau of Alcohol, Tobacco and Firearms,
the Department of the Treasury, Washington, DC.
* * * * *
Par. 43. Section 8.23 is revised to read as follows:
Sec. 8.23 Third party arrangements.
Industry member requirements, by agreement or otherwise, with non-
retailers which result in a retailer being required to purchase the
industry member's products are within the exclusive outlet provisions.
These industry member requirements are covered whether the agreement or
other arrangement originates with the industry member or the third
party. For example, a supplier enters into a contractual agreement or
other arrangement with a third party. This agreement or arrangement
contains an industry member requirement as described above. The third
party, a ballclub, or municipal or private corporation, not acting as a
retailer, leases the concession rights and is able to control the
purchasing decisions of the retailer. The third party, as a result of
the requirement, by agreement or otherwise, with the industry member,
requires the retailer to purchase the industry member's products to the
exclusion, in whole or in part, of products sold or offered for sale by
other persons in interstate or foreign commerce. The business
arrangements entered into by the industry member and the third party
may consist of such things as sponsoring radio or television
broadcasting, paying for advertising, or providing other services or
things of value.
Par. 44. Part 8 is amended by adding a new subpart D to read as
follows:
Subpart D--Exclusion
Sec.
8.51 Exclusion, in general.
8.52 Practices which result in exclusion.
8.53 Practice not resulting in exclusion.
8.54 Criteria for determining retailer independence.
Subpart D--Exclusion
Sec. 8.51 Exclusion, in general.
(a) Exclusion, in whole or in part occurs:
(1) When a practice by an industry member, whether direct,
indirect, or through an affiliate, places (or has the potential to
place) retailer independence at risk by means of a tie or link between
the industry member and retailer or by any other means of industry
member control over the retailer, and
(2) Such practice results in the retailer purchasing less than it
would have of a competitor's product.
(b) Section 8.52 lists practices that result in exclusion. Section
8.53 lists practices not resulting in exclusion. Section 8.54 lists the
criteria used for [[Page 20426]] determining whether other practices
can put retailer independence at risk.
Sec. 8.52 Practices which result in exclusion.
The practices specified in this section result in exclusion under
section 105(a) of the Act. The practices specified here are examples
and do not constitute a complete list of such practices:
(a) Purchases of distilled spirits, wine or malt beverages by a
retailer as a result, directly or indirectly, of a threat or act of
physical or economic harm by the selling industry member.
(b) Contracts between an industry member and a retailer which
require the retailer to purchase distilled spirits, wine, or malt
beverages from that industry member and expressly restrict the retailer
from purchasing, in whole or in part, such products from another
industry member.
Sec. 8.53 Practice not resulting in exclusion.
The practice specified in this section is deemed not to result in
exclusion under section 105(a) of the Act: a supply contract for one
year or less between the industry member and retailer under which the
industry member agrees to sell distilled spirits, wine, or malt
beverages to the retailer on an ``as needed'' basis provided that the
retailer is not required to purchase any minimum quantity of such
product.
Sec. 8.54 Criteria for determining retailer independence.
The criteria specified in this section are indications that a
particular practice, other than those in Secs. 8.52 and 8.53, places
retailer independence at risk. A practice need not meet all of the
criteria specified in this section in order to place retailer
independence at risk.
(a) The practice restricts or hampers the free economic choice of a
retailer to decide which products to purchase or the quantity in which
to purchase them for sale to consumers.
(b) The industry member obligates the retailer to participate in
the promotion to obtain the industry member's product.
(c) The retailer has a continuing obligation to purchase or
otherwise promote the industry member's product.
(d) The retailer has a commitment not to terminate its relationship
with the industry member with respect to purchase of the industry
member's products.
(e) The practice involves the industry member in the day-to-day
operations of the retailer. For example, the industry member controls
the retailer's decisions on which brand of products to purchase, the
pricing of products, or the manner in which the products will be
displayed on the retailer's premises.
(f) The practice is discriminatory in that it is not offered to all
retailers in the local market on the same terms without business
reasons present to justify the difference in treatment.
PART 10--COMMERCIAL BRIBERY
Par. 45. The authority citation for part 10 is revised to read as
follows:
Authority: 15 U.S.C. 49-50; 27 U.S.C. 202 and 205; 44 U.S.C.
3504(h).
Par. 46. Section 10.1 is revised to read as follows:
Sec. 10.1 General.
The regulations in this part, issued pursuant to section 105 of the
Federal Alcohol Administration Act (27 U.S.C. 205), specify practices
which may result in violations of section 105(c) of the Act and
criteria for determining whether a practice is a violation of section
105(c) of the Act. This part does not attempt to enumerate all of the
practices prohibited by section 105(c) of the Act. Nothing in this part
shall operate to exempt any person from the requirements of any State
law or regulation.
Par. 52. Section 10.4 is amended by revising paragraph (a)(1) to
read as follows:
Sec. 10.4 Jurisdictional limits.
(a) General. * * *
(1) The industry member induces a trade buyer to purchase distilled
spirits, wine, or malt beverages from such industry member to the
exclusion, in whole or in part, of products sold or offered for sale by
other persons in interstate or foreign commerce; and
Par. 47. Section 10.5 is added to subpart A to read as follows:
Sec. 10.5 Administrative provisions.
(a) General. The Act makes applicable the provisions including
penalties of sections 49 and 50 of Title 15, United States Code, to the
jurisdiction, powers and duties of the Director under this Act, and to
any person (whether or not a corporation) subject to the provisions of
law administered by the Director under this Act. The Act also provides
that the Director is authorized to require, in such manner and such
form as he or she shall prescribe, such reports as are necessary to
carry out the powers and duties under this chapter.
(b) Examination and subpoena. The Director or any authorized ATF
officers shall at all reasonable times have access to, for the purpose
of examination, and the right to copy any documentary evidence of any
person, partnership, or corporation being investigated or proceeded
against. The Director shall also have the power to require by subpoena
the attendance and testimony of witnesses and the production of all
such documentary evidence relating to any matter under investigation,
upon a satisfactory showing that the requested evidence may reasonably
be expected to yield information relevant to any matter being
investigated under the Act.
(c) Reports required by the Deputy Associate Director (Regulatory
Enforcement Programs).
(1) General. The Deputy Associate Director (Regulatory Enforcement
Programs) may, as part of a trade practice investigation of an industry
member, require such industry member to submit a written report
containing information on sponsorships, advertisements, promotions, and
other activities pertaining to its business subject to the Act
conducted by, or on behalf of, or benefiting the industry member.
(2) Preparation. The report will be prepared by the industry member
in letter form, executed under the penalties of perjury, and will
contain the information specified by the Deputy Associate Director
(Regulatory Enforcement Programs). The period covered by the report
will not exceed three years.
(3) Filing. The report will be filed in accordance with the
instructions of the Deputy Associate Director (Regulatory Enforcement
Programs).
(Approved by the Office of Management and Budget under control
number 1512-0392)
Par. 48. Section 10.11 is amended by adding definitions for ``ATF
officer,'' ``Deputy Associate Director (Regulatory Enforcement
Programs),'' and ``Director'' as follows:
Sec. 10.11 Meaning of terms.
* * * * *
ATF officer. An officer or employee of the Bureau of Alcohol,
Tobacco and Firearms (ATF) authorized to perform any function relating
to the administration or enforcement of this part.
Deputy Associate Director (Regulatory Enforcement Programs). The
principal ATF headquarters official responsible for administering
regulations in this part.
Director. The Director, Bureau of Alcohol, Tobacco and Firearms,
the Department of the Treasury, Washington, DC.
* * * * *
Par. 49. Part 10 is amended by adding a new subpart D to read as
follows: [[Page 20427]]
Subpart D--Exclusion
Sec.
10.51 Exclusion, in general.
10.52 Practice which puts trade buyer independence at risk.
10.53 Practices not resulting in exclusion.
[Reserved]
10.54 Criteria for determining trade buyer independence.
Subpart D--Exclusion
Sec. 10.51 Exclusion, in general.
(a) Exclusion, in whole or in part occurs:
(1) When a practice by an industry member, whether direct,
indirect, or through an affiliate, places (or has the potential to
place) trade buyer independence at risk by means of a tie or link
between the industry member and trade buyer or by any other means of
industry member control over the trade buyer, and
(2) Such practice results in the trade buyer purchasing less than
it would have of a competitor's product.
(b) Section 10.52 lists practices that create a tie or link that
places trade buyer independence at risk. Section 10.53 is reserved and
will list practices not resulting in exclusion. Section 10.54 lists the
criteria used for determining whether other practices can put trade
buyer independence at risk.
Sec. 10.52 Practice which puts trade buyer independence at risk.
The practice specified in this section is deemed to place trade
buyer independence at risk within the description of exclusion in
Sec. 10.51: Industry member payments of money to the employee(s) of a
trade buyer without the knowledge or consent of the trade buyer-
employer in return for the employee agreeing to order distilled
spirits, wine, or malt beverages from the industry member. The practice
enumerated here is an example and does not constitute a complete list
of those situations which result in such control.
Sec. 10.53 Practices not resulting in exclusion. [Reserved]
Sec. 10.54 Criteria for determining trade buyer independence.
The criteria specified in this section are indications that a
particular practice between an industry member and an officer,
employee, or representative of a trade buyer, other than those in
Sec. 10.52, places trade buyer independence at risk. A practice need
not meet all of the criteria specified in this section in order to
place trade buyer independence at risk.
(a) The practice restricts or hampers the free economic choice of a
trade buyer to decide which products to purchase or the quantity in
which to purchase them for sale to retailers and consumers.
(b) The industry member obligates the trade buyer to participate in
the promotion to obtain the industry member's product.
(c) The trade buyer has a continuing obligation to purchase or
otherwise promote the industry member's product.
(d) The trade buyer has a commitment not to terminate its
relationship with the industry member with respect to purchase of the
industry member's products.
(e) The practice involves the industry member in the day-to-day
operations of the trade buyer. For example, the industry member
controls the trade buyer's decisions on which brand of products to
purchase, the pricing of products, or the manner in which the products
will be displayed on the trade buyer's premises.
(f) The practice is discriminatory in that it is not offered to all
trade buyers in the local market on the same terms without business
reasons present to justify the difference in treatment.
PART 11--CONSIGNMENT SALES
Par. 50. The authority citation for 27 CFR Part 11 is revised to
read as follows:
Authority: 15 U.S.C. 49-50; 27 U.S.C. 202 and 205.
Par. 51. Section 11.1 is revised to read as follows:
Sec. 11.1 General.
The regulations in this part, issued pursuant to section 105 of the
Federal Alcohol Administration Act (27 U.S.C. 205), specify
arrangements which are consignment sales under section 105(d) of the
Act and contain guidelines concerning return of distilled spirits, wine
and malt beverages from a trade buyer. This part does not attempt to
enumerate all of the practices prohibited by section 105(d) of the Act.
Nothing in this part shall operate to exempt any person from the
requirements of any State law or regulation.
Par. 52. Section 11.5 is added to subpart A to read as follows:
Sec. 11.5 Administrative provisions.
(a) General. The Act makes applicable the provisions including
penalties of sections 49 and 50 of Title 15, United States Code, to the
jurisdiction, powers and duties of the Director under this Act, and to
any person (whether or not a corporation) subject to the provisions of
law administered by the Director under this Act.
(b) Examination and subpoena. The Director or any authorized ATF
officers shall at all reasonable times have access to, for the purpose
of examination, and the right to copy any documentary evidence of any
person, partnership, or corporation being investigated or proceeded
against; and the Director shall have the power to require by subpoena
the attendance and testimony of witnesses and the production of all
such documentary evidence relating to any matter under investigation,
upon a satisfactory showing that the requested evidence may reasonably
be expected to yield information relevant to any matter being
investigated under the Act.
Par. 53. Section 11.11 is amended by adding definitions for ``ATF
officer,'' ``Director'' and ``Retailer'' as follows:
Sec. 11.11 Meaning of terms.
* * * * *
ATF officer. An officer or employee of the Bureau of Alcohol,
Tobacco and Firearms (ATF) authorized to perform any function relating
to the administration or enforcement of this part.
Director. The Director, Bureau of Alcohol, Tobacco and Firearms,
the Department of the Treasury, Washington, DC.
* * * * *
Retailer. Any person engaged in the sale of distilled spirits, wine
or malt beverages to consumers. A wholesaler who makes incidental
retail sales representing less than five percent of the wholesaler's
total sales volume for the preceding two-month period shall not be
considered a retailer with respect to such incidental sales.
* * * * *
Par. 54. A new Sec. 11.24 is added to subpart C to read as follows:
Sec. 11.24 Other than a bona fide sale.
``Other than a bona fide sale'' includes, but is not limited to,
sales in connection with which the industry member purchases or rents
the display, shelf, storage or warehouse space to be occupied by such
products at premises owned or controlled by the retailer.
Par. 55. Section 11.32 is revised to read as follows:
Sec. 11.32 Defective products.
Products which are unmarketable because of product deterioration,
leaking containers, damaged labels or missing or mutilated tamper
evident closures may be exchanged for an equal quantity of identical
products or may be returned for cash or credit against outstanding
indebtedness.
Par. 56. Section 11.34 is revised to read as follows:
[[Page 20428]]
Sec. 11.34 Products which may no longer be lawfully sold.
Products which may no longer be lawfully sold may be returned for
cash or credit against outstanding indebtedness. This would include
situations where, due to a change in regulation or administrative
procedure over which the trade buyer or an affiliate of the trade buyer
has no control, a particular size or brand is no longer permitted to be
sold.
Par. 57. Section 11.35 is revised to read as follows:
Sec. 11.35 Termination of business.
Products on hand at the time a trade buyer terminates operations
may be returned for cash or credit against outstanding indebtedness.
This does not include a temporary seasonal shutdown (see Sec. 11.39).
Signed: January 4, 1995.
Daniel R. Black,
Acting Director.
Approved: March 30, 1995.
John P. Simpson,
Deputy Assistant Secretary, (Tariff and Trade Enforcement).
[FR Doc. 95-10116 Filed 4-24-95; 8:45 am]
BILLING CODE 4810-31-U
