[Federal Register Volume 61, Number 170 (Friday, August 30, 1996)]
[Rules and Regulations]
[Pages 45883-45886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22221]
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FEDERAL TRADE COMMISSION
16 CFR Part 307
Regulations Under the Comprehensive Smokeless Tobacco Health
Education Act of 1986
AGENCY: Federal Trade Commission.
ACTION: Final rule.
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SUMMARY: The Comprehensive Smokeless Tobacco Health Education Act of
1986 (``Smokeless Tobacco Act'') requires that all packaging and
advertising for smokeless tobacco products display one of three health
warnings in rotating sequence. On January 16, 1993, the Commission
published a Notice of Proposed Rulemaking seeking public comment on a
method for rotating the health warnings on promotional materials based
on the date of dissemination of the materials. On February 14, 1995,
the Commission published another Notice of Proposed Rulemaking seeking
public comment on a proposal to permit rotation of warnings on
utilitarian items based on either the date of order or the date of
dissemination of the items, provided the production of such items is
carried out in a manner consistent with customary business practices.
Having considered all of the issues raised during the two public
comment periods, the Commission is now amending the regulations
governing utilitarian items and the regulations governing promotional
materials to permit rotation based on either the date of order or the
date of dissemination, provided the production of such items or
materials is carried out in a manner consistent with customary business
practices. This document contains the statement of basis and purpose
and the text of the final regulations.
EFFECTIVE DATE: The effective date of these regulations will be
September 30, 1996.
ADDRESSES: Requests for copies of the regulations and the statement of
basis and purpose should be sent to Public Reference Branch, Room 130,
Federal Trade Commission, 6th & Pennsylvania Ave. NW, Washington, DC
20580.
FOR FURTHER INFORMATION CONTACT: Phillip S. Priesman, Attorney,
Division of Advertising Practices, Federal Trade
[[Page 45884]]
Commission, 6th & Pennsylvania Ave. NW, Washington, DC 20580. (202)
326-2484.
SUPPLEMENTARY INFORMATION:
Statement of Basis and Purpose
I. Introduction
Congress enacted the Comprehensive Smokeless Tobacco Health
Education Act of 1986 for the express purpose of educating the public
about the health consequences of using smokeless tobacco products.
(Public Law No. 99-252, 100 Stat. 30 (1986), 15 U.S.C. 4401 et seq.).
To achieve this end, the Act required the random display of three
warnings on the packaging and the rotation of these warnings in the
advertising of smokeless tobacco products.
Specifically, the Smokeless Tobacco Act mandated that one of the
following three health warnings appear in the labeling and advertising
(with the exception of outdoor billboard advertising) of smokeless
tobacco products:
Warning: This product may cause mouth cancer.
Warning: This product may cause gum disease and tooth loss.
Warning: This product is not a safe alternative to cigarettes.
The Commission's original regulations applying the Act to
promotional materials provided that ``[a] satisfactory plan for point-
of-sale and non-point-of-sale promotional materials * * * could provide
for rotation according to the time that the material is scheduled to be
disseminated or the order date for the material.'' 51 Fed. Reg. 40005,
40023 (1986). Point-of-sale materials include shelf-talkers (a card or
brochure attached to the shelf where the product is located in a retail
outlet), rack header cards (cards identifying a particular smokeless
brand on semi-circular racks displaying cans of snuff), and tear pads.
Non-point-of-sale materials include direct mail circulars, coupons,
leaflets and pamphlets.
The Commission's original regulations exempted utilitarian items
from the regulations governing the rotation and display of the health
warnings. The exemption for utilitarian items was challenged in court,
and the court ultimately ordered the Commission to delete the
exemption.1 Accordingly, in 1991, the Commission issued final
regulations setting out requirements for the rotation and display of
health warnings on utilitarian items. During its consideration of the
1991 rulemaking proceeding, the Commission became concerned that
companies could order a year's supply of utilitarian items at one time,
and thereby display only one warning over an entire year. The
Commission also was concerned that this apparent loophole could
likewise apply to promotional materials. Thus, the Commission amended
its regulations governing rotation of both promotional objects and
utilitarian objects, and called for ``rotation according to the date
the materials or objects are disseminated.'' The Commission noted,
however, that this could impose a hardship on a company that was unable
to foresee its distribution schedule when placing the order. To
alleviate this hardship, the rule also permitted rotational plans
whereby each warning would be displayed on an equal number of objects
comprising any given order. Under this option, for promotions lasting
one year or longer, the company could distribute promotional materials
or utilitarian items bearing the same warning for four months, and then
switch to another warning. If the promotion was scheduled to last less
than one year, the materials or items bearing the various warnings
could be distributed randomly.
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\1\ Public Citizen v. FTC, 869 F.2d 1541 (D.C. Cir. 1989),
aff'g, 588 F. Supp. 667 (D.D.C. 1988).
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With regard to promotional materials, the Commission published this
rule for additional public comment on January 16, 1993. The initial
comment period was to expire on February 16, 1993, but the Commission
extended the deadline until March 23, 1993. During this time, the
Commission received five comments. Four of the comments were from
manufacturers of smokeless tobacco products, and one was from a trade
association representing the manufacturers.
On February 14, 1995, the Commission published a Notice of Proposed
Rulemaking seeking comment on whether the requirements for rotating the
health warnings on utilitarian items should be amended. The proposed
rule permitted the rotation of warnings on utilitarian items according
to either the date the item is ordered or the date of dissemination,
provided that the production of the materials is carried out consistent
with customary business practices. The Commission received four
comments, all of which supported the proposed rule. All four comments
were from manufacturers of smokeless tobacco products.
II. The Regulations
The Commission's original regulations were written, for the most
part, as creating safe harbors rather than imposing mandatory
requirements for compliance with the Smokeless Tobacco Act. The
regulations issued in 1991 with respect to utilitarian items and
promotional materials and those proposed again in 1993 regarding
promotional materials removed the safe harbor provisions, and specified
that the appropriate warning would be determined by the date the
materials were scheduled for dissemination, with a limited option for
random display. The comments the Commission received indicated that
requiring rotation based on date of dissemination, even with the
limited option for random display, was likely to impose additional,
possibly significant, costs on smokeless tobacco manufacturers and
their suppliers. Both the date of dissemination requirement and the
more flexible date of order safe harbor appear likely to meet the chief
benefit intended by the regulations: Providing a system for the
rotation of health warnings as required by the Smokeless Tobacco Act.
Consequently, the Commission is returning to the previous more flexible
approach and specifying safe harbors for complying with the Smokeless
Tobacco Act's warning requirements by amending the regulation governing
utilitarian items, and retaining the present rotation schedule for
promotional materials except for the amendment that such materials be
produced in accordance with customary business practices. With these
amendments, the regulations governing the rotation of warnings for
utilitarian items will mirror those for promotional materials.
Given the practical constraints associated with the production and
dissemination of utilitarian items and those for promotional materials,
the Commission believes that the industry should be given some
flexibility in conforming the rotation requirements to these types of
advertising, while at the same time ensuring that the warnings rotate
as required by the Smokeless Tobacco Act. If, however, there is a
pattern of abuse or confusion suggesting that the safe harbors do not
provide for adequate rotation of the warnings, the Commission will
reconsider whether it is necessary to promulgate regulations providing
less flexibility and more specificity. In particular, the Commission
may reconsider whether to impose the mandatory date of dissemination
requirement for the rotation of both utilitarian items and promotional
materials.
A. Comments Regarding the Rotation of Utilitarian Items
The comments indicate that producing utilitarian items that comply
with a rotation standard based upon
[[Page 45885]]
date of dissemination is expensive and imposes burdens on the smokeless
tobacco manufacturers. According to one comment, the date of
dissemination requirement is burdensome due to the difficulty of
predicting the demand for any item in advance. This comment notes that
such prediction is difficult both because methods of forecasting demand
are imprecise and because premium promotions offering utilitarian items
often change during the course of the promotion due to competitive
conditions.2 Several comments state that the date of dissemination
requirement requires companies to order an excess supply of utilitarian
items to ensure that the supply is not exhausted before the promotion
ends.3 These comments likewise state that the need to order an
excess supply of items adds both warehousing and inventory costs (both
in terms of manpower and facilities).4 And, as inventory costs
increase, so do freight costs, according to these comments. Another
comment states that its inability to accurately forecast demand as well
as the lead time needed to order items adds planning and administrative
costs, including added costs of coordinating with suppliers,
warehousing inventory, tracking inventory, and distributing
items.5
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\2\ Comment of Pinkerton at 5 (April 17, 1995).
\3\ Comments of Conwood at 3 (April 17, 1995); Pinkerton at 6
(April 17, 1995).
\4\ Comment of Pinkerton at 6 (April 17, 1995).
\5\ Comment of United States Tobacco Co. at 9 (April 11, 1995).
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B. Comments Regarding the Rotation of Promotional Materials
The comments from the smokeless tobacco manufacturers are similar
to those for utilitarian items. The comments state that the companies
exercise very little control over the actual rate or date of
dissemination of promotional materials.6 In addition, to comply
with the proposed date of dissemination requirement, manufacturers
would need to produce most of their materials in significantly larger
quantities to ensure an adequate supply of materials with each of the
warnings. This would increase their production expenses, as well as the
cost of shipping, warehousing, and distributing the materials.7
Several companies might also need to hire additional employees to
handle the increased workload.8 Further, much of the additional
burden would fall on the businesses that produce and supply the
materials to the tobacco companies. While these businesses would likely
pass on their increased costs to their customers, some of these
suppliers might lack the resources to meet the increased production
requirements, thus forcing them to lose a significant portion of their
business.
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\6\ Comments of Conwood at 2-3 (April 17, 1993); Smokeless
Tobacco Council at 3 (March 18, 1993); Pinkerton at 5 (March 17,
1993).
\7\ Comments of Helme at 2 (March 5, 1993); United States
Tobacco Co. at 10-11 (March 18, 1993); Pinkerton at 3-4 (March 17,
1993).
\8\ Comments of Smokeless Tobacco Council at 6 (March 18, 1993);
United States Tobacco Co. at 18-20 (March 18, 1993); Conwood at 5
(March 16, 1993); Pinkerton at 4 (March 17, 1993); Helme at 2 (March
5, 1993).
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According to some of the comments, the proposed regulations would
also raise environmental issues by increasing the amount of waste
generated in producing materials.9 To comply with the proposed
requirements, manufacturers of smokeless tobacco would need to order
greater quantities of materials displaying each different warning
label. Rather than being able to exhaust the existing supply of
materials before re-ordering, companies would need to switch to
materials printed with a different warning on the specified date, and
throw out or otherwise destroy all of the remaining materials with the
outdated warning. According to the comments, this would only add to the
nation's growing environmental concerns.10
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\9\ Comment of Conwood at 6 (March 16, 1993).
\10\ Id.
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C. Commission Conclusions
Based on its review of these comments, the Commission believes it
is appropriate to adopt a rotation method that allows rotation to be
based on either the date of order or the date of dissemination, as long
as ``the production of such materials is carried out in a manner
consistent with customary business practices.'' Such a method will
fulfill the purpose of the Smokeless Tobacco Act and prevent
manufacturers from circumventing the rotation requirement without
imposing a substantial hardship on the manufacturers and their
suppliers. Almost all of the members of the industry have demonstrated
their ability to comply with a rotation requirement based on the date
of order by submitting rotational plans that follow this schedule.
Moreover, the addition of the requirement that production be based upon
business considerations will ensure that permitting rotation based on
date of order will not frustrate the Act's requirement that the
warnings rotate. The inclusion of this ``caveat'' is intended to
inhibit bulk-ordering by companies to avoid any one particular
warning.11
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\11\ Such bulk-ordering was raised as a concern during the
Commission's 1991 rulemaking regarding the rotation of warnings on
smokeless tobacco utilitarian items. 56 FR 11653, 11659 (1991).
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Some comments suggest that the Commission could lessen the burden
on the smokeless tobacco manufacturers by allowing for the random
simultaneous display of the various warnings on promotional materials.
The Smokeless Tobacco Act and the Commission's regulations specifically
permit random simultaneous display for packaging. However, the
Smokeless Tobacco Act expressly provided for different methods of
assuring the rotation of the three warnings for packaging and
advertising. On packaging, the Act specifies that the warnings be
displayed randomly in as equal a number of times as possible. In
advertising, however, the Act mandates the rotation of the three
warnings in alternating sequence every four months. While random
simultaneous display may meet the Act's directives applicable to
packaging, it generally would not appear to satisfy the prescribed
rotation in alternating sequence in advertising. The Commission,
therefore, concludes that the regulations should not provide for random
simultaneous display of either utilitarian items or promotional
materials.12
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\12\ In 1985, the Commission reached a similar conclusion with
respect to the rotation of warnings on cigarette packaging. The
Comprehensive Smoking Education Act (``Cigarette Act'') specified
that the four statutory health warnings had to rotate quarterly. 15
U.S.C. 1331(c). Pursuant to the Cigarette Act, the cigarette
companies submitted a rotational warning plan that called for the
random simultaneous display of the warnings on cigarette packages.
The Commission rejected this proposal, notifying the companies and
the relevant committees of Congress of its action. Subsequently, the
Congress amended the rotational warning requirements of the
Cigarette Act to allow simultaneous rotation on packaging only for
those cigarette companies that sold less than one-fourth of one
percent of all cigarettes sold in the United States. The Nurse
Education Amendments of 1985, Pub. L. 99-92, 99 Stat. 393, 402-403
(1985). The same Congress later enacted the Smokeless Tobacco Act,
with its different rotational warning schemes for smokeless tobacco
packages and for smokeless tobacco advertisements.
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Thus, the Commission's final regulations provide that the rotation
of the health warnings on utilitarian items and promotional materials
may be based upon either the date of order or the date of dissemination
of the materials, provided that the items or materials are produced in
accordance with customary business practices.
III. Regulatory Flexibility Act
When the Commission first promulgated the smokeless tobacco
regulations, the agency certified that the Regulatory Flexibility Act's
requirement for regulatory analysis was not applicable because the
regulation did
[[Page 45886]]
not appear to have a significant economic impact on a substantial
number of small entities. 51 FR 40005, 40014 (1986). In its subsequent
Notice, the Commission noted that the proposed amendments did not
change the regulations sufficient to alter its previous ``no impact''
determination; nonetheless, to ensure that no substantial impact was
being overlooked, the Commission requested public comment on the effect
of the proposed regulations on costs, profitability, competitiveness,
and employment in small entities. 54 FR 31541 (1989).
Two of the comments received during the comment period for
promotional materials discussed the effect that regulations requiring
rotation based upon date of dissemination would have on small
businesses. The Smokeless Tobacco Council noted that smaller smokeless
tobacco manufacturers may be unable to absorb any additional production
costs, and may eliminate their promotional programs. The Smokeless
Tobacco Council and Conwood Tobacco Company noted that small suppliers
may be unable to make the necessary adjustments. No other comments on
burden were received during the 1993 comment period for promotional
materials and no comments on burden were received during the 1995
comment period for utilitarian items. By permitting rotation based upon
date of order or date of dissemination, the final regulations will
avoid any of these potential burdens on small entities. Thus, the
Commission certifies that the amendments will not have a significant
economic impact on a substantial number of small entities. 5 U.S.C.
Sec. 605(b) (1982).
IV. Effective Date
During the comment period concerning the proposed regulations for
promotional items, the Commission received two comments requesting that
if the Commission adopts a requirement that promotional items rotate
according to the date of dissemination, the Commission include a
grandfather clause delaying the effective date of the rule for at least
two years from publication of the final rule, to enable companies to
use up their existing inventory of materials, and to allow suppliers
time to make the necessary adjustments.13 The Commission, however,
does not believe that any grandfather period is necessary given the
flexibility permitted by the amended regulations. In addition, the
Commission notes that the major smokeless tobacco manufacturers have
all previously filed plans calling for rotation based on date of order,
one of the permitted methods of rotation under the amended regulations.
However, the Commission will provide thirty (30) days for companies to
come into compliance with these amendments. Thus, the effective date
for the regulations governing the date that serves as the basis for
rotating warnings on promotional materials is thirty (30) days from the
date of publication of the final rule.
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\13\ Comments of Smokeless Tobacco Council at 7 (March 18,
1993); United States Tobacco Co. at 23 (March 18, 1993).
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List of Subjects in 16 CFR Part 307
Health warnings, Smokeless tobacco, Trade practices.
Accordingly, Part 307 of 16 CFR Chapter I is amended as follows:
PART 307--REGULATIONS UNDER THE COMPREHENSIVE SMOKELESS TOBACCO
HEALTH EDUCATION ACT OF 1986
1. The authority for Part 307 continues to read as follows:
Authority: 15 U.S.C. 4401 et seq.
2. Section 307.12(b) is revised to read as follows:
Sec. 307.12 Rotation, display, and dissemination of warning statements
in smokeless tobacco advertising.
* * * * *
(b) Each manufacturer, packager, or importer of a smokeless tobacco
product must submit a plan to the Commission or its designated
representative that ensures that the three warning statements are
rotated every four (4) months in alternating sequence. There may be
more than one system, however, that complies with the Act and these
regulations. For example, a plan may require all brands to display the
same warning during each four-month period or require each brand to
display a different warning during a given four-month period. A plan
shall describe the method of rotation and shall include a list of the
designated warnings for each four-month period during the first year
for each brand. A plan shall describe the method that will be used to
ensure the proper rotation in different advertising media in sufficient
detail to ensure compliance with the Act and these regulations,
although a number of different methods may satisfy these requirements.
For example, a satisfactory plan for advertising in newspapers,
magazines, or other periodicals could provide for rotation according to
either the cover or closing date of the publication. A satisfactory
plan for posters and placards, other than billboard advertising, could
provide for rotation according to either the scheduled or the actual
appearance of the advertising. A satisfactory plan for point-of-sale
and non-point-of-sale promotional materials such as leaflets,
pamphlets, coupons, direct mail circulars, paperback book inserts, or
non-print items, or for utilitarian objects, could provide for rotation
according to the date the materials or objects are ordered by the
smokeless tobacco manufacturer, or the date the objects or materials
are scheduled to be disseminated, provided that the production of such
materials or objects is carried out in a manner consistent with
customary business practices.
* * * * *
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 96-22221 Filed 8-29-96; 8:45 am]
BILLING CODE 6750-01-P
