[Federal Register: August 28, 1996 (Rules and Regulations)]
[Page 44446-44496]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
 
[[pp. 44446-44496]] Regulations Restricting the Sale and Distribution of Cigarettes 
and Smokeless Tobacco to Protect Children and Adolescents

[[Continued from page 44445]]

[[Page 44446]]

    The agency declines to amend the rule as suggested by the comment. 
Section 897.3(a) define a cigarette, in part, as any product that 
consists of any roll of tobacco; it does not establish a minimum 
quantity of tobacco. Thus, while manufacturers can develop such a 
product, it would still be a cigarette under this rule and subject to 
all restrictions for cigarettes.
    (56) Two comments would amend the minimum package size by 
increasing it to 200 cigarettes or a carton of cigarettes. The comments 
explained that making cartons the minimum package size would further 
reduce access to cigarettes by young people because cartons would be 
more expensive than single packs and would be harder to shoplift. The 
comment said that adults would not be adversely affected by such a 
change because adults generally buy cartons.
    The agency declines to make 200 cigarettes or one carton the 
minimum ``package'' size. Eliminating cigarette packages would unduly 
affect those adults who prefer to purchase cigarette packs rather than 
cartons due to limited funds or other reasons, and would unduly affect 
manufacturers, distributors, and retailers because, at the very least, 
they would need to revise manufacturing practices or machines and/or 
revise or reconfigure product storage practices and units to 
accommodate only cartons. It is even possible that some adults might 
consume more cigarettes if the minimum package size were increased to 
200 cigarettes.
    (57) One comment challenged the agency's authority for proposed 
Sec. 897.16(b). The comment argued that requiring a minimum package 
size exceeds FDA's authority under the act because it does not purport 
to provide reasonable assurance of the product's safety and 
effectiveness to potential users.
    FDA disagrees with the comment. Section 520(e) of the act 
authorizes the agency to impose restrictions on the sale, distribution, 
and use of a device. Establishing a minimum package size is a 
restriction on the sale and distribution of these devices and is 
reasonably related to assuring the product's safety for those persons, 
namely young people, whom this rule protects. Cigarettes and smokeless 
tobacco either cause or are associated with serious adverse health 
effects, and the evidence suggests that ``kiddie packs'' appeal to 
young people. Hence, establishing a minimum package size that is larger 
than a ``kiddie pack'' should help reduce young people's access to 
these products and, as a result, protect them from those potential 
adverse health effects.
    (58) One comment stated that the agency lacks factual support for a 
minimum package size, claiming that there is no evidence that young 
people buy such products or that ``kiddie packs'' are especially 
popular with young people. The comment claimed that the studies cited 
by FDA in the preamble to the 1995 proposed rule are flawed due to 
small sample size. The comment disputed the results of those studies, 
arguing that the studies did not show whether young people favored 
small package sizes because they are easily concealed--a reason 
identified by FDA in the preamble to the 1995 proposed rule--or because 
they are less expensive. The comment added that FDA's rationale is 
further undermined by the fact that FDA has claimed both that young 
people are price sensitive and that they do not purchase inexpensive 
brands. According to the comment, it is not possible to have it both 
ways.
    Specifically, the comment questioned the validity of the 1987 
Australian study by Wilson. \45\ The comment argued that the authors 
could not assure that the subject population of 14- and 15-year olds 
was representative and, because selection criteria for the adult 
subjects differed, the results from the adult population could not be 
compared to the results from the 14- to 15-year old subjects. The 
comment disputed the study's finding that young Australians favored 
smaller cigarette packages because the small packs were more 
``concealable,'' stating that the study did not explain whether a pack 
containing 15 cigarettes was significantly smaller than a pack 
containing 20 cigarettes. The comment also criticized the study for 
being unclear as to whether the researchers surveyed youth smokers 
alone or young smokers and other youths to determine why young people 
purchased the 15-cigarette package, and it criticized FDA for not 
mentioning that the third most popular reason for purchasing 15-
cigarette packs was ``reducing smoking.''
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    \45\ Wilson, D. H., et al., ``15's: They Fit in Everywhere--
Especially the School Bag: A Survey of Purchases of Packets of 15 
Cigarettes by 14 and 15 Year Olds in South Australia,'' Supplement 
to Community Health Studies XI (1), pp. 16s-20s, 1987.
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    FDA is not persuaded that the studies are unreliable. The comment's 
criticisms of the Wilson study do not acknowledge that the study's 
authors compensated for the lack of a population-based probability 
sample by using a sample size that exceeded the required size for a 
simple random sample. The authors used a cross-sectional sample of 649 
young people between the ages of 14 and 15. This number exceeded the 
363 persons required for a simple random sample, based on an estimate 
that 40 percent of the 25,000 South Australian children aged 14 to 15 
years old would be smokers and using 95 percent confidence intervals of 
35 to 45 percent, and exceeded the 567 person sample size that would be 
obtained when the random sample size is multiplied by a factor of 1.3 
to allow for a clustered design and increased 20 percent to allow for 
persons dropping out of the survey.
    Additionally, while the study did say that the sample of 14- and 
15-year old children was a ``sample of convenience,'' that, alone, does 
not make the study unreliable. Many studies use a sample of convenience 
rather than a representative sample, and the application of a study's 
results or findings to a broader population depends on the study's 
methodology.
    The comment's criticism of the different selection methods lacks 
merit because it neglects to consider the context for the selection 
method. The authors selected schools in order to obtain underage 
subjects; this selection method precluded getting a representative 
sample of adults (because they would not be in schools). For the adult 
subjects, selection was based on a probability-based method of 
selection instead of school affiliation. Both selection methods were 
scientifically valid.
    Moreover, two well-conducted studies provide a reasonable basis for 
comparison, even between different populations. This is especially true 
for the Wilson study because both the adolescent and adult studies were 
performed under the auspices of the South Australian Health Commission 
and were drawn from the same geographical area within 2 weeks of each 
other. Thus, one can reasonably assume that the studies were well 
conducted and that comparisons between the adolescent and adult groups 
were appropriate.
    Finally, the comment's criticism of Wilson's findings is also 
misplaced. Contrary to the comment's assertion, the issue is not 
whether 15-cigarette packs are smaller or more easily concealed than 
full-sized packs. Nor is the issue whether underage smokers, as opposed 
to underage smokers and other young

[[Page 44447]]

people, prefer 15-cigarette packs. Instead, the issue is whether young 
people, for whatever reason, favor and purchase smaller packs. The 
study indicated that over 90 percent of the young people surveyed 
preferred 15-cigarette packs because they considered them to be less 
expensive, easier to conceal, or helpful to reduce smoking. This led 
the authors to state that, ``if adolescents did not have available to 
them these cheaper brands, or the price was raised considerably, or 
packaging in a way that is more appealing to adolescent budgets was 
prohibited then the current popularity of 15's would be reduced 
considerably.'' \46\
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    \46\ Id., p. 19s.
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    (59) The same comment challenged a study by Hill. \47\ The preamble 
to the 1995 proposed rule cited this study to show that younger 
children (12-year olds in the study) preferred 15-cigarette packages 
more than older children (17-year olds) and that older children 
preferred packages containing 25 cigarettes. However, the comment 
interpreted the Hill study in a much different manner, noting that, 
according to the study, the youngest age group experienced the greatest 
decline in smoking prevalence in the period following the introduction 
of the 15-cigarette package. Thus, the comment asserted that, ``[t]his 
fact suggests that smaller packages are associated with less youth 
smoking, rather than more.'' The comment further stated that the 
researchers' opinion that price and ``concealability'' make smaller 
packages appealing to young people is contradicted by the findings that 
children in all age groups preferred 25- and 30-cigarette packages.
---------------------------------------------------------------------------

    \47\ Hill, D. J., et al., ``Tobacco and Alcohol Use Among 
Australian Secondary Schoolchildren in 1987,'' Medical Journal of 
Australia, vol. 152, pp. 124-130, 1990.
---------------------------------------------------------------------------

    FDA believes that the comment misinterprets the study. While the 
study did indicate that the proportion of Australian students, aged 12 
to 17 years, who smoked weekly declined from 1984 to 1987 (with the 
greatest declines in the youngest age groups), the study did not 
attribute the decline to the introduction of a smaller cigarette 
package. Instead, the study attributed the decline to ``the health 
education and promotional campaigns that were established in Australia 
during the period between the surveys.'' \48\
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    \48\ Id., p. 128.
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    Similarly, a closer examination of the study does not support the 
comment's assertion that the popularity of larger cigarette packages 
among Australian schoolchildren refutes FDA's statement that the price 
and ``concealability'' of smaller packages appeal to young people. The 
study found that 42 percent of the children surveyed smoked cigarettes 
from 25-cigarette packages, with the next most popular size being 30-
cigarette packages. Nearly 20 percent smoked cigarettes from 15-
cigarette packages, and ``preference for packets of this size showed a 
marked inverse relationship with age, decreasing from 30% of 12-year-
old school children to 11% of 17-year-old school children.'' \49\ The 
study did not attribute the popularity of the smaller package size to 
lower price or concealability but merely cited the Wilson study to say 
that young people ``presumably'' prefer the smaller packages for those 
reasons. Yet, regardless of the reason, the Hill study illustrates that 
a significant percentage of young people prefer smaller package sizes 
and that the percentage increases in the younger age groups.
---------------------------------------------------------------------------

    \49\ Id., p. 126.
---------------------------------------------------------------------------

    (60) The same comment also criticized the Nova Scotia study. \50\ 
FDA cited this study to show that 49 percent of tobacco users in the 
sixth grade purchased 15-cigarette packages. The comment criticized the 
Nova Scotia study for the ``absurdly small size of this population 
sample (37 students).'' The comment also criticized the Nova Scotia 
study's assertion that price and concealability motivate young people 
to purchase small cigarette packages. The Nova Scotia study indicated 
that only 3 percent of the sixth grade students surveyed (or one out of 
the 37 students) purchased single cigarettes compared to 11 percent of 
the twelfth grade students (or 12 students out of the 123 surveyed). 
The comment argued that the Nova Scotia study showed that twelfth grade 
students ``were four times as likely as the sixth-graders to purchase 
single cigarettes'' and that, ``[i]f price and `concealability' were 
the key factors for young people, those in the youngest age group would 
surely be purchasing single cigarettes, not 15's''.
---------------------------------------------------------------------------

    \50\ ``Students and Tobacco,'' The Nova Scotia Council on 
Smoking and Health Survey, Final Report, March 1991.
---------------------------------------------------------------------------

    The comment misconstrues the importance of the study. FDA cited 
this study to show that 49 percent of tobacco users in the sixth grade 
purchased 15-cigarette packages, but the agency did not rely solely on 
the Nova Scotia study as evidence that young people prefer small 
cigarette packages. Instead, the agency cited the Nova Scotia study and 
the Hill study that surveyed 19,166 Australian schoolchildren to show 
that the youngest children prefer smaller cigarette packages. So, even 
if the Nova Scotia study used a small sample size, the study's findings 
are consistent with the Australian study that surveyed 19,166 children.
    The agency also disagrees with the comment's claim that the Nova 
Scotia study contradicts FDA's view that young people purchase ``kiddie 
packs'' due to their low price and small size. The study did not 
examine specific reasons for purchasing single cigarettes as opposed to
15-, 20-, or 25-cigarette packages, and so it would be inappropriate to 
draw any conclusions based on different purchase rates alone. In other 
words, the percentage of students who purchase a particular package 
size may offer little or no insight as to the reasons why a student 
selected a particular package size.
    Other factors might also explain the low rate of single cigarette 
sales relative to cigarette packages. Low price and concealability 
might be important factors in purchasing behavior, but they may not be 
the controlling or sole factors behind a purchase. For example, the 
preamble to the 1995 proposed rule stated, among other things, that 
single cigarettes make children more willing to experiment with tobacco 
products (60 FR 41314 at 41324), and stated that young people see or 
use tobacco products as a badge or method of conveying or creating a 
certain image for themselves (60 FR 41314 at 41329). A single 
cigarette, sold without a package, is an ineffective ``badge'' compared 
to the more conspicuous cigarette pack. Additionally, very young 
children may not opt for single cigarettes because such products are 
typically purchased from retailers that may question the children's 
age. (See 60 FR 41314 at 41325 (very young children rely on vending 
machines more often than older children).) The Nova Scotia study, 
however, did not examine reasons for purchasing single cigarettes as 
opposed to purchasing 15-cigarette packages, and so the agency declines 
to draw any conclusions solely from different sales rates for single 
cigarettes compared to those for cigarette packages.
    (61) One comment suggested amending Sec. 897.16(b) to prohibit 
manufacturers, distributors, and retailers from selling or causing to 
be sold, distributing or causing to be distributed, ``cigarettes unless 
contained in packages of at least 20 cigarettes.'' The comment said 
that the rule did not prevent anyone other than retailers from selling 
individual cigarettes.

[[Page 44448]]

    FDA believes the comment misinterpreted the rule. Section 897.3 
defines a ``retailer'' as any person who sells cigarettes or smokeless 
tobacco to individuals for personal consumption. Thus, a manufacturer 
or distributor who attempted to sell single cigarettes to a consumer 
would, under the final rule, be considered a ``retailer'' for purposes 
of that transaction and would be in violation of the individual 
cigarette restriction in Sec. 897.14.
    (62) One comment suggested amending the rule to create a minimum 
package size for smokeless tobacco. The comment would make the minimum 
package size for smokeless tobacco equivalent to 20 doses of nicotine, 
but it did not state what a dose would be.
    The agency agrees that a minimum package size for smokeless tobacco 
may be helpful, but lacks sufficient information to determine what that 
size should be for the various forms of smokeless tobacco on the 
market. Unlike cigarettes, which are generally sold in packages of 20, 
smokeless tobacco comes in various forms and sizes, and, with the 
possible exception of prepackaged forms, can be used in quantities 
determined by the user. One individual, for example, might place more 
chewing tobacco in his or her mouth than another individual. 
Consequently, absent more information, the agency is unable to 
establish a minimum package size for smokeless tobacco.
    (63) The agency, on its own initiative, has amended Sec. 897.16(b) 
(minimum cigarette package size) to add the introductory phrase, 
``Except as otherwise provided under this section.'' This amendment 
became necessary because, as discussed in greater detail in section 
IV.E.4.a. of this document, the agency has concluded that vending 
machine sales should be permitted in facilities that are inaccessible 
to young people, and FDA is aware of at least one type of vending 
machine that sells packaged, single cigarettes. The agency is aware of 
vending machines that dispense cartons, packages, and now packaged, 
single cigarettes and has made an exception for packaged, single 
cigarettes due to their unique nature (relatively high price compared 
to ``loosies,'' packaging in compliance with labeling and tax 
requirements, and sale only in adult locations). Additionally, FDA, on 
its own initiative, has revised the rule to state that no manufacturer, 
distributor, or retailer ``may'' sell (rather than ``shall'' sell) 
cigarette packages containing less than 20 cigarettes.
3. Maximum Package Size
    The preamble to the 1995 proposed rule also invited comment as to 
whether a maximum package size should be established. The preamble to 
the 1995 proposed rule cited one study that found that older Australian 
children favored cigarette packs containing 25 cigarettes (60 FR 41314 
at 41324).
    (64) Several comments offered suggestions regarding a maximum 
package size. One comment noted that packages containing 10 and 25 
cigarettes have been sold in the United States and suggested that, when 
considering a maximum package size, FDA should consider the 
attractiveness of the pack and whether a larger pack would encourage 
increased consumption. The comment added that one option would be to 
limit sales to 200 units (or one carton). Another comment would make 20 
cigarettes the maximum package size, but conceded that there is 
insufficient evidence to make a strong recommendation.
    In contrast, one comment stated that the agency has no authority or 
evidence to justify creating a minimum package size and so it lacks 
authority and evidence to create a maximum package size.
    Based on the comments, there is insufficient evidence to establish 
a maximum package size for cigarettes. There is little experience in 
the United States with package sizes greater than 20 cigarettes. As a 
result, the final rule does not establish a maximum package size for 
cigarettes.
4. Impersonal Modes of Sale
    Proposed Sec. 897.16(c) would have permitted cigarettes and 
smokeless tobacco to be sold only in a direct, face-to-face exchange 
between the retailer, or the retailer's employees, and the consumer. 
Thus, the proposal would have prohibited the use of vending machines, 
self-service displays, mail-order sales, and mail-order redemption of 
coupons. Implicit in this provision, and in subpart B of part 897, is 
the notion that transactions involving restricted devices should 
involve a sense of ``formality'' or gravity that conveys to both the 
seller and the buyer the seriousness of the transaction and of the 
products themselves. FDA has amended this provision in response to 
comments. As discussed in section IV.E.4.c. of this document, certain 
mail-order sales are now exempted from this requirement, as are vending 
machines and self-service merchandisers in facilities not admitting 
individuals under the age of 18.
    a. Vending machines. The preamble to the 1995 proposed rule cited 
numerous studies and surveys showing that significant percentages of 
young people are able to purchase cigarettes from vending machines, 
even in jurisdictions that have laws restricting the placement of those 
machines or requiring the use of locking devices. In some cases, young 
people successfully bought cigarettes from vending machines 100 percent 
of the time (60 FR 41314 at 41324 through 41325). Consequently, the 
agency elected to prohibit the use of vending machines rather than 
restrict their placement or require locking devices.
    FDA's proposal to eliminate the use of vending machines 
(Sec. 897.16(c)) generated more comments than any other provision aimed 
at reducing children's and adolescents' access to tobacco products; the 
agency received thousands of comments on this provision. While agreeing 
that children and adolescents should not use tobacco products, comments 
submitted by adult smokers, the tobacco industry, and vending machine 
owners and operators, strenuously objected to the provision. Nearly all 
of the comments in opposition stated that the provision would be 
unnecessary if State and local jurisdictions enforced existing laws 
prohibiting the sale of tobacco products to children and adolescents 
under the age of 18.
    By contrast, concerned adults, parents, educators, State and local 
public health agencies, and medical professionals overwhelmingly 
supported the provision. In addition, tens of thousands of school 
children wrote letters asking that vending machines be eliminated. 
Nearly all comments in favor of the provision pointed to the serious 
health risks that a lifetime of nicotine addiction poses to children 
and adolescents who begin to smoke, arguing that vending machines offer 
children and adolescents who choose to begin to smoke easy access to 
cigarettes.
    (65) Several comments asserted that the proposed restriction 
pertaining to vending machines would effect takings compensable under 
the Fifth Amendment.
    The agency disagrees with the comments. As discussed in greater 
detail in the paragraph below, FDA has amended the final rule to permit 
vending machines in facilities that are inaccessible to young people at 
all times. Additionally, given the character of this regulation and the 
lack of reasonable investment-backed expectations in personal property, 
its

[[Page 44449]]

economic impact, while potentially significant for some persons, is not 
such as to effect a taking. The agency addresses Fifth Amendment issues 
in greater detail in section XI. of this document.
    (66) Most comments submitted by adult smokers and nearly all of the 
comments submitted by the cigarette and vending machine industries 
stated that the provision would not effectively reduce children's and 
adolescents' access to cigarettes. The comments argued that the 
proposed elimination of vending machines is not supported by the 
evidence in the record, either because the studies cited by FDA do not 
measure children's and adolescents' actual purchasing habits, or 
because the percentage of children and adolescents who reportedly buy 
cigarettes from vending machines is not significant. Finally, many 
adult smokers and some parents argued that determined teenagers will 
find a way to obtain cigarettes whether or not vending machines are 
eliminated.
    On the other hand, almost all of the children, parents, adults who 
do not smoke, medical professionals, and public interest groups 
commented that the provision would effectively reduce children's access 
to cigarettes. These comments generally cited personal experience in 
concluding that vending machines provide an easy source of cigarettes 
for many children who smoke. For example, the executive director of a 
public health education program wrote: ``It is outrageous that we allow 
tobacco, a most addictive drug, to be sold through vending machines 
where anyone can purchase it!'' Comments overwhelmingly concluded that 
the elimination of vending machines, coupled with the other proposed 
access and advertising restrictions and the proposed education 
campaign, would effectively reduce the availability of cigarettes to 
children.
    Several comments analyzed currently available studies and concluded 
that ``easy access to vending machines * * * enable[s] young people to 
obtain cigarettes, and that high proportions of vending machine users 
are people under 18.'' Moreover, several comments in support of the 
provision cited their own studies indicating the ease with which 
children and adolescents obtain cigarettes from vending machines. For 
example, a coalition dedicated to preventing and reducing tobacco use 
submitted its 1994 annual report, which included an article describing 
an undercover buying survey, the largest of its kind, conducted in 
Spring, 1994. One hundred and seven teenagers participated in the 12-
county survey by entering stores under the supervision of an adult and 
attempting to purchase cigarettes, and:
    [k]ids were more successful attempting to buy cigarettes through 
vending machines [than through retail outlets], without any adults 
trying to stop them. Teens made 21 of 24 successful attempts to 
purchase cigarettes through vending machines, an 88 percent success 
rate.
    Similarly, the manager of a youth tobacco prevention program in 
Washington State's Department of Health commented that ``[a] recent 
survey in one Washington county found that youth can still purchase 
tobacco from vending machines at a 75 percent success rate.'' The 
comment recommended that all tobacco vending machines be eliminated.
    Finally, comments submitted by children, parents, and nonsmoking 
adults indicate that these groups believe tobacco vending machines are 
easily accessible to children and adolescents. One comment, typical of 
those submitted by children, stated: ``I especially agree with getting 
rid of vending machines. That, I think, is probably the most common way 
that children get their cigarettes.'' The director of a public health 
center in California submitted the results of a poll indicating that 75 
percent of Californians support banning cigarette vending machines.
    Vending machines certainly represent one of the major ways that 
children currently obtain cigarettes. In addition to studies depicting 
how easily children and adolescents could purchase cigarettes from 
vending machines, the 1995 proposed rule cited surveys of children's 
actual purchasing behavior (60 FR 41314 at 41324 through 41325). 
Relying on both types of evidence, the agency concluded that the 
provision would eliminate one of the primary sources of cigarettes for 
at least 2 percent of 17-year-old smokers and 22 percent of 13- to 17-
year-old smokers. Moreover, the agency finds that the number of 
children and adolescents in these two groups is substantial.
    While the agency agrees that some children and adolescents who are 
determined to smoke may find or create new ways of obtaining 
cigarettes, the removal of vending machines from sites accessible to 
young people will eliminate what is currently a popular and easy means 
of access to tobacco, especially for younger children. In addition, if 
other access restrictions are imposed, such as requiring customers to 
provide proof of age, without also eliminating vending machines, use of 
vending machines among children between the ages of 13 and 17 years 
would likely increase (60 FR 41314 at 41325). Therefore, the agency has 
concluded that the provision is an important part of the overall scheme 
to reduce children's and adolescents' access to cigarettes.
    (67) The agency received many comments regarding the location of 
vending machines. A trade association representing the cigarette 
industry stated that most vending machines are currently inaccessible 
to children and adolescents because they are located either in areas 
that are off-limits to young people, such as nightclubs or casinos, or 
in areas that young people rarely frequent, such as industrial plants 
and private offices. Thus, the comment concluded, eliminating vending 
machines will not discourage youth smoking.
    The vending machine industry and establishments that currently have 
vending machines unanimously opposed the provision. Some comments 
suggested that the agency specifically allow vending machines in 
locations where young people are not present. One vending machine 
operator commented, ``[m]any cigarette machine vendors are small 
businessmen like myself; 95 percent of our locations are in taverns and 
lounges, where no one under 21 years old is allowed in.'' Other 
comments argued that, even if retail purchases become increasingly 
difficult, vending machines in establishments that are not open to the 
public should not be eliminated because children and adolescents cannot 
enter these places.
    Both the cigarette and vending machine industries argued that FDA's 
conclusion, that children and adolescents can easily purchase 
cigarettes from vending machines even in ``adult'' locations, was based 
on flawed studies. Comments argued that the sting operations, on which 
these studies were based, do not demonstrate where teenagers actually 
or usually go. One comment, submitted by an association representing 
1,700 vending machine companies, argued that: ``it is highly 
questionable if minors might have alone and without encouragement 
entered taverns or bars in restaurants just to purchase cigarettes 
without exemption from the district attorney's office.'' Moreover, 
these comments argued, local sting operations do not establish the 
national cigarette purchasing habits of children and adolescents.

[[Page 44450]]

    In contrast, a national public health organization concluded that 
available studies indicate that restricting the location of vending 
machines is an ineffective method of controlling sales of tobacco to 
young people. Another comment opposed to weakening the provision 
characterized as unreliable the number of machines currently in 
``adult'' locations. The comment attacked as statistically unsound a 
vending machine industry survey that concluded that 77 percent of all 
vending machines are in ``adult locations.''
    FDA has determined that cigarettes should not be dispensed to 
consumers from vending machines that are accessible to children and 
adolescents. While young people's actual current purchasing habits 
provide irrefutable evidence of accessibility, available evidence 
demonstrates that cigarette vending machines also are accessible to 
children and adolescents even in locations that are not often or 
currently frequented by young people. FDA has determined that cigarette 
vending machines should be eliminated from locations that are 
accessible to children and adolescents, whether or not children and 
adolescents currently use them.
    While the IOM recommended that vending machines be eliminated 
altogether, it cautioned that, if partial bans were to be enacted, the 
definition of ``adult'' location must be narrowly drawn.
    Youths do not now report ``adult'' locations as major sources of 
tobacco, but there is evidence that minors can often easily enter 
``adult'' locations, and once inside, can easily buy tobacco 
products * * *. If partial vending machine bans are to be effective, 
the statutes must define ``adult'' locations carefully and narrowly. 
For example, the bar area of a restaurant is not sufficiently 
inaccessible to minors to deter their purchases. * * * Many bars 
only restrict access to alcohol; they do not restrict entrance by 
age. Accordingly, if vending machine are permitted at all, they 
should be permitted only in locations to which minors may not be 
admitted. \51\
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    \51\ IOM Report, p. 214.
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    Based on comments, FDA has determined that some ``adult'' locations 
can be made sufficiently secure to prevent young people's access and 
that vending machines should remain available to adults in these 
locations. For example, some establishments, such as nightclubs or 
casinos, require that patrons present proof of age before they are 
permitted to enter or post a guard at the door to prohibit underage 
access. In 1994, CDC analyzed 15 recent studies of children's access to 
tobacco and noted that ``[s]ome inspections of private clubs and bars 
were not carried out because access to the outlet was blocked by a 
doorman or security guard.'' \52\ FDA finds that those establishments 
where people under the age of 18 are legally prohibited from entering 
and where a system exists to ensure that children are prevented from 
entering, can, in fact, be sufficiently inaccessible to children that 
the goals of the rule would not be significantly advanced by 
prohibiting vending machines in those limited locations.
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    \52\ ``Design of Inspection Surveys for Vendor Compliance with 
Restrictions on Tobacco Sales to Minors,'' Battelle, prepared for 
the CDC, OSH, p. 17, April 1994.
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    Other ``adult'' establishments prohibit children and adolescents 
from entering, as a matter of establishment policy. For example, some 
private clubs do not grant membership to persons under the age of 18 
and require that members provide proof of membership before entering 
the club. Similarly, for example, some industrial or manufacturing 
facilities not open to the public may, for safety reasons, prohibit the 
hiring of persons under the age of 18, and require that employees 
present proof of employment upon entering the facility. FDA finds that 
these establishments, like some nightclubs or casinos, can be similarly 
inaccessible to children and, if so, should be permitted to make 
cigarette vending machines available to their adult members or 
employees.
    Futhermore, an exemption for vending machines located in areas 
where no person under 18 is present or permitted to enter is consistent 
with the ``Prohibition of Cigarette Sales to Minors in Federal 
Buildings and Lands Act'' (Pub. L. 104-52, sec. 636). This particular 
statute, which became law on November 19, 1995, prohibits the sale of 
tobacco products in vending machines located ``in or around any Federal 
building,'' but the statute authorizes the Administrator of the General 
Services Administration (GSA) or the head of an agency to exempt areas 
that prohibit the ``presence of minors'' (whom the statute defines as 
individuals under age 18). See also 41 CFR 101-20.109(d) (Administrator 
of the GSA or agency head may designate areas where vending machine 
sales of tobacco products may occur ``if the area prohibits minors''); 
61 FR 2121, January 25, 1996.
    Consequently, Sec. 897.16(c) exempts vending machines located in 
establishments that are totally inaccessible to persons under 18. The 
owner of the facility must ensure, by means of photographic 
identification or some other means, that no one under 18 enters the 
facility. Thus, the rule would permit a vending machine in an 
establishment only where persons under 18 are not present, or permitted 
to enter, at any time. FDA emphasizes that this narrowly drawn 
exemption accommodates adults only in locations where young people, in 
fact, have no access at any time. For example, a vending machine might 
be permitted in a facility that employs only adults and where guards 
prevent any person under 18 from entering. A vending machine would not 
be permitted in a facility that employs only adults but also permits 
employees to bring children to work. The agency further emphasizes that 
it is the exempt establishment's responsibility to ensure that no one 
under 18 is present, or permitted to enter the premises, at any time.
    In addition, under Sec. 897.16(c), a vending machine in an exempt 
establishment must be entirely inaccessible to children. Thus, an 
establishment must place the machine entirely inside the premises, 
beyond the point where persons are required to present proof of age, 
membership, or employment. Vending machines are prohibited from any 
public area in or around the establishment, including, for example, 
lobbies, parking lots, and entrances.
    FDA emphasizes that the final rule exempts only establishments that 
are, in fact, inaccessible to young people at all times. FDA will 
monitor young people's access to cigarettes from vending machines in 
exempt establishments, and, after 2 years, will assess whether the 
vending machine exemption has been effective. At that time, the agency 
finds that vending machines continue to be accessible to young people, 
FDA will propose further restrictions.
    (68) Several comments suggested that, rather than eliminate vending 
machines or restrict their location, FDA require that they be 
supervised. These comments would allow vending machines to be placed 
anywhere, even in locations frequented by children and adolescents, as 
long as the machines were supervised.
    FDA disagrees that supervising vending machines would prevent 
illegal sales to children and adolescents. Comments opposed to the 
provision offered no evidence that supervision of vending machines 
would sufficiently impede a young person's access to cigarettes. In 
fact, studies indicate that young people are able to purchase

[[Page 44451]]

cigarettes even from vending machines under the immediate vicinity and 
control of employees.
    One study conducted in a State requiring that vending machines be 
supervised demonstrated that youths were able to purchase from 72 
percent of vending machines, in bars and taverns, within clear view of 
an employee. \53\ Another report examining vending machine sales in New 
York City demonstrated that 11- and 12-year-olds successfully purchased 
cigarettes from supposedly supervised vending machines in bars and 
taverns 100 percent of the time. The study found that children and 
adolescents ``had no more difficulty buying cigarettes from vending 
machines in bars than they had buying cigarettes from restaurants, 
pizza parlors, or video arcades. In all instances, the barman and/or 
patrons watched but did not intervene.'' \54\
---------------------------------------------------------------------------

    \53\ Cismoski, J., and M. Sheridan, ``Availability of Cigarettes 
to Under-age Youth in Fond du Lac, Wisconsin,'' Wisconsin Medical 
Journal, vol. 92, No. 11, pp. 626-630, 1993.
    \54\ ``Cigarette Vending Machines Sell Cigarettes to Children, 
11-15 Years Old, 100% of the Time,'' Smokefree Educational Services, 
Inc., October 1990. ``Critics Target Vending Machines,'' The 
Christian Science Monitor, p. 6, April 1990.
---------------------------------------------------------------------------

    In other studies, employees helped children and adolescents to 
illegally purchase cigarettes by providing change for the cigarette 
vending machine \55\ or suggesting that the children and adolescents go 
next door where cigarettes were cheaper. \56\
---------------------------------------------------------------------------

    \55\ Mead, R., ``Teen Access to Cigarettes in Green Bay, 
Wisconsin,'' Wisconsin Medical Journal, pp. 23-24, January, 1993.
    \56\ ``Springfield Teen Tobacco Purchase Survey,'' Stop Teenage 
Addiction to Tobacco (STAT), 1993.
---------------------------------------------------------------------------

    Additionally, each provision in subpart B of part 897 is intended 
to eliminate a popular source of cigarettes and smokeless tobacco for 
children. The vending machine restriction is intended to complement, 
and be reinforced by, the other restrictions.
    The preamble to the 1995 proposed rule cited studies indicating 
that the use of vending machines by adolescents is greater in 
jurisdictions that have stronger access restrictions (60 FR 41314 at 
41325). Based on those studies and comments that it received, FDA 
concludes that decreasing the supply of tobacco products to children 
and adolescents by one means of access, such as restricting self-
service displays, would cause an increased demand by another means of 
access, such as cigarette vending machines. FDA remains persuaded that, 
without eliminating cigarette vending machines accessible to children 
and adolescents, other access restrictions would cause an increase in 
illegal vending machine sales.
    (69) Most comments submitted by the tobacco and vending machine 
industries recommended that, rather than eliminate vending machines, 
FDA should require that they be equipped with electronic locking 
devices (devices that render the machine inoperable until activated by 
an employee) or token mechanisms (which require consumers to purchase 
tokens from an employee in order to use a vending machine). Either 
method would require a face-to-face transaction between the purchaser 
and the retailer.
    The cigarette and vending machine industries commented that studies 
do not support FDA's conclusion that locking devices are ineffective. 
Comments asserted that the studies failed to include vending machines 
fitted with locking devices in traditionally adult locations or to 
account for the lack of enforcement in the jurisdiction in which the 
study was conducted. In addition, several comments pointed out that the 
tobacco sales ordinance in Woodridge, IL, where illegal tobacco sales 
were reduced from 70 percent to less than 5 percent 2 years later, 
included a locking device requirement rather than a ban on cigarette 
vending machines.
    On the other hand, one comment from a public interest group 
strongly supported FDA's proposal to eliminate vending machines 
altogether and urged that FDA not permit the use of locking devices. 
The comment cited a survey, conducted by an association of public 
health officials in New Jersey, in which young people successfully 
purchased cigarettes from supposedly locked vending machines in 11 of 
15 attempts. The comment noted that ``[i]n some instances, the remote 
control device to operate the machine was sitting on top of the machine 
to save store personnel the bother of having to press the switch.''
    FDA acknowledges that properly installed locking devices require 
that vending machine purchasers engage in a face-to-face transaction, 
increasing the likelihood that children would be prevented from 
purchasing cigarettes. However, as explained in the preamble to the 
1995 proposed rule, available evidence indicates that the industry is 
slow to install the locking devices, and that, after a short period, 
the locking devices are often disabled (60 FR 41314 at 41324 through 
41325).
    FDA agrees that the Woodridge, IL, community was able to 
dramatically reduce illegal tobacco sales while permitting the use of 
locking devices on cigarette vending machines. However, FDA notes that 
when the community implemented its tobacco ordinance in May, 1989, the 
community had only six vending machines, and when the study was 
completed December, 1990, the number of vending machines had dropped to 
two. Moreover, despite the requirement of locking devices and 
persistent compliance checks by law enforcement, a child was able to 
purchase cigarettes from one of the two remaining vending machines in 
December, 1990. \57\
---------------------------------------------------------------------------

    \57\ Jason, L. A., P. Y. Ji, M. D. Aneo, and S. H. Birkhead, 
``Active Enforcement of Cigarette Control Laws in the Prevention of 
Cigarette Sales to Minors,'' JAMA, vol. 266, No. 22, pp. 3159-3161, 
December 11, 1991.
---------------------------------------------------------------------------

    Similarly, in 1990, Minnesota enacted a law eliminating vending 
machines in public areas unless the machines were only operable by 
activation of an electronic switch or token and were under the direct 
supervision of a responsible employee. One year after the law was 
passed, a study conducted in four cities found many machines had not 
been fitted with the required devices and, of those fitted with the 
devices, there was no significant reduction in purchase success. \58\
---------------------------------------------------------------------------

    \58\ Kotz, K., ``An Evaluation of the Minnesota Law to Restrict 
Youth Access to Tobacco,'' presented to the American Public Health 
Association (APHA) 121st Annual Meeting, San Francisco, CA, October 
24-28, 1993.
---------------------------------------------------------------------------

    IOM reviewed the available evidence and determined that locking 
devices do not effectively prevent youth access to cigarette vending 
machines. IOM noted that ``although fewer cigarettes are sold to youths 
than where vending machines are completely unrestricted, businesses 
that installed locking devices on vending machines were still more 
likely to sell cigarettes to young people than businesses that used 
over-the-counter sales.'' \59\
---------------------------------------------------------------------------

    \59\ IOM Report, p. 213.
---------------------------------------------------------------------------

    Finally, the Inspector General reported that Utah experienced 
limited success with locking devices:
    Reportedly, clerks would simply activate the machine without 
checking the age of the purchaser. Since the locking devices require 
employee participation, they are often not as effective in busy 
places, such as bars or restaurants, where employees are more likely 
to simply activate the machine. \60\
---------------------------------------------------------------------------

    \60\ ``Youth Access to Cigarettes,'' Department of Health and 
Human Services (DHHS), Office of the Inspector General, Pub. No. 
OEI-02-90-02310, p. 9, May 1990.
---------------------------------------------------------------------------

    FDA has not been persuaded that vending machines equipped with 
locking devices sufficiently guard

[[Page 44452]]

against children's access to tobacco products. Comments provided no 
evidence, and FDA is not aware of any studies, on whether law 
enforcement efforts affect children's ability to access tobacco 
products through locked vending machines. However, one study examined 
the effect of law enforcement efforts on illegal vending machine sales 
in three comparable communities that did not require locking devices. 
Despite the fact that merchants in one of the three communities 
received a letter describing the State law and warning them of the 
city's intention to enforce the law, there was no significant 
difference in the rate of illegal vending machine sales among the 
communities. \61\
---------------------------------------------------------------------------

    \61\ Forster, J. L., M. Hourigan, and P. McGovern, 
``Availability of Cigarettes to Underage Youth in Three 
Communities,'' Preventive Medicine, vol. 21, No. 3, pp. 320-328, May 
1992.
---------------------------------------------------------------------------

    Comments also provided no evidence that restricting the location of 
cigarette vending machines equipped with a locking device renders the 
machines less accessible to children and adolescents. FDA notes that, 
if locking devices were effective, the location of the machine would be 
of no consequence. Yet, as discussed in the preceding paragraphs, FDA 
is persuaded that some establishments are entirely inaccessible to 
young people. Accordingly, the final rule allows the use of vending 
machines in those establishments without requiring that the machines be 
equipped with a locking device.
    FDA declines to grant an exception for tokens in the absence of 
evidence that machines operated only by tokens prevent children from 
obtaining cigarettes. Several comments suggested, rather than eliminate 
vending machines, that FDA require either locking devices or tokens. 
These comments focused on locking devices, without offering any 
evidence of the number of vending machines currently operating with 
tokens, the extent to which tokens have been tested in the marketplace, 
or whether the technology prevents children and adolescents from 
obtaining cigarettes from vending machines. FDA is aware that three 
States whose laws restrict the use of vending machines permit the use 
of locking devices or tokens. However, FDA is not aware of any evidence 
indicating that the use of tokens prevents young people's access to 
cigarettes from vending machines that are otherwise accessible to 
children.
    (70) The most common concern raised by adult smokers was that the 
elimination of vending machines would inconvenience them. Most adult 
smokers stated that vending machines are closer than retail outlets to 
their homes or places of work. Some adult smokers stated that they 
would be unable to purchase cigarettes late at night if vending 
machines were eliminated. Others indicated that vending machines 
provide the only means of obtaining their brand, or of obtaining 
cigarettes altogether.
    In contrast, while acknowledging that adult smokers would be 
somewhat inconvenienced, comments in support of eliminating vending 
machines pointed out that adult smokers would still be able to purchase 
their products in retail transactions. Nearly all comments in support 
of the provision, including comments from grade school students, 
parents, and health professionals, said that the significant reduction 
in children's access to cigarettes would outweigh any inconvenience 
experienced by adult smokers.
    The agency is persuaded that the provision would not unduly burden 
adult smokers, who could continue to purchase cigarettes in retail 
transactions, and that the inconvenience some smokers would experience 
is a small burden when compared to the significant public health 
benefit of reducing children's and adolescents' access to tobacco.
    (71) A few comments questioned the propriety of using young people 
in ``sting'' operations to determine the level of compliance with 
existing laws restricting the sale of tobacco products to children. One 
comment suggested that these operations taught children how and where 
to purchase cigarettes, concluding that the operations ``have done more 
to increase smoking in our youth than any tobacco company or 
advertisement could have.''
    FDA relied on several types of evidence in proposing these 
regulations, including teen surveys and peer-reviewed studies. 
Compliance testing involves sending underage children and adolescents 
into tobacco outlets to attempt to purchase cigarettes or smokeless 
tobacco. This type of study provides reliable evidence of children's 
ability to illegally obtain tobacco products.
    A 1994 review \62\ of the design of recent studies indicates 
children who participated in these studies received specific 
instructions about the method and purpose of the study and were 
escorted by at least one adult. Some adults waited outside the outlet 
for the young person while others went inside to observe the child 
attempt the purchase. In response to comments on the final rule on 
substance abuse prevention and treatment block grants (suggesting that 
participating in sting operations could be detrimental to children and 
adolescents), DHHS explained that ``proper training and adult 
supervision can reduce any potential risk of negative consequences 
toward youth'' (61 FR 1492 at 1494, January 19, 1996). In addition, 
DHHS offered States assistance in developing compliance testing 
procedures.
---------------------------------------------------------------------------

    \62\ ``Design of Inspections Surveys for Vendor Compliance with 
Restrictions on Tobacco Sales to Minors,'' Battelle, prepared for 
CDC, OSH, p. 14, April 1994.
---------------------------------------------------------------------------

    FDA is not persuaded that participating in compliance testing 
entices children to smoke. The agency believes that, with proper 
training and adult supervision, children and adolescents who 
participate in compliance testing will understand that their role in 
this testing is to help reduce teenage smoking by identifying places 
that illegally sell tobacco products to children, and that, after 
identification and publicity or enforcement action, these places will 
stop illegal sales.
    (72) Several adult smokers commented that the provision, either 
alone or in conjunction with other provisions, would cause a decrease 
in tobacco consumption. To compensate for this loss, they argue, 
tobacco companies will raise their prices and governments will increase 
taxes. Overwhelmingly, adult smokers commented that the price of a 
package of cigarettes is already unfairly high.
    The agency has narrowly tailored the final regulations to prevent 
only young people's use of cigarettes and smokeless tobacco. Because 
sales to children account for a small percentage of total tobacco 
sales, industry revenues will be significantly diminished only after 
many years have passed. Moreover, the long-term effect on product 
prices is difficult to forecast because reduced product demand could 
easily result in price decreases.
    (73) In contrast, one comment cited a 1995 survey in which three-
quarters or more of those Californians polled supported increasing the 
tobacco tax by 25 cents. Another comment suggested that an additional 
portion of excise taxes be allocated to smoking cessation programs and 
to prenatal care, especially antismoking messages targeted to pregnant 
women. Other comments noted that increased prices

[[Page 44453]]

could serve to deter some children and adolescents from purchasing 
cigarettes.
    The agency cannot act on these comments as it lacks the authority 
to levy taxes or mandate prices.
    (74) One comment submitted by cigarette manufacturers characterized 
as misleading FDA's claim that its proposal to eliminate vending 
machines is consistent with recommendations from IOM, PHS, a working 
group of State attorneys general, and the Inspector General of DHHS (60 
FR 41314 at 41325). FDA disagrees. IOM and PHS specifically recommended 
that vending machines be eliminated. IOM advocated that less 
restrictive measures be adopted only if shown to be effective, \63\ 
while PHS cautioned that alternatives be examined carefully. \64\ 
Moreover, PHS specifically noted that Utah found disabling devices to 
be ``ineffectual in practice.'' \65\
---------------------------------------------------------------------------

    \63\ IOM Report, p. 214.
    \64\ ``Model Sale to Tobacco Products to Minors Control Act, A 
Model Law Recommended for Adoption by States of Localities to 
Prevent the Sale of Tobacco Products to Minors,'' DHHS, p. 2, May 
24, 1990.
    \65\ Id., p. 5.
---------------------------------------------------------------------------

    The State attorneys general determined that ``very young children 
rely heavily on vending machines as a major source of tobacco 
products,'' and that ``their use of these machines is difficult to 
police.'' \66\ Consequently, the group recommended that retail stores 
``remove cigarette vending machines from their premises and sell 
tobacco products only from the controlled settings recommended above.'' 
\67\ The referenced controlled settings included the use of electronic 
price scanners to prompt retail clerks to check a customer's 
identification and to display the last acceptable date of birth, using 
price scanner systems with tobacco ``locks,'' and requiring tobacco 
products to be kept behind sales counters. The State attorneys general 
did acknowledge that, ``at a minimum,'' vending machines should be 
modified to require tokens that could be purchased only from a store 
manager or be programmed to operate only if a cashier activates a 
remote switch, but their principal recommendation was the removal of 
vending machines.
---------------------------------------------------------------------------

    \66\ ``No Sale: Youth Tobacco and Responsible Retailing 
Developing Responsible Retail Sales Practices and Legislation to 
Reduce Illegal Tobacco Sales to Minors, Findings and Recommendations 
of a Working Group of State Attorneys General,'' pp. 31-32, December 
1994.
    \67\ Id., p. 32.
---------------------------------------------------------------------------

    While the Inspector General made no recommendation, his report 
noted that 42 percent of State health department officials believe that 
total bans are the only way to prevent teens from using cigarettes. 
\68\
---------------------------------------------------------------------------

    \68\ ``Youth Access to Cigarettes,'' DHHS, Office of the 
Inspector General, Pub. No. OEI-02-90-02310, pp. 8-9, May 1990.
---------------------------------------------------------------------------

    FDA believes the provision on vending machines is consistent with 
the positions taken by the IOM, PHS, State attorneys general, and the 
Inspector General of DHHS.
    (75) One comment suggested that the rule define ``vending machine'' 
to avoid regulating machines that dispense cigarettes to salespersons 
rather than customers. The comment described a machine designed to 
limit theft and to control the inventory of cigarettes and other 
similarly packaged items in retail stores, principally supermarkets. 
The machine requires that a computer command be entered before it 
dispenses a package of cigarettes. The comment asserted that among the 
machine's benefits is its ability to exclude customer access to 
cigarettes.
    FDA did not contemplate the type of inventory machine described by 
the comment, and the provision, as drafted, would not include this type 
of machine. Section 897.16(c) is intended, in part, to eliminate 
mechanical devices that dispense cigarettes or smokeless tobacco to 
purchasers in locations that are accessible to children. FDA declines 
at this time to define ``vending machine'' so as to exclude from the 
rule mechanical devices developed in the future, including those 
intended to aid in preventing theft.
    (76) One comment opposed to the provision interpreted it as 
prohibiting a vending machine that dispenses single cigarettes, 
packaged separately in tubes, each bearing the Surgeon General's 
warning and in compliance with tax laws. The comment explained that in 
some adult locations, such as cocktail lounges and casinos, many adults 
would like to purchase a single cigarette, and that the person 
submitting the comment developed the machine to fill this perceived gap 
in the marketplace.
    The proposal did not contemplate the type of machine described by 
the comment. Accordingly, Sec. 897.16(c) has been amended to permit the 
sale of a packaged, single cigarette in locations inaccessible to 
persons under the age of 18. This exception is restricted to packaged, 
single cigarettes that comply with other applicable laws and 
regulations.
    b. Self-service displays. Proposed Sec. 897.16(c) also would have 
prohibited the use of self-service displays. The preamble to the 1995 
proposed rule explained that self-service displays enable young people 
to quickly, easily, and independently obtain cigarettes and smokeless 
tobacco. FDA cited one report that reviewed surveys of grade school 
students; the report found that over 40 percent of the students who 
smoked daily shoplifted cigarettes from self-service displays (60 FR 
41314 at 41325). The agency also cited one study showing that tobacco 
sales to young people dropped 40 to 80 percent after enactment of 
ordinances prohibiting self-service displays and requiring vendor-
assisted sales (60 FR 41314 at 41325). The proposed provision, 
therefore, was intended to prevent young people from helping themselves 
to these products and to increase the amount of interaction between the 
sales clerk and the underage customer.
    The preamble to the 1995 proposed rule also referred to the IOM 
Report which stated that placing products out of reach ``reinforces the 
message that tobacco products are not in the same class as candy or 
potato chips.'' \69\
---------------------------------------------------------------------------

    \69\ IOM Report, p. 215.
---------------------------------------------------------------------------

    In response to the comments, the agency has amended this section to 
except certain self-service displays (merchandisers) in facilities 
inaccessible to persons under the age of 18.
    (77) Several comments asserted that the proposed restriction 
pertaining to self-service displays would effect takings compensable 
under the Fifth Amendment.
    The agency disagrees with the comments. Given the character of the 
section, as modified in this final rule, and the lack of reasonable 
investment-backed expectations in personal property, its economic 
impact, while potentially significant for some parties, is not such as 
to effect a taking. The agency addresses Fifth Amendment issues in 
greater detail in section XI.A. of this document.
    (78) Several comments challenged FDA's basis and authority for 
prohibiting self-service displays. The comments focused, in part, on 
the studies and reports cited by the agency. They argued that active 
enforcement of laws, rather than elimination of self-service displays, 
led to decreases in young people's access to cigarettes and smokeless 
tobacco. Other comments disputed whether significant shoplifting occurs 
from self-service displays. According to these comments, FDA did not 
provide any evidence to suggest that eliminating self-service displays 
is necessary to prevent shoplifting.

[[Page 44454]]

    One comment examined studies that FDA did not cite in the 1995 
proposed rule and found one study estimating that less than 5 percent 
of the adolescents surveyed had shoplifted cigarettes. Also, a number 
of comments stated that, if shoplifting were truly a significant 
problem, retailers would have a financial interest in reducing their 
losses and would remove self-service displays themselves. The comments 
implied that shoplifting is not a significant problem, and several 
claimed FDA's rationale was inconsistent because, if young people could 
purchase cigarettes and smokeless tobacco easily from retailers, they 
would not have to steal them from self-service displays.
    In contrast, several comments supported the prohibition on self-
service displays, reiterating FDA's position that displays encourage 
shoplifting, and their absence increases the likelihood of age 
verification. For example, a drug addiction counselor commented that 
teens do not want to go to the counter and ask for cigarettes since 
there is a greater likelihood that they will be asked to show their 
identification and they might be embarrassed. One comment also asserted 
that retailers get products for displays at a discount, and such 
discounts are, in effect, a subsidy for shoplifting. Another comment 
alleged that, in one area of the country, low-priced brands are put in 
displays and that retailers are compensated for any shoplifting losses.
    Comments from other areas of the country agreed that shoplifting 
occurs, sometimes at significant rates. One comment stated that a 1993 
survey of 9th-grade students in one county revealed that 51 percent had 
shoplifted cigarettes. Another comment, reflecting on experiences 
conducting retailer compliance checks in three small towns, stated that 
its teenage volunteers ``commented on the ease with which they could 
have lifted cigarettes from free-standing displays.'' A comment 
describing practices in a rural part of the country stated that theft 
was one method of acquiring smokeless tobacco, and that young people 
often began using such products at the age of 10, 11, or 12.
    Other comments suggested an additional reason for eliminating self-
service displays. These comments indicated that young people can easily 
pick up products from displays, leave their money at the cashier's 
desk, and leave the premises without being challenged by a retailer or 
before the retailer can request proof of age.
    FDA believes there is ample evidence to support a restriction on 
self-service displays. The preamble to the 1995 proposed rule cited 
surveys suggesting that a significant percentage of children and 
adolescents (40 percent in the two areas surveyed) shoplift cigarettes 
(60 FR 41314 at 41325), and at least one comment reported an even 
higher percentage (50 percent). Although one comment from cigarette 
manufacturers suggested the shoplifting rate to be only 5 percent, FDA 
emphasizes that, even if one accepts the 5 percent figure, the numbers 
of young people engaging in shoplifting can be very large. For example, 
5 percent of the estimated 3 million young people who smoke cigarettes 
daily equals 150,000 children and adolescents. Five percent of the 
estimated 3 million smokeless tobacco product users under the age of 21 
also equals 150,000 people.
    These numbers may even be artificially low because they exclude the 
number of young people who do not smoke or use smokeless tobacco daily, 
and these numbers may be extremely low if the 40 or 50 percent 
shoplifting rates identified by the agency or by other comments prove 
to be more accurate than the 5 percent rate cited by the cigarette 
manufacturers.
    FDA also disagrees with those comments claiming that shoplifting is 
not a significant problem. Generally, such comments asserted that the 
problem is not significant because, if it were, retailers would move 
self-service displays, and most have not done so. Such comments, 
however, misconstrue the significance of the problem. The agency did 
not, and does not, claim that individual retailers are suffering 
significant shoplifting losses (although FDA did receive one comment 
containing information showing that shoplifting losses at two stores 
amounted to several thousands of dollars worth of cigarettes annually). 
Instead, FDA is stating that significant numbers of young people 
shoplift these products. The distinction is critical. To illustrate, if 
1,000 retailers each lose 1 cigarette package to shoplifting, each 
retailer might feel that the shoplifting rate, from its perspective, is 
insignificant. However, if 1,000 young people acquire cigarettes by 
shoplifting, the shoplifting problem, from a public health perspective, 
then becomes much more significant.
    (79) Several comments argued that the studies cited by the agency, 
having been conducted at only two locations in the United States (Erie 
County, NY, and Fond du Lac, WI), cannot be used to justify a 
nationwide prohibition against self-service displays.
    The agency disagrees with these comments. The comments offered no 
evidence to show that these communities are so distinct or unique from 
the remainder of the United States to require FDA to discount or to 
ignore their findings. To the contrary, FDA received other comments 
from various parts of the nation supporting the rule, and these 
comments often agreed that young people shoplift these products from 
displays.
    FDA also notes that it does not require clinical investigations for 
product approvals to be conducted on a national scale. One important 
aspect of any study, whether it is submitted as part of an 
investigational product exemption, marketing application, or 
rulemaking, is whether the study is conducted and analyzed in a 
scientifically valid way that permits the results to be extrapolated to 
a broader population. In other words, the methodology and analysis are 
more important than where the study was conducted. If the agency could 
only act after nationwide studies had been conducted, it would be 
unable to act or to respond promptly, even in response to significant 
public health problems or emergencies.
    (80) Several comments questioned the evidence supporting the 
proposed restriction on self-service displays. The comments stated that 
FDA had no evidence to support the assertion that removing self-service 
displays will increase the likelihood of retail clerks requesting proof 
of age. One comment stated that the one document cited by FDA (which 
compared smoking practices in five California counties before and after 
the institution of ordinances prohibiting self-service merchandising) 
\70\ cannot be used to justify a rule with nationwide application 
because the document, which the comment correctly identified as a 
``position paper'' rather than a study, did not: (a) Indicate whether 
the ordinances contained other provisions that would have led to 
enhanced compliance with minimum age laws; and (b) disclose whether 
retailers were told of the compliance testing operation before or after 
the fact, such that, had the retailers known, they would have been more 
vigilant in ensuring

[[Page 44455]]

compliance regardless of how their products were displayed. This 
comment further asserted that the act of adopting the ordinances, and 
the penalties they contained, may have made retailers more vigilant in 
ensuring compliance with minimum age laws than the restrictions in the 
ordinances themselves. Finally, the comment stated that the document 
was not a controlled study and that there was no indication that it was 
not biased, was subjected to peer review, or was even published in a 
scientific journal. The comment stated that the document would not be 
acceptable to FDA if it had been submitted as proof of a product's 
effectiveness.
---------------------------------------------------------------------------

    \70\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to 
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring Only Vendor-Assisted Tobacco 
Sales,'' Stop Tobacco Access for Minors Project (STAMP), North Bay 
Health Resources Center, November 3, 1994.
---------------------------------------------------------------------------

    Another comment echoed criticism of the document, stating that 
factors besides the restriction on self-service displays could have 
reduced tobacco use by young people and so the document does not 
support a prohibition against self-service displays.
    FDA acknowledges that the document omitted details regarding the 
author's methodology and the ordinances in the 5 California counties 
and the 24 cities covered in the document. The agency disagrees, 
however, with the comments' assertion that factors other than the 
restriction on self-service displays or other features of the 
ordinances may have been principally responsible for decreasing tobacco 
use among young people. Such comments overlook the document's statement 
that the ordinances were to ``prohibit self-service merchandising 
(display and sale) of tobacco products and point-of-sale tobacco 
promotional products and require only vendor-assisted sales of tobacco 
products and point-of-sale tobacco promotional products in retail 
stores.'' \71\ This statement suggests that the ordinances focused on 
restricting self-service displays (or merchandisers) and point-of-sale 
promotional products rather than other activities.
---------------------------------------------------------------------------

    \71\ Id., p. 3.
---------------------------------------------------------------------------

    Other criticisms of the document are inappropriate as well. For 
example, the comment claimed that other provisions in the ordinances or 
other factors may have contributed to the decline in tobacco use in 
young people so that a restriction on self-service displays, alone, may 
not have been a significant factor in reducing tobacco use among young 
people. This criticism, however, overlooks the fact that the rule's 
restriction on self-service displays is also complemented by other 
provisions (such as requiring retailers to verify age and prohibiting 
distribution of free samples) that will, both individually and 
collectively, reduce young people's access to cigarettes and smokeless 
tobacco.
    Similarly, FDA does not agree that the document is flawed because 
retailers were not informed of the compliance testing operation before 
it was conducted. Alerting a retailer to an upcoming compliance test 
would bias any results because the retailer would alter its behavior in 
order to ``pass'' the test.
    Additionally, in drafting the 1995 proposed rule, FDA used the best 
evidence available to it. The comments did not provide any studies to 
contradict the cited document, and while some criticisms of the 
document may be valid, such criticisms do not require the agency to 
revoke the provision entirely. The document was not FDA's sole basis 
for proposing to restrict self-service displays. The preamble to the 
1995 proposed rule indicated that such a restriction would also reduce 
shoplifting, eliminate the ``message'' that displays send to young 
people, and increase interaction between retailers and their customers. 
These other justifications, and the comments pertaining to them, are 
discussed in greater detail in this document.
    (81) Other comments objected to a prohibition on self-service 
displays because, according to these comments, the rule did not impose 
any sanctions on young people or contain any provisions that would 
modify a young person's behavior so that he or she would not shoplift. 
Some comments suggested that, instead of restricting the use of self-
service displays, shoplifters should be prosecuted, but these same 
comments also declared that State or local government authorities 
usually decline to prosecute young shoplifters.
    As stated earlier, it would be inappropriate for FDA to amend the 
rule to impose penalties on young people who purchase or possess 
cigarettes or smokeless tobacco. The main focus of the act is on the 
introduction, shipment, holding and sale of goods in interstate 
commerce. Thus, whether young people should be prosecuted for 
shoplifting, and the penalty for shoplifting are appropriately matters 
for State or local law.
    (82) Several comments challenged the statement in the preamble to 
the 1995 proposed rule that removing self-service displays would 
reinforce the message to children that tobacco products are not as 
acceptable as candy or potato chips. The comments said that young 
people know that tobacco products are not like candy or potato chips 
and that there is no evidence to show that the statement is true. A 
small number of comments added that FDA's rationale would force 
retailers to remove other ``unhealthy'' products (such as products 
containing fat or cholesterol) from displays.
    In contrast, a few comments agreed that self-service displays for 
cigarettes and smokeless tobacco convey an implied message that these 
products are acceptable. One comment from a local government reported 
that young people often see tobacco products as being socially 
acceptable (or less harmful to health) because they are openly 
displayed. The comment noted that the local jurisdiction had restricted 
displays to being within 20 feet of the checkout counter and in a 
direct line of sight, but expressed regret that it had not eliminated 
displays altogether. Other comments noted that many retailers display 
cigarettes next to candy, baseball cards, and other items that appeal 
to children and adolescents. These comments concluded that it is 
necessary to eliminate self-service displays so that young children do 
not associate cigarettes with other products that they find amusing or 
that adults give to children and adolescents as treats.
    The IOM Report advanced the theory that young people see self-
service displays as an implied message regarding the acceptability or 
safety of cigarettes and smokeless tobacco. The IOM report represents 
the informed decisions, opinions, and recommendations of a body of 
experts, and so, with respect to this issue, the agency disagrees with 
those comments that would have FDA dismiss the IOM's opinion.
    FDA also disagrees with those comments arguing that the agency 
would have to eliminate self-service displays for potato chips, candy, 
and other supposedly ``unhealthy'' products. These food products do not 
present the same range or magnitude of adverse health effects or 
effects on the body to warrant tighter restrictions on their sale, 
distribution, or use.
    (83) Several comments challenged FDA's claim that removing self-
service displays would increase direct interaction between sales clerks 
and underage consumers. The comments asserted that removing self-
service displays will not prompt sales clerks to check for proof of age 
and that FDA had no evidence to support this proposition. Other 
comments opposed any restriction on self-service displays

[[Page 44456]]

because, they claimed, retail clerks, rather than self-service 
displays, are responsible for sales to young people. If retail clerks 
consistently demanded proof of age, these comments would permit self-
service displays to be used.
    Other comments asserted that FDA has no reasonable basis to assume 
that clerks will check for proof of age when clerks already ignore 
State laws.
    In contrast, a few comments agreed that eliminating self-service 
displays would increase interaction between clerks and underage 
consumers or deter young people from attempting to purchase cigarettes 
or smokeless tobacco. One comment from a local board of health stated 
that it eliminated self-service displays because its evidence indicated 
that young people in the locality are less likely to purchase 
cigarettes if they have to request them from retail clerks. Another 
comment reflected on the author's own experience as a child when she 
would purchase cigarettes and said it is easy to grab a cigarette 
package, leave money on the counter, and simply leave a store before 
the sales clerk can react.
    Section 897.14(b)(1) requires retailers to verify that persons 
purchasing cigarettes or smokeless tobacco are not under the age of 18. 
This provision, in conjunction with the prohibition against sales to 
anyone under 18 in Sec. 897.14(a), the restriction on self-service 
displays in Sec. 897.16(c), the sanctions that are available under the 
act, and the likelihood that State agencies will devote more attention 
to illegal sales to young people as a result of section 1926 of the PHS 
Act should increase the probability that retailers will verify the age 
of prospective purchasers.
    Yet logically, removing self-service displays should increase 
interaction between retailers and potential consumers because the 
retailer, under this rule, must physically hand the product to the 
consumer. While this action probably will take little time (the 
preamble to the 1995 proposed rule and to this final rule estimate that 
the elimination of self-service displays would require 10 seconds of 
additional labor time for many retail transactions), nevertheless it 
increases the interaction between the retailer and potential customers. 
Furthermore, by restricting self-service displays, the rule eliminates 
a young person's ability to take a package of cigarettes or smokeless 
tobacco, leave money on the counter, and leave the retailer's premises 
without having to provide proof of age.
    (84) Many comments opposed any restriction on self-service displays 
because they said eliminating self-service displays would adversely 
affect adult consumers or would be ``inconvenient'' because adults 
would not be able to purchase products quickly; see, handle, or choose 
products; or obtain information about a product or a special promotion. 
A few comments asserted, without any supporting evidence, that self-
service displays are not or cannot be used by young people, and, 
therefore, should not be regulated.
    Conversely, one comment supporting the provision recommended that 
FDA clarify or modify the term ``self-service displays'' to distinguish 
self-service sales or merchandisers from advertising displays.
    The comments opposing the rule misinterpreted how it would apply. 
The final rule prohibits self-service displays from being in facilities 
that are accessible to young people. Eliminating self-service displays 
from such facilities simply means that a consumer will not be able to 
take physical possession of a product without the retailer's 
assistance. Any inconvenience to an adult should be slight. For 
example, it is extremely unlikely that adults will suffer undue 
hardship or wait an unreasonable amount of time if they must ask a 
retail clerk to hand a product to them. Moreover, the provision does 
not prevent adults from seeing or choosing a product or from seeing or 
receiving information about a product; products would remain visible, 
but they would be behind a counter or in an area accessible only to the 
retailer.
    Deleting self-service displays from the rule because adults wish to 
avoid contact with clerks would be inappropriate as well. As a 
practical matter, adults who use self-service displays would not be 
able to avoid all contact with a retailer because they presumably still 
interact with the retailer when they pay for the product. An important 
component of these regulations is to eliminate those modes of sale used 
by young people that do not require them to show proof of age or 
otherwise do not challenge a young person to show that he or she is 
legally entitled to purchase the product.
    FDA does agree, however, that the rule should be clarified so that 
the reference to displays in Sec. 897.16(c) is understood to cover 
self-service sales or merchandisers rather than advertising displays 
that contain no products and has amended the rule accordingly. However, 
advertising displays are restricted under the advertising provisions in 
this rule.
    (85) The preamble to the 1995 proposed rule expressed a belief that 
retailers, in order to comply with a prohibition on self-service 
displays, could move displays behind a retail counter or create an area 
that would be accessed only by the retailer's employees.
    Many comments rejected this notion, claiming that, due to space 
constraints, many retailers would be unable to move displays behind a 
counter and would be obliged to build areas where access would be 
controlled. The comments said such construction and remodeling could be 
expensive and could force some retailers to scale back their tobacco 
sales or abandon them completely; such actions would lead to decreased 
sales by the retailer and trigger reductions in staff and in State or 
local Government tax revenues.
    One comment estimated that, for convenience stores, the average 
remodeling cost would be as high as $7,000 per store and noted that 
tobacco purchases account for 28 percent of convenience store sales. 
So, instead of eliminating self-service displays, some comments 
advocated alternative approaches. The alternatives included attaching 
electronic article surveillance tags to products (although the comment 
suggesting this alternative conceded that new technology or assistance 
at the manufacturer's level would be needed); ``source tagging,'' where 
random packages contain an electronic tag so that would-be shoplifters 
would not know which packages were tagged and, as a result, would be 
less inclined to shoplift products; and requiring displays to be within 
a certain distance of a cash register or the cashier's line of sight, 
supplemented by posting signs against underage sales and by training 
sales clerks. ``Source tagging'' would require manufacturers, rather 
than retailers, to insert tags into packages.
    The alternatives identified by the comments appear to be less 
effective or less practical than removing self-service displays from 
places that are accessible to young people. For example, surveillance 
tags and, to a lesser extent, ``source tagging'' might deter 
shoplifting, but this would require all manufacturers to agree to place 
such tags in their products and would require retailers to install 
machines or gates to detect those tags. More importantly, comments from 
manufacturers did not address the creation or use of such tags. A 
``line-of-sight'' or restricted-placement alternative (requiring a 
display to be within a certain distance of a retail employee) would 
require no changes by

[[Page 44457]]

manufacturers and few changes by retailers, yet the preamble to the 
1995 proposed rule cited studies where similar requirements for vending 
machines failed to prevent illegal sales to young people (60 FR 41314 
at 41325). Employees might also be distracted or blocked from seeing 
the displays, thereby reducing the effectiveness of any ``line-of-
sight'' or restricted placement alternative. Furthermore, the 
alternatives would fail to eliminate the implied message that self-
service displays send regarding the acceptability or safety of these 
products. Because FDA is unaware of any effective alternative, the 
agency declines to amend the rule as suggested by the comments.
    FDA has, however, amended the rule to permit self-service displays 
(merchandisers only) in facilities that are inaccessible to people 
under 18 at all times. The agency made this change in response to 
comments stating that some facilities are inaccessible to young people 
and so certain requirements, such as restrictions against vending 
machines and self-service displays, should not apply. This exception is 
subject to the same restrictions as the exception on vending machine 
sales.
    (86) Many comments, particularly from retailers, opposed 
eliminating self-service displays, stating that they derive a 
significant portion of their revenue from displays and slotting fees 
provided by manufacturers. Several cited figures that were in the 
hundreds of thousands of dollars. The comments generally stated that 
eliminating self-service displays would decrease or eliminate a 
significant portion of their revenue and, according to some, lead to 
layoffs or prevent them from hiring young people.
    Similarly, FDA received a few comments from firms that manufacture 
or sell displays. These comments stated that the firms would lose 
significant amounts of revenue or would be forced out of business if 
self-service displays were eliminated.
    A few comments, however, disputed whether retailers would lose 
slotting fees. One comment explained that manufacturers would continue 
to pay fees to ensure that their products would be placed in strategic 
locations behind the counter, while another comment noted that many 
retailers in a northern California region where self-service displays 
were eliminated did not lose slotting fees.
    The agency declines to amend the rule because of the possible loss 
of slotting fees or other revenue from manufacturers. The theoretical 
loss of fees that are, at best, tangential to the sale of these 
products is an inappropriate basis for determining whether this 
provision denies young people's access to these products effectively. 
Furthermore, FDA appreciates that such fees may be important to certain 
retailers, but, as stated earlier, the agency has no reason to conclude 
that all manufacturers will discontinue those fees because of this 
rule. The preamble to the 1995 proposed rule (see 60 FR 41314 at 41369) 
and one comment cited experience in California to show that retailers 
might not suffer significant economic losses if self-service displays 
are removed.
    FDA reiterates that removing self-service displays from places that 
are accessible to young people does not mean that cigarettes and 
smokeless tobacco must be hidden from public view. It simply means that 
retailers will be required to hand these products to consumers. 
Presumably, if the products are moved behind the counter, manufacturers 
still have an incentive to ensure that their products are strategically 
placed in order to attract adult consumers.
    (87) Several comments objected to a restriction on self-service 
displays, claiming that retailers have a ``right'' to advertise and 
sell products in their own establishments in any manner they select.
    As mentioned in section IV.B. of this document earlier, section 
520(e) of the act states, in part, that the agency may issue 
regulations to establish conditions on the sale, distribution, or use 
of a restricted device. Restrictions on cigarette and smokeless tobacco 
sales are appropriate given the potential adverse health effects caused 
by or associated with the use of these products and their accessibility 
and appeal to young people.
    (88) A few comments said that eliminating self-service displays 
will make it difficult or impossible for marginal brands of cigarettes 
or smokeless tobacco to compete against established brands.
    FDA reiterates that eliminating self-service displays from places 
that are accessible to young people does not mean that the products 
must be hidden from view; it simply means that consumers will not be 
able to take physical possession of the product without the retailer's 
assistance. Consequently, all products will face the same constraints, 
insofar as retailer space is concerned.
    (89) Many comments would delete a prohibition against self service 
displays because, according to these comments, the prohibition would be 
ineffective. These comments stated that self-service displays do not 
entice young people to smoke, do not increase consumption of tobacco 
products, or are only used where retailers check the consumer's age. 
Others stated that young people would get the products anyway, so there 
was no need to prohibit the use of self-service displays.
    The preamble to the 1995 proposed rule stated, among other things, 
that young people shoplift products from displays (60 FR 41314 at 
41325). Additionally, the preamble to the 1995 proposed rule indicated 
that young people will adjust or shift their purchasing behavior as 
certain avenues of obtaining these products are eliminated. (See 60 FR 
41314 at 41325 (citing different vending machine use rates depending on 
the access restrictions used in the jurisdiction).) Given this 
evidence, it is reasonable to assume that, as young people are 
precluded from purchasing these products, they may be inclined to 
acquire them by theft and other means. Thus, when properly framed, the 
issue is not whether displays entice young people to smoke or to use 
smokeless tobacco (which FDA did not advance as the principal 
justification for the rule), but whether the agency should eliminate 
self-service displays as an avenue that young people use to obtain 
these products. The agency concludes that self service displays must be 
eliminated from places that are accessible to young people as part of 
the general restriction against impersonal modes of sale.
    (90) Several comments opposed elimination of self-service displays 
because they claimed that retailers would be forced to hire additional 
staff. These comments contrasted sharply with the majority of comments 
from retailers who predicted that the loss of self-service displays 
would compel them to lay off staff. One comment explained that a self-
service display frees the retailer's staff to perform other tasks. The 
other asserted that the rule would compel retailers to hire additional 
staff in order to sell these products and that this would result in an 
``unfunded mandate'' in violation of the Unfunded Mandates Reform Act.
    The preambles to the 1995 proposed rule and to this final rule 
estimate that eliminating self-service displays would require 10 
seconds of additional labor time for many retail transactions involving 
cigarette cartons (60 FR 41314 at 41367). The ``Analysis of Impacts''

[[Page 44458]]

discussion in section XV. of this document places the labor cost for 
this time at approximately 2.6 cents per carton. Thus, for a retailer 
to be compelled to hire additional staff to compensate for the loss of 
self-service displays, cigarette and smokeless tobacco product 
purchases would have to account for a substantial number of 
transactions. Some retailers may indeed feel that they need to hire 
additional staff, but the agency believes that the rule's benefits--
reducing young people's access to cigarettes and smokeless tobacco 
nationwide--outweigh the hiring and accompanying economic burdens that 
might be imposed on some retailers. Moreover, because the final rule 
permits self-service displays (merchandisers only) in facilities that 
are inaccessible to under 18 people at all times, the final rule's 
impact on some retailers may be reduced.
    FDA also disagrees with the comment claiming that the agency 
violated the Unfunded Mandates Reform Act. The preamble to the 1995 
proposed rule contained a discussion of the Unfunded Mandates Reform 
Act as well as the estimated added labor costs in the ``Analysis of 
Impacts'' (60 FR 41314 at 41367 and 41359 through 41372).
    (91) One comment disputed FDA's estimate that eliminating self-
service would result in 10 seconds of additional labor time for most 
retail transactions. The comment, however, did not provide any estimate 
of the time that would be required.
    The agency did not receive any data to suggest that the additional 
labor time would be greater or less than 10 seconds. While some 
transactions may take more than 10 seconds, the agency believes that 
the additional labor time will be so negligible that it will not be a 
significant burden on the retailer.
    c. Mail-order sales and mail-order redemption of coupons.--i. Mail-
order sales. Proposed Sec. 897.16(c) would also have prohibited the use 
of mail-order sales and mail-order redemption of coupons. The preamble 
to the 1995 proposed rule stated that mail-order sales and mail-order 
redemption of coupons do not involve a face-to-face transaction that 
would enable verification of the consumer's age.
    The agency received thousands of comments on the proposed 
restriction against the mail-order sale of cigarettes and smokeless 
tobacco. Comments supporting the proposed restriction noted that it 
would make cigarettes and smokeless tobacco more difficult for young 
people to obtain. Specifically, comments stated that ``mail-order sales 
should be prohibited since the seller has obvious difficulties 
verifying the age of the purchaser in selling where there is no face-
to-face encounter.'' A comment from 26 State attorneys general stated 
that ``ending distribution of tobacco by mail-order * * * will greatly 
assist our efforts to enforce compliance with our state laws.'' As a 
result of some comments discussed in detail below, however, the final 
rule permits mail-order sales, except for redemption of coupons and 
free samples.
    (92) The agency received hundreds of comments opposing the proposed 
restriction against mail-order sales. Many comments were submitted by 
older smokers (senior citizens, retirees on fixed incomes, etc.) who 
identified themselves as pipe tobacco smokers who purchased tobacco 
products through the mail; most individuals appeared to be clients from 
one tobacco product supply house in Tennessee. These comments stated 
that young people do not smoke pipe tobacco and added that they would 
like to continue to purchase their pipe tobacco through the mail.
    The agency believes that the comments misinterpreted the 1995 
proposed rule. The preamble to the 1995 proposed rule stated that the 
rule did not apply to pipe tobacco or to cigars because FDA has no 
evidence demonstrating that pipe tobacco and cigars are drug delivery 
devices under the act or that young people use such products to any 
significant degree (60 FR 41314 at 41322).
    (93) One comment asserted that the proposed mail-order provision is 
unauthorized and contrary to law. According to the comment, neither 
section 520 of the act nor any other provision of the act gives FDA the 
authority to declare matter unmailable. The comment explained that, 
under the Prescription Drug Marketing Act (PDMA), prescription drug 
samples may be sent through the mail to those authorized by law to 
obtain them. Furthermore, the comment argued, Congress has specifically 
determined and legislated what products should not be sent through the 
mail (39 U.S.C. 3001(f) and (g) (Federal statute on ``nonmailable 
matter'')).
    The agency disagrees with the comment. Section 520(e) of the act 
expressly authorizes the agency to issue regulations pertaining to the 
sale, distribution, or use of a restricted device. Restrictions on the 
sale or distribution of such a device through the mail are clearly 
within the scope of FDA's authority under that section.
    Additionally, FDA does not agree that the PDMA or 39 U.S.C. 3001 
prevents the agency from acting on mail-orders. The PDMA's mail-order 
restrictions represented a congressional response to a specific 
problem, namely the diversion of adulterated prescription drug products 
(including drug samples) into illegal markets. Here, the products in 
question are devices rather than prescription drugs, and the rule does 
not purport to address the diversion of adulterated cigarettes or 
smokeless tobacco or samples of those products.
    Similarly, the Postal Service provision (39 U.S.C. 3001) on 
``nonmailable matter'' does not preclude FDA from issuing regulations 
pertaining to the distribution of a regulated device. The provision 
simply states that certain items or types of items are nonmailable and 
directs the United States Postal Service (USPS), in certain situations, 
to issue regulations (such as regulations pertaining to fragrance 
advertising samples). FDA interprets 39 U.S.C. 3001, therefore, as 
establishing certain ``nonmailable'' items for USPS purposes rather 
than precluding FDA from regulating the sale and distribution of a 
device pursuant to its device authority. Nevertheless, as discussed in 
comment 94 below, FDA has amended the rule to permit mail order sales, 
so the issue of the USPS restrictions on nonmailable matter is moot.
    (94) The agency received many comments from individuals who 
contended that the proposed mail-order restriction is unwarranted 
because the agency cited no studies to demonstrate that young people 
actually use the mail to obtain cigarettes. One comment noted that IOM 
acknowledges that ``the extent of mail-order purchase of tobacco 
products by minors is not known.'' According to the comment, the mail-
order restriction must be based on actual evidence that a substantial 
number of young people use the mail to purchase cigarettes and not 
based on ``theoretical purchasability.''
    Other comments stated that young people do not obtain cigarettes 
through the mail because they do not possess checks or credit cards to 
effectuate mail-order purchases. In addition, the comments questioned 
whether young people are patient enough to wait several weeks to obtain 
tobacco products. A few comments, including a comment from a mail-order 
firm, contended that mail-order purchases would be too expensive for 
young people, either because of the cost or the

[[Page 44459]]

minimum order sizes (which, according to one comment, usually consists 
of several pounds of tobacco). These comments opposed the proposed 
mail-order restriction on the basis that it would not effectively 
reduce young people's access to tobacco products and would instead 
eliminate an adult's access to entirely legal tobacco products.
    Other comments from firms with a significant mail-order business 
stated that the elimination of mail-order sales would force the firms 
to terminate staff or go out of business.
    The agency also received many comments from adults opposing the 
proposed mail-order restriction. These comments stated that because 
mail-order sales are highly preferable to purchases in retail stores 
the products sold through the mail are unavailable in stores or are 
less expensive than those sold in stores. Other comments (including one 
from a prison inmate) said that because mail-order sales serve those in 
rural or isolated areas, eliminating mail-order sales would eliminate 
the principal or sole source of tobacco for those adults.
    After carefully reviewing the comments, the agency has decided to 
delete mail-order sales from Sec. 897.16. The restriction was intended 
to preclude young people from having easy access to cigarettes and 
smokeless tobacco. However, there is inadequate evidence demonstrating 
that young people use mail-order sales to any significant degree. This 
lack of evidence may indicate that it is not relatively easy for young 
people to purchase cigarettes and smokeless tobacco through the mail.
    FDA also considered the impact of the proposed mail-order 
restriction on adults. The agency does not intend to unreasonably 
interfere with an adult's ability to obtain legally his or her 
preferred tobacco products.
    Consequently, FDA has amended Sec. 897.16(c) to allow mail-order 
sales of cigarettes and smokeless tobacco. The agency emphasizes, 
however, that the final rule retains the restrictions against the 
redemption of coupons and distribution of free samples through the 
mail. This amendment is consistent with the IOM Report which 
recommended a suitably limited Federal ban on the distribution of 
tobacco products through the mail as part of a long-term access 
strategy and, at a minimum, restrictions against the mail-order 
redemption of coupons and the distribution of free samples through the 
mail. \72\
---------------------------------------------------------------------------

    \72\ IOM Report, pp. 108, 225-226.
---------------------------------------------------------------------------

    FDA remains concerned, however, that young people may turn to mail-
order sales as the rule's restrictions against other forms of access 
(such as vending machines and retail stores) become effective. 
Accordingly, FDA strongly advises mail-order firms to take appropriate 
steps to prevent sales to young people and reminds mail-order firms 
that Sec. 897.14(a) prohibits the sale of cigarettes and smokeless 
tobacco to anyone under age 18. The agency will monitor the sales of 
mail-order tobacco products, and if FDA determines that young people 
are obtaining cigarettes or smokeless tobacco through the mail, the 
agency will take appropriate action to address the situation.
    (95) Several comments criticized the agency for failing to consider 
less restrictive alternatives. The comments noted that tobacco mail-
order houses require payment by check or credit card. Other comments 
would amend the rule to require firms to maintain records evidencing 
compliance with proof of age requirements. Another comment suggested a 
requirement for photocopies of photographic identification cards, such 
as an identification with a drivers license number, for mail-order 
transactions.
    As stated previously, FDA has amended the final rule to permit 
mail-order sales, but will monitor such sales to ensure that young 
people do not obtain cigarettes or smokeless tobacco through the mail. 
The agency, therefore, strongly advises firms to take appropriate 
measures to prevent sales to young people.
    (96) Several comments expressed concern about the financial well 
being of the USPS. These comments predicted that the USPS would lose 
income if tobacco products could no longer be sent by mail. The 
comments predicted that the USPS would be forced to raise postal rates 
to compensate, thus affecting product users and nonusers alike.
    As stated previously, the agency has amended the rule to permit 
mail-order sales to continue. However, FDA notes that speculative or 
theoretical impacts on the USPS are not an appropriate basis for 
determining how or whether to regulate a restricted device under the 
act.
    (97) One comment representing the concerns of specialty tobacco 
products noted that 90 percent of its manufacturer-distributor-retailer 
distribution system uses the mail or other commercial carriers. This 
comment requested that FDA clarify that the proposed restriction on 
mail-order sales pertained to mail-order sales to the ultimate user 
rather than to inter-company transfers.
    Proposed Sec. 897.16(c) was intended to address sales and 
distributions to consumers. Transactions and shipments between 
manufacturers, distributors, and retailers, therefore, are not subject 
to the restrictions on mail-order sales of cigarettes and smokeless 
tobacco. However, because the final rule permits mail-order sales, 
there is no need to amend the rule to clarify this point.
    (98) One comment supported the restriction against mail-order sales 
in part because, the comment claimed, such sales permit the purchaser 
to avoid taxes on these products (by purchasing the products from firms 
in States with lower taxes). The comment also stated that eliminating 
these sales would help Canadians because American mail-order firms are 
not subject to high Canadian taxes and can sell comparatively lower-
cost cigarettes in Canada. The comment said this practice increases 
cigarette consumption in Canada and undermines the health benefits 
resulting from high Canadian taxes.
    The issues raised by the comments are beyond the scope of this rule 
and FDA's authority.
    ii. Mail-order redemption of coupons. Proposed Sec. 897.16(c) would 
have prohibited mail-order redemption of coupons. The preamble to the 
1995 proposed rule addressed mail-order redemption of coupons in 
conjunction with mail-order sales, and the restriction against mail-
order redemption of coupons was meant to apply only to coupons that a 
prospective purchaser would send through the mail (regardless of 
whether the prospective purchaser used the USPS or a private carrier) 
to a firm to obtain cigarettes or smokeless tobacco.
    (99) Most comments on this issue mistakenly assumed that FDA was 
proposing to ban all direct mail coupons. These comments contended that 
direct mail coupons are redeemed during face-to-face transactions at 
larger retail establishments such as grocery stores. For the most part, 
these comments suggested that young people do not routinely use coupons 
to purchase tobacco products, noting that the smaller, convenience 
stores where young people frequently obtain cigarettes and smokeless 
tobacco often do not accept coupons.

[[Page 44460]]

    In contrast, FDA also received several comments supporting the 
proposal to eliminate mail-order redemption of cigarette and smokeless 
tobacco coupons. For example, the attorney general for a populous 
northeastern State commented that ``[i]n another operation conducted by 
my office earlier this year, 30 minors mailed in coupons to obtain free 
samples of smokeless tobacco products from United States Tobacco 
Company. Virtually all of the minors were provided with such free 
samples.''
    Proposed Sec. 897.16(c)'s reference to mail-order redemption of 
coupons was directed at the redemption of coupons through the mail. The 
provision was not intended to prevent adults from redeeming coupons at 
a point of sale or from receiving coupons through the mail. FDA based 
this provision on the IOM Report which, among other things, noted that 
value added promotions, including coupons, constituted the largest 
market expenditure by the tobacco industry in 1991, that coupons are 
accessible to young people through direct mail campaigns, and that 
price-sensitive young people are attracted to such schemes or may be 
increasingly attracted to such schemes as their other sources of 
tobacco products are restricted. \73\
---------------------------------------------------------------------------

    \73\ Id.
---------------------------------------------------------------------------

    Comments supporting this provision confirmed the need for 
prohibiting mail-order redemption of coupons. These comments reported 
incidents where one or more young people obtained several packages of 
cigarettes or smokeless tobacco by sending in coupons (usually for free 
samples). Consequently, the final rule retains the restriction against 
mail-order redemption of coupons. FDA adds that, for purposes of this 
subpart, ``mail'' is not confined to USPS delivery but includes items 
shipped through private carriers.
    d. Free samples. Proposed Sec. 897.16(d) would have prohibited 
manufacturers, distributors, and retailers from distributing or causing 
to be distributed any free samples of cigarettes or smokeless tobacco. 
The agency proposed this restriction because free samples are often 
distributed at ``mass intercept locations,'' such as street corners and 
shopping malls, and at events such as festivals, concerts, and games. 
The preamble to the 1995 proposed rule stated that free samples 
represent a ``risk-free and cost-free'' way for young people to obtain 
and possibly use cigarettes or smokeless tobacco and that, when free 
samples are distributed at cultural or social events, peer pressure may 
lead some young people to accept and to use the free samples (60 FR 
41314 at 41326).
    The preamble to the 1995 proposed rule also cited surveys and 
reports demonstrating that young people, including elementary school 
children, can obtain free samples easily. Young people were able to 
obtain free samples despite industry-developed, voluntary codes that 
supposedly restrict distribution of free samples to underage persons. 
The agency cited the IOM Report which suggested that distribution of 
free samples to young people occurs because the samplers are often 
placed in crowded places and operating under time constraints that may 
limit their ability to request proof of age. The IOM Report added that 
the samplers are usually young themselves and, as a result, ``may lack 
the psychological wherewithal to request proof of age and refuse 
solicitations from those in their own peer group'' (60 FR 41314 at 
41326).
    (100) FDA received a few comments that opposed any restrictions on 
free samples, claiming that eliminating free samples would violate the 
``rights'' of adult consumers, reduce choices for adults, or deprive 
adults of the opportunity to save money.
    In contrast, many comments supported proposed Sec. 897.16(d), 
including several that opposed the remainder of the rule but expressly 
supported a prohibition on the distribution of free samples. Several 
comments stated that young people can easily obtain free samples; a few 
comments, including two from 12-year old students, mentioned that their 
classmates were able to receive free samples or reported that young 
people were able to receive free samples without being asked to show 
proof of age. One comment even reported that a young person was able to 
receive 4 cigarette packages through the mail as free samples, while 
another claimed to have seen 12 cans of smokeless tobacco being given 
to teenagers.
    Another comment supported the provision, based on the author's own 
experience when he was 15 years old; a neighborhood grocer gave him and 
his friends free cigarettes ``until we were hooked'' and then the 
grocer ``had steady paying customers.'' Other comments supported this 
provision for the same reason that they supported eliminating single-
cigarette sales and establishing a minimum package size: Such items 
encourage young people to experiment with cigarettes or they represent, 
as a consortium of State attorneys general said, ``sales and marketing 
practices that provide young people with the easiest access to 
tobacco.''
    The agency agrees that Sec. 897.16(d) will affect adults by 
effectively requiring them to purchase cigarettes and smokeless tobacco 
rather than receive them free of charge. However, the comments opposing 
the elimination of free samples did not offer any suggestions as to how 
to prevent free samples from reaching young people. In view of the 
evidence showing that young people obtain free samples despite any 
industry-imposed restrictions or (in the case of at least one comment) 
that they obtain free cigarettes from a retailer, the agency concludes 
that the benefits of eliminating free samples as a source for young 
people outweigh the inconvenience to adults.
    FDA also disagrees with the comments asserting that eliminating 
free samples adversely affects an adult's ability to choose products or 
otherwise violates adult ``rights.'' The final rule does not alter an 
adult's ability to select or purchase cigarettes and smokeless tobacco.
    (101) Several comments submitted by manufacturers or their 
representatives opposed the prohibition against the distribution of 
free samples, stating that manufacturers use free samples to introduce 
new products, to encourage adult consumers to switch brands, or to 
thank their adult consumers for their patronage. Others comments added 
that free samples do not encourage young people to smoke or to use 
smokeless tobacco or that eliminating free samples would not reduce 
cigarette or smokeless tobacco use by young people.
    The agency is eliminating free samples because they are an 
inexpensive and easily accessible source of these products to young 
people and, when distributed at cultural or social events, may increase 
social pressure on young people to accept and use free samples (60 FR 
41314 at 41326). The preamble to the 1995 proposed rule cited studies 
and reports to support the agency's views; those documents contradict 
the comments' claim that free samples do not encourage young people to 
use these products or affect use by young people.
    As for the rule's impact on manufacturers' practices, the public 
health benefits from eliminating free samples as an avenue that young 
people use to obtain cigarettes and smokeless tobacco outweigh any 
inconvenience to

[[Page 44461]]

manufacturers who will be obliged to devise new ways to introduce new 
products, to get adults to switch brands, or to thank adult consumers. 
FDA believes that manufacturers will be able to devise new approaches 
to promote new brands or to attract new adult customers that comply 
with these regulations.
    (102) One comment expressed strong opposition to proposed 
Sec. 897.16(d). The comment argued that FDA lacked authority to ban 
free samples, especially when the agency would permit sales to adults, 
and that the agency had no evidence to support a ban on free samples. 
The comment added that the act did not extend to device samples and 
argued that Congress knows how to give FDA authority over samples, as 
evidenced by sampling provisions in the PDMA. The comment further 
stated that the term ``sample'' was over-broad because it was not 
limited to products distributed in public settings for promotional 
purposes; thus, the comment continued, any complimentary gift could be 
a ``sample'' under proposed Sec. 897.16(d).
    FDA disagrees with the comment. Section 520(e) of the act states 
that the agency may ``require that a device be restricted to sale, 
distribution, or use * * * upon such other conditions as the Secretary 
may prescribe by * * * regulation.'' Restricting free samples is 
clearly a restriction on the product's distribution.
    As for the PDMA, the comment's claim that the PDMA's sampling 
restrictions shows that Congress has not authorized FDA to regulate 
device samples (due to the absence of express language on device 
samples) fails to take into account the fact that FDA's restricted 
device authority is broader than its prescription drug authority. Also, 
the comment fails to take into account the reasons behind enactment of 
PDMA. PDMA was enacted not to give FDA new authority over prescription 
drug samples, but to curtail the illegal diversion of drugs, including 
samples, into the market. (See S. Rept. 100-303, 100th Cong., 2d sess. 
2-3 (1988).) Before PDMA was enacted, FDA regulated prescription drug 
samples in the same manner as prescription drug products. Thus, PDMA is 
not intended to give FDA new authority over samples; instead, it 
reflects a congressional decision to give FDA a comprehensive and 
explicit set of new authority to prevent illegal diversions of 
prescription drug products, including the diversion of prescription 
drug samples to illegal markets.
    FDA also declines to amend the rule to allow ``gifts.'' Allowing 
``gifts'' would enable parties to declare that their free samples were 
now ``gifts'' and therefore outside the rule and could lead to disputes 
as to whether an item was a prohibited ``sample'' or an allowable 
``gift.'' However, the agency will exercise discretion in interpreting 
and enforcing this rule. For example, a manufacturer's employee who 
sends cigarettes or smokeless tobacco to an adult relative to celebrate 
a birthday would not be subject to regulatory action under the free 
sample restriction in Sec. 897.16(c).
    (103) One comment stated that, notwithstanding the preamble to the 
1995 proposed rule, FDA has no evidence to support a restriction on the 
distribution of free samples. The comment stated that the rule 
overestimated the prevalence of sample activities and that cigarette 
sampling accounted for only 0.7 percent of the total spent on cigarette 
advertising and promotion in 1993. The comment also said that FDA 
relied on an outdated version of the cigarette manufacturers' voluntary 
code. According to the comment, the outdated code prohibited 
distribution of cigarette samples within two blocks of any ``center of 
youth activities'' and ``required samplers to demand proof of age in 
doubtful cases.'' The revised code adds that ``[s]ampling shall not be 
conducted in or on public streets, sidewalks or parks, except in places 
that are open only to persons to whom cigarettes lawfully may be 
sold.''
    In contrast, two comments cautioned FDA against deferring to a 
voluntary code or relying on the industry. One comment stated that, in 
Maine, the industry agreed to submit reports on sampling activities to 
the State in place of legislation that would have curtailed sampling 
activities, but the industry discontinued these reports as soon as 
State authorities stopped sending reminders that the reports were due. 
Another comment stated that, in Massachusetts, a lawsuit over sampling 
practices by a smokeless tobacco firm ended in a settlement whereby the 
firm would require photocopies of identification cards for all mail-in 
requests for samples. The comment said that the settlement represented 
an improvement over requiring no proof of age at all, but noted that 
the firm refused to apply this practice outside the State and that the 
restriction did not apply to other smokeless tobacco firms. The comment 
also claimed that firms often agree to restrict sampling activities 
only after adverse publicity or agree to restrict sampling activities 
without setting any measurable performance goals.
    FDA disagrees with the comment asserting that the agency has no 
evidence to support a restriction on free samples. The preamble to the 
1995 proposed rule cited several reports and surveys showing that young 
people, including elementary school children, obtain free samples 
easily (60 FR 41314 at 41326). The agency also has no assurance that 
the revised cigarette industry code will be any more effective than 
earlier versions. Moreover, as mentioned earlier in this document, FDA 
received comments stating that young people continue to receive free 
samples of cigarettes and smokeless tobacco. The comments refute the 
claim that voluntary industry restrictions on sampling preclude the 
need for FDA regulation of free samples.
    Additionally, the rule offers several important advantages over 
voluntary codes. The rule creates enforceable obligations which, if 
violated, may subject the manufacturer, distributor, or retailer to 
sanctions under the act. These sanctions, in turn, create an incentive 
for regulated parties to adhere to the act and its implementing 
regulations. A voluntary code also applies only to the parties that 
accept the code or fall within the same industry; for example, a 
voluntary manufacturers' code might not extend to distributors or to 
retailers, or, as the comment recognized, a voluntary cigarette 
manufacturers' code might differ from a voluntary smokeless tobacco 
manufacturers' code.
    Furthermore, a regulation creates uniform standards and policies 
for the same product. Those standards apply regardless of whether a 
firm is a member of a voluntary organization.
    Finally, the agency notes that, while the comment said that ``only 
0.7 percent of the total spent on cigarette advertising and promotion'' 
in 1993 went to cigarette sampling activities, this percentage still 
translates into a large sum. Cigarette advertising and promotion 
expenditures, according to the same FTC report cited by the comment, 
were approximately $6 billion in 1993. Thus, the seemingly small 
percentage devoted to cigarette sampling activities, when translated 
into dollars, represents $42 million.
    (104) Several comments supported the prohibition against the 
distribution of free samples, but suggested that FDA amend the rule to 
prevent distribution of cigarettes and smokeless tobacco at prices 
below their fair market value. One comment would define a product's

[[Page 44462]]

fair market value as the average retail price in the region. Another 
comment would amend Sec. 897.16(d) to prohibit sales or distribution of 
cigarettes and smokeless tobacco ``in return for nominal 
consideration.''
    The agency declines to amend the rule as suggested by comments. 
While the comments have merit, FDA usually has no role in the prices 
charged for an FDA-regulated product. Additionally, it would be 
difficult for FDA to monitor fair market values for various products, 
and disputes would inevitably arise as to whether the ``market'' should 
cover a broader or narrower geographic area, the data used to determine 
the fair market value, and how compliance actions would be affected by 
fluctuations in the fair market value. Similar disputes would arise 
regarding ``nominal consideration.'' Furthermore, regardless of the 
price at which the product is sold, other provisions in this subpart 
should deter or reduce access by young people.
    e. Restrictions on labeling and advertising. The agency on its own 
initiative has added Sec. 897.16(e) as a point of clarification to the 
final rule. This provision states that ``no manufacturer, distributor, 
or retailer may sell or distribute, or cause to be sold or distributed, 
cigarettes or smokeless tobacco with labels, labeling, or advertising 
not in compliance with the restrictions in Subparts C and D * * *.'' 
The restrictions on labels, advertising, and labeling in subparts C and 
D of part 897 are authorized, in part, under section 520(e) of the act 
and are considered conditions of sale, distribution, and use. 
Therefore, Sec. 897.16(e) clarifies the statutory obligations of 
manufacturers, distributors, or retailers under this rule.

V. Label

    In the 1995 proposed rule (60 FR 41314, August 11, 1995), subpart C 
of part 897 was entitled ``Labels and Educational Programs,'' and 
contained two provisions. Proposed Sec. 897.24, would have required 
cigarette or smokeless tobacco packages to contain the appropriate 
``established name'' of the product; the final rule retains that 
provision and does not make any substantive changes to it. Proposed 
Sec. 897.29 would have required manufacturers to establish and maintain 
a national educational program to discourage children from using 
cigarettes and smokeless tobacco. Based on issues raised by comments, 
proposed Sec. 897.29 has been deleted from the final rule, and instead, 
the Food and Drug Administration (FDA) has determined that issuing 
notification orders under section 518 of the Federal Food, Drug, and 
Cosmetic Act (the act) (21 U.S.C. 360h) would be the most practicable 
and appropriate means of requiring tobacco manufacturers to inform 
young people of the unreasonable health risks. Discussion of the 
comments received regarding this education provision is included in 
section VII. of this document.

A. Established Name (Sec. 897.24)

    Proposed Sec. 897.24 would have required that each cigarette or 
smokeless tobacco product package, carton, box, or container of any 
kind that is offered for sale, sold, or otherwise distributed bear 
whichever of the following established names is appropriate: 
``Cigarettes,'' ``Cigarette Tobacco,'' ``Loose Leaf Chewing Tobacco,'' 
``Plug Chewing Tobacco,'' ``Twist Chewing Tobacco,'' ``Moist Snuff,'' 
or ``Dry Snuff.''
    The preamble to the 1995 proposed rule explained that this 
provision was intended to implement section 502(e)(2) of the act (21 
U.S.C. 352(e)(2)), which states that a device shall be deemed 
misbranded if its label fails to display the established name for the 
device. Section 502(e)(4) of the act, in turn, explains that the 
``established name'' for a device is the applicable official name of 
the device designated under section 508 of the act (21 U.S.C. 358), the 
official title in a compendium if the device is recognized in an 
official compendium but has no official name, or ``any common or usual 
name of such device.'' In this case, no official names have been 
designated under section 508 of the act, and no compendium provides an 
established name for these products. Consequently, Sec. 897.24 proposed 
designating ``cigarettes,'' ``cigarette tobacco,'' and the common or 
usual names for smokeless tobacco (such as ``moist snuff'' or ``loose 
leaf chewing tobacco'') as established names for these products.
    (1) The agency received few comments on proposed Sec. 897.24. One 
comment that opposed the provision stated that it was unnecessary and 
would produce anomalous results. The comment stated that, because 
cigarettes are already required to be labeled ``cigarettes'' under 
regulations adopted by the Bureau of Alcohol, Tobacco and Firearms 
(BATF) under the Internal Revenue Code (27 CFR 270.215 (1995)), 
``Cigarettes'' is already the common and usual name and, therefore, 
there is no need to designate an ``established name.''
    The agency has concluded that the BATF requirement does not 
conflict with the act's requirement that the label bear the established 
name of these products. The agency recognizes that BATF regulations 
currently require cigarette packages to include the word ``cigarettes'' 
on the package or on a label securely affixed to the package (27 CFR 
270.215). For smokeless tobacco and chewing tobacco, BATF regulations 
require the packages to include the words ``snuff'' or ``chewing 
tobacco,'' or alternatively, ``Tax Class M'' or ``Tax Class C,'' 
respectively (27 CFR 270.216). These terms also describe the 
established name, as required in section 502(e) of the act.
    Many of the labeling provisions of the act, including section 
502(e)(2), are intended to provide important basic information to 
consumers and others coming in contact with a regulated product. In 
this case, the act requires that the established or common name be 
placed on the product's label in a clear way so that it is easily seen 
and consumers can readily identify the product. Congress provided an 
exception only for cases where compliance with this provision is 
``impracticable.'' If a manufacturer believes that it cannot comply 
with this provision of the rule, the manufacturer should consult with 
the agency to determine if it qualifies for an impracticability 
exception under section 502(e)(2) of the act.
    (2) One comment that supported the provision on established name 
recommended that, in addition to the established names set forth in the 
1995 proposed rule, little cigars and tobacco sticks should also be 
listed as separate products with their own specific established names, 
``little cigars'' and ``tobacco sticks'' ``in keeping with the manner 
and style of the established names to be used for smokeless tobacco 
products.''
    One comment that opposed the provision stated that since proposed 
Sec. 897.3(a) would define ``cigarettes'' to include little cigars, the 
same package of little cigars that must be labeled ``small cigars'' or 
``little cigars'' (under current BATF regulations, 27 CFR 270.214(c) 
(1995)), would also have to carry the established name of 
``cigarettes'' under the proposed FDA regulation. The comment argued 
that such a conflicting labeling requirement is absurd, and would 
create confusion where none now exists.
    The agency has modified the definition of ``cigarette'' found in 
proposed Sec. 897.3(a) to exclude little

[[Page 44463]]

cigars from the final rule. The agency also advises that, to the best 
of its knowledge, tobacco sticks currently are not sold in the United 
States. If tobacco sticks were to be marketed in this country, the 
agency advises that such products would be subject to premarket 
notification under section 510(k) of the act (21 U.S.C. 360(k)) and 21 
CFR part 807, and could be included under the established name of 
``cigarette tobacco,'' and therefore do not need to be listed as 
separate products at this time.

B. Package Design

    (3) Several comments noted that the 1995 proposed rule did not 
include any action to eliminate the use of the tobacco product package 
itself to influence children. A few comments cited a March 1995 
Canadian study, which found that package designs affect the ability of 
teens to associate lifestyle and personality imagery to specific brands 
and detract from the health message. \74\ Another study found that the 
``badge'' value of cigarette packages for youths was decreased when the 
packages were stripped of their unique characteristics. \75\ The 
comment suggested that the provisions of proposed Sec. 897.30, 
requiring text only with black text on a white background, should be 
extended to cigarette packages. One comment pointed out that FDA has 
the authority to require plain packaging without violating the Federal 
Cigarette Labeling and Advertising Act (the Cigarette Act), 15 U.S.C. 
1334(a), which prohibits additional statements related to smoking and 
health on cigarette packages.
---------------------------------------------------------------------------

    \74\ ``When Packages Can Speak: Possible Impacts of Plain and 
Generic Packaging of Tobacco Products,'' Health Minister of Canada, 
March 1995.
    \75\ Rootman, I., B. R. Flay, and D. Flay, ``A Study on Youth 
Smoking, Plain Packaging Health Warnings, Event Marketing and Price 
Reductions, Key Findings,'' A Joint Research Project by University 
of Toronto, University of Illinois, York University, Ontario Tobacco 
Research Unit, Addiction Research Foundation, p. 7, 1995.
---------------------------------------------------------------------------

    The agency agrees with the comments that cigarette package design 
and imagery are powerful tools that increase the appeal of the product, 
especially to young people. In the preamble to the 1995 proposed rule 
the agency cited several studies demonstrating that ``[i]magery ties 
the products to a positive visual image'' (60 FR 41314 at 41335). 
Another study showed that ``children and adolescents react more 
positively to advertising with pictures and other depictions than to 
advertising (or packaging) that contains only print or text'' (60 FR 
41314 at 41335).
    The agency has considered extending the requirements of Sec. 897.30 
(text only, black on white background) to the package itself, but 
believes at this time these measures are not necessary considering the 
comprehensive nature of the regulatory scheme contained in this rule. 
Therefore, the agency is not extending the requirements applicable to 
advertising and labeling to the package itself.

C. Ingredient Labeling

    The agency specifically requested comments on whether it should 
implement recommendations from the Ad Hoc Committee of the President's 
Cancer Panel, which recommended, among other things, that the range of 
tar, nicotine, and carbon monoxide delivered by each product be 
communicated to consumers. In addition, the Ad Hoc Committee 
recommended that smokers be informed of ``other hazardous smoke 
constituents.''
    (4) The agency received several comments suggesting that tar and 
nicotine delivery or yield information should be disclosed on product 
packages in order to assist consumers in making more informed decisions 
about the use of cigarettes. Some of these comments also suggested that 
labels list the toxins present in, or delivered from, cigarettes and 
state their effect, e.g., ``known carcinogen.''
    One comment stated that it cannot be claimed that the ingredients 
are trade secret information and, therefore, cannot be disclosed, 
because the tobacco companies voluntarily released a list of 
ingredients to the public in 1995. The comment noted that, under 
current case law, only items kept confidential qualify as trade 
secrets. (See Kewanee Oil v. Bicron Corp., 416 U.S. 470 (1974); Avtect 
Systems v. Peiffer, 21 F.3d 568 (4th. Cir. 1994).) The comment noted 
further that because companies can and do perform reverse engineering 
on another company's products, the ingredients are not trade secret. 
The comment proposed that, at a minimum, FDA should designate a partial 
list of previously disclosed ingredients and require that the list be 
included on package labels. Another comment stated that only a 
reasonable number of ingredients should be listed on the label or in a 
package insert.
    One comment stated that ingredient listing is not barred by the 
Cigarette Act or by the Comprehensive Smokeless Tobacco Health 
Education Act of 1986 (Smokeless Act). (See 15 U.S.C. 1331 et seq. and 
15 U.S.C. 4401 et seq.) These statutes require the current Surgeon 
General's warnings on tobacco products and preempt any additional 
statements relating to smoking or health from being required on 
cigarette or smokeless tobacco packages. The comment asserted that a 
list of ingredients is not a statement, and cannot be reasonably 
construed as a statement relating to smoking and health, because a 
statement expresses a point of view, whereas an ingredient list does 
not.
    One comment noted that the Cigarette and Smokeless Acts require 
manufacturers to submit annually to the Department of Health and Human 
Services (DHHS) a list of ingredients added to tobacco products, and 
the statutes further require that the lists be treated as confidential 
commercial or trade secret information. (See 15 U.S.C. 1335(a) and 15 
U.S.C. 4403.) The comment stated that the confidentiality provisions in 
both statutes bind the Secretary of DHHS with respect to trade secrets, 
but do not restrict FDA's authority to require ingredient listing.
    FDA agrees that accurate information about the tar, nicotine, and 
carbon monoxide delivery from a cigarette to the user would be useful 
information. FDA is aware of the Federal Trade Commission's (FTC's) 
recent efforts to develop a system to measure, more accurately than the 
current test, the tar, nicotine, and carbon monoxide delivered by 
cigarettes. FTC has announced that it will issue a report of its 
findings regarding a new test method in the near future. FDA believes 
that it would be premature to require manufacturers to put any of this 
information on tobacco product labels before FTC has issued its report 
and made recommendations on accurately measuring the delivery of tar, 
nicotine, and carbon monoxide to product users.
    With regard to ingredients other than tar, nicotine, and carbon 
monoxide, the agency agrees that it has authority under the act to 
require labeling or listing of other substances present or delivered by 
cigarettes. (See section 502(r) of the act.) The agency notes that 
there are hundreds of ingredients added to or delivered by cigarettes 
and smokeless tobacco. Even if the agency were to require listing of 
only a ``reasonable number,'' current methodologies are not adequate to 
accurately identify and quantify the added ingredients or the 
constituents delivered by these products. Moreover, at this time there 
is not enough data to enable the agency to determine what a 
``reasonable'' number of ingredients would be or to determine which 
ingredients should be listed and

[[Page 44464]]

which should not. Therefore, the agency is not requiring the listing of 
ingredients in the rule.
    As discussed in the preamble to the 1995 proposed rule, cigarettes 
and smokeless tobacco are subject to various pre-existing requirements 
in the statute and the regulations. The preamble stated that such 
``regulations include the general labeling requirements for devices at 
part 801 (21 CFR part 801) (excluding Sec. 801.62)'' (60 FR 41314 at 
41352). The parenthetical reference was a typographical error because 
the 1995 proposed rule would have exempted such products from 
Sec. 801.61, not Sec. 801.62 (60 FR 41314 at 41342). Section 801.62 
states the requirements for ``Declaration of net quantity of 
contents.'' This provision requires that the label of an over-the-
counter device bear a declaration of the net quantity and weight of the 
contents, e.g., ``20 cigarettes.'' The agency fully expects 
manufacturers to comply with this provision and, as discussed below, 
also expects manufacturers to comply with Sec. 801.61.

D. Labeling for Intended Use

    (5) The agency received comments suggesting that FDA require 
intended use information on the package label of cigarettes and 
smokeless tobacco. Proposed Sec. 801.61(d) would have exempted 
cigarettes and smokeless tobacco from the statement of identity and 
labeling for intended use requirements of Sec. 801.61. The comments 
stated that such information informs the public about the product's 
intended use. One comment supported proposed Sec. 801.61(d).
    Based on the comments received, the agency has reconsidered the 
matter and concluded that it is appropriate to require that this 
information appear on the label. Consequently, the agency has deleted 
Sec. 801.61(d) from the final rule.
    All over-the-counter devices are required to comply with 
Sec. 801.61 and bear the ``common name of the device followed by an 
accurate statement of the principal intended action(s) of the device'' 
on the principal display panel of the package. (See Sec. 801.61.) As 
over-the-counter devices, cigarettes and smokeless tobacco are legally 
required to comply with this provision.
    In the 1995 proposed rule, the agency proposed to exempt these 
products because ``section 801.61 stems, in part, from the Fair 
Packaging and Labeling Act (FPLA), and [t]obacco products are exempt 
from the statute's requirements'' (60 FR 41314 at 41342). Further 
evaluation revealed that the requirements in Sec. 801.61 are also based 
on FDA labeling authorities including, but not limited to, section 
502(a), (c), (e), (f), and (q) of the act, and not the FPLA.
    Furthermore, section 1460 of the FPLA contains ``Savings 
provisions'' (15 U.S.C. 1460). The provisions state that ``Nothing 
contained in this Act [15 U.S.C. 1451 et. seq.] shall be construed to 
repeal, invalidate, or supersede * * *(b) the Federal Food, Drug, and 
Cosmetic Act [21 U.S.C. 301 et. seq.] * * *.'' Thus, because FDA's 
assertion of jurisdiction over these products is under its statutory 
authority under the act, any conflict between the two statutes shall be 
resolved in favor of the act. (See Jones v. Rath Packing, 430 U.S. 519 
(1977).) Consequently, section 1459 of the FPLA, which removes tobacco 
from the definition of ``consumer commodity,'' and thus, removes it 
from jurisdiction under the FPLA, is superseded by FDA's coverage of 
these products under the act.
    As stated in the preamble to the 1995 proposed rule, manufacturers 
of cigarette and smokeless tobacco are expected to comply with the 
general labeling requirements in part 801 (60 FR 41314 at 41352). For 
purposes of Sec. 801.61, the ``common name of the device'' is the 
established name as set forth in Sec. 897.24.
    To more accurately reflect the permitted intended use of these 
products, the agency has modified the statement of intended use set 
forth in the proposal. The agency proposed that the intended use of 
these products be described as a ``nicotine delivery device.'' Under 
this rule, these products may be intended for use only by persons 18 
years of age and older. Thus, a more accurate statement of the 
permitted intended use of these products is ``Nicotine Delivery Device 
For Persons 18 or Older.''
    Further authority for this requirement stems from section 520(e)(2) 
of the act (21 U.S.C. 360j(e)(2). This provision states that: ``The 
label of a restricted device shall bear such appropriate statements of 
the restrictions required by a regulation under paragraph (1) as the 
Secretary may in such regulation prescribe.'' The statement of intended 
use, in essence, incorporates the statement of one of the principal 
restrictions FDA is imposing on these products.
    Accordingly, a provision has been added to Sec. 897.25 that 
codifies this intended use statement and statement of restrictions for 
purposes of Sec. 801.61.

E. Adequate Directions for Use and Warnings Against Use (Section 502(f) 
of the act)

    (6) A few comments stated that FDA failed to discuss or provide for 
adequate directions for use, as required in section 502(f) of the act. 
The comments stated that FDA's silence on this issue is a tacit 
acknowledgment that the agency cannot have jurisdiction over these 
products because adequate directions for use cannot be prepared for 
them.
    The agency disagrees with these comments. It does not logically 
follow that because the agency was silent on this issue, it does not 
have jurisdiction over tobacco products. In fact, in the preamble to 
the 1995 proposed rule, the agency cited one of the authorities for the 
labeling requirements for these products as section 502 of the act.
    According to section 502(f) of the act, a device shall be deemed 
misbranded:
    Unless its labeling bears (1) adequate directions for use; and 
(2) such adequate warnings against use in those pathological 
conditions or by children where its use may be dangerous to health, 
or against unsafe dosage or methods or duration of administration or 
application, in such manner and form, as are necessary for the 
protection of users, except that where any requirement of clause (1) 
of this paragraph, as applied to any drug or device, is not 
necessary for the protection of the public health, the Secretary 
shall promulgate regulations exempting such drug or device from such 
requirement.
    For devices, ``adequate directions for use'' means ``directions 
under which the layman can use a device safely and for the purposes for 
which it is intended'' (Sec. 801.5). These regulations outline the type 
of information which, if missing, may lead to a product being deemed to 
be misbranded. Such information includes conditions, purposes, and uses 
for which the device is intended; quantity of dose; frequency, 
duration, time, route or method of administration; or preparation for 
use (Sec. 801.5).
    The agency acknowledges that it is very difficult to establish 
adequate directions for use for cigarettes and smokeless tobacco, 
primarily because of the inherent nature of the products, their 
addictiveness, the numerous hazards associated with their use, and 
because the behavior of each user (e.g., the depth of inhalation, the 
duration of puff, whether the filter holes are covered, and length of 
time in mouth) determines the amount of tar and nicotine delivered to 
the user from the device.
    Section 502(f) of the act provides for an exemption for adequate 
directions for use if they are ``not necessary for the

[[Page 44465]]

protection of the public health.'' For example, the agency has 
established exemptions from adequate directions for use where adequate 
directions for common uses of certain devices are known to the ordinary 
individual. (See Sec. 801.116.) Tobacco products have a very long 
history of use in this country, and they are one of the most readily 
available consumer products on the market today. Consequently, the way 
in which these products are used is common knowledge. FDA believes that 
the public health would not be advanced by requiring adequate 
directions for use. Accordingly, the agency has added a provision to 
the final rule exempting cigarette and smokeless tobacco from the 
requirement of having adequate directions for use. Section 801.126, 
states, ``Cigarette and smokeless tobacco as defined in part 897 of 
this chapter are exempt from section 502(f)(1) of the Federal, Food, 
Drug, and Cosmetic Act.''
    The agency has considered the requirement in section 502(f)(2) of 
the act that the labeling of a medical device must provide ``adequate 
warnings against use * * * by children where its use may be dangerous 
to health.'' In the agency's view, the warnings mandated by the 
Cigarette Act (15 U.S.C. 1333) and the Smokeless Act (15 U.S.C. 4402) 
satisfy this requirement. Additionally, the Surgeon General's warnings 
provide information warning against use in persons with certain 
conditions, i.e., pregnant women. Consequently, cigarettes and 
smokeless tobacco are not exempt from the statutory requirements under 
section 502(f)(2) of the act.

F. Package Inserts

    (7) Several comments stated that FDA should require cigarette and 
smokeless tobacco packages to contain package inserts that contain 
health information and information about the chemicals added to 
cigarettes and smokeless tobacco. One comment stated that FDA has 
statutory authority to require package inserts under sections 502(a) 
and (q) and 520(e) of the act. Another comment stated that the agency 
is not preempted from requiring package inserts because sections 
1334(a) and 4406 of the Cigarette Act and the Smokeless Act, 
respectively, preempt statements related to health ``on any package,'' 
not in any package.
    FDA agrees with the comments that it has statutory authority under 
the act to require package inserts for these products. Under section 
502(a) of the act, a device is misbranded if its labeling is false or 
misleading in any particular. Section 201 of the act (21 U.S.C. 321), 
the ``Definitions'' section of the act, describes the concept of 
``misleading'' in the context of labeling and advertising. Section 
201(n) of the act explicitly provides that, in determining whether the 
labeling of a device is misleading, there shall be taken into account 
not only representations or suggestions made in the labeling, but also 
the extent to which the labeling fails to reveal facts that are 
material in light of such representations or material with respect to 
the consequences that may result from use of the device under the 
conditions for use stated in the labeling or under customary or usual 
conditions of use.
    These statutory provisions, combined with section 701(a) of the act 
(21 U.S.C. 371(a)), authorize FDA to issue a regulation designed to 
ensure that persons using a medical device will receive information 
that is material with respect to the consequences that may result from 
use of the device under its labeled conditions. In the prescription 
drug context, this interpretation of the act and the agency's authority 
to require patient labeling for prescription drug products have been 
upheld. (See Pharmaceutical Manufacturers Assn. v. FDA, 484 F.Supp. 
1179 (D. Del. 1980) aff'd per curiam, 634 F.2d 106 (3rd Cir. 1980).)
    Additionally, on several occasions, the agency has required patient 
package inserts for devices, and has specified either the express 
language for the patient package insert or the type of information to 
be included in the patient package insert. These devices include 
hearing aids (Sec. 801.420), intrauterine devices (Sec. 801.427), and 
menstrual tampons (Sec. 801.430).
    The agency also agrees with the comment that it is not prohibited 
from requiring patient package inserts due to the preemption clauses in 
the Cigarette Act and the Smokeless Act. Each of the clauses in these 
statutes specifically prohibits requirements that statements relating 
to smoking and health be placed on the package. Package inserts, by 
nature, are typically found in the package.
    Although the agency believes that package inserts for these 
products are authorized under the act and would provide useful 
information to users, further evaluation would be needed to determine 
what specific information a package insert would contain. Therefore, 
the agency is not requiring them as part of this rule.

VI. Advertising

A.  Subpart D--Restrictions on Advertising and Labeling of Tobacco 
Products

    Subpart D in part 897 contains the restrictions for advertising and 
labeling of cigarettes and smokeless tobacco. Subpart D of part 897 in 
the Food and Drug Administration's (FDA's) August 11, 1995, proposed 
rule (60 FR 41314) (the 1995 proposed rule) provoked some of the 
strongest and most passionate comments from both supporters and 
opponents of the proposed restrictions. Many comments from the tobacco 
industry, the advertising industry, public interest groups, and 
individuals expressed major concerns about the legality, 
constitutionality, and wisdom of the advertising restrictions in 
general and about the underlying support for individual sections of the 
1995 proposed rule. Comments from the largest organization of 
psychologists in the world, public interest and health groups, 
individual advertisers, and individuals expressed strong support for 
the legality and constitutionality of the proposal, provided 
information supporting various provisions of the proposal, and 
emphasized the necessity for comprehensive advertising regulations.
    The purpose of the advertising regulations is to decrease young 
people's use of tobacco products by ensuring that the restrictions on 
access are not undermined by the product appeal that advertising for 
these products creates for young people. (See Central Hudson Gas and 
Electric Corp. v. Public Serv. Comm'n of N.Y., 447 U.S. 557, 569 
(1980).) Proposed subpart D of part 897 included a range of 
restrictions that attempted to preserve the informational components of 
advertising and labeling which can provide useful product information 
for adult smokers, while eliminating the imagery and color that make 
advertising appealing and compelling to children and adolescents under 
18 years of age.
    Briefly, the 1995 proposed rule included four provisions. Section 
897.30 would have defined those media in which labeling and advertising 
for cigarettes or smokeless tobacco may appear. In addition, it would 
prohibit outdoor advertising within 1,000 feet of elementary and 
secondary schools and playgrounds. Proposed Sec. 897.32 would limit all 
advertising to black text on a white background. Advertising in any 
publication that is read primarily by adults would be permitted to 
continue to use imagery and color. Further, all

[[Page 44466]]

cigarette and smokeless tobacco product advertisements would be 
required to include the product's established name and intended use, 
e.g., ``Cigarettes--A Nicotine Delivery Device,'' and cigarette 
advertisements would be required to include a brief statement, such as 
``About one out of three kids who become smokers will die from their 
smoking.'' Proposed Sec. 897.34 would prohibit the sale and 
distribution of nontobacco items, contests and games of chance, and 
sponsored events using any indicia of product identification (e.g., 
brand name, logo, recognizable pattern of color). Finally, proposed 
Sec. 897.36 outlined those conditions under which the agency would find 
the advertising or labeling of any cigarette or smokeless tobacco 
product to be false or misleading.
    In response to comments filed, FDA has modified the proposed 
regulations. Briefly, some of the more substantive changes include: The 
definition of adult-oriented publications remains unchanged, but the 
preamble makes clear that the responsibility will be assigned 
specifically to the manufacturer, distributor, or retailer of tobacco 
products that wishes to place advertisements to gather and retain 
competent and reliable evidence that the readership of the publication 
meets the criteria for an adult-oriented publication. Moreover, 
unrestricted advertising, i.e., with color and imagery, may be 
displayed at facilities described in Sec. 897.16(c)(2)(ii) that may 
sell tobacco from vending machines and self-service provided that the 
advertising, e.g., posters and signs, must be displayed so that they 
are not visible from outside the facility and are affixed to a wall or 
fixture in the facility.
    The revised intended use statement is ``Nicotine Delivery Device 
for Persons 18 or Older,'' and the agency will not require a brief 
statement other than the Surgeon General's warnings.
    As provided in the 1995 proposed rule, the final rule states that 
any event sponsored by a manufacturer, distributor, or retailer of 
tobacco products is to be sponsored only in the corporate name. Teams 
and entries also may be sponsored but only in the corporate name. The 
regulation includes a ban on all brand-identified nontobacco items, 
including those transactions based upon proofs-of-purchase. However, 
the proposed ban on contests and games has been deleted. Finally, the 
agency has decided to delete the definition of false or misleading 
advertising and labeling from this final rule because it is duplicative 
and unnecessary in light of the underlying requirements in sections 
201(n), 502(a), and 502(q) (21 U.S.C. 321(n), 352(a), and 352(q)) of 
the Federal Food, Drug, and Cosmetic Act (the act).
     Section VI.B. of this document provides a general discussion of 
the rationale for including significant advertising restrictions in the 
final regulation, including a discussion in response to comments 
concerning the theory of advertising and the importance of color and 
imagery to advertising's appeal, especially for young people. This 
section also provides a discussion of the effects of advertising on 
young people, including expert opinion and research evidence provided 
by the American Psychological Association.
    Section VI.C. of this document provides responses to questions 
raised about the constitutionality of the regulations. Section VI.D. of 
this document includes a discussion of the evidence that cigarettes and 
smokeless tobacco advertising plays a direct and material role in young 
people's decisions to purchase and use these products. This part also 
explains why restricting tobacco advertising will advance the Federal 
Government's interest in preventing the use of tobacco products by 
young people, and provides responses to comments about the evidence. 
Finally, section VI.E. of this document responds to comments concerning 
the factual evidence provided by FDA in support of its proposed 
regulation in a section-by-section format, as well as to comments 
claiming that each of these sections was not narrowly tailored to 
minimize the burden on commercial speech. \76\
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    \76\ For the purposes of section VI. of this document, the 
agency will refer to advertising and labeling merely as 
``advertising.'' As the agency pointed out in the preamble to the 
1995 proposed rule, advertising and labeling often perform the same 
function: to convey information about the product; to promote 
consumer awareness, interest, and desire; to change or shape 
consumer attitudes and images about the product; and/or to promote 
good will for the product (60 FR 41314 at 41328). Moreover, most 
court cases involving advertising do not distinguish between the 
forms of advertising that FDA calls labeling and those referred to 
as advertising. When there is a need to distinguish between the two 
forms of promotion, for example, when labeling and advertising are 
subject to different statutory requirements, this document will make 
clear what is being discussed.
---------------------------------------------------------------------------

B.  The Need for Advertising Restrictions

    In the preamble to the proposed 1995 rule, FDA tentatively asserted 
that a preponderance of the quantitative and qualitative studies of 
cigarette advertising suggested: (1) A causal relationship between 
tobacco advertising and tobacco use by young people, and (2) a positive 
effect of stringent advertising measures on smoking rates and on youth 
tobacco use. In arriving at this tentative finding, FDA relied heavily 
on the National Academy of Sciences Institute of Medicine's (IOM's) 
Report entitled Growing Up Tobacco Free, Preventing Nicotine Addiction 
in Children and Youths, Washington, DC 1994 (the IOM Report) and the 
Department of Health and Human Services' (DHHS') Center for Disease 
Control and Prevention's (CDC's) Report entitled Preventing Tobacco Use 
Among Young People, A Report of the Surgeon General (1994) (1994 SGR). 
Both indicated that advertising was an important factor in young 
people's tobacco use, and that restrictions on advertising must be part 
of any meaningful approach to reducing smoking and smokeless tobacco 
use among young people. In addition, FDA was careful to note that 
industry statements and actions and examples of youth oriented 
advertising and marketing campaigns lent support to the agency's 
findings.
    FDA's review and consideration of the comments received has led the 
agency to conclude that advertising plays a material role in the 
decision by those under 18 to use tobacco products.
1. Advertising and Young People
    (1) Comments from the tobacco industry argued that FDA had simply 
assumed that young people found cigarette and smokeless tobacco 
advertising to be appealing, and that there was no empirical evidence 
of how young people actually perceived the imagery displayed in 
cigarette and smokeless tobacco advertisements. The comments argued 
that the research cited by the agency relates primarily to the role of 
imagery in brand choice decisions. In addition, several comments 
disputed FDA's evidence that young people are particularly vulnerable 
to image-oriented advertisements. To respond to these comments, it is 
necessary to describe the function of advertising and how it affects 
young people.
    a. Function of advertising. Advertisers use a mix of advertising 
and promotional vehicles to call attention to the product they are 
selling--to describe its properties, to convey its superiority over 
other products, and in some cases to give it an allure above and beyond 
the qualities of the product itself. (A red convertible can be a mode 
of transportation; it can also tell people a

[[Page 44467]]

lot about who you are, or who you think you are or want to be.)
    Advertising creates a matrix of attributes for a product or product 
category and beliefs about the product and its possessor. It can serve 
to convey images that are recalled later when an event prompts the 
consumer to think about a purchase. Consumers, as a general rule, 
overestimate the effect that advertising has on the market in general, 
but they routinely underestimate its effect upon them and their own 
purchasing choices. \77\
---------------------------------------------------------------------------

    \77\ Gunther, A. C., and E. Thorson, ``Perceived Persuasive 
Effects of Product Commercials and Public Service Announcements: 
Third Person Effects in New Domains,'' Communication Research, vol. 
19, pp. 574-575, 1992.
---------------------------------------------------------------------------

    As discussed in sections VI.B.1.b. and VI.B.1.c. of this document, 
advertising that is diverse, image-laden, and colorful can be 
particularly effective in attracting attention in a cluttered 
advertising environment. Further, advertising that is repeated 
frequently and in as many different media as possible is most likely to 
ensure that its message is received by the maximum number of consumers. 
This trend toward the use of many media in a coordinated effort to 
communicate an advertising message supports the need for a 
comprehensive approach to mitigating the effects of tobacco 
advertising. \78\
---------------------------------------------------------------------------

    \78\ Flynn, B. S., J. K. Worden, R. H. Secker-Walker, G. J. 
Badger, B. M. Geller, and M. C. Costanza, ``Prevention of Cigarette 
Smoking Through Mass Media Intervention and School Programs,'' 
American Journal of Public Health, vol. 82, pp. 827-834, 1992.
---------------------------------------------------------------------------

    Every presentation can add to and build upon the imagery and appeal 
created for a product category or a particular brand. Print 
advertising, direct mail, and outdoor advertising help to create an 
image of the brand (and sometimes an image of the brand's user) and 
provide information about price, taste, relative safety, and product 
developments for current or prospective users. William Campbell, Chief 
Executive Officer of Philip Morris, explained the importance of linking 
the brand imagery in various media in relationship to the success in 
marketing its Marlboro product:
     [W]e've managed to take what was originally tunnel vision 
advertising and positioning * * * into every kind of avenue * * *. 
For example, our auto racing activities are just another way to 
express the Marlboro positioning. Some would say the Marlboro Cup is 
different from Marlboro Country, but it is absolutely consistent. 
\79\
---------------------------------------------------------------------------

    \79\ ``Philip Morris Keeps Smoking--Campbell Sees Growth for 
Tobacco Unit in Declining Industry,'' Advertising Age, p. 20, Nov. 
19, 1990.
---------------------------------------------------------------------------

     The use of many different media is also important in advertising 
directed to children. An example of a successful multimedia approach 
directed to children is the cigarette smoking prevention program 
conducted by Flynn et al., in Vermont, New York, and Montana, and cited 
in the preamble to the 1995 proposed rule. \80\ This effort combined 
school cigarette smoking prevention programs with a mass media 
intervention featuring more than 50 different television and radio 
spots over a 4-year period. Some communities received the school 
cigarette smoking prevention programs alone, and others received the 
school program in combination with the mass media intervention. By the 
final year of the program, students exposed to both school and mass 
media interventions were 35 percent less likely to have smoked during 
the past week than students exposed only to the school program. 
Further, this preventive effect persisted for at least 2 years 
following the completion of the program. \81\ The researchers 
attributed the effectiveness of their program in part to the fact that 
their intervention used a wide variety of messages and message styles 
over a significant period of time.
---------------------------------------------------------------------------

    \80\ Flynn, B. S., J. K. Worden, R. H. Secker-Walker, G. J. 
Badger, B. M. Geller, and M. C. Costanza, ``Prevention of Cigarette 
Smoking Through Mass Media Intervention and School Programs,'' 
American Journal of Public Health, vol. 82, pp. 827-834, 1992.
    \81\ Flynn, B. S., J. K. Worden, R. H. Secker-Walker, P. L. 
Pirie, G. J. Badger, and B. M. Geller, ``Mass Media Interventions 
for and School Interventions for Cigarette Smoking Prevention: 
Effects Two Years After Completion,'' American Journal of Public 
Health, vol. 84, pp. 1148-1150, 1994.
---------------------------------------------------------------------------

    Thus, all media collectively along with the amount of exposure time 
to young people, can increase the effectiveness of the advertiser's 
message. For example, billboards near schools or playgrounds expose 
children to unavoidable advertising messages for a more prolonged 
period of time than billboards they pass on the highway. Further, 
sponsored events that typically last for 2 to 3 hours ensure that those 
attending the event or viewing it at home on television are exposed for 
a sustained period of time.
    b. Color contributes. Color is an important component of 
advertising. It can be used to promote a ``feeling'' and a message--
blue is cool, red is hot, green is menthol. Studies have shown that 
four-color advertisements significantly increase attention and recall 
relative to two color or black- and white- advertisements. \82\ 
Moreover, the importance of color in advertising becomes more salient 
when it is considered that most consumer behavior occurs in conditions 
of ``low involvement.'' \83\ Low involvement conditions are those that 
occur when a reader skims a magazine advertisement rather than 
carefully searching for an advertisement for information about price, 
taste, relative ``safety'' of the product, or product improvement.
---------------------------------------------------------------------------

    \82\ Hanssens, D., and B. Weitz, ``The Effectiveness of 
Industrial Print Advertisements Across Product Categories,'' Journal 
of Marketing Research, vol. 17, pp. 294-306, 1980.
    \83\ MacInnis, D. J., and L. L. Price, ``The Role of Imagery in 
Information Processing: Review and Extensions,'' Journal of Consumer 
Research, vol. 13, pp. 473-491, 1987.
---------------------------------------------------------------------------

    A recent article in The European \84\ described the importance of 
color:
---------------------------------------------------------------------------

    \84\ Short, D., ``The Colour of Money,'' The European, p. 21, 
April 10, 1996.
---------------------------------------------------------------------------

    [S]ecuring a brand colour is more important than ever, 
particularly for companies chasing a youth market. The main reason 
is the increasing use of fast and furious graphics in advertising 
and marketing communications generally. ``This makes owning a colour 
more and more important. You can keep changing the graphics, but the 
colour remains constant in the consumer's mind.'' Owning a colour 
also helps when sponsoring a sports event, for instance, ``All Pepsi 
now has to do is put up lots of blue,'' said Brant. \85\
---------------------------------------------------------------------------

    \85\ Id. Brant was commenting on Pepsi's decision to change its 
brand color to blue.
---------------------------------------------------------------------------

    c. The importance of imagery. Imagery also enhances the ability of 
advertising to communicate more quickly in low involvement situations 
and in quick exposure contexts. Pictorial information is remembered 
much better than verbal information, as pictures perform a function of 
``organizing'' the qualities of the product as depicted with an image. 
Generally, as the pictures or images in an advertisement increase (both 
in number and the proportion of the advertisement occupied by the 
image), the advertisement is more likely to be recognized, and the 
brand name more likely to be remembered. In most cases, pictorial or 
image advertising is a more robust and flexible communications medium 
and can be used to communicate with the functionally illiterate or the 
young person in a hurry. \86\
---------------------------------------------------------------------------

    \86\ Lutz, K. A., and R. J. Lutz, ``Effects of Interactive 
Imagery on Learning: Applications to Advertising,'' Journal of 
Applied Psychology, vol. 62, pp. 493-498, 1977; Hendon, D. W., ``How 
Mechanical Factors Affect Ad Perception,'' Journal of Advertising 
Research, vol. 13, pp. 39-45, 1973; See also Holbrook, M. B., and D. 
R. Lehmann, ``Form Versus Content in Predicting Starch Scores,'' 
Journal of Advertising Research, vol. 20, pp. 53-62, 1980; Twedt, D. 
W., ``A Multiple Factor Analysis of Advertising Readership,'' 
Journal of Applied Psychology, vol. 36, pp. 207-215, 1952.

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[[Page 44468]]

    An executive from Griffin Bacal, one of the largest advertising 
agencies in New York, explained how visual imagery scored with young 
people:
     Pictures sell. Visuals count * * * even those visuals that 
seemingly have nothing to do with the product sale. * * * [including 
locations, sets, props, wardrobe, colors, numbers, sexes and ages of 
people in the ads] * * * Kids want to be like each other. Group 
acceptance, and living the life of the gang, is critical. * * * 
Similarly, kids define themselves by the product choices they make 
and share. Be sure your advertising makes the ``world'' accessible 
and ``invites'' the viewer to join. \87\
---------------------------------------------------------------------------

    \87\ Kurnit, P., ``10 Tips From the Top Agency-Exec Explains How 
Griffin Bacal Scores with Kids,'' Advertising Age Supplement, pp. 
19-20, February 10, 1992.
---------------------------------------------------------------------------

    Evidence from social psychology and marketing research shows image-
based advertising, such as that employed by the cigarette and smokeless 
tobacco industry, is particularly effective with young people, and that 
the information conveyed by imagery is likely to be more significant to 
young people than information conveyed by other means in the 
advertisement.
    According to the ``elaboration-likelihood model of persuasion,'' 
persuasive communications, such as advertisements, can persuade people 
either: (1) By the ``central route,'' or (2) by the ``peripheral 
route.'' \88\ The central route refers to the process by which a person 
reads the messages or information contained in the advertisement and 
thinks carefully about it and is influenced by the strength of its 
arguments. The peripheral route is a process in which individuals, 
particularly young people, are more likely to pay attention and be 
persuaded by peripheral cues such as attractive models, color and 
scenery, which are unrelated to the primary parts of the message. 
Therefore, a young person, or anyone who is unmotivated or unable to 
carefully consider the arguments in a message, is likely to be 
persuaded via the peripheral route.
---------------------------------------------------------------------------

    \88\ Petty, R. E., and J. T. Cacioppo, Communication and 
Persuasion: Central and Peripheral Routes to Attitude Change, 
Springer-Verlag, New York, p. 3, 1986.
---------------------------------------------------------------------------

    In markets where most brands in a product category are similar (as 
is the case with cigarettes and smokeless tobacco products), most 
advertising provides little, if any, new information. Thus, peripheral 
cues (such as color and imagery) take on added significance. Moreover, 
according to the model, for children, the motivation and ability to 
``elaborate'' upon the arguments (pay attention to and think about the 
factual information) contained in cigarette and smokeless tobacco 
advertising are relatively low, making young people more susceptible to 
influence from peripheral cues such as color and imagery.
    Finally, according to the comment from the nation's largest 
psychological association, children generally have less information-
processing ability than adults, and they are less able or less willing 
to pay attention to the factual information in the advertisements. This 
comment stated that because any possible negative health consequences 
associated with using tobacco products are relatively far in the future 
for them, children are less motivated than adults to carefully consider 
information such as tar and nicotine content or the Surgeon General's 
warnings, which are contained in cigarette and smokeless tobacco 
advertising. Thus, the comment concludes, color and imagery in 
advertisements are important components for young people. \89\
---------------------------------------------------------------------------

    \89\ See also, Huang, D. P., D. Burton, H. L'Howe, and D. M. 
Sosin, ``Black-White Differences in Appeal of Cigarette 
Advertisements Among Adolescents,'' Tobacco Control, vol. 1, pp. 
249-255, 1992.
---------------------------------------------------------------------------

    A communications researcher who provided comments on FDA's 1995 
proposed rule for the consolidated comment of the cigarette industry 
asserted that the elaboration likelihood model was relevant to the way 
children respond to tobacco advertising, but took a somewhat different 
view than that expressed above. Specifically, the comment stated that 
children are most likely to use the central route when they are ego-
involved in the subject of persuasion, and that ``ego-involvement 
generally comes from those subjects which are salient to the groups 
with which one is aligned - e.g. peers.'' However, the comment also 
stated that because children would have no real experiences surrounding 
the initiation of cigarette smoking, they would be likely to engage in 
peripheral processing, and would rely on credible sources, such as 
peers. The comment contended,
     The reason the elaboration likelihood model is relevant here is 
that the decision to begin smoking cigarettes does not come out of a 
set of fixed or habituated experiences personal to the decision 
maker. For that reason this decision is likely to be one on which a 
person is particularly susceptible to the influence of others, and 
therefore source credibility becomes key. [Emphasis added].
    The agency is not convinced by the comment. This explanation does 
not address children's responses to tobacco advertisements--it 
essentially assumes that children are influenced by advertising only 
insofar as it is filtered through the experience of their peers. This 
reasoning is both circular and illogical. However, the agency does 
concur with the comment's view that children typically process tobacco 
advertising via the peripheral route, that children are particularly 
susceptible to the influence of others regarding the decision to start 
smoking or to use smokeless tobacco, and that perceived source 
credibility plays an important role. FDA maintains that the ``source'' 
of the persuasive message in tobacco advertising is frequently conveyed 
by the imagery presented in the advertisement. The same comment 
expressed this sentiment, stating ``[s]ince the media consumer often 
does not know the writer or broadcaster personally, the consumer or 
receiver may attribute source credibility to the media themselves.'' To 
the extent that characters featured in tobacco advertising, such as Joe 
Camel, the Marlboro Man or the attractive models or race car heroes 
typically portrayed in such advertising appear credible and appealing, 
they are perceived as credible sources, and could influence children 
regarding the decision to smoke or to use smokeless tobacco products.
2. Advertising and Adults
    (2) Several comments from the tobacco industry and the advertising 
industry stated that cigarette and smokeless tobacco advertising plays 
an important economic role in tobacco marketing. A comment from the 
tobacco industry stated that FDA proposed restrictions would: (1) 
Substantially impair advertising of tobacco to adults; (2) deprive 
adults of useful information about products and services such as 
availability, price, and quality; (3) reduce the incentive and ability 
to market improved products; and (4) deprive adult smokers of the 
benefits of competition to provide a broad range of choices and to 
assure that tobacco products are provided at the lowest possible cost. 
Consequently, the comment said that the 1995 proposed rule would have a 
far greater adverse impact on advertising to adults than on advertising 
seen by young people.
    One comment from an advertising agency argued that restrictions on 
the advertising of tobacco products would ``significantly erode the 
progress made over the past 15 years in increasing the quantity and 
variety of information readily available to the public.'' This

[[Page 44469]]

progress, the comment reiterated, has benefited and continues to 
benefit the public.
    Further, several comments argued that unfettered advertising is 
consistent with our Nation's belief in providing the broadest possible 
range of information to individuals, so that they can exercise informed 
judgment in their daily lives. For these reasons, the comment stated, 
further restrictions on the advertising of legal products would not be 
in the public interest and should be opposed.
    FDA recognizes, as these comments maintained, that imagery and 
color make advertising appealing to adults, as well as to children, and 
that advertisers consistently use these elements to make advertisements 
compelling and attention getting. Moreover, removal of color and 
imagery will make advertising's role in presenting information to 
adults more difficult. However, as stated more fully in the preamble to 
the 1995 proposed rule, FDA has attempted to tailor its advertising 
restrictions as narrowly as possible consistent with its purpose of 
reducing young people's attraction to and use of tobacco. Thus, rather 
than banning all advertising, the proposed regulations retain the 
informational function of advertising by permitting text-only 
advertising while removing color and imagery from those advertisements 
to which young people are unavoidably exposed.
    FDA does not believe that these restrictions should dramatically 
increase search costs for adult smokers and smokeless tobacco users who 
are actively looking for information on price and new product 
innovations. Text-only advertising requires a high involvement on the 
part of the consumer but can realistically be expected to provide 
sufficient information to carry the message and also provide sufficient 
appeal to attract current smokers and smokeless tobacco users. Some 
advertising for low-tar products relies on text-only or text with few 
pictures.
    If the information about product type is important and desired by 
adult tobacco users, it can and will be provided by text-only 
advertisements if the industry desires to make the information 
available. As noted above, advertising for low-tar cigarettes is 
generally high-involvement advertising at the present and therefore can 
be expected to survive in a text-only environment. Nonetheless, the 
agency recognizes that it may be more difficult for advertising, 
without imagery and color, to attract the attention of current tobacco 
users. However, the agency has decided that the public health benefits 
of reducing advertising's ability to create appeal for young people 
greatly outweighs the tobacco companies' interest in unrestricted 
advertising to adults.
    The position argued by these comments is essentially that industry 
has the right to communicate freely with its intended audience 
regardless of the impact its advertising has on the illegal and 
vulnerable audience of children and adolescents. Other comments counter 
this comment asserting that it is the Government's obligation to 
protect children because of their special vulnerabilities, their lack 
of experience and knowledge, and their limited ability to make 
appropriate decisions regarding behavior that will have lifelong health 
consequences. FDA believes its obligation with respect to tobacco 
products is to safeguard the health and safety of young people to 
ensure that they do not begin a potentially lifelong addiction to 
products that cause so much disease and premature death.

C.  The Regulations Under the First Amendment 

1. Introduction
    Under section 520(e) of the act (21 U.S.C. 360j(e)), FDA included a 
number of proposed conditions in the 1995 proposed rule on how 
cigarettes and smokeless tobacco could be advertised as part of its 
proposed restrictions on the sale of these products. The agency 
tentatively found that these conditions are necessary to reduce the 
advertising's ability to create demand for these products--that is, the 
desire to purchase them--among children and adolescents under 18, for 
whom these products are not safe (60 FR 41314 at 41350). In addition, 
FDA tentatively found that it was necessary to include an industry-
financed education program among these conditions.
    In proposing these measures, FDA recognized that they would have to 
pass muster under the protections of communication extended by the 
First Amendment to the United States Constitution, in particular, under 
the protections extended to commercial speech (60 FR 41314 at 41353). 
Before addressing the commercial speech analysis, however, this section 
responds to several comments which registered more fundamental 
complaints under the First Amendment about FDA's proposed approach.
    (3) Several comments, which were from the tobacco and advertising 
industries, found in statements made by FDA evidence of an intent not 
merely to protect the health of young persons but to ``delegitimize'' 
lawful adult conduct, to engage in ``viewpoint discrimination,'' and to 
run ``roughshod'' over the rights of cigarette and smokeless tobacco 
companies. One comment said that it is outside the realm of permissible 
exercise of governmental power to suppress speech for the purpose of 
instilling values that the Federal Government believes are appropriate. 
This comment also said that the purpose of FDA's rulemaking is to 
eliminate speech that conflicts with Government messages on smoking and 
health. The comment noted that FDA's goal is to bring about the demise 
of smoking as a social custom. However, a comment from a consumer group 
disagreed, saying instead that FDA's 1995 proposed rule was limited to 
covering only those activities designed to promote the sale of the 
product to young people and thus covered only commercial speech.
    FDA has carefully considered these comments and has taken the 
concerns that they expressed into account as it developed this final 
rule. The agency recognizes that its authority is limited by the act 
and the Constitution. Thus, it has scrutinized each of the conditions 
on advertising that it proposed in light of whether the condition 
advances the purposes of section 520(e) of the act or some other 
section of the act, and whether the condition is consistent with the 
First Amendment.
    FDA's primary concern is the public health. Because of the 
potentiality for harmful effects on individuals under 18 from use of 
cigarettes and smokeless tobacco, FDA is adopting restrictions on 
advertising among other restrictions on the sale, distribution, and use 
of these products. These restrictions will mean that it should be more 
difficult to sell these products to people under age 18, who currently 
purchase these products in significant numbers.
    The agency acknowledges that insofar as these restrictions help 
reduce the sale of tobacco products to young people, the restrictions 
will have an adverse effect on the cigarette and smokeless tobacco 
companies. However, this fact does not mean that FDA is trying to bring 
about the demise of the tobacco industry. The restrictions that FDA is 
adopting have been tailored to help reduce tobacco advertising's 
ability to create an underage market for these products, while leaving 
open ample avenues for cigarette and smokeless tobacco companies to 
communicate to current users 18 years of age or older about their 
products. As explained in detail in

[[Page 44470]]

section VI.E. of this document, this is all that the First Amendment 
requires.
    (4) Several comments argued that, in the 1995 proposed rule, FDA 
had understated the protection that commercial speech is afforded under 
the First Amendment. These comments pointed out that advertisers and 
consumers have powerful First Amendment rights to send and receive 
commercial messages. To support this point, one comment pointed out 
that the Supreme Court has recognized that the free flow of commercial 
information is ``indispensable to proper allocation of resources in a 
free enterprise system.'' (See Virginia State Bd. of Pharmacy v. 
Virginia Citizen's Consumer Council, Inc., 425 U.S. 748, 765 (1976).) 
The comment also pointed out that the Court went on to say that a 
``particular consumer's interest in the free flow of commercial 
information * * * may be as keen, if not keener by far, than his 
interest in the day's most urgent political debate'' (Id. at 763).
    Another comment, however, citing Ohralik v. Ohio State Bar Ass'n., 
436 U.S. 447 (1978), stated that there are dangers inherent in a free-
for-all marketplace, and that, at times, vigilant Government action is 
needed to protect the public from false, deceptive, or overbearing 
sales campaigns.
    In addition to the comments, the agency has considered the Supreme 
Court's recent decision in 44 Liquormart, Inc. v. Rhode Island, 116 
S.Ct. 1495 (1996), which was handed down after the rulemaking record 
was closed. The Court ruled unanimously that Rhode Island's ban on all 
dissemination of price advertising for alcoholic beverages was 
violative of the First Amendment. No rationale for this judgment 
commanded a majority of the Court, however. Nonetheless, FDA considered 
each part of the principal opinion, as well as the concurring opinions, 
in arriving at the decisions that are set forth in this final rule.
    FDA in no way underestimates the protection extended to commercial 
speech by the First Amendment. FDA recognizes the important societal 
interests served by this type of speech and has given full 
consideration to those interests in developing this final rule. 
Nonetheless, it is also true, as the agency stated in the 1995 proposed 
rule (60 FR 41314 at 41353 to 41354), that the measure of protection 
that commercial speech receives is commensurate with its subordinate 
position in the scale of First Amendment values, and it is subject to 
modes of regulation that might be impermissible in the realm of 
noncommercial expression. (See Florida Bar v. Went For It, Inc., 115 
S.Ct. 2371, 2375 (1995).)
    However, in 44 Liquormart, Inc., three Justices stated:
     [w]hen a State entirely prohibits the dissemination of 
truthful, nonmisleading commercial messages for reasons unrelated to 
the preservation of a fair bargaining process, there is far less 
reason to depart from the rigorous review that the First Amendment 
generally demands.
(116 S.Ct. at 1507)
    This statement has no application to the restrictions that FDA is 
imposing for two reasons. First, FDA is not entirely prohibiting the 
dissemination of commercial messages about cigarettes and smokeless 
tobacco. As explained in section VI.E. of this document, it is adopting 
carefully tailored restrictions on the time, place, and manner in which 
such messages may be conveyed so that they are not used to undermine 
the restrictions on access by minors. Second, the restrictions are 
related to the bargaining process. As explained in section II.C.3. of 
this document in the discussion of section 520(e) of the act, the 
access restrictions, and the concomitant restrictions on promotion of 
these products, derive from the fact that, at least as a matter of law, 
minors are not competent to use these products.
    ``The protection available for particular commercial expression 
turns on the nature both of the expression and of the governmental 
interests served by its regulation.'' (See Central Hudson, 447 U.S. at 
563.) FDA has weighed these factors in deciding what restrictions on 
cigarette and smokeless tobacco advertising can appropriately be 
included in this final rule.
2. The Central Hudson Test
    The comments were unanimous in agreeing that any restrictions the 
agency adopts on commercial speech will be assessed under the test 
first articulated by the Supreme Court in Central Hudson, 447 U.S. at 
563-64. This test was originally set out as a four-step analysis in 
Central Hudson; however, in one recent case, Florida Bar v. Went For 
It, Inc., the Supreme Court described the test as having three prongs 
after a preliminary determination is made, although the matters to be 
considered remain unchanged:
     Under Central Hudson, the government may freely regulate 
commercial speech that concerns unlawful activity or is misleading* 
* *. Commercial speech that falls into neither of these categories, 
* * * may be regulated if the government satisfies a test consisting 
of three related prongs: first, the government must assert a 
substantial interest in support of its regulation; second, the 
government must demonstrate that the restriction on commercial 
speech directly and materially advances that interest; and third, 
the regulation must be ``narrowly drawn'' * * *.
(115 S.Ct. at 2376 (citations omitted))
    FDA explained in the preamble to the 1995 proposed rule why the 
restrictions on advertising that it was proposing met each requirement 
of the Central Hudson test (60 FR 41314 at 41354 and 41356). The agency 
received a number of comments on its analysis--mostly from the tobacco 
industry, newspaper or magazine associations, and advertisers. These 
comments argued that FDA's proposed restrictions failed under one or 
more elements of the Central Hudson test. The agency also received 
comments from a public interest group, which has the protection of 
commercial speech as one of its interests, and from a coalition of 
major national health organizations. Both of these comments argued 
that, in virtually all respects, FDA's proposed restrictions satisfy 
the Central Hudson test.
    In the sections that follow, for each of the restrictions on 
advertising that the agency proposed, FDA will analyze the case law 
that elucidates the applicable standard, the information presented in 
comments, and all other available evidence and decide whether that 
standard is met. However, before the agency does so, it must first 
consider the preliminary inquiry under Went For It and decide whether 
the First Amendment provides any protection to the advertising that is 
restricted by this final rule.
3. Is Cigarette and Smokeless Tobacco Advertising Misleading, or Does 
It Relate to Unlawful Activity?
    As stated earlier, the preliminary inquiry under the Went for It 
case is whether the commercial speech is misleading or relates to 
unlawful activity. FDA did not specifically address this aspect of the 
Central Hudson analysis in its proposal (60 FR 41314 at 41354). 
Nonetheless, several comments did.
    Many of the comments asserted that the targeted speech concerns 
lawful conduct, and that, therefore, this aspect of the Central Hudson 
analysis is satisfied. One comment noted FDA's silence on this matter 
and said that there is thus no suggestion that cigarette advertisements 
propose an illegal transaction or urge youths to begin smoking before 
it is lawful for them to do so.
    Some comments argued, however, that cigarette and smokeless tobacco

[[Page 44471]]

advertising is not entitled to First Amendment protection because it is 
misleading, and it concerns unlawful activity. These comments pointed 
out that it is unlawful in all 50 States to sell tobacco products to 
children under the age of 18. The comments said the evidence that FDA 
assembled in its 1995 proposal suggested that manufacturers of tobacco 
products are aware that their advertising campaigns induce minors to 
experiment with tobacco products (citing 60 FR 41314 at 41330-41331), 
and that much of the promotional efforts of the tobacco industry are 
geared toward an illegal end--inducing minors to try to break the law 
by obtaining cigarettes and smokeless tobacco that may not legally be 
sold or otherwise provided to them.
    The comments also argued that governmental entities are entitled to 
broad discretion when regulating the promotion of legal products or 
activities that pose dangers to society (citing, e.g., United States v. 
Edge Broadcasting Co., 509 U.S. 418 (1993)). The comments argued that 
cigarette advertising is designed to persuade minors that any concerns 
about health hazards are misplaced or overstated, and that their peers 
are having fun because they smoke.
    Contrary positions were taken by several comments. One argued that 
the fact that the sale of tobacco to minors is illegal under State law 
does not remove the constitutional protection for advertising to adults 
an otherwise lawful product (citing Dunagin v. City of Oxford, 718 F.2d 
738, 743 (5th Cir. 1983) (en banc), cert. denied, 467 U.S. 1259 
(1984).) A second comment cited the conclusion of a respected 
researcher that: ``the suggestion that advertising messages are somehow 
working subliminally to twist children's minds before they are old 
enough to know better is a complete invention, for which there is no 
evidence whatever'' (citing McDonald, C., ``Children, Smoking and 
Advertising: What Does the Research Really Tell Us?,'' 12 International 
Journal Of Advertising 286 (1993)). These comments also argued that 
given the warnings that must appear in all tobacco advertising, it 
could not be maintained that tobacco advertising is misleading.
    FDA has carefully considered these comments. They raise the 
fundamental question of whether tobacco advertising is protected by the 
First Amendment. This question cannot be disposed of based simply on 
the question of whether such advertising explicitly urges young people 
to begin purchasing or using tobacco products before it is lawful for 
them to do so. \90\
---------------------------------------------------------------------------

    \90\ As explained more fully below, FDA finds unpersuasive the 
quote from McDonald because it does not address the means by which 
cigarette and smokeless tobacco product advertising influences 
minors' decisions on whether to purchase and use these products. 
Therefore, the agency turns to the legal issue raised by the 
comments.
---------------------------------------------------------------------------

    The Supreme Court has repeatedly said that commercial speech 
``related to'' unlawful activity is not entitled to First Amendment 
protection. (See 44 Liquormart, Inc., 116 S.Ct. at 1505 n.7 (`` By 
contrast, the First Amendment does not protect commercial speech about 
unlawful activities.''); Florida Bar v. Went For It, 115 S.Ct. 2376 
(``Under Central Hudson, the government may freely regulate commercial 
speech that concerns unlawful activity or is misleading''); Bolger v. 
Youngs Drug Products Corp., 463 U.S. 60, 69 (1983) (``The State may 
also prohibit commercial speech related to illegal behavior.''); 
Central Hudson, 447 U.S. at 563-564 (``The government may ban * * * 
commercial speech related to illegal activity.'' (citations omitted)).) 
Tobacco advertising is ``related to illegal activity'' in two 
significant respects and thus, in fact, might not be protected speech.
    First, tobacco ads, at least as a legal matter, propose a 
commercial transaction (see Virginia State Bd. of Pharmacy v. Virginia 
Citizens Consumer Council, Inc., 425 U.S. 748, 762 (1976); Pittsburgh 
Press Co. v. Human Relations Com'n, 413 U.S. 376, 389 (1973)), that is, 
to sell cigarettes and smokeless tobacco. In proposing these 
transactions, the advertisers do not differentiate between adult and 
minor purchasers. Because sales to minors are unlawful in every State, 
\91\ the undifferentiated offer to sell constitutes, at least in part, 
an unlawful offer to sell. At the very least, these advertisements are 
clearly perceived by minors as offers or inducements to buy and use 
these products. Millions of American children and adolescents act on 
these perceived offers. It is estimated that each year children and 
adolescents consume between 516 million and 947 million cigarette 
packages and 26 million containers of smokeless tobacco (60 FR 41314 at 
41315). Thus, in a practical sense, cigarette and smokeless tobacco 
advertising is proposing transactions that are illegal (see Virginia 
State Board of Pharmacy v. Virginia Citizens Council, Inc., 425 U.S. at 
772), whether or not that is the advertiser's intent. As such, the 
protections of the First Amendment might not attach to such advertising 
because it proposes an illegal transaction. (See Pittsburgh Press Co., 
413 U.S. at 389; Zauderer v. Office of Disciplinary Counsel, 471 U.S. 
626 638 (1985) (``The States and the Federal Government are free to 
prevent the dissemination of commercial speech that is false, 
deceptive, or misleading, * * *, or that proposes an illegal 
transaction * * *'' (citations omitted)).)
---------------------------------------------------------------------------

    \91\ ``State Laws on Tobacco Control--United States, 1995,'' 
Morbidity and Mortality Weekly Report (MMWR), CDC, DHHS, vol. 44, 
No. ss-6, pp. 16-17, November 3, 1995.
---------------------------------------------------------------------------

    Second, even if it is assumed, arguendo, that cigarette and 
smokeless tobacco ads are not, for constitutional purposes, literal 
offers to sell to minors, they nonetheless are ``related to'' an 
unlawful activity. Whether it is the advertiser's intent or not, as 
explained in sections VI.D.3. through VI.D.6. of this preamble, 
cigarette and smokeless tobacco advertising has a powerful appeal to 
children and adolescents under the age of 18 and through this appeal, 
by means of the image that it projects, it has an effect on a young 
person's decision to use, and thus to attempt to purchase, tobacco 
products. Yet, as stated above, sale of tobacco products to minors is 
unlawful in all 50 States, and the purchase, possession, or use of 
tobacco products by minors is unlawful in a majority of States.\92\ 
Thus, the appeal of tobacco advertising to minors is such that this 
type of advertising can appropriately be viewed as encouraging, and 
thus being ``related to'', illegal activity. As a result, it is 
arguable that, without more, FDA would be able to freely restrict such 
advertising.
---------------------------------------------------------------------------

    \92\ Id.
---------------------------------------------------------------------------

    Nevertheless, the advertising also relates to lawful activity--the 
sale of tobacco products to adults. Consequently, FDA may not have 
unlimited discretion to regulate tobacco advertising. (See Dunagin v. 
City of Oxford, 718 F.2d at 743.) At the very least, however, FDA 
should be afforded discretion to do what it has tried to do in these 
regulations; that is, to distinguish advertising that ``relates to'' 
commercial activity that, in substantial respects, is unlawful, the 
sale of tobacco products to children, from advertising that does not.
    Significantly, the Supreme Court was confronted with a situation 
similar to this in United States v. Edge Broadcasting. In Edge, the 
Supreme Court upheld a Federal statute that prohibited advertising that 
``related to'' unlawful activity (broadcast of lottery advertising by a 
broadcaster licensed to

[[Page 44472]]

a State that does not allow lotteries), but not advertising that did 
not relate to unlawful activity (broadcasting of lottery advertising by 
a broadcaster licensed to a State that allowed a lottery.)
    Edge was recently cited with approval by the plurality opinion in 
44 Liquormart Inc., 116 S.Ct. at 1511. Justice Stevens (joined by 
Justices Thomas, Kennedy, and Ginsburg) reasoned that the statute in 
Edge ``was designed to regulate advertising about an activity that had 
been deemed illegal in the jurisdiction in which the broadcaster was 
located.'' He contrasted the statute in Edge to the statute in 44 
Liquormart which ``targets information about entirely lawful behavior'' 
(Id.). Thus, the Supreme Court has countenanced distinctions in how 
speech is regulated that are based on whether the underlying conduct to 
which the speech relates is entirely lawful or not. That is exactly the 
type of distinction that FDA is drawing here.
    Thus, a credible argument can be made that advertising of 
cigarettes and smokeless tobacco, at least to the extent that it is 
related to sale of these products to children under 18, is not speech 
protected by the First Amendment, and thus that the regulations that 
FDA is adopting restricting such advertising are subject only to review 
under an arbitrary or capricious standard. (See Florida Bar v. Went For 
it, Inc., 115 S.Ct. at 2376.) However, FDA is not relying solely on 
this analysis. Alternatively, FDA has assumed that a Central Hudson 
test, such as that applied in Edge--for products that relate to both 
lawful and unlawful transactions--would be appropriate here. Therefore, 
a full analysis of these restrictions under Central Hudson follows.
    Before proceeding to the Central Hudson analysis and considering 
the comments that bear on it, FDA wants to emphasize that, even if the 
First Amendment applies to tobacco advertising, the restrictions that 
the agency is adopting have very limited impact on those attributes of 
commercial speech that are protected by the First Amendment. In 44 
Liquormart, Inc., a plurality of the Supreme Court reemphasized that 
commercial speech is protected solely because of the informational 
value:
     Advertising, however tasteless and excessive it sometimes may 
seem, is nonetheless dissemination of information as to who is 
producing and selling what product, for what reason, and at what 
price. So long as we preserve a predominantly free enterprise 
economy, the allocation of our resources in large measure will be 
made through numerous private economic decisions. It is a matter of 
public interest that those decisions, in the aggregate, be 
intelligent and well informed. To this end, the free flow of 
commercial information is indispensable.
116 S.Ct. at 1505 (emphasis added), quoting Virginia Board of Pharmacy 
v. Virginia Citizens Consumer Council.
    The restrictions that FDA is adopting have virtually no effect on 
the core informational function of commercial speech as described in 44 
Liquormart, Inc. and Virginia Board of Pharmacy. Except for billboards 
within 1,000 feet of schools and playgrounds, which, as explained 
below, present special circumstances, FDA is not restricting the 
ability of a manufacturer, distributor, or retailer to inform the 
public about what they are selling, why they are selling it, or the 
price of their products or, for that matter, about the characteristics 
of their products or about any other aspect of what they sell. FDA's 
concerns are about the ability of manufacturers to use images, color, 
and peripheral presentations (such as sponsorship) in their advertising 
and promotion of their products to create particular appeal for 
children and adolescents under 18. Thus, FDA has designed the 
restrictions that it is adopting to ensure that adults can continue to 
be informed by the information in tobacco advertising while restricting 
the noninformative aspects of advertising that appeal to children and 
adolescents under the age of 18. The agency will explain how it has 
achieved this end in the discussion that follows.
4. Is the Asserted Government Interest Substantial?
    Assuming that the Central Hudson test applies, ``[t]he State must 
assert a substantial interest to be achieved by restrictions on 
commercial speech.'' (See Central Hudson, 447 U.S. at 564.) In the 1995 
proposed rule, FDA stated that this prong of the Central Hudson test 
was satisfied because the proposed regulations serve the substantial 
Government interest of protecting the public health. FDA stated that 
the advertising restrictions will help to reduce the use of cigarettes 
and smokeless tobacco by those who are ``the most vulnerable to 
addiction and, perhaps, the least capable of deciding whether to use 
the products. Decreased use of these products will reduce the risk of 
tobacco-related illnesses and deaths'' (60 FR 41314 at 41354).
    Most of the comments that FDA received on this issue, even some 
from those who otherwise opposed the agency's proposed restrictions, 
agreed with the agency that it has a substantial interest in protecting 
the health of individuals under 18 years of age.
    (5) Two comments, however, said that the interest asserted by FDA 
is insufficient to justify the proposed restrictions on speech. One of 
those comments said that smoking is a legal and widespread activity, 
and that there is no congressional policy against smoking. One comment 
said that while the Government has a substantial interest in ensuring 
that tobacco products are used by adults only, FDA is not empowered to 
protect that interest.
    FDA strongly disagrees with the latter comments. The Government's 
interest in the public health, and particularly in the well-being of 
minors, is well-established. (See Action for Children's Television v. 
FCC, 58 F.3d 654, 661 (D.C. Cir. 1995) and 60 FR 41314 at 41354.) In 
fact, the Supreme Court has found that there is a compelling, not 
merely a substantial, interest in protecting the physical and 
psychological well-being of children, New York v. Ferber, 458 U.S. 747, 
756-57 (1982), and that the Government's interest in the well-being of 
youth and in parents' claim to authority in their own household can 
justify the regulation of otherwise protected expression, FCC v. 
Pacifica Foundation, 438 U.S. 726, 749 (1978). (See also Denver Area 
Educational Telecommunications Consortium v. FCC, 64 U.S.L.W. 4706 (in 
press) (June 28, 1996).)
    As the agency has explained in section II.B. and in the 1996 
Jurisdictional Determination annexed hereto, cigarettes and smokeless 
tobacco are drug delivery devices that are subject to regulation as 
devices under the act. Their use by children and adolescents under 18 
presents serious risk to the health of this segment of the population. 
For example, studies show that the age one begins smoking influences 
the amount of smoking one will engage in as an adult and will 
ultimately influence the smoker's risk of tobacco related morbidity and 
mortality (60 FR 41314 at 41317). In addition, the risk of oral cancer 
increases with increased exposure to smokeless tobacco products (60 FR 
41314 at 41319). Thus, the health of children and adolescents is 
related to their use of cigarettes and smokeless tobacco.
    FDA's compelling interest in the health and well-being of minors 
supports restrictions on cigarette and smokeless tobacco advertising to 
ensure

[[Page 44473]]

that advertising does not undermine FDA's restrictions on the sale of 
these products.
    One comment said that while FDA's articulated interest in 
protecting minors from harm clearly is substantial, this interest is 
not served by FDA's regulations. According to the comment, the only 
goal served directly by the proposed regulations is that of 
delegitimatizing smoking. Two comments said that under the guise of 
protecting adolescents and children, FDA is trying to ```save' all 
Americans from the `evils' of smoking.'' Two comments said that the 
agency is trying to prevent cigarette advertising from presenting 
smoking in a positive light. One comment, citing Carey v. Population 
Services International, 431 U.S. 678 (1977), said that the Government 
cannot restrict cigarette advertising because it legitimizes or 
favorably influences a young person's views toward tobacco products.
    FDA finds no merit in these comments. Advertisements for cigarette 
and smokeless tobacco are not banned by the restrictions that FDA is 
adopting. For example, the companies are free to use advertising in 
almost all media that communicates to adults about the price, taste, or 
joys of using their product, as long as they do so using black-and-
white, text-only advertisements, or using imagery and color in 
publications read primarily by adults. Thus, it is simply not true that 
manufacturers will be prevented from presenting tobacco use in a 
positive light or that they will be prevented from conveying truthful, 
nonmisleading information in almost all media.
    These regulations are intended, however, as explained in section 
VI.E. of this document, to prevent manufacturers from advertising their 
tobacco products in a way that encourages underage individuals to 
purchase these products. They are authorized by sections 520(e) and 
502(q) of the act and are in no way inconsistent with Carey v. 
Population Services International.
    Carey involved a challenge to a law that banned all advertisement 
of contraceptives. The Government argued that advertising 
contraceptives would legitimize sexual activity of young children. The 
Supreme Court said that this basis was not a justification for 
validating suppression of expression protected by the First Amendment 
(431 U.S. at 701).
    Carey is distinguishable from the present situation in several 
ways. The advertisements in that case stated the availability of 
products and services that were not only entirely legal but were 
constitutionally protected because they involved the exercise of a 
fundamental right (Id.). (The Court also struck down other provisions 
of the law that prohibited distribution of contraceptives to anyone 
under the age of 16 and by anyone other than a licensed pharmacist.) 
Cigarettes and smokeless tobacco are neither lawful for all people nor 
constitutionally protected. The sale of these products to individuals 
under 18 is unlawful in every State (see also, 42 U.S.C. 300x-26), and 
possession, purchase, or use of at least some tobacco products by this 
segment of the population is unlawful in a majority of States. \93\ 
Moreover, there was no credible suggestion in any of these comments 
that the restrictions on the sale of these products infringe on the 
exercise of a fundamental right.
---------------------------------------------------------------------------

    \93\ Id.
---------------------------------------------------------------------------

    The Supreme Court in Carey made clear the limited coverage of its 
holding. (See 431 U.S. at 702, n. 29 (``We do not have before us, and 
therefore express no views on, state regulation of the time, place, or 
manner of such commercial advertising based on these or other state 
interests.'').) Thus, given the significant differences in the two 
situations, Carey does not limit FDA's ability to adopt conditions on 
advertising that are designed to ensure that restrictions on sale to 
minors are not undermined.
    (6) Finally, a group of comments on this first prong of the Central 
Hudson test attacked FDA for being paternalistic. These comments said 
that a principal theme of commercial speech doctrine is a societal 
intolerance for Government-enforced ignorance designed to ``help'' 
consumers who are not trusted by bureaucrats to evaluate advertising 
for themselves. One comment said that how to balance short-term 
gratification against long-term risk is a uniquely personal analysis 
that is best left to individual autonomy rather than Government 
censorship. The comment said that people must be trusted to perceive 
their own best interests without Government intervention in the 
information flow. These comments take on a particular significance in 
light of the plurality's statement in 44 Liquormart, Inc. v. Rhode 
Island, 116 S.Ct. at 1508, that ``[t]he First Amendment directs us to 
be especially skeptical of regulations that seek to keep people in the 
dark for what the government perceives to be their own good.''
    FDA has no disagreement with these comments with respect to 
individuals and, in fact, finds these regulations cannot fairly be 
characterized as paternalistic with respect to that population group. 
These regulations do not prohibit the inclusion of any information in 
advertising. They also do not impose the type of ban on accurate 
commercial information that has characterized the limitations on 
commercial speech that the Supreme Court has branded as paternalistic. 
(See, e.g., 44 Liquormart, Inc., 116 S.Ct. at 1510; Virginia Bd of 
Pharmacy, 425 U.S. at 769-770.)
    The agency acknowledges, however, that in another respect, these 
regulations are paternalistic. These regulations are specifically aimed 
at protecting children and adolescents under the age of 18 from the 
appeal of tobacco advertising. The agency finds however, that for it to 
be paternalistic with respect to children and adolescents in no way 
offends the First Amendment or Supreme Court precedent. (See Denver 
Area Communications Consortium, Inc. v. FCC, No. 95-124 (U.S. June 28, 
1996) slip op. at 25.) Nothing in 44 Liquormart, Inc., for example, 
suggests in any way that government may not be paternalistic with 
respect to children and adolescents under the age of 18.
    In fact, the Supreme Court has stated: ``* * * [T]he law has 
generally regarded minors as having a lesser capability for making 
important decisions.'' (See Carey v. Population Services International, 
431 U.S. at 693, n. 15.) Given these facts--that most cigarette smokers 
smoke their first cigarette before 18, that children and adolescents 
who use tobacco products quickly become addicted to them before they 
reach the age of 18, that among smokers aged 12 to 17 years, 70 percent 
regret their decision to smoke, and 66 percent state that they want to 
quit (60 FR 41314)--the decision to smoke is among the most important 
that an individual will make. Significantly, all 50 States have 
prohibited sales of cigarettes to people under 18 years of age. These 
regulations have been tailored to help ensure that individuals do not 
make a decision on whether to smoke before they are 18 and have a 
greater capacity to understand the consequences of their actions, and 
that they are not influenced to make this decision before that time by 
advertising. At the same time, FDA has sought to ensure that the 
restrictions do not burden any more speech than is necessary to 
accomplish this goal. Thus, FDA's purpose is not inconsistent with law, 
commercial speech doctrine, or the

[[Page 44474]]

country's precepts of individual autonomy.

D. Evidence Supporting FDA's Advertising Restrictions

1. Introduction
    Having considered the preliminary inquiry and the first prong of 
the Central Hudson analysis, the agency turns to the heart of this 
analysis, whether the restrictions on cigarette and smokeless tobacco 
advertising that FDA is imposing are in proportion to the interest that 
it is seeking to advance. To meet its burden on this issue, FDA first 
must show that tobacco advertising plays a concrete role in the 
decision of minors to smoke, and that each specific restriction on this 
advertising that it is adopting will contribute to limiting its effects 
and thus to protecting the health of children and adolescents under the 
age of 18. The extensive evidence in this proceeding fully supports 
these judgments.
2. Do the Regulations Directly Advance the Governmental Interest 
Asserted?
    In Central Hudson, the Supreme Court said that any limitation on 
commercial speech that the State imposes ``must be designed carefully 
to achieve the State's goal'' (447 U.S. at 564). ``* * * [T]he 
restriction must directly advance the State interest involved; the 
regulation may not be sustained if it provides only ineffective or 
remote support for the government's purpose'' (Id.).
    The Supreme Court elaborated on what this aspect of the Central 
Hudson test requires in Edenfield v. Fane, 507 U.S. 761, 770-771 
(1993);
     It is well-established that ``[t]he party seeking to uphold a 
restriction on commercial speech carries the burden of justifying 
it.'' * * * This burden is not satisfied by mere speculation or 
conjecture; rather, a governmental body seeking to sustain a 
restriction on commercial speech must demonstrate that the harms it 
recites are real and that its restriction will in fact alleviate 
them to a material degree * * *. Without this requirement, a state 
could with ease restrict commercial speech in the service of other 
objectives that could not themselves justify a burden on commercial 
expression.
    In Edenfield, the Court struck down a Florida ban on in-person 
solicitation by Certified Public Accountants (CPA's) because the State 
board failed to demonstrate that the harm it recited was real.
     It presents no studies that suggest personal solicitation of 
prospective business clients by CPAs creates the dangers of fraud, 
overreaching, or compromised independence that the Board claims to 
fear. The record does not disclose any anecdotal evidence, either 
from Florida or another State, that validates the Board's 
suppositions.
(Id.)
    In Rubin v. Coors, the Court struck down a section of the Federal 
Alcohol Administration Act (27 U.S.C. 201 et seq.) that prohibited beer 
labels from displaying alcohol content because the Government failed to 
demonstrate that this restriction would alleviate the recited harm to a 
material degree. (See 115 S.Ct. at 1592.) The Court characterized the 
Government's regulatory scheme as ``irrational'' (Id.). See also, 
Justice Stevens' opinion in 44 Liquormart, 116 S.Ct. at 1509, 1510. (In 
striking down Rhode Island's ban on price advertising for failure to 
demonstrate that the restrictions would advance the State's interest, 
Stevens, joined by Justices Kennedy, Ginsburg, and Souter, found that 
while the record ``suggests that the price advertising ban may have 
some impact on the purchasing patterns of temperate drinkers of modest 
means * * * no evidence [has been presented] to suggest that its speech 
prohibition will significantly reduce market-wide consumption.'' 
Therefore, Stevens stated that ``[s]uch speculation certainly does not 
suffice when the State takes aim at accurate commercial information for 
paternalistic ends.'')
    Thus, under the applicable case law, to adopt the proposed 
restrictions on cigarette and smokeless tobacco advertising, FDA must 
find that it can conclude from the available evidence that: (1) 
Advertising plays a material role in the process by which children and 
adolescents decide to begin or to continue to use these products; and 
(2) Limitations on advertising will contribute in a direct and material 
way to FDA's efforts to ensure that the restrictions it is adopting on 
the sale and use of tobacco products to minors are not undermined.
    Contrary to what some comments asserted, it is not necessary for 
FDA to establish by empirical evidence that advertising actually causes 
underage individuals to smoke, or that the restrictions on advertising 
will directly result in individuals that are under 18 ceasing to use 
cigarettes or smokeless tobacco. It is not necessary in satisfying this 
prong of Central Hudson for the agency to prove conclusively that the 
correlation in fact (empirically) exists, or that the steps undertaken 
will completely solve the problem. (See United States v. Edge 
Broadcasting Co., 509 U.S. 418, 434-35.) Rather, the agency must show 
that the available evidence, expert opinion, surveys and studies 
provide sufficient support for the inference that advertising does play 
a material role in children's tobacco use.
    In the 1995 proposed rule, FDA suggested that its judgment as to 
whether the governmental interest involved was directly advanced by its 
actions was entitled to some deference. ``The Supreme Court has stated 
that, when determining whether an action advances the governmental 
interest, it is willing to defer to the `common sense judgments' of the 
regulatory agency as long as they are not unreasonable'' (citing, 
Metromedia Inc. v. City of San Diego, 453 U.S. 490, 509 (1981) (60 FR 
41314 at 41354)).
    Several comments took issue with this suggestion. One comment said 
that FDA had mischaracterized Supreme Court jurisprudence, and two 
comments said that courts will defer only to common sense judgments of 
legislatures.
    FDA disagrees with those comments. In Florida Bar v. Went For It, 
Inc., the Supreme Court said that it had permitted ``litigants,'' which 
it did not limit to State legislatures, to justify speech restrictions 
by ``studies and anecdotes pertaining to different locales altogether, 
* * * or even, in a case applying strict scrutiny, to justify 
restrictions based solely on history, consensus, and ``simple common 
sense * * *'' (115 S.Ct. at 2378). Thus, FDA's reliance on common sense 
(which, as made clear in section VI.D.3. through VI.D.6. of this 
document, provides only part of the basis for FDA's findings) is 
justified.
    (7) One comment said that, rather than giving FDA deference, courts 
review with special care any regulations that suppress commercial 
speech to pursue a nonspeech-related policy.
    FDA disagrees with this comment for two reasons. First, these 
regulations do not suppress commercial speech. While they limit such 
speech, they leave open significant means of communication about these 
products. Second, this comment derives specifically from footnote 9 of 
Central Hudson, 447 U.S. at 566 (``We review with special care 
regulations that entirely suppress commercial speech in order to pursue 
a nonspeech-related policy.''). In that case, the Supreme Court found 
that control of demand for electricity was a speech-related policy (see 
447 U.S. at 569). Similarly, the policy that FDA seeks to advance here, 
control of demand for cigarettes and smokeless tobacco by minors, is a 
speech-related policy.

[[Page 44475]]

    (8) Finally, one comment said that FDA claimed deference for its 
common sense judgments to deflect attention from the lack of a factual 
basis for the 1995 proposed rule. Two comments, however, stated that 
FDA has compiled a record on the problem that is more extensive than 
any that existed in any of the cases in which the Supreme Court upheld 
restrictions on commercial speech.
    In the discussion that follows, FDA reviews the evidence on whether 
cigarette and smokeless tobacco advertising affects the decision by 
minors to use these products, and whether the restrictions on 
advertising that it is imposing will limit the effect to a material 
degree. This review demonstrates that FDA's judgment on these issues is 
supported not only by common sense but by studies, anecdotes, history, 
expert consensus documents, and empirical data. All of this evidence 
provides support that restrictions on the advertising of these products 
will directly advance the Government's interest in protecting the 
health of children and adolescents under 18 years of age.
3. Is There Harm? Does Advertising Affect the Decision by Young People 
to Use Tobacco Products?
    a. In general. In the preamble to the 1995 proposed rule, FDA 
stated that perhaps the most compelling piece of evidence supporting 
restrictions was that these products were among the most heavily 
advertised and widely promoted products in America. The agency cited 
the most recent Federal Trade Commission (FTC) figures of overall 
expenditures for 1993, that indicated that over $6.1 billion had been 
spent by the cigarette and smokeless tobacco industries to promote 
their products in diverse media. These include magazines, newspapers, 
outdoor advertising, point of purchase, direct mail, in-store, 
dissemination of nontobacco items with brand identification, and 
sponsorship of cultural and sporting events.
    (9) Several comments from the tobacco industry and the advertising 
industry criticized FDA's reliance on the immensity of advertising 
expenditures that show that tobacco products are heavily advertised. 
The comments claimed that the size of the industry advertising budget 
is not evidence that it is effective in causing young people to 
smoke.Conversely, one comment concluded that:
     [h]ighly repetitious ad exposure likely leads to judgment 
biases in both risk and social perceptions, such as assessments of 
smoking prevalence and the social acceptance experienced by smokers.
    The largest psychological association, in its comments, agreed and 
stated that research indicates that young people are indeed exposed to 
substantial and unavoidable advertising and promotion, \94\ even though 
they have been banned from radio and television. Referencing numerous 
studies, this comment stated further that:
---------------------------------------------------------------------------

    \94\ Fischer, P. M., M. P. Schwartz, J. W. Richards, A. O. 
Goldstein, and T. H. Rojas, ``Brand Logo Recognition by Children 
Aged 3 to 6 years: Mickey Mouse and Old Joe Camel,'' Journal of the 
American Medical Association (JAMA), vol. 266, pp. 3145-3148, 1991; 
Mizerski, R., K. Straughn, and J. Feldman, ``The Relationship 
Between Cartoon Trade Character Recognition and Product Category 
Attitude in Young Children,'' presented at Marketing and Public 
Policy Conference, 1994.
---------------------------------------------------------------------------

     there is considerable evidence that young people are exposed to 
tobacco ads, that those who smoke are especially likely to be aware 
of cigarette advertising, and that liking of cigarette advertising 
among young people is predictive of smoking behavior * * *.
    The comment continued that increasing one's exposure to advertising 
and promotions creates persuasion, and that reducing that exposure will 
impede that process. \95\ One study \96\ found that even brief exposure 
to tobacco advertising can cause some young people to have more 
favorable beliefs about smokers. \97\
---------------------------------------------------------------------------

    \95\ For example, Lavidge, R. J., and G. A. Steiner, ``A Model 
for Predictive Measurements of Advertising Effectiveness,'' Journal 
of Marketing, vol. 25, pp. 59-62, 1961; McGuire, W. J., 
``Persistence of the Resistance to Persuasion Induced by Various 
Types of Prior Belief Defenses,'' Journal of Abnormal and Social 
Psychology, vol. 64, pp. 241-248, 1962.
    \96\ Pechmann, C., and S. Ratneshwar, ``The Effects of 
Antismoking and Cigarette Advertising on Young Adolescents' 
Perceptions of Peers who Smoke,'' Journal of Consumer Research, vol. 
21, pp. 236-251, 1994.
    \97\ See also, Hock, J., P. Gendall, and M. Stockdale, ``Some 
Effects of Tobacco Sponsorship Advertisements on Young Males,'' 
International Journal of Advertising, vol. 12, pp. 25-35, 1993.
---------------------------------------------------------------------------

    FDA did not cite the industry's expenditures to indicate that the 
size of the industry's advertising budget was, in and of itself, a 
problem, but rather to show that the very size of the campaign, and the 
resultant ubiquity and unavoidability of the advertising in all media, 
created a climate that influences young people's decisions about 
tobacco use. The ubiquity creates what FDA referred to in the preamble 
to the proposed rule (60 FR 41314 at 41343), as ``friendly 
familiarity'' that makes smoking and smokeless tobacco use seem 
respectable to young people. In its comments, the advertising agency 
that coined this phrase in the 1960's has protested that FDA used the 
phrase improperly. However, regardless of the firm's protest, the 
agency finds that this phrase ``friendly familiarity'' accurately 
describes the effect of massive marketing that uses a variety of media 
and saturates potential consumers with information and imagery. 
Researchers have found that ``the ubiquitous display of messages 
promoting tobacco use clearly fosters an environment in which 
experimentation by youth is expected, if not implicitly encouraged.'' 
\98\
---------------------------------------------------------------------------

    \98\ Bonnie, R. J., and B. S. Lynch, ``Time to Up the Ante in 
the War on Smoking,'' Issues in Science and Technology, vol. 11, pp. 
33-37, 1994.
---------------------------------------------------------------------------

    b. Evidence regarding young people's exposure to, recall of, 
approval of, and response to advertising. Many studies have 
demonstrated that young people are aware of, respond favorably to, and 
are influenced by cigarette advertising. In the preamble to the 1995 
proposed rule, FDA presented a number of studies examining young 
people's exposure to, recall of, approval of, and response to cigarette 
advertising. \99\ Collectively, these studies showed that children who 
smoke are more likely to correctly identify cigarette advertisements 
and slogans in which the product names or parts of the slogans have 
been removed than are children who do not smoke, and that exposure to 
and approval of cigarette advertising were positively

[[Page 44476]]

related to smoking behavior and intentions to smoke.
---------------------------------------------------------------------------

    \99\ Chapman, S., and B. Fitzgerald, ``Brand Preference and 
Advertising Recall in Adolescent Smokers: Some Implications for 
Health Promotion,'' American Journal of Public Health, vol. 72, pp. 
491-494, 1982; Aitken, P. P., and D. R. Eadie, ``Reinforcing Effects 
of Cigarette Advertising on Under-Age Smoking,'' British Journal of 
Addiction, vol. 85, pp. 399-412, 1990; Goldstein, A. O., P. M. 
Fischer, J. W. Richards, and D. Creten, ``Relationship Between High 
School Student Smoking and Recognition of Cigarette 
Advertisements,'' Journal of Pediatrics, vol. 110, pp. 488-491, 
1987; Botvin, G. L., C. J. Goldberg, E. M. Botvin, and L. Dusenbury, 
``Smoking Behavior of Adolescents Exposed to Cigarette 
Advertising,'' Public Health Reports, vol. 108, pp. 217-224, 1993; 
Klitzner, M., P. J. Gruenewald, and E. Bamberger, ``Cigarette 
Advertising and Adolescent Experimentation With Smoking,'' British 
Journal of Addiction, vol. 86, pp. 287-298, 1991; Aitken, P. P., D. 
R. Eadie, G. B. Hastings, and A. J. Haywood, ``Predisposing Effects 
of Cigarette Advertising on Children's Intentions to Smoke When 
Older,'' British Journal of Addiction, vol. 86, pp. 383-390, 1991; 
O'Connell, D. L., H. M. Alexander, A. J. Dobson, D. M. Lloyd, G. R. 
Hardes, H. J. Springthorpe, and S. R. Leeder, ``Cigarette Smoking 
and Drug Use in Schoolchildren: II. Factors Associated With 
Smoking,'' International Journal of Epidemiology, vol. 10, pp. 223-
231, 1981; Alexander, H. M., R. Calcott, A. J. Dobson, G. R. Hardes, 
D. M. Lloyd, D. L. O'Connell, et al., ``Cigarette Smoking and Drug 
Use in Schoolchildren: IV. Factors Associated With Changes in 
Smoking Behaviour,'' International Journal of Epidemiology, vol. 12, 
pp. 59-66, 1983.
---------------------------------------------------------------------------

    (10) Several comments from the tobacco industry and advertising 
groups were critical of these studies. The comments argued that none of 
the studies demonstrated that recognition of, exposure to, or approval 
of, cigarette advertising caused the initiation of cigarette smoking; 
that smoking in fact engendered increased exposure to, approval of and 
recognition of cigarette advertising; and that the samples were 
inappropriate and not generalizable. One comment took issue with the 
way in which smoking transition was defined in the Aitken study cited 
by the agency. \100\ In addition, the same comment questioned the use 
of self-reported measures of cigarette advertising exposure in several 
of the studies.
---------------------------------------------------------------------------

    \100\ Aitken, P. P., D. R. Eadie, G. B. Hastings, and A. J. 
Haywood, ``Predisposing Effects of Cigarette Advertising on 
Children's Intentions to Smoke When Older,'' British Journal of 
Addiction, vol. 86, pp. 383-390, 1991.
---------------------------------------------------------------------------

    FDA agrees that none of these studies individually is sufficient 
to: (1) Establish that advertising has an effect of directly causing 
minors to use tobacco products; (2) determine directionality--that is, 
did advertising cause the observed effect, or are smokers more 
observant of advertising (the Klitzner, Aitken, et al., and Alexander 
studies attempted to control for this effect); or (3) define terms or 
disprove the influence of peer pressure in smoking behavior.
    However, none of these defects is sufficient to render it 
inappropriate for FDA to use the studies as evidence. The studies, in 
fact, present useful insight into how advertising affects smoking 
behavior and when considered with other studies provide sufficient 
support for the agency's conclusions. For example, one study \101\ 
stated that the results show that part of the process of becoming a 
smoker is to adopt a preferred brand, which the advertising and tobacco 
industries concede is affected by advertising. Moreover, these studies 
clearly indicate that, at a minimum, advertising plays an important 
role in developing an appealing and memorable image for brands. 
Finally, FDA recognizes that advertising may not be the most important 
factor in a child's decision to smoke; however, the studies cited by 
the agency establish that it is a substantial, contributing, and 
therefore material, factor.
---------------------------------------------------------------------------

    \101\ Chapman, S., and B. Fitzgerald, ``Brand Preference and 
Advertising Recall in Adolescent Smokers: Some Implications for 
Health Promotion,'' American Journal of Public Health, vol. 72, pp. 
491-494, 1982.
---------------------------------------------------------------------------

    c. Evidence concerning overestimation of smoking prevalence. In the 
preamble to the 1995 proposed rule, FDA cited numerous studies finding 
that children's misperceptions about the prevalence of smoking are 
related to smoking initiation and the progression to regular smoking. 
\102\ Further, the evidence indicated that cigarette advertising plays 
a role in leading young people to overestimate the prevalence of 
smoking.
---------------------------------------------------------------------------

    \102\ Chassin, L., C. C. Presson, S. J. Sherman, E. Corty, and 
R. W. Olshavsky, ``Predicting the Onset of Cigarette Smoking in 
Adolescents: A Longitudinal Study,'' Journal of Applied Social 
Psychology, vol. 14, pp. 224-243, 1984; Collins, L. M., S. Sussman, 
J. Mestel Rauch, C. W. Dent, C. A. Johnson, W. B. Hansen, and B. R. 
Flay, ``Psychosocial Predictors of Young Adolescent Cigarette 
Smoking: A Sixteen-Month, Three-Wave Longitudinal Study,'' Journal 
of Applied Social Psychology, vol. 17, pp. 554-573, 1987; Sussman, 
S., C. W. Dent, J. Mestel-Rauch, C. A. Johnson, W. B. Hansen, and B. 
R. Flay, ``Adolescent Nonsmokers, Triers, and Regular Smokers' 
Estimates of Cigarette Smoking Prevalence: When do Overestimations 
Occur and by Whom?,'' Journal of Applied Social Psychology, vol. 18, 
pp. 537-551, 1988; 1994 SGR, p. 192-195, citing Burton, et al., The 
L.A./Finland Study; Sherman, S. J., C. C. Presson, L. Chassin, E. 
Corty, and R. Olshavsky, ``The False Consensus Effect in Estimates 
of Smoking Prevalence: Underlying Mechanisms,'' Personality and 
Social Psychology Bulletin, vol. 9, pp. 197-207, 1983; Botvin, G. 
J., C. J. Goldberg, E. M. Botvin, and L. Dusenbury, ``Smoking 
Behavior of Adolescents Exposed to Cigarette Advertising,'' Public 
Health Reports, vol. 108, pp. 217-224, 1993.
---------------------------------------------------------------------------

    (11) Several comments criticized the overestimation of smoking 
prevalence studies presented by FDA in its 1995 proposed rule. The most 
common criticism was that the cited studies did not demonstrate a 
causal relationship between either exposure to advertising or 
overestimation of smoking prevalence and intentions to smoke. One 
comment noted that some of the cited studies did not necessarily 
measure ``overestimation,'' but instead simply measured respondents' 
perceptions of smoking levels among their peers and adults. Another 
comment argued that FDA ignored other variables (such as whether or not 
one's friends smoked) that were predictive of smoking status or 
intentions to smoke.
    It is true that some of the cited studies did not measure 
``overestimation'' in the most literal sense but instead measured 
respondents' perceptions of smoking levels among peers and adults. 
However, the perceived levels were still uniformly higher among those 
who smoked than among those who did not. The importance of these 
studies is the fact that they established differences in perception 
between smoking and nonsmoking young people about the prevalence, and 
therefore the acceptability, of smoking.
    d. The effects of selected advertising campaigns that were 
effective with children. In the preamble to the 1995 proposed rule, FDA 
presented evidence about two campaigns that appear to have been 
particularly effective with children, and a historical analysis of 
trends in U.S. smoking initiation among 10- to 20-year-olds from 1944 
to 1980. \103\
---------------------------------------------------------------------------

    \103\ Pierce, J. P., E. Gilpin, D. M. Burns, E. Whalen, B. 
Rosbrook, D. Shopland, and M. Johnson, ``Does Tobacco Advertising 
Target Young People to Start Smoking?'' JAMA, vol. 266, pp. 3154-
3158, 1991; Fischer, P. M., M. P. Schwartz, J. W. Richards, A. O. 
Goldstein, and T. H. Rojas, ``Brand Logo Recognition by Children 
Aged 3 to 6 Years: Mickey Mouse and Old Joe Camel,'' JAMA, vol. 266, 
pp. 3145-3148, 1991; Hastings, G. B., H. Ryan, P. Teer, and A. M. 
MacKintosh, ``Cigarette Advertising and Children's Smoking: Why Reg 
was Withdrawn,'' British Medical Journal, vol. 309, pp. 933-937, 
1994; Pierce, J. P., L. Lee, and E. A. Gilpin, ``Smoking Initiation 
by Adolescent Girls, 1944 through 1988: An Association with Targeted 
Advertising,'' JAMA, vol. 271, pp. 608-611, 1991.
---------------------------------------------------------------------------

    FDA presented several studies finding that the ``Joe Camel'' 
campaign had a significant impact on underage smoking in the United 
States, \104\ and that a humorous character for Embassy Regal 
cigarettes named ``Reg'' was appealing to children in the United 
Kingdom. \105\
---------------------------------------------------------------------------

    \104\ Fischer, P. M., M. P. Schwartz, J. W. Richards, A. O. 
Goldstein, and T. H. Rojas, ``Brand Logo Recognition by Children 
Aged 3 to 6 Years: Mickey Mouse and Old Joe the Camel,'' JAMA, vol. 
266, pp. 3145-3148, 1991; Pierce, J. P., E. Gilpin, D. M. Burns, E. 
Whalen, E. Rosbrook, D. R. Shopland, and M. Johnson, ``Does Tobacco 
Advertising Target Young People to Start Smoking?'', JAMA, vol. 266, 
pp. 3154-3158, 1991.
    \105\ Hastings, G. B., H. Ryan, P. Teer, and A. M. MacKintosh, 
``Cigarette Advertising and Children's Smoking: Why Reg was 
Withdrawn,'' British Medical Journal, vol. 309, pp. 933-937, 1994.
---------------------------------------------------------------------------

    FDA also cited a recent study that used data from the National 
Health Interview Survey to study trends in smoking initiation among 10 
to 20 year olds from 1944 through 1980. \106\ The study concluded that 
tobacco marketing campaigns that targeted women resulted in increased 
smoking uptake in young women and girls, but not in adults generally. 
\107\
---------------------------------------------------------------------------

    \106\ Pierce, J. P., L. Lee, and E. A. Gilpin, ``Smoking 
Initiation by Adolescent Girls, 1944 through 1988: An Association 
with Targeted Advertising,'' JAMA, vol. 271, pp. 608-611, 1994.
    \107\ Id.; See also Pierce, J. P., and E. A. Gilpin, ``A 
Historical Analysis of Tobacco Marketing and Uptake of Smoking by 
Youth in the United States: 1890-1977,'' Health Psychology, vol. 14, 
pp. 500-508, 1995. Burns, D. M., L. Lee, J. W. Vaughn, Y. K. Chiu, 
and D. R. Shopland, ``Rates of Smoking Initiation Among Adolescents 
and Young Adults, 1907-1981,'' Tobacco Control, vol. 4, supp. 1, pp. 
52-58, 1995.
---------------------------------------------------------------------------

    The Joe Camel Campaign--In the preamble to the 1995 proposed rule,

[[Page 44477]]

FDA described R. J. Reynolds' (RJR) use of the cartoon Joe Camel as the 
centerpiece of a very successful campaign that sought to revitalize 
Camel cigarettes. The preamble to the 1995 proposed rule described two 
sets of studies. One set indicatedthat the campaign was so pervasive 
and juvenile that children as young as 3 to 6 years old, recognized the 
Joe Camel character and knew that he sold cigarettes. The other set of 
studies provided evidence that the campaign had resulted in Camel's 
share of the adolescent youth market rising from below 4 percent of 
underage smokers to between 13 and 16 percent in a short period of time 
(60 FR 41314 at 41333).
    This description of the Camel campaign produced over 200 comments 
from the advertising, tobacco, legal and publications industries, 
members of legislative bodies, State and local government officials and 
agencies, health providers and organizations, academics, and the 
general public. The latter included many anecdotal references to 
children's positive reactions to the campaign, including comments from 
parents, teachers, and children themselves. One comment, from a State 
attorney general, stated that ``in 1993, after reviewing research 
documenting the extremely powerful effect R. J. Reynolds' `Cool Joe 
Camel' ads have on children, I joined with 26 other State Attorneys 
General in calling'' for a ban on that campaign.
    (12) The comments differed radically in assessing the accuracy of 
FDA's use of Joe Camel as evidence of the effect of a youth-oriented 
campaign. A number of comments stated that the Joe Camel campaign was 
neither directed toward children nor effective at reaching them, and 
that FDA's evidence did not support the agency's position. The comments 
criticized the studies cited by FDA and referred to other studies that 
they believed supported their contention that the Joe Camel campaign 
was not directed toward children. For example, one comment argued there 
was no evidence to suggest that brand recognition had any influence on 
smoking initiation. This same comment also complained that the studies 
relied on by FDA were ungeneralizable and were from medical journals, 
not marketing journals. Another comment argued that the Pierce study 
cited by the agency had demonstrated only that Camel and Marlboro were 
thought to be the most advertised brands across all respondent age 
groups. \108\
---------------------------------------------------------------------------

    \108\ Pierce, J., et al., ``Does Tobacco Advertising Target 
Young People to Start Smoking? Evidence from California,'' JAMA, 
vol. 266, No. 22, p. 3154-3158, 1991.
---------------------------------------------------------------------------

    Several comments argued that the finding in the Fischer and 
Mizerski studies that children recognize Joe Camel did not necessarily 
indicate that they liked Joe Camel, let alone that they would be more 
likely to take up cigarette smoking. \109\ For example, some comments 
from the tobacco industry discussed the Mizerski study funded by RJR 
and criticized FDA's use of it. FDA, as noted above, had cited this 
study in the 1995 proposed rule to show that 72 percent of 6 year olds 
and 52 percent of children between the ages of 3 and 6 could identify 
Joe Camel. \110\ This exceeded the recognition rates for Ronald 
McDonald, a character frequently advertised on television. The 
comments, however, stated that the results of the study indicated that 
while recognition of the cartoon trade characters and liking of the 
associated product each tended to increase with age, for Joe Camel, at 
every age, children who recognized Joe Camel were more likely to report 
disliking cigarettes than did children who did not recognize Joe Camel.
---------------------------------------------------------------------------

    \109\ Fischer, P. M., et al., ``Brand Logo Recognition by 
Children Aged 3 to 6 Years: Mickey Mouse and Old Joe the Camel,'' 
vol. 266, pp. 3145-3148, 1991; Mizerski, R., ``The Relationship 
Between Cartoon Trade Character Recognition and Product Category 
Attitude in Young Children,'' presented at ``Marketing and Public 
Policy Conference,'' May 13-14, 1994.
    \110\ Independent research by Fischer found that 91 percent of 6 
year-olds and 30 percent of 3 year-olds recognized Joe Camel. 
Fischer, P. M., J. W. Schwartz, A. O. Goldstein, and T. H. Rojas, 
``Brand Logo Recognition by Children Aged 3 to 6 Years: Mickey Mouse 
and Old Joe the Camel,'' JAMA, vol. 266, pp. 3145-3148, 1991.
---------------------------------------------------------------------------

    Several comments also cited another study by Henke (the Henke 
Study), \111\ which found results suggesting that even though 
recognition of brand advertising symbols increases with age, 
recognition does not necessarily indicate favorable attitudes about a 
product. Although the children in the study were generally able to 
recognize Joe Camel, 97 percent of the respondents reported that 
cigarettes were ``bad for you,'' and all but one of the minors stated 
that cigarettes were for adults. Several comments also mentioned a 
November 1993 Roper survey of over 1,000 young people between ages 10 
and 17. \112\ This survey found that 97 percent of those youths who 
recognized ``Joe Camel'' had negative opinions about smoking.
---------------------------------------------------------------------------

    \111\ Henke, L., ``Young Children's Perceptions of Cigarette 
Brand Advertising Symbols: Awareness, Affect and Target Market 
Identification,'' Journal of Advertising, in press.
    \112\ Roper Starch, ``Advertising Character and Slogan Survey,'' 
pp. 16-17, November 1993 (conducted for R. J. Reynolds Tobacco Co.).
---------------------------------------------------------------------------

    Finally, these comments also stated that the Joe Camel campaign did 
not increase the smoking rates of minors. The comments cited to data 
from CDC's Office of Smoking and Health's (OSH's) study ``1993 Teenage 
Attitudes and Practices Survey, Public Use Data Tape'' (TAPS II) \113\ 
that show that, contrary to FDA's assertion and citation to data from 
Monitoring the Future, \114\ there has not been an increase in youth 
smoking rates as a result of the Joe Camel campaign.
---------------------------------------------------------------------------

    \113\ ``1993 Teenage Attitudes and Practices Survey, Public Use 
Data Tape,'' CDC, OSH, p. 3, 1993 (unpublished data).
    \114\ Johnston, L. D., P. M. O'Malley, and J. G. Bachman, 
National Survey Results on Drug Use from the Monitoring the Future 
Survey, 1975-1993: vol. I: Secondary School Students, Rockville, MD, 
DHHS, Public Health Service (PHS), National Institutes of Health 
(NIH), National Institute on Drug Abuse (NIDA), NIH Pub. No. 94-
3809, 1994.
---------------------------------------------------------------------------

    Conversely, several comments from professional associations and 
many from private citizens supported FDA's tentative conclusion that 
some tobacco advertising campaigns--particularly Joe Camel--are very 
effective with children. Some comments referred to the same research 
evidence cited by FDA in the 1995 proposed rule.
    It is not the agency's position that the recognition studies 
provide evidence of the effect of this campaign upon the smoking habits 
of children. The Henke study found that children age 6 and younger do 
not smoke and uniformly report that they dislike smoking. \115\ 
However, although young children usually dislike smoking, many of them 
later do smoke. FDA's point in using the recognition studies was that 
advertising for Camel cigarettes was so pervasive and appealing to 
young people that children saw the advertisements and assimilated them 
even though they were too young to even think about smoking. These 
studies provide important evidence of the pervasiveness of tobacco 
advertising.
---------------------------------------------------------------------------

    \115\ Henke, L., ``Young Children's Perceptions of Cigarette 
Brand Advertising Symbols: Awareness, Affect and Target Market 
Identification,'' Journal of Advertising, in press.
---------------------------------------------------------------------------

    The Henke study (cited by comments opposed to the 1995 proposed 
rule), which reported that although recognition of brand advertising 
symbols increases with age, recognition does not necessarily indicate 
favorable attitudes toward a product--is subject to

[[Page 44478]]

many of the same criticisms as those leveled by the tobacco industry at 
studies cited by FDA, and in fact contains more serious flaws that 
suggest that its results should be interpreted with a great deal of 
caution.
    First, the sample employed in this study was both inadequate to 
test the author's hypotheses, and is nongeneralizable to other 
populations. There were only 83 participants in the study; this sample 
is too small to allow for adequate power to test the author's fine-
grained hypotheses concerning age. In fact, the inadequate sample size 
led the author to collapse the participants into three age groups for 
many analyses, which meant that 3-year olds were placed into the same 
group as children who were 5-and-a-half years old. In addition, 
participants all were recruited from middle class neighborhoods in the 
same ``small coastal town'' in Maine. Racial breakdowns were not 
presented, but it is likely, given the demographics of upstate Maine, 
that whites were overrepresented and African-Americans 
underrepresented. In addition, males were overrepresented. At best, the 
sample represents the population of 3- to 8-year-old children in that 
small town in Maine, but it is not even clear that this is the case.
    Second, the interview process used to collect data in the study, 
and even the nature of the interviewers themselves, greatly limit the 
conclusions that may be drawn from the study. The study used six 
different interviewers, five of whom were college undergraduates, and 
one of whom was a child care professional. Each interviewer 
participated in but a single training session before collecting data. 
Further, not all of the interviewers were blind to the hypotheses of 
the study. This is a great concern, considering the very subjective 
nature of the interview. It was not reported whether who the 
interviewer was had significant effects on the results of the study 
(and indeed the sample size is probably too small to permit such an 
analysis), but it is unlikely that all six interviewers conducted the 
interviews in precisely the same way or elicited the same types of 
responses from the participants.
    The interview process itself appeared to be highly biased and 
subjective in nature. It is not surprising that the children 
overwhelmingly reported that cigarettes were ``bad for you'' and were 
meant for adults, given that they were being interviewed face-to-face 
by adult strangers. Any potential differences attributable to 
recognition of cigarette advertising were probably masked by the 
intimidating presence of the interviewer. Further, the answers to 
questions such as ``Do you like this product or not like this 
product?,'' and ``Is this product good for you or bad for you?'' can 
depend to a great extent on the manner in which they are asked.
    Overall, the small, nonrepresentative sample, the excessive number 
of questionable interviewers, and the interview process itself all cast 
serious doubt on the value of this study. Finally, as noted in the 
previous paragraph, children almost uniformly report that smoking is 
bad, but many of them will smoke in the future in part due to the 
appeal created for the product by advertising.
    Additional studies--Two additional studies on this issue of 
recognition were submitted to the docket. The first, an article by Joel 
S. Dubow, \116\ merely commented on several general studies on recall 
of advertising. The result was that children and especially adolescents 
remember more about advertising than adults. (FDA agrees with the point 
that advertising is more memorable to children.) Further, all the 
advertisements tested, and those that children and adolescents 
remembered so well, were either on television or presented in a movie 
theater setting.
---------------------------------------------------------------------------

    \116\ Dubow, J. S., ``Advertising Recognition and Recall by Age-
Including Teens,'' Journal of Advertising Research, pp. 55-60, Sept/
Oct 1995.
---------------------------------------------------------------------------

    Children and adolescents are more visually oriented than adults; 
they remember what they see on television. However, as noted, 
commercials for cigarettes are not on television and so the high 
recognition rates of Joe Camel cannot be accounted for on that basis. 
Thus, the study begs the same question that is raised by the Mizerski 
study: Where did those 3 to 6 year olds see the cigarette 
advertisements they found so memorable?
    The answer may be provided by the second recognition study 
submitted by RJR. One study was conducted by Roper Starch in November 
1993 for RJR and tested young people's recognition of advertising 
characters. The results of that study show that Joe Camel was 
recognized by 86 percent of all 10 to 17 year olds, in both aided and 
unaided recall. The characters with greater recognition were all 
televised characters: the Energizer Bunny, Ronald McDonald, the Keebler 
Elves, etc. Recognition scores for those characters were in the 97 
percent to 100 percent range. Of more interest, 95 percent of those who 
recognized Joe Camel knew that he sold cigarettes, similar to the 
product familiarity rates for the other characters. \117\
---------------------------------------------------------------------------

    \117\ ``Advertising Character and Slogan Survey,'' pp. 10, 12, 
22-23.
---------------------------------------------------------------------------

    But perhaps the most interesting answers were those provided by the 
children who responded that they knew that Joe Camel sold cigarettes. 
In response to the question, ``[p]lease tell me the ways that you might 
have seen or heard about this character,'' 51 percent said the 
information came from a billboard advertisement, 45 percent said from 
an advertisement in a magazine, 32 percent said from an advertisement 
in the store, and 22 percent said on a tee shirt. A sizable group said 
they had seen him on television (42 percent). On the other hand, all 
the other characters were identified as having been on television (88 
percent to 100 percent). Recognition based upon billboard exposure for 
these other characters was between 6 percent and 13 percent. Most were 
not recognized as having been on tee shirts.
    Clearly, cigarettes are marketed differently than most consumer 
products; nonetheless, whatever the marketing mix used by the tobacco 
industry, cigarette advertisements are clearly being seen and 
assimilated by those too young to be interested in or to have started 
smoking.
    A second type of study, provided evidence of the effect of this 
campaign on adolescent smoking rates. As noted, one comment disputed 
that there was a rise in young people's smoking rates that corresponded 
to the introduction of the Joe Camel campaign. The significance of this 
argument is that if smoking rates after the introduction of the Joe 
Camel advertising campaign did not rise, there is little reason to 
believe that the campaign caused young people to take up smoking. This 
comment referred to its own analysis of smoking trends, which it stated 
were derived from TAPS II \118\ data and not from the data in 
Monitoring the Future used by FDA. \119\
---------------------------------------------------------------------------

    \118\ ``Current Trends: Changes in the Cigarette Brand 
Preferences of Adolescent Smokers--United States, 1989-1993,'' MMWR, 
CDC, vol. 43, pp. 577-581, Aug 19, 1994.
    \119\ Johnston, L. D., P. M. O'Malley, and J. G. Bachman, 
National Survey Results on Drug Use from the Monitoring the Future 
Study, 1975-1993: Vol. I; Secondary School Students, DHHS, PHS, NIH, 
NIDA, NIH Pub. No. 94-3809, 1994.
---------------------------------------------------------------------------

    FDA has provided a more detailed answer to this comment above. As 
explained there, the agency finds this comment to be without merit. The 
Monitoring the Future study is the most consistent source of data 
available on youth smoking rates. RJR's expert, Dr. J.

[[Page 44479]]

Howard Beales, III, has referred to it as ``[t]he most consistent data 
available'' to track the incidence of teen smoking over time. \120\ 
Moreover, Dr. Beales noted that other Government studies are 
``sporadic'' and, by implication, cannot be relied upon to give an 
accurate picture of overall smoking trends.
---------------------------------------------------------------------------

    \120\ Beales, J. H., ``Teenage Smoking: Fact and Fiction,'' The 
American Enterprise, vol. 21, March/April 1994.
---------------------------------------------------------------------------

    The Monitoring the Future Study indicates that from 1987 to 1993, 
the 30-day smoking rates and daily smoking rates for male high school 
seniors increased steadily, although with variations in some years. 
\121\ During that same period, Camel's share of the youth market rose 
from below 4 percent to around 13 percent (60 FR 41314 at 41330).
---------------------------------------------------------------------------

    \121\ Johnston, L. D., P. M. O'Malley, and J. G. Bachman, 
National Survey Results on Drug Use from the Monitoring the Future 
Study, 1975-1994, Vol. I: Secondary School Students, DHHS, PHS, NIH, 
NIDA, NIH Pub. No. 94-3809, 1995.
---------------------------------------------------------------------------

    These data do not absolutely prove that Camel advertising 
``caused'' a rise in youth smoking. However, they do provide further 
evidence that the Joe Camel campaign had an effect on youth smoking 
rates.
    (13) Comments from the tobacco industry maintained that FTC's 
investigation, which failed to produce ``evidence to support'' FTC 
action against RJR for the Joe Camel campaign, should have been 
dispositive of the issue. Therefore, the comments argued, it is 
inappropriate for FDA to use the campaign as evidence that advertising 
causes children to start to smoke. The comments maintained that the FTC 
review included the same studies relied upon by FDA to condemn the Joe 
Camel campaign.
    Comments stated further that Congress has vested jurisdiction in 
FTC to prosecute unfair and deceptive advertising of tobacco products, 
and that it has sole jurisdiction in this area. (See Federal Trade 
Commission Act (the FTC Act) (15 U.S.C. 41).) These comments noted 
further that FTC has shown its ability to fulfill its responsibilities 
in this area, citing two recent consent agreements secured by FTC. One 
was against RJR for advertising that disputed some of the health risks 
of smoking. (See In the matter of R. J. Reynolds Tobacco Company, 113 
FTC 344 (1990).) The other was against American Tobacco Company for 
allegedly misleading statements about tar and nicotine ratings. (See In 
the matter of The American Tobacco Company, Dkt. No. C-3547 (Consent 
Order, January 31, 1995).)
    On the other hand, comments from two national health organizations 
alleged that the fact FTC concluded it was unable to take action 
against Joe Camel demonstrates that the FTC Act, as it is currently 
being interpreted by the Commission, is not sufficient to protect 
American youth from inappropriate tobacco advertising and that FDA, 
therefore, needs to take action under its authority.
    The industry comments misapprehend FDA's citation to the Joe Camel 
campaign. As noted above, FDA cited to numerous studies that had been 
performed by independent researchers on children's recognition of the 
main character of a youth oriented advertising campaign (60 FR 41314 at 
41333). The agency also cited to several documents that it had obtained 
that indicated that RJR may have intended for its Joe Camel campaign to 
appeal to and attract young people (60 FR 41314 at 41330). FDA's 
discussion of the marketing success of the Joe Camel campaign is not 
intended to suggest that FDA had found or concluded that the Joe Camel 
campaign violated any law, but that FDA had found in that success--
tripling Camel's share of the youth market--support for restricting 
such activities in the future through rulemaking.
    Moreover, FTC did not disagree with FDA's use of the campaign. In 
its comment to FDA on the 1995 proposed rule, FTC stated, ``This 
decision [by FTC to close the RJR investigation without issuing a 
complaint] does not contradict FDA's conclusion.'' FTC continued that 
its failure to initiate legal action did not ``mean that cigarette and 
smokeless tobacco advertising, in the aggregate, is not one of a number 
of factors that `play[s] an important role in a youth's decision to use 
tobacco.''' \122\
---------------------------------------------------------------------------

    \122\ FTC analyzed the complaint recommendation before it under 
its unfairness jurisdiction. An action is unfair if it causes 
substantial consumer injury, without offsetting benefits to 
consumers or competition, which consumers cannot reasonably avoid. 
(International Harvester, 194 FTC 949, 1070, 1984.)
---------------------------------------------------------------------------

    (14) The other citation to the Joe Camel campaign (60 FR 41314 at 
41330) utilized RJR's documents to illustrate the youth focus of one 
advertising campaign through use of the company's own documents. Some 
comments received from the tobacco industry (including one from RJR), 
trade associations, and some individuals disagreed with this use and 
stated that the Camel campaign was designed to, and did in fact, 
attract the attention of young adult smokers, aged 18 to 24. These 
comments stated that the Joe Camel campaign was directed to adult 
smokers, specifically existing male Marlboro smokers aged 18 to 24. The 
comments stated that the illustrated character Joe Camel was developed 
to reposition the brand by stressing images and characteristics, such 
as the ``Smooth Moves'' image, which appeal to the young adult, 
particularly male, Marlboro smoker.
    Industry comments further stated that the company conducted no 
market research on nonsmokers, and that the campaign reached adult 
smokers aged 18 to 24 years. One comment postulated that it is merely 
the cartoon form of Joe Camel that causes people to mistakenly believe 
that Joe Camel is child-oriented. It stated further that many adult 
products are advertised using illustrated characters, such as the Pink 
Panther for fiberglass insulation, Garfield the Cat for a hotel chain, 
Mr. Clean for household products, and the Peanuts characters for life 
insurance. Moreover, RJR stated that it made efforts to ensure that the 
ad copy and promotional activity for Joe Camel would not appeal to 
minors. It said that a skateboard promotion proposed by an advertising 
agency was rejected by the company because it was assumed that 
skateboarding is disproportionately engaged in by children and 
adolescents. Similarly, marketing research included 25 to 34 year olds 
``to serve as a safety check to make sure that the concept appeal did 
not skew too young.''
    These comments further stated that Joe Camel advertisements were 
directed to, and reached, the intended market. Examples of publications 
in which the Joe Camel advertisements were placed are Cycle World, 
Penthouse, Gentleman's Quarterly, and Road and Track. Joe Camel's share 
of 18 to 24 year olds increased by 6.9 percentage points, from 3.2 in 
1986, the year before Joe Camel's inception, to 10.1 by the end of 
1994. The comment stated that Camel's and Marlboro's growth came at the 
expense of other brands. These comments are consistent with the 
industry's assertion that this is the whole point of cigarette 
advertising: to encourage current smokers to buy the advertised brand 
either by switching brands or remaining loyal to their existing brands. 
(This comment states that because there is no evidence that smoking 
rates have risen among adolescents, there cannot be a reason to believe 
that Camel's success among adolescents came from new, as opposed to 
existing, smokers. See section III.B. of

[[Page 44480]]

this document for a refutation of the industry assertion that smoking 
rates among adolescents are static.)
    In contrast, comments from health organizations and concerned 
citizens stated that Joe Camel has been successful in attracting 
underage smokers. These comments further stated the belief that the 
campaign was intended to attract children, citing the methods of 
advertising and promotion employed as evidence of its intention to 
appeal to children. For example, one comment stated: ``* * * T-shirts 
and caps, like those marketed with `Joe Camel' are found in 
disproportionate numbers of children.''
    FDA continues to believe that RJR documents do illustrate the 
creation of and execution of a decidedly youth-oriented campaign.
    FDA finds that previously confidential RJR documents provide 
convincing evidence of the company's intention to attract young smokers 
and so-called presmokers to its Camel brand. These documents, 
identified as RJR marketing documents and submitted during the comment 
period, reflect a company policy that in order to grow and ensure a 
profitable future, the company must develop new brands that would 
appeal to and capture a share of the youth market. These young people 
were described as ``presmokers'' and ``learners'' in RJR marketing 
language and were identified as being 14 to 18 year olds.
    While the documents concerning the Camel campaign (focus group 
reports, etc.) submitted by RJR to the rulemaking docket do not 
identify the under-18 group as the company's target, the implication 
arises from the company-submitted documents that the Camel campaign was 
the logical outgrowth of the planning and forecasting contained in the 
heretofore confidential marketing documents.
    In a 1972 memo entitled ``Research Planning Memorandum on the 
Nature of the Tobacco Business and the Crucial Role of Nicotine 
Therein,'' the author, Claude Teague Jr., Assistant Director of 
Research and Development, wrote:
     [I]t may be well to consider another aspect of our business; 
that * * * the factors which induce a presmoker or nonsmoker to 
become a habituated smoker. * * * He does not start smoking to 
obtain undefined physiological gratifications or reliefs, and 
certainly he does not start to smoke to satisfy a nonexistent 
craving for nicotine. Rather, he appears to start to smoke for 
purely psychological reasons--to emulate a valued image, to conform, 
to experiment, to defy, to be daring, to have something to do with 
his hands, and the like. Only after experiencing smoking for some 
period of time do the physiological ``satisfactions'' and 
habituation become apparent and needed. Indeed, the first smoking 
experiences are often unpleasant until a tolerance for nicotine has 
been developed. * * * [I]f we are to attract the nonsmoker or 
presmoker, there is nothing in this type of product that he would 
currently understand or desire. We have deliberately played down the 
role of nicotine, hence the nonsmoker has little or no knowledge of 
what satisfactions it may offer him and no desire to try it. 
Instead, we somehow must convince him with wholly irrational reasons 
that he should try smoking, in the hope that he will for himself 
then discover the real ``satisfactions'' obtainable. \123\
---------------------------------------------------------------------------

    \123\ Teague, C., Research Planning Memorandum on the Nature of 
the Tobacco Business and the Crucial Role of Nicotine Therein, pp. 
4-5, 1972.
---------------------------------------------------------------------------

    In 1973, the same author reported in another memo, ``Research 
Planning Memorandum on Some Thought about New Brands of Cigarettes for 
the Youth Market,'' his thoughts on how to acquire a portion of the 
important youth market:
     [W]e should simply recognize that many or most of the ``21 and 
under'' group will inevitably become smokers, and offer them an 
opportunity to use our brands.Realistically, if our Company is to 
survive and prosper, over the long-term we must get our share of the 
youth market. In my opinion this will require new brands tailored to 
the youth market; I believe it unrealistic to expect that existing 
brands identified with an over-thirty 'establishment' market can 
ever become the 'in' products with the youth group. Thus we need new 
brands designed to be particularly attractive to the young smoker, 
while ideally at the same time being appealing to all smokers. \124\
---------------------------------------------------------------------------

    \124\ Teague, C., Research Planning Memorandum on Some Thought 
About New Brands for Cigarettes for the Youth Market, p. 1, 1973.
---------------------------------------------------------------------------

    Mr. Teague then described the factors he thought must be taken into 
account in designing a brand that would attract young people:
     Several things will go to make up any such new ``youth'' 
brands, the most important of which may be the image and quality-
which are, of course, interrelated. The questions then are: What 
image? and What quality? Perhaps these questions may best be 
approached by consideration of factors influencing pre-smokers to 
try smoking, learn to smoke and become confirmed smokers. * * * For 
the pre-smoker and ``learner'' the physical effects of smoking are 
largely unknown, unneeded, or actually quite unpleasant or awkward. 
The expected or derived psychological effects are largely 
responsible for influencing the pre-smoker to try smoking, and 
provide sufficient motivation during the ``learning'' period to keep 
the ``learner'' period going, despite the physical unpleasantness 
and awkwardness of the period. * * * \125\

    \125\ Id., pp. 1-2.
---------------------------------------------------------------------------

Mr. Teague continues with some reasons why young people smoke and then 
gives advice on the type of advertising campaign that would appeal to 
the presmoker group based on these reasons:
    A. Group Identification--Pre-smokers learn to smoke to identify 
with and participate in shared experiences of a group of associates. 
If the majority of one's closest associates smoke cigarettes, then 
there is strong psychological pressure, particularly on the young 
person, to identify with the group, follow the crowd, and avoid 
being out of phase with the group's value system even though, 
paradoxically the group value system may esteem individuality. This 
provides a large incentive to begin smoking.
 * * * * *
[The brand's] promotion should emphasize togetherness, belonging and 
group acceptance, while at the same time emphasizing individuality 
and ``doing ones own thing.''
    B. Stress and Boredom Relief--The teens and early twenties are 
periods of intense psychological stress, restlessness and boredom. 
Many socially awkward situations are encountered. [the documents 
mentions smoking gives you something to do with your hands--find an 
ashtray etc.]
    C. Self-Image Enhancement--The fragile, developing self-image of 
the young person needs all of the support and enhancement it can 
get. Smoking may appear to enhance that self-image in a variety of 
ways. [Values mentioned in the document include adventurousness, 
adult image.] If one values certain characteristics in specific 
individuals or types and those persons or types smoke, then if one 
also smokes he is psychologically a little more like the valued 
image. This self-image enhancement effect has traditionally been a 
strong promotional theme for cigarette brands and should continue to 
be emphasized.
    D. Experimentation--There is a strong drive in most people, 
particularly the young, to try new things and experiences. This 
drive no doubt leads many presmokers to experiment with smoking, 
simply because it is there and they want to know more about it. A 
new brand offering something novel and different is likely to 
attract experimenters, young and old, and if it offers an advantage 
it is likely to retain those users. \126\
---------------------------------------------------------------------------

    \126\ Id., pp. 6-7.
---------------------------------------------------------------------------

In March 1976 R. J. Reynolds' Research Department created a memo 
entitled, ``Planning Assumptions and Forecast for the Period 19**-1986 
for R. J. Reynolds Tobacco Company.'' Under a heading, The Tobacco 
Industry and R. J. Reynolds Tobacco Company--subheading E. Products--
the memo states:
    The present large number of people in the 18-35 year old age 
group represents the greatest opportunity for long-term cigarette 
sales growth. Young people will continue to become smokers at or 
above the present rates during the projection period. The brands 
which these beginning smokers accept and

[[Page 44481]]

use will become the dominant brands in future years. Evidence now 
available * * * indicate[s] that the 14 to 18 year old group is an 
increasing segment of the smoking population. RJR must soon 
establish a successful new brand in this market if our position in 
the industry is to be maintained over the long term.
(Emphasis omitted.) \127\
---------------------------------------------------------------------------

    \127\ An RJR spokesperson referred to these documents and did 
not dispute their validity. (See Levy, D., ``RJR Memo Targeted Teen 
Market,'' USA Today, p. 1D, October 6, 1995; ``Report: Teen 
Cigarettes Eyed,'' AP Online, October 4, 1995.); Planning 
Assumptions and Forecast for the Period 197*-1986 for R.J. Reynolds 
Tobacco Company, Research Department, 1976.
---------------------------------------------------------------------------

    By the mid to late 1980's, RJR was marketing its newly revitalized 
Camel brand to ``young adults'' 18 to 20 years old. According to an 
internal memo cited in the Wall Street Journal, \128\ the business plan 
for 1990 had a single-minded focus on getting young adults, especially 
the 18 to 20 year olds, to smoke Camels. The brand was to be refocused 
on young adult smokers, aged 18 to 24 with a strong emphasis on males 
18 to 20. \129\
---------------------------------------------------------------------------

    \128\ Freedman, A. M., and S. L. Huang, ``Reynolds Marketing 
Strategy Sought to Get Young Adults to Smoke Camels,'' Wall Street 
Journal, p. B10, col. 3, November 2, 1995.
    \129\ A 1984 strategic research document, authored by Diane 
Burrows of R. J. Reynolds and entitled ``Younger Adult Smokers: 
Strategies and Opportunities,'' came to FDA's attention as a result 
of its inclusion as an exhibit attached to a brief filed by the 
State of Minnesota and Blue Cross in Ramsey County District Court in 
litigation involving the seven tobacco companies. The document was 
also described in numerous press accounts of the event (e.g., 
Phelps, D., and J. Hodges, ``Suit: Kids were focus of Reynolds 
strategy. Documents filed in state's lawsuit against the tobacco 
industry show how R. J. Reynolds targeted young smokers as critical 
to the industry's future,'' Star Tribune, 1A, July 11, 1996; 
Worklan, P., ``R. J. Reynolds Secret Report Targets Young Adult 
Market,'' Chicago Tribune, N19, July 11, 1996.) Although the agency 
has not relied on this memo as part of the justification for this 
rule, FDA is citing to it here because it is relevant to the issues 
discussed.
      The memo indicates that by 1984, R. J. Reynolds was beginning 
to conduct research on the concepts detailed above that were 
developed during the 1970's. The memo describes the problem facing 
Reynolds at that time of declining market share and then proposed a 
solution: ``RJR's consistent policy is that smoking is a matter of 
free, informed, adult choice which the Company does not seek to 
influence. However, in order to plan our business, we must consider 
the effects those choices may have on the future of the Industry. 
Furthermore, if we are to compete effectively, we must recognize the 
imperative to know and meet the wants of those who are 18 and have 
already elected to smoke, as well as those of older smokers 
(emphasis added).''
    The memo recognizes several important facts: ``The renewal of 
the market stems almost entirely from 18-year-old smokers. No more 
than 5% of smokers start after age 24.''Moreover, the memo also 
recognizes that: ``[t]he brand loyalty of 18-year-old smokers far 
outweighs any tendency to switch with age. Thus, the annual influx 
of 18-year-old smokers provides an effortless, momentum to 
successful `first brands'.''
    These ``first brands'' were identified as those which appeal to 
the 18-year-old smoker rather than switchers ages 19-24.
      The memo identifies additional factors that had to be 
considered in this calculus: (1) Although 18- to 24-year-olds 
account for a very small part of market share, this age group 
represents the future of a brand. Those young, brand loyal smokers 
who now consume very few cigarettes, will consume more cigarettes 
with age and generally remain loyal to this first brand, its brand 
family or to the company; (2) Although young smokers are easier to 
switch than older smokers, a brand can not rely exclusively on 
switching younger smokers to produce a lasting brand equity--the 
major and most important share advantage available to a company is 
to have a cigarette brand relevant to young people and accepted by 
them as their ``first brand.''
      The reports's recommendation was to research and capitalize on 
the factors and strategies which have been successful with youth 
brands of the past. This would require devoting substantial 
resources to identifying and tracking values, wants, and media 
effectiveness relevant to younger people. Because of the sensitivity 
of this young market, the memo continued: ``brand development/
management should encompass all aspects of the marketing mix and 
maintain a long term, single-minded focus to all elements-product, 
advertising, name, packaging, media, promotion and distribution. 
(Emphasis omitted)''
    This must include, the memo stated, a careful emphasis on the 
``imagery and product positives'' relevant to ``younger adults.''
---------------------------------------------------------------------------

    Documents submitted by RJR in its comment detail its plans for 
developing and promoting Joe Camel as the spokescharacter for the 
brand. In language reminiscent of the 1973 Teague memo, RJR 
reemphasized the importance of the young adult smokers (which RJR 
nicknamed the ``YAS'')--noting that only 5 percent of smokers start 
after age 24. \130\ The paper noted that 40 percent of the ``virile'' 
segment have made a brand choice at age 18--a brand to which they will 
be loyal for years or throughout their smoking career. Thus, although 
this document describes the YAS as 18 to 24 year olds, the company's 
interest appears to have been with those younger than 18 who are in the 
process of selecting their first brand, the 14 to 18 year olds 
described by Teague.
---------------------------------------------------------------------------

    \130\ ``White Paper,'' Camel Advertising Development, p. 1, 
undated.
---------------------------------------------------------------------------

    In addition, the problem, the White Paper emphasized, was that 
Camel needed a facelift to make it relevant to this YAS group. 
Research, they noted, indicates that YAS see advertising as ``younger 
adult oriented'' when it is speaking directly to them. Therefore, 
advertising needed to be developed to speak to the target audience, to 
appeal to the ``hot buttons'' of young people such as to ``escape into 
imagination.'' ``Fantasy to these smokers can mean imagining a place to 
escape to or an image of yourself that is better than reality.''
    The YAS group also relates to excitement and fun, noted the White 
Paper: ``Younger adults center their lives on having fun in every way 
possible and at every time possible. Their definition of success is 
`enjoying today' which differentiates them from older smokers. 
Advertising which incorporates an `exciting', `fun', `humorous' theme 
provides a way for these smokers to `feel good' about the message.''
    By 1988 RJR was testing its new ideas about Camel. It described the 
results in a Marketing Research Report, entitled Camel ``Big Idea'' 
Focus Groups--Round II dated September 21, 1988, and written by M. R. 
Bolger. The group was composed of male Marlboro smokers ages 18 to 34. 
Two groups were men 18 to 20, two groups were 21 to 24, and one group 
was age 25 to 34 to serve as a ``safety check'' to make sure the 
concept did not skew too young. Various themes were tested and one, 
``Smooth Moves,'' was received best by the younger portion of the 
target--those that had fewer responsibilities, are single, and go to 
parties. The focus groups also showed that premiums (nontobacco items) 
performed best among the younger portion of the group. Older smokers 
were more discerning and saw the items as being of little value to 
them. \131\
---------------------------------------------------------------------------

    \131\ Bolger, M. R., ``Camel `Big Idea' Focus Groups--Round 
II,'' Marketing Research Report, September 21, 1988.
---------------------------------------------------------------------------

    What resulted from this research was the Joe Camel campaign, an 
unusually successful effort, particularly with the group that RJR 
research documents discussed--the 14 to 18 year olds. Thus, RJR appears 
to have used its research on 18 to 20 year olds to its advantage with 
the 14 to 18 year old group--a group who shares many of the same 
interests and ``hot'' buttons of the older group. These internal 
documents complement those cited in the preamble to the 1995 proposed 
rule. In the preamble to the 1995 proposed rule, FDA described two 
letters from RJR sales managers about the placement of YAS [Camel] 
merchandise. Both letters stated that high school neighborhoods were a 
likely location for YAS. RJR, in its comments to the proposed rule, 
stated that those two letters were mistakes. However, these latest 
documents rebut RJR's comment. The mistake made by the two sales 
representatives was in speaking too clearly of the company's intention.
    ``Reg''--The second campaign reviewed by FDA was the ``Reg'' 
campaign used in the United Kingdom. One comment took issue with FDA's 
claim that the ``Reg'' campaign was

[[Page 44482]]

particularly effective with British adolescents and argued that the 
study that FDA relied on was based on unreliable evidence and is not 
applicable to American adolescents. The comment contended that there 
was no evidence to show that liking the ``Reg'' character caused 
children to smoke and argued instead that children who smoked came to 
like ``Reg.'' The comment also argued that the recognition task, 
described in the study, was too suggestive and biased, and suggested 
that the young people were primed and pressured to say they had seen 
the advertisements during ``games'' that they say took place before the 
recognition task.
    First, this comment is wrong. Games were played during another 
portion of the study, not the one referenced. The comment confused the 
quantitative survey with the qualitative. Second, evidence from England 
about youth smoking habits is no less probative than evidence from the 
United States, as it provides insights into children's smoking 
behavior.
    Smoking Trends--A few comments were critical of the study of trends 
in the smoking initiation study, which found a temporal relationship 
between advertising targeted at women and rising initiation rates among 
girls and young women. \132\ The principal criticisms were that the 
authors failed to examine the actual advertising campaigns in question, 
that FDA failed to consider alternative explanations for the study's 
findings, and that the study's measures were subjective and unreliable.
---------------------------------------------------------------------------

    \132\ Pierce, J. P., L. Lee, and E. A. Gilpin, ``Smoking 
Initiation by Adolescent Girls, 1944 through 1988, An Association 
with Targeted Advertising,'' JAMA, vol. 271, pp. 608-611, 1994.
---------------------------------------------------------------------------

    In response, the agency reiterates that it did not cite to this 
study, or any one study, as ``proof'' that advertising during this 
period ``caused'' a rise in smoking initiation. The study was provided 
as one example of targeted marketing being ``associated'' with 
increases in cigarette consumption among young people. \133\ A logical 
inference to be drawn from the cumulative effect of such studies is 
that advertising does play a role in young people's smoking behavior.
---------------------------------------------------------------------------

    \133\ A more sophisticated example of this type of time series 
analysis was published by the FTC to show that health claims in food 
advertising could have a beneficial effect upon people's consumption 
of high fiber breakfast cereals. (Ippolito, P., and A. Mathios, 
Health Claims in Advertising and Labeling, A Study of the Cereal 
Market, Bureau of Economics Staff Report, FTC, August 1989.)
---------------------------------------------------------------------------

    e. Evidence that youth brand choices are related to advertising. 
Virtually all of the comments from the tobacco industry claimed that 
cigarette and smokeless tobacco manufacturers market their products 
solely to adults. They disputed the findings of studies, cited by FDA 
in the preamble to the 1995 proposed rule, examining advertising 
campaigns that had been particularly effective with children. In 
addition, while the comments acknowledged that younger smokers are the 
intended targets for some cigarette advertising, they argued that only 
younger smokers of legal age were targeted.
    In the preamble to the 1995 proposed rule, FDA presented a number 
of studies showing that youth cigarette brand choices are related to 
advertising. \134\ These studies showed that young people smoke many 
fewer brands than adults, and that their choices are directly related 
to the amount and kind of advertising. While 86 percent of youths who 
smoke choose the three most advertised brands, \135\ the most commonly 
smoked cigarettes (39 percent) among adult smokers are brandless (i.e., 
private label, generics, or plain packaged products). \136\ Another 
study found that children who smoke as few as one cigarette per week 
can identify a preferred brand. \137\
---------------------------------------------------------------------------

    \134\ ``Current Trends: Changes in the Cigarette Brand 
Preferences of Adolescent Smokers--United States, 1989-1993,'' MMWR, 
CDC, vol. 43, pp. 577-581, August 19, 1994; Goldstein, A. O., P. M. 
Fischer, J. W. Richards, and D. Creten, ``Relationship Between High 
School Student Smoking and Recognition of Cigarette 
Advertisements,'' Journal of Pediatrics, vol. 110, pp. 488-491, 
1987.
    \135\ ``Current Trends: Changes in the Cigarette Brand 
Preferences of Adolescent Smokers--United States, 1989-1993,'' MMWR, 
CDC, vol. 43, pp. 577-581, August 19, 1994.
    \136\ Teinowitz, I., ``Add RJR to List of Cig Price Cuts,'' 
Advertising Age, pp. 3 and 46, April 26, 1993.
    \137\ Goldstein, A. O., P. M. Fischer, J. W. Richards, and D. 
Creten, ``Relationship Between High School Student Smoking and 
Recognition of Cigarette Advertisements,'' Journal of Pediatrics, 
vol. 110, pp. 488-491, 1987.
---------------------------------------------------------------------------

    One comment argued that the CDC study that found that most children 
smoke the three most advertised brands showed only a correlation 
between advertising expenditures and brand preferences, and that the 
data did not even support this correlation consistently. The comment 
noted that the data on which these findings were based included 18 year 
olds, who are of legal age to smoke. The comment also contended that 
the data did not allow a determination of what came first: Changes in 
advertising expenditures or changes in brand preference 
(directionality).
    The same comment also criticized the study indicating that children 
who smoke as few as one cigarette per week can identify a preferred 
brand. In addition to pointing out that the study did not demonstrate a 
causal relationship and that the sample was not generalizable, the 
comment argued that:
    * * * other research has found that adolescents smoke a smaller 
number of different brands than do adults, [the researchers] tested 
only the correlation between adolescent smoking and advertising 
recognition. [The researcher] did not know which brands the 
adolescents in this study smoked. [emphasis in original]
    Contrary to the comment, these studies are evidence that, when 
considered together, form a coherent pattern that establishes the role 
that advertising plays in young people's smoking behavior.
     The CDC study \138\ provides evidence of young people's smoking 
choices. Neither the fact that the data included 18-year-olds nor the 
question of directionality is sufficient to invalidate the study's 
utility. While the data available for the study contained 18-year-old 
use, there is little difference between 17- and 18-year-old cigarette 
use; certainly not enough to invalidate the general finding that 
underage and 18-year-old smokers choose the three most heavily 
advertised brands. The issue of directionality of the results is no 
more important. The results showed that young people chose cigarettes 
that are heavily advertised, not ones that are cheap or low tar, etc. 
The CDC study, as noted, did not prove causality--it was not intended 
to and it did not.
---------------------------------------------------------------------------

    \138\ ``Current Trends: Changes in the Cigarette Brand 
Preferences of Adolescent Smokers--United States, 1989-1993,'' MMWR, 
CDC, vol. 43, pp. 577-581, August 19, 1994.
---------------------------------------------------------------------------

    The comment's criticism of the study, which involved children who 
smoke as few as one cigarette a week, is not correct. The researchers 
did know the brands that the adolescents in the study smoked. ``Fifty-
two percent of all students who had used cigarettes identified a single 
preferred brand * * *. One brand of cigarettes (Marlboro) accounted for 
76% of all preferred brands.'' The study's finding is consistent with 
every other study of adolescent brand preference: Marlboro is the 
number one brand choice.
    The effect of advertising on brand choice by young people is 
important. It shows that young people choose the imagery of the two or 
three most highly advertised brands to smoke, brands that provide 
specific definitions of a user.

[[Page 44483]]

The choice permits the user to adopt the image created by the brand.
    f. The Canada advertising case. A series of comments raises new 
issues not considered in the preamble to the 1995 proposed rule.
    The September 1995 decision of the Supreme Court of Canada on the 
Canadian Tobacco Products Control Act (TPCA), \139\ enacted to regulate 
tobacco advertising and promotion in Canada, prompted several comments, 
primarily from the tobacco industry. The TPCA banned all tobacco 
advertising, restricted the promotion of tobacco products and required 
packaging to display prominent unattributed health messages and toxic 
constituent information. As soon as the TPCA was enacted in 1988, the 
tobacco companies challenged the act as unconstitutional. On September 
21, 1995, the Supreme Court of Canada found that Parliament had the 
criminal law power to legislate regarding the advertising and promotion 
of tobacco products, but that, based on the record developed in the 
court below, the restrictions on advertising and promotion violated the 
tobacco companies' freedom of expression guaranteed to all Canadians. 
Several of the key sections of the TPCA were struck down by the 
Canadian Supreme Court. The Canadian court ruled that the government 
had failed to demonstrate that the restraints regarding advertising, 
promotion, and labeling were reasonable and justified restrictions on 
freedom of expression.
---------------------------------------------------------------------------

    \139\ RJR-MacDonald, Inc. v. Canada (Attorney General), S.Ct. of 
Canada, 100 C.C.C. 3d 449, Sept. 21, 1995.
---------------------------------------------------------------------------

    The Canadian court also found that the government had failed to 
demonstrate that less intrusive measures, falling short of a complete 
restriction on advertising and promotion, would be less effective in 
protecting young people from inducements to use tobacco products. 
Further, the Canadian court found that the government had failed to 
show that unattributed health messages were required to achieve its 
objective of reducing tobacco consumption. Finally, the Canadian court 
decided that there was no rational connection between prohibiting a 
tobacco product trademark on a nontobacco product and the objective of 
the TPCA. The decision left the advertising and promotion of tobacco 
products substantially unregulated in Canada.
    Because of some similarities between the Canadian federal tobacco 
control strategy and FDA's proposed regulation, some comments suggested 
that the opinions of the Canadian court are a basis for rejecting 
actions and laws targeting lawful tobacco advertising, particularly FDA 
proposed regulations. Moreover, the comments said that the Canadian 
court concluded that the proposed prohibition on tobacco advertising 
could not be sustained because it ``failed the rational connection 
test'' in that there was no causal connection ``whether based on direct 
evidence or logic and reason'' justifying the law (100 C.C.C. 3d. 449, 
Charter of Rights).
    In contrast, one comment suggested that the ruling on this case is 
consistent with FDA's emphasis on reducing image advertising directed 
towards young people. The comment stated that FDA's focus fits the 
Canadian court's decision and had the Canadian government restricted 
image advertising rather than banning all advertising, it would have 
upheld the regulation.
    FDA does not find the decision of the Canadian court to be contrary 
to its findings. The Canadian court did recognize that image or 
lifestyle advertising can affect overall consumption. Moreover, 
contrary to the comment's suggestion, the court specifically recognized 
that: ``measures * * * to prohibit advertising aimed at children and 
adolescents * * * would be a reasonable impairment of the right to free 
expression, given the important objective and the legislative context'' 
(100 C.C.C. 3d. 449).
    Finally, FDA has considered a much larger quantity of evidence than 
that which was before the Canadian court, including the evidence 
concerning nontobacco item ownership by young people and the materials 
received during the comment period. The latter included the heretofore 
confidential or secret documents from RJR's marketing department and 
also those concerning the results of RJR's focus groups, which showed 
that interest in nontobacco items was highest among the young. Thus, 
FDA considered a much fuller record than that before the Canadian 
court. Moreover, the comment period provided the agency with additional 
evidence concerning various proposed provisions. FDA's final rule is 
thus based on a very complete and full record and its decisions are 
well justified.
    g. Roberts and Samuelson. Concerning the effect of advertising on 
consumption patterns, one study not considered by the court in Canada, 
but cited by FDA in the preamble to the 1995 proposed rule, was an 
econometric analysis employed by Roberts and Samuelson \140\ to show 
that advertising can increase the market demand for tobacco products. 
The study measured the effect on brand share and market size of 
advertising for low and high-tar cigarettes. The results indicated that 
advertising for low tar cigarettes did increase overall market size.
---------------------------------------------------------------------------

    \140\ Roberts, M. J., and L. Samuelson, ``An Empirical Analysis 
of Dynamic, Nonprice Competition in an Oligopolistic Industry,'' 
Rand Journal of Economics, vol. 19, pp. 200-220, 1988.
---------------------------------------------------------------------------

    The study looked at the question of the effect of advertising not 
from the viewpoint of the consumer, but from the producer's 
perspective--how much should a firm invest in advertising in order to 
maximize its profits. A predicate assumption is that a manufacturer 
would not invest in advertising if the cost did not produce a return. 
This study also was conducted by independent economists and appeared in 
a peer reviewed journal.
    Several comments criticized the study as an ``ambitious failure.'' 
The industry comments criticized the study on the following grounds: 
The study inappropriately measures the level of advertising in messages 
and not in expenditures, and the study had inadequacies in some 
assumptions and in the data and these flaws thus call into question the 
study's results. Moreover, the comments alleged that misallocation of 
advertising expenditures may have biased the results. The results of 
the study show that advertising for low tar cigarettes had a beneficial 
effect on the overall level of consumption, but that the same effect 
did not occur for high tar cigarette advertising. The comments noted 
that young people do not consume low tar cigarettes, and therefore the 
results are irrelevant to a discussion of youth smoking. Moreover, the 
comments said that the results are not generalizable to all cigarette 
advertising. Finally, the comments said that population growth may have 
accounted for the finding of a relationship between advertising and 
consumption.
    The agency disagrees with the criticisms of this study and finds 
instead that it is persuasive evidence of the effects of tobacco 
advertising for low-tar cigarettes on the overall market. In answer to 
the first criticism, the study used messages instead of expenditures as 
a measure of advertising in order to increase the accuracy of the 
analysis. It is the messages actually seen by a consumer, and not the 
amount spent by the company on advertising, that is more relevant in 
assessing the effect of advertising. If the cost of advertising

[[Page 44484]]

were to go up, and thus firms would have to pay more for fewer 
messages, we would not expect to find a greater effect on consumers, 
which was the effect shown by the study.
    The second issue, that there were flaws in the study, is similarly 
not fatal. As noted in section VI.D.4.d. of this document, each study 
utilizes the best data and methods available at the time. This may not 
be the perfect study, but its flaws are minor and do not affect its 
usefulness. Moreover, one major criticism was with the advertising 
variable and as noted more fully in section VI.D.6.a. of this document 
data on advertising expenditures are generally considered trade secrets 
by the companies. Thus, independent researchers have to use whatever 
data are available, even if they are not perfect. If the industry 
wanted to ensure more complete studies, it could release old data 
relevant to advertising expenditures.
    Third, the comments complain that the focus of the study, low-tar 
advertising, limits the applicability of the results. However, the fact 
that this study found that advertising for low-tar cigarettes increased 
the market is not a limitation that restricts the results to that one 
example. The importance of the results is that the study shows that 
advertising in this oligopolistic industry can affect the market size. 
The purpose of dividing the market into high- and low-tar advertising 
was an attempt to isolate the effect of advertising for each of the 
product classes.
    Fourth, the comments expressed concern about the possibility of 
population growth as an intervening factor. Population growth should 
not have affected the results as growth would have affected the high-
tar market as well as the low-tar market, a consequence that did not 
occur.
    FDA concludes that this study presents excellent evidence of the 
effect of advertising on consumption patterns and, that it would have 
provided quite supportive evidence before the Canada court for 
advertising restrictions.
    h. The African-American youth market. Referring to the declining 
African American youth tobacco market, several comments argued that 
FDA's tentative finding in the preamble to the 1995 proposed rule on 
the relationship between outdoor cigarette advertising and tobacco 
consumption by young people is incorrect. Comments said that if 
cigarette advertising increases the prevalence of smoking among young 
people, the percentage of African-American young people who smoke 
should be equivalent to that of whites, because African-American young 
people see as much or more cigarette advertising than do whites. 
However, smoking rates for young African-Americans are much lower than 
for white young people. One comment further indicated that African-
American young people's decision to smoke may be more responsive to 
peer influence and parental and community advice than cigarette 
advertising.
    It is unclear why African-American young people do not use tobacco 
at the same rate as white young people. It is surely not that their 
parents smoke less; the smoking rate among African-American adults is 
26 percent, almost the same rate as for white adults. \141\ Whatever 
may be the reason (and it is unknown) for the lower smoking rates among 
youth among that segment of the population, it does not provide 
sufficient evidence against advertising restrictions when other 
evidence shows that advertising does affect children's decisions to use 
tobacco products.
---------------------------------------------------------------------------

    \141\ ``Cigarette Smoking Among Adults--United States-, 1993,'' 
MMWR, CDC, vol. 43, pp. 925-930, 1994.
---------------------------------------------------------------------------

    i. The evidence relating to smokeless tobacco. A couple of comments 
argued that FDA had presented insufficient evidence regarding the 
effect of advertising on the decision to use smokeless tobacco. One 
joint comment from the smokeless tobacco manufacturers stated:
    The studies cited by the agency regarding cigarette 
advertisements and smoking are all either highly flawed, biased, or 
simply do not support the agency's hypothesis. * * * Even more 
troubling--and from the standpoint of sustaining its legal 
obligation, a fatal flaw--is the agency's audacity to propose a 
virtual ban on advertising for smokeless tobacco products without 
even deigning to build a case.
    The comment is correct that there is less evidence available 
regarding smokeless tobacco advertising practices and smokeless tobacco 
use. Nevertheless, the record contains sufficient evidence to provide a 
basis for applying the advertising restrictions in the 1995 proposed 
rule to smokeless products. In the preamble to the 1995 proposed rule 
(60 FR 41314 at 41331), reference was made to the remarkably successful 
regeneration of the smokeless tobacco market by U.S. Tobacco (UST), the 
leading smokeless tobacco company, in the 1980's. In the 1970's, the 
segment of the population with the highest use of these products was 
over age 50, and young men were among the lowest. Fifteen years later, 
there had been a tenfold increase in the use of smokeless tobacco by 
young men, whose use became double that of men over 50. The preamble to 
the 1995 proposed rule attributed that increase to the concerted 
advertising and marketing efforts of UST.
    As detailed more fully in the preamble to the 1995 proposed rule 
(60 FR 41313 at 41331), officials at UST held a marketing meeting in 
1968 where, according to the Wall Street Journal, the vice-president 
for marketing said, ``We must sell the use of tobacco in the mouth and 
appeal to young people *** we hope to start a fad.'' Another official 
attending the same meeting was quoted as saying, ``We were looking for 
new users-younger people who, by reputation, wouldn't try the old 
products.''
    Later, Louis Bantle, the chairman of the board of UST, described 
the reason that so many young males use smokeless tobacco, ``I think 
there are a lot of reasons, with one of them being that it is very 
`macho;.'' UST's advertising utilized the themes that play well with 
`macho' boys--rugged masculine images--and utilized heros to this 
group--professional athletes. Bantle described the success of this 
program thus: ``In Texas today, a kid wouldn't dare to go to school, 
even if he doesn't use the product, without a can in his Levis.''
    The UST program also utilized a promotional program that it called 
``graduation strategy'':
    UST distributes free samples of low nicotine-delivery brands of 
moist snuff and instructs its representatives not to distribute free 
samples of higher nicotine-delivery brands. The low nicotine-
delivery brands also have a disproportionate share of advertising 
relative to their market share. For example, in 1983, Skoal Bandits, 
a starter brand, accounted for 47 percent of UST's advertising 
dollars, but accounted for only 2 percent of the market share by 
weight. In contrast, Copenhagen, the highest nicotine-delivery 
brand, had only 1 percent of the advertising expenditures, but 50 
percent of the market share. This advertising focus is indicative of 
UST's ``graduation process'' of starting new smokeless tobacco 
product users on low nicotine-delivery brands and having them 
graduate to higher nicotine-delivery brands as a method of 
recruiting new, younger users.
(60 FR 41314 at 41331)
    Therefore, the agency disagrees with the assertion that it has 
presented no evidence to support restricting smokeless tobacco 
advertising. In fact, it finds the graduation strategy to be strong 
evidence of the effectiveness of advertising in targeting young people 
to become new users and consistent with and supported by the general

[[Page 44485]]

discussion, see sections VI.B. and VI.D. of this document.
4. Why Young People Use Tobacco and the Role of Advertising in That 
Process
    (15) Regardless of the evidence cited in section VI.D.3. of this 
document, many comments argued that children start to smoke and use 
smokeless tobacco because of influences on them other than advertising, 
primarily the influence of their friends and peers.
    a. Why young people use tobacco. One comment cited studies showing 
that young people who were most likely to be smokers were those who 
were particularly rebellious or prone to deviant behavior, \142\ and 
said that it was counterintuitive that young people fitting these 
profiles would want to conform to what advertising portrayed as 
desirable.
---------------------------------------------------------------------------

    \142\ Chassin, L., C. C. Presson, S. J. Sherman, E. Corty, and 
R. W. Olshavsky, ``Predicting the Onset of Cigarette Smoking in 
Adolescents: A Longitudinal Study,'' Journal of Applied Social 
Psychology, vol. 14, pp. 224-243, 1984; Collins, L. M., S. Sussman, 
J. Mestel Rauch, C. W. Dent, C. J. Johnson, W. B. Hansen, and B. R. 
Flay, ``Psychosocial Predictors of Young Adolescent Cigarette 
Smoking: A Sixteen-Month, Three-Wave Longitudinal Study,'' Journal 
of Applied Social Psychology, vol. 17, pp. 554-573, 1987.
---------------------------------------------------------------------------

    Conversely, many comments said that cigarette advertising, like all 
advertising portrays highly attractive images. One comment stated that 
when young people's peers are also smoking, this can serve to 
personalize the images and make them relevant for their own lives, and 
cause them to have favorable impressions about their friends who smoke. 
\143\
---------------------------------------------------------------------------

    \143\ Pechmann, C., and S. J. Knight, ``Cigarette Ads, 
Antismoking Ads and Peers: Why do Underage Youth Smoke Cigarettes?'' 
Advances in Consumer Research, Association for Consumer Research, 
edited by Corfman, K. P., and J. G. Lynch, eds., Provo, UT, vol. 23, 
pp. 267-268, 1996.
---------------------------------------------------------------------------

    One comment argued further that children smoke because they hope to 
convey a positive self-image. \144\ Hence, young people may be 
particularly vulnerable to being influenced by the attractive images 
presented in cigarette and smokeless tobacco advertising. \145\
---------------------------------------------------------------------------

    \144\ Chassin, L., C. Presson, S. J. Sherman, E. Corty, and R. 
W. Olshavsky, ``Self-Images and Cigarette Smoking in Adolescence,'' 
Personality and Social Psychology Bulletin, vol. 7, pp. 670-676, 
1981; Barton, J., L. Chassin, C. Presson, and S. J. Sherman, 
``Social Image Factors as Motivators of Smoking Initiation in Early 
and Middle Adolescence,'' Child Development, pp. 1499-1511, 1982.
    \145\ Id.
---------------------------------------------------------------------------

    Specifically, the same comment cited numerous studies that indicate 
that many young people smoke because they hope to convey a positive 
image. \146\ Based on these studies, the comment stated: ``Image or 
impression management (Schlenker, 1980) has great utility for young 
people as they struggle for social acceptance and autonomy (citations 
omitted).''
---------------------------------------------------------------------------

    \146\ Chassin, L., C. Presson, S. J. Sherman, E. Corty, and R. 
W. Olshavsky, ``Self-Images and Cigarette Smoking in Adolescence,'' 
Personality and Social Psychology Bulletin, vol. 7, pp. 670-676, 
1981; Barton, J., L. Chassin, C. C. Presson, and S. J. Sherman, 
``Social Image Factors as Motivators of Smoking Initiation in Early 
and Middle Adolescence,'' Child Development, pp. 1499-1511, 1982; 
Belk, R. W., ``Possessions and the Extended Self,'' Journal of 
Consumer Research, vol. 15, pp. 139-168, 1988; Belk, R. W., R. 
Mayer, and A. Driscoll, ``Children's Recognition of Consumption 
Symbolism in Children's Products,'' Journal of Consumer Research, 
vol. 10, pp. 386-397, 1984; Brown, B. B., M. J. Lohr, and E. L. 
McClenahan, ``Early Adolescents' Perceptions of Peer Pressure,'' 
vol. 6, pp. 139-154, 1986; Messick, P. M., and C. C. McClelland, 
``Social Traps and Temporal Traps,'' Personality and Social 
Psychology Bulletin, vol. 9, pp. 105-110, 1983; Levy, S. J., 
``Meanings in Advertising Stimuli,'' Advertising and Consumer 
Psychology, Praeger, New York, pp. 214-226, 1986; Solomon, M. R., 
``The Role of Products as Social Stimuli: A Symbolic Interactionism 
Perspective,'' Journal of Consumer Research, vol. 10, pp. 319-329, 
1983.
---------------------------------------------------------------------------

    Finally, the comment described the developmental aspects of 
adolescents that are relevant to this issue:
     With respect to developmental aspects of adolescence, there are 
two related factors that make adolescents especially vulnerable to 
being influenced by tobacco advertising. First, adolescents are 
typically beginning to focus on peer group interactions more than on 
family interactions (e.g., Brown et al., 1986), which they may 
likewise value to a far greater extent. Second, tobacco use 
constitutes a ``temporal trap'' (Messick and McClelland, 1983) in 
the sense that the peer group benefits of tobacco use are immediate, 
while the negative consequences in terms of health outcomes are so 
far into the future that many adolescents, who often see themselves 
as invulnerable even in the present, would consider them to be 
irrelevant. Furthermore, the negative social consequences of tobacco 
use in adulthood (i.e., social stigmatization * * *) are also 
unimportant to adolescents at the time they are making the decision 
to use tobacco products. \147\
---------------------------------------------------------------------------

    \147\ Brown, B. B., M. J. Lohr, and E. L. McClenhanan, ``Early 
Adolescents' Perceptions of Peer Pressure,'' Journal of Early 
Adolescence, vol. 6, pp. 139-154, 1986; Messick, P. M., and C. C. 
McClelland, ``Social Traps and Temporal Traps,'' Personality and 
Social Psychology Bulletin, vol. 9, pp. 105-110, 1983.
---------------------------------------------------------------------------

    Stated differently, adolescence is a time of ``identity 
formation.'' Young people use the attractive imagery of advertising as 
a ``window into the adult world.'' They are ``susceptible to the images 
of romance, success, sophistication, popularity, and adventure * * *.'' 
\148\ By adolescence, clothes, possessions, and ``badge products'' such 
as cigarettes are used to define oneself and to control relations with 
others. \149\
---------------------------------------------------------------------------

    \148\ Nichter, M., and E. Cartwright, ``Saving the Children for 
the Tobacco Industry,'' Medical Anthropology Quarterly, vol. 5, pp. 
236-256, 1991.
    \149\ Stacey, B. G., ``Economic Socialization in the Pre-Adult 
Years,'' British Journal of Social Psychology, vol. 21, pp. 159-173, 
1982.
---------------------------------------------------------------------------

    Support for this view of the role of tobacco advertising also comes 
from the tobacco industry:
     FDA turns a blind eye to the fact that the personal display of 
products with commercial logo--through dress and other forms of 
expression--is a form of participation in American popular culture. 
It is a way to register a group identity to signal one's place in 
the social fabric.
In addition to these comments, FDA has the words of RJR's research 
department in a 1973 memo, detailed in section VI.D.3.d. of this 
document, that chart a course for attracting the young smoker. \150\
---------------------------------------------------------------------------

    \150\ A July 3, 1974 memo, authored by D. W. Tredennick, of R. 
J. Reynolds' Marketing Research Department was submitted to the 
rulemaking docket by the Attorney General of Mississippi in response 
to the reopening of the rulemaking record (61 FR 11349, March 20, 
1996). Although the agency has not relied on the memo as part of the 
justification for this rule, FDA is citing to it here because it is 
relevant to the issues discussed. The memo was also reported in the 
press, see Schwartz, J., ``R. J. Reynolds Marketing Memo Discusses 
Young Smokers' Brand Image,'' Washington Post, A03, April 23, 1996. 
The memo asked and answered the question: ``What causes smokers to 
select their first brand of cigarettes?'' The answers developed by 
Mr. Tredennick echos the concepts discussed above. The memo 
hypothesized that: ``[t]he causes of initial brand selection relate 
directly to the reasons a young person smokes. The more closely a 
brand meets the psychological 'support' needs (advertising or 
otherwise communicated brand or physiological needs (product 
characteristics), the more likely it is that a given brand will be 
selected. (Emphasis added)'' One important characteristic was 
associated with the user ``image'' associated with a brand. ``To 
some extent young smokers 'wear' their cigarette and it becomes an 
important part of the 'I' they wish to be, along with their clothing 
and the way they style their hair.'' The memo also recognized the 
importance of peer influence on a young person's decisions about 
smoking and noted that: ``It must also be true that influential 
young smokers (perhaps relatively few) have made brand selections 
based on product characteristics or advertising and promotion 
communication. The fact that two brands, Marlboro and Kool, have 
such dominant shares among youths suggests the above hypothesis * * 
*.'' Tredennick noted further that both Marlboro and Kool project 
imagery that is psychologically important to adolescents--the need 
for support and strength.
---------------------------------------------------------------------------

    On the basis of the evidence cited and reviewed in section VI.D.3. 
of this document, the agency finds that the suggestion that it is 
impossible to advertise in a way that would appeal to rebellious 
nonconformist teenagers is

[[Page 44486]]

without merit. Tobacco advertising plays directly to the factors that 
are central to adolescents as they decide whether to use tobacco 
products. Thus, the available evidence clearly supports a finding that 
advertising plays an important role in young people's tobacco use.
    b. Determinants of smoking. Several comments from the advertising 
and tobacco industries claimed that the econometric studies performed 
for them by experts found that peers, parents, and siblings have the 
greatest influence on young peoples' decision to start smoking.
    Citing an econometric analysis performed for RJR by Dr. J. H. 
Beales, on data concerning its Joe Camel advertising campaign, one 
comment argued that ``minors balance the risks and rewards of smoking 
to decide whether or not to smoke, just as they would any other 
consumption decision. The greater an individual minor perceives the net 
rewards of smoking, the more likely he or she will try smoking. Minors 
who perceive greater net rewards of smoking are also likely to smoke 
more intensively.''
    The comment further argued that an analysis based upon this 
theoretical model by Dr. Beales found that neither advertising nor 
advertising expenditures has an appreciable effect on young people's 
perceptions of the benefits of smoking and thus would have no indirect 
effect on teenage smoking decisions. \151\ More specifically, the 
comments stated that the Beales' studies show that advertising 
expenditures for the particular brands that most teenagers smoke, 
Marlboro and Camel, do not influence and are not associated with 
smoking decisions. Moreover, Dr. Beales reported that the results of 
his studies indicate further that advertising did not have an indirect 
effect on smoking behavior. Beales concluded that minors who had been 
exposed to more advertising did not identify the perceived rewards of 
smoking--``smoking helps when bored,'' ``smoking helps relax,'' 
``smoking helps with stress,'' and ``smoking helps in social 
situations,'' in a greater number than did those minors who reported 
less exposure. The comment concluded that the failure of the 1993 
Beales study to find either direct or indirect effects from advertising 
on smoking behavior should be conclusive.
---------------------------------------------------------------------------

    \151\ Dr. Beales used children's designation of a ``most 
advertised brand'' as a surrogate for the effect of advertising.
---------------------------------------------------------------------------

    FDA does not agree. The 1993 Beales study presents only one 
analysis of youthful smoking and that analysis is flawed. \152\ Dr. 
Beales appears to have performed tests using an ordered logistic 
regression model to test for: (1) The effect of advertising on smoking 
behavior, using advertising expenditures and young people's view of 
``most advertised brand'' as measures; and (2) smoking behavior as a 
function of a number of psychosocial variables and determinants.
---------------------------------------------------------------------------

    \152\ Beales, J. H., ``Advertising and the Determinants of 
Teenage Smoking Behavior,'' p. 44, 1993.
---------------------------------------------------------------------------

    First, a logistic model is only as good as the variables used. 
Thus, if a variable is mispecified or imprecise, the model's predictive 
capacity will be severely compromised. The variable ``most advertised 
brand'' appears to be quite imprecise as a measure to capture the 
effect of advertising. The most that this variable would capture would 
be the ability of the campaign to be seen and remembered. It would not 
capture the appeal of the campaign, or the effect of the campaign on 
consumers, nor could it measure the ability of an advertising campaign 
to change or create consumer action. In addition, it would not be 
surprising to find that almost as many nonsmoking young people as young 
smokers found Camel (or Marlboro) to be the most advertised brands, 
since those advertising campaigns were quite ubiquitous at the time the 
data for this study were collected and were, in fact, the most 
advertised brands. A variable that cannot discriminate between users 
and nonusers, because all had seen and remembered the advertising, 
cannot be expected to produce useful predictive results in a regression 
analysis of why people, particularly young people, smoke.
    Second, Dr. Beales attempted to determine whether differences in 
advertising expenditures would predict smoking behavior. It appears, 
however, that Dr. Beales did not look at this question longitudinally--
that is, he did not look at whether smoking rates varied as a function 
of advertising expenditures for Camel cigarettes before the Joe Camel 
campaign and after the campaign started. Instead, he appears to have 
measured smoking rates as a function of the differences in regional 
advertising expenditures in California during one time period. It 
should not be surprising therefore that little if any effect on smoking 
rates was found: (1) There is no reason to expect to find significant 
changes in smoking behavior based on small regional variations within 
one State in advertising expenditures, and (2) optimum expenditures for 
advertising outlays in any given region would have been determined in 
advance by an advertising agency and therefore would more likely 
reflect smoking patterns already in existence. Had he wanted to measure 
smoking behavior as a function of Camel's advertising, he should have 
modeled it longitudinally over time. Since the regional advertising 
expenditures must have been obtained from a RJR data base, Beales 
clearly had access to other sources of data within the company. He 
therefore should have been able to acquire advertising expenditures for 
the Camel brand before the introduction of Joe Camel and advertising 
expenditures for the period after Joe Camel's appearance. This would 
have been a better test.
    Finally, Dr. Beales performed an analysis to determine the ``true'' 
determinants of smoking. Dr. Beales' regression analysis utilized a 
series of psychosocial characteristics and beliefs about smoking. He 
found that the only factor that failed to produce an association was 
advertising. First, as noted, there is no reason to believe that ``most 
advertised brand'' would perform as a useful surrogate for the effects 
of advertising. Therefore, regardless of the value of the study, it is 
not good evidence concerning the role of advertising in young people's 
smoking decision. Second, the analysis indicates what is already known: 
certain beliefs and life patterns can help predict who may become a 
smoker. However, it does not measure what effect advertising can have 
on a young person's perception or beliefs.
    Additional concerns about the study are similar to those that the 
tobacco industry comments raised about studies cited by FDA. The first 
concern is that several variables used in the model measure the same 
impact. This redundancy could create a multicollinearity problem (i.e., 
two or more variables vary together but it is very difficult to 
determine which variable influences the other). Moreover, the 
redundancy may have caused irrelevant variables to be included in the 
regression equation. Both multicollinearity and the inclusion of 
irrelevant variables can affect the efficiency of the model's 
estimates. The second concern is that the model used in the study is 
questionable. The correct model could well have been a double hurdle 
model, i.e., modeling the decision to smoke first and then modeling the 
choice of what brand to smoke, second.

[[Page 44487]]

    Finally, there is concern that the data for the impact of 
advertising expenditures and smoking behavior were incompatible and, 
thus, may have failed to find a relationship that did in fact exist. 
The teen smoking prevalence data were from a behavioral study, and the 
measurement of advertising expenditures was from regional advertising 
expenditures, undoubtedly maintained by the company. The smoking 
decision for a teenager may very well not have been influenced by the 
amount of money spent but by the number of messages he/she receives. 
The aggregate expenditures for advertising cannot measure the number of 
messages actually received by an individual teen.
    Given the multitude of problems with the design of the study and 
the choice of variables, the study has limited capability for producing 
results that can adequately describe advertising effects on smoking 
behavior. Moreover, this study is but one of many and, whatever its 
value, it does not overwhelm the evidence that FDA has relied on.
    c. Laugesen and Meads. In contrast to the Beales' study, FDA had 
cited a study by Laugesen and Meads, entitled ``Advertising, Price, 
Income and Publicity Effects on Weekly Cigarette Sales in New Zealand 
Supermarkets,'' \153\ which provided evidence that increases in 
advertising expenditures had an effect on youth smoking behavior 
including recruiting new smokers and increasing the market base.
---------------------------------------------------------------------------

    \153\ Laugesen, M., and C. Meads, ``Advertising, Price, Income, 
and Publicity Effects on Weekly Cigarette Sales in New Zealand 
Supermarkets,'' British Journal of Addiction, vol. 86, pp. 83-89, 
1991.
---------------------------------------------------------------------------

    One comment stated that data from supermarkets were 
unrepresentative, both because of the percentage of sales from 
supermarkets in New Zealand (presumably not large), and because it is 
not known what percentage of sales to young people are made at 
supermarkets. Moreover, many conditions were not accounted for, 
including possible different pricing structures between retail outlets.
    The comments also criticized several major assumptions they claim 
were made in the study, for example, that young people purchase the 
less expensive, down market brand. Finally, the comment criticizes the 
failure to control for other variables (such as rotating health 
warnings and new advertising restrictions).
    The authors themselves responded to some of the concerns expressed. 
For example, they explained that they specifically chose to collect 
data from supermarkets because other ``authors with access to full 
industry data \154\ have recommended that the data interval [for 
supermarket sales] should reflect the inter-purchase time for 
cigarettes,'' which in New Zealand is a week or less. Moreover, the 
authors found that supermarket cigarette sales are more consistent than 
other points of sales. Hence there were fewer fluctuations in the 
demand data for cigarettes.
---------------------------------------------------------------------------

    \154\ The authors cited this study as an example of one having 
access to full industry data. Leeflang, P. S. H., and Reuiyl, 
``Advertising and Industry Sales: An Empirical Study of the West 
German Cigarette Market,'' Journal of Marketing, vol. 49, p. 97, 
1985; Laugesen, M., and C. Meads, ``Advertising, Price, Income, and 
Publicity Effects on Weekly Cigarette Sales in New Zealand 
Supermarkets,'' British Journal of Addiction, vol. 86, pp. 83-89, 
1991.
---------------------------------------------------------------------------

    Moreover, in response to the second comment, the authors did not 
assume that young people purchase downmarket cigarettes at a higher 
rate than the general population, but that people with lower income, 
which includes young people, purchase these brands more often. But more 
importantly, the study found that it takes only 2 years of advertising 
of this downmarket brand to expand the teen market by 4 percent, and 
this fact was not disputed.
    d. Other comments. Finally, several comments criticized the quality 
of the evidence cited by FDA in its preamble to the 1995 proposed rule. 
One comment stated that FDA has relied too heavily on studies conducted 
by physicians or others not familiar with the art and science of 
persuasion. Further, it asserted that most of the evidence cited in 
support of the regulations had been published in medical journals and 
not in peer reviewed marketing journals.
    However, a review of the evidence presented belies that concern. 
First, FDA relied on the research and expert opinion of consumer 
psychologists, business and marketing experts, economists and social 
science researchers as well as medical experts. Moreover, FDA has 
relied on two outstanding reports issued in the past few years that 
specifically addressed the issue of young people's use of tobacco--the 
1994 SGR and the IOM Report. Both commented extensively on the role 
that advertising plays in young people's smoking behavior and use of 
smokeless tobacco and both recommended strongly that a comprehensive 
plan to attack the problem of youth tobacco use include stringent 
advertising restrictions.
    Moreover, of the 15 members of the IOM committee, 7 were expert in 
the fields of behavioral sciences, including psychology, psychiatry and 
public policy, anthropology, and economics. Similarly, the contributing 
authors to the 1994 SGR included experts in economics, social research, 
marketing, and business administration. Finally, the comments submitted 
include additional empirical evidence, the expert opinion of the 
American Psychological Association, \155\ and the words of the tobacco 
industry itself, all of which are referred to in this document.
---------------------------------------------------------------------------

    \155\ The American Psychological Association represents 132,000 
members and affiliates and is the largest organization of 
psychologists in the world. Its comment represents the 
organization's ``research-based recommendations'' and reflects 
significant input from several relevant divisions including the 
Division of Personality and Social Psychology, the Division of 
Society for the Psychological Study of Social Issues, and the 
Division of Consumer Psychology.
---------------------------------------------------------------------------

    One comment criticized FDA's reliance on the IOM Report and the 
1994 SGR as simply presenting ``selective reviews'' of much of the same 
``dubious literature'' reviewed by FDA. Another comment stated that FDA 
had indiscriminately relied on studies cited in the 1994 SGR, none of 
which, the comment claimed, was capable of determining whether 
advertising influences children to initiate smoking.
    Several comments appeared to place great importance on the fact 
that both reports acknowledge that the psychosocial and econometric 
research that they present do not prove that cigarette advertising 
causes young people to begin smoking or to use smokeless tobacco. The 
IOM Report stated that, because of the nature of the research, it is 
not known for certain whether youths already interested in smoking or 
smokeless tobacco become more attentive to advertisements for these 
products or whether these advertisements lead youths to become more 
interested in these products. One comment argued that the ``IOM's 
recognition of this weakness fatally undermines its own and FDA's 
arguments on the impact of advertising on smoking behavior.'' Another 
comment claimed that the IOM Report acknowledges the lack of a causal 
relationship between advertising and smoking and acknowledges that the 
very econometric studies it cites are unreliable to determine whether 
advertising contributes to youth smoking behavior. The comment also 
stated that FDA misstates IOM's conclusion regarding evidence of a

[[Page 44488]]

causal relationship between advertising and smoking initiation. 
Further, several comments cited to a statement in the 1994 SGR that 
``no longitudinal study of the direct relationship of cigarette 
advertising to smoking initiation has been reported in the 
literature.'' \156\ However, these comments failed to include the 
sentence immediately preceding this quote: ``Considered together, these 
studies offer a compelling argument for the mediated relationship of 
cigarette advertising and adolescent smoking.''
---------------------------------------------------------------------------

    \156\ 1994 SGR, p. 188.
---------------------------------------------------------------------------

    Another comment in support of advertising restrictions on tobacco 
products argued that the multidisciplinary studies cited in the 1994 
SGR supported the conclusion that marketing and advertising tobacco 
products do play a role in tobacco use among young people. The comment 
suggested that this conclusion is consistent with the 1989 Surgeon 
General's conclusion that ``the collective empirical, experiential, and 
logical evidence makes it more likely than not that advertising and 
promotional activities do stimulate cigarette consumption.'' \157\ 
Additionally, the comment supported the findings of the 1994 SGR that 
``cigarette advertising appears to increase young people's risk of 
smoking'' by conveying the impression that smoking has social benefits 
and is far more common than it really is. \158\ Moreover, this comment 
contended that the IOM's conclusions supported FDA's tentative view 
that image advertising of tobacco products is tremendously appealing to 
young people.
---------------------------------------------------------------------------

    \157\ 1989 SGR, p. 517.
    \158\ 1994 SGR, p. 195.
---------------------------------------------------------------------------

    As noted more fully in section VI.B. of this document, FDA did rely 
heavily on the two reports, and continues to find the reports 
persuasive evidence. They represent mainstream scientific consensus and 
are appropriately entitled to a great deal of deference. The agency 
notes that, in a different but not entirely unrelated context, that of 
health claims for food, Congress has said that FDA would have to 
specifically justify any decision rejecting the conclusions of a report 
from an authoritative scientific body of the United States. (See 
section 403(r)(4)(C) of the act (21 U.S.C. 343(r)(4)(C)).) No 
justification for rejecting the IOM's conclusions exists here.
    Finally, the agency, like the 1994 SGR and IOM Report, finds that 
an adequate basis does exist to conclude that advertising plays a 
``mediated relationship'' to adolescent tobacco use. \159\ The proper 
question is not, ``Is advertising the most important cause of youth 
initiation?'' but rather, ``does FDA have a solid body of evidence 
establishing that advertising encourages young people's tobacco use 
such that FDA could rationally restrict that advertising?'' The answer 
to this question is ``yes.''
---------------------------------------------------------------------------

    \159\ Id., p. 188.
---------------------------------------------------------------------------

5. Has the Agency Met Its Burden?
    (16) Several comments from the tobacco and advertising industries 
criticized the agency for failing to present evidence that conclusively 
establishes a causal link between advertising and young people's 
decisions to begin using cigarettes and smokeless tobacco.
    FDA disagrees that its burden is to conclusively prove by rigorous 
empirical studies that advertising causes initial consumption of 
cigarettes and smokeless tobacco. No single study is capable of doing 
so. As one comment stated, it would in fact be practically and 
ethically impossible to conduct such a study. Certainly no study 
presented by industry or any other party demonstrated that advertising 
does not cause the initial consumption of cigarettes and smokeless 
tobacco. Indeed, it should be noted that not one study cited by FDA or 
submitted by industry could conclusively demonstrate that any factor 
actually caused children to begin smoking or to use smokeless tobacco. 
This includes family and peer influences, which the tobacco industry 
repeatedly cite as the major determinants of youth smoking and 
smokeless tobacco use. As was suggested by a comment, however, even 
when a young person's decision to smoke is strongly influenced by a 
friend or parent, advertising reinforces the decision and makes the 
young person feel good about the decision and the ``identity'' thereby 
acquired.
    It should also be noted that the apparent focus on the possible 
causal role of cigarette and smokeless tobacco advertising in young 
people's initial decision to smoke or to use smokeless tobacco is 
overly narrow. Human behavior cannot be modeled so simplistically. In 
point of fact, tobacco advertising has an effect on young people's 
tobacco use behavior if it affects initiation, maintenance, or attempts 
at quitting.
    The evidence that FDA has gathered in this proceeding establishes 
that cigarette and smokeless tobacco advertising does have such an 
effect. While not all the evidence in the record supports this 
conclusion, there is more than adequate evidence, that when considered 
together, supports a conclusion that advertising, with the knowledge of 
the industry, does affect the smoking behavior and tobacco use of 
people under the age of 18. This behavior includes the decision whether 
to start using cigarettes or smokeless tobacco, whether to continue 
using or to increase ones consumption, when and where it is proper to 
use tobacco, and whether to quit. This evidence includes:
    Expert opinion--The American Psychological Association provided 
expert opinion, with specific citation to numerous studies, to show 
that tobacco advertising plays directly to the factors that are central 
to children and adolescents and thus plays an important role in their 
decision to use tobacco. (See section VI.D.4.a. of this document; and 
60 FR 41314 at 41329.)
    Advertising Theory--Basic advertising and consumer psychology 
theory, statements from advertising experts, and general consumer 
testing show that advertising that is multi-media, that uses color, and 
that employs more pictures, characters, or cartoons as opposed to text 
is more robust and can be better processed, understood and remembered 
by children and adolescents, who have less information processing 
ability than adults. (See section VI.B.1. and VI.B2. of this document.)
    Studies and Surveys--Studies show that children are exposed to 
substantial and unavoidable advertising, that exposure to tobacco 
advertising leads to favorable beliefs about tobacco use, that 
advertising plays a role in leading young people to overestimate the 
prevalence of tobacco use, and that these factors are related to young 
people's tobacco initiation and use. (See sections VI.D.3.a., 
VI.D.3.b., and VI.D.3.c. of this document.)
    Empirical Studies--Studies conducted on sales data have shown that 
advertising did increase one segment of the tobacco market (low tar 
cigarettes), that advertising in New Zealand had the effect of 
increasing tobacco sales to young people, and that a large multi-
country survey showed that advertising tends to increase consumption of 
tobacco products. (See 60 FR 41314 at 41333 through 41334; sections 
VI.D.3.g., VI.D.4.c., and VI.D.6.a. of this document)
    Anecdotal Evidence, and Various Advertising Campaigns Successful 
with

[[Page 44489]]

Young People--Studies show that the buying behavior of young people is 
influenced by advertising, that they smoke the most advertised brands, 
that children ages 3 to 6 can recognize a cartoon character associated 
with smoking at the same rate as they recognize Ronald McDonald, that 
various ad campaigns (Camel cigarettes, Reg cigarettes, products 
designed for women, and smokeless tobacco advertising aimed at new 
users) that appeared to be targeted to young people did have an effect 
upon young people's purchases and use of tobacco, and that young people 
report that they got their information about a tobacco brand from 
billboards, magazines, in store advertising and on teeshirts (60 FR 
41314 at 41329 through 41334; and see sections VI.D.3.d., VI.D.3.e., 
and VI.D.3.i. of this document).
    Industry Statements--Statements in documents created by R. J. 
Reynolds' researchers, by Philip Morris advertising people, by 
executives of US Tobacco and by people in and doing work for various 
Canadian tobacco companies indicate that young people are an important 
and often crucial segment of the tobacco market.
    Consensus Reports--The IOM and 1994 SGR concluded on the basis of 
an exhaustive review of the evidence that advertising affects young 
people's perceptions of the pervasiveness, image, and function of 
smoking, that misperceptions in these areas constitute psychosocial 
risk factors for the initiation of tobacco use, and thus advertising 
appears to increase young people's risk of tobacco use.
    Consequently, tobacco advertising works in a way that is roughly 
analogous to the way the Supreme Court described how deceptive 
advertising works (FTC v. Colgate - Palmolive Co., 380 U.S. 374 
(1965)). The Supreme Court described how sellers use deceptive 
practices to break down the resistance of the buying public (Id. at 
389-90). Here, as the 1994 SGR, the IOM report, and the comment of the 
American Psychological Association demonstrate, cigarette and smokeless 
tobacco companies use image and other advertising techniques to appeal 
to adolescents' need to belong and to appear to be adult, and thereby 
to break down their resistance to tobacco use. The advertising helps 
the companies to overcome the fact, as documents for R. J. Reynolds 
show, that there is no natural craving for nicotine. While the 
advertising techniques used by the tobacco industry are quite different 
than those used by the company in the referenced Supreme Court case, 
they ultimately have the same goal--to induce people, in this case 
young people, to purchase and use these products.
    Thus, the evidence in this proceeding demonstrates that cigarette 
and smokeless tobacco advertising plays a material role in the decision 
of children and adolescents under the age of 18 to engage in tobacco 
use behavior. It therefore establishes that the harm from this 
advertising is real.
6. The Efficacy of the Restrictions; Empirical Evidence Concerning 
Advertising Restrictions
    The final aspect of the analysis under the second prong of the 
Central Hudson test requires a showing by the agency that the 
restrictions that it seeks to impose will alleviate the harm to a 
material degree. FDA finds, based upon a review of all of the evidence 
and the comments received, that the restrictions will, in fact, meet 
this test.
    (17) Nearly all comments in opposition to advertising restrictions 
argued that the preponderance of the empirical evidence supported a 
finding of no effect from advertising on young people. Some comments 
stated that, consequently, the advertising restrictions are 
``unwarranted, unjustified, unnecessary, [and] will not be effective in 
reducing underage smoking.'' Several comments, representing a variety 
of interest groups, claimed that the ``best available evidence'' found 
that ``peer pressure,'' ``peer and family smoking behaviors'' and 
``young people's perceptions of the costs and benefits of smoking'' are 
more important than advertising and promotion in encouraging young 
people to experiment with cigarettes and smokeless tobacco. \160\ Still 
others claimed that ``being a girl,'' ``living with a single parent,'' 
``having relatively less negative views about smoking,'' ``having no 
intention to stay in full-time education after age 16,'' and ``thinking 
they might be a smoker in the future,'' are key influencing factors for 
a young person to start smoking. \161\
---------------------------------------------------------------------------

    \160\ Beales, J. H., ``Advertising and the Determinants of 
Teenage Smoking Behavior,'' vol. 44, 1993.
    \161\ McDonald, C., ``Children, Smoking and Advertising: What 
Does the Research Really Tell Us?'', International Journal of 
Advertising, vol. 12, pp. 279-287, 1993; Goddard, E., ``Why Children 
Start Smoking,'' British Journal of Addiction, vol. 87, No. 1, pp. 
17-25, 1992.
---------------------------------------------------------------------------

    The tobacco industry and the advertising industry stated that their 
advertising is not directed at children and adolescents but to adults 
who already use tobacco, and thus it is not a proper subject for 
government regulation. The advertising agency for the largest cigarette 
brand stated, ``[T]obacco advertising has as its intended audience 
existing smokers * * * it is not the company's desire that children 
start to smoke.''
    However, one comment questioned this and asked how cigarette 
advertising that has an impact upon adults can be assumed to leave 
unaffected a young viewer, smoker or otherwise. The same comment also 
cited the words of one retired Marlboro ad man: ``I don't know any way 
of doing this (advertising cigarettes) that doesn't tempt young people 
to smoke.'' \162\
---------------------------------------------------------------------------

    \162\ Daniels, D., Giants, Pygmies and Other Advertising People, 
Crain, Chicago, p. 245, 1974.
---------------------------------------------------------------------------

    Many comments from consumer groups, public health organizations and 
numerous private individuals were supportive of the agency's position 
that the 1995 proposed rule will reduce underage smoking and use of 
smokeless tobacco. The comments cited evidence from numerous sources 
such as government officials, university researchers, and antismoking 
advocates to demonstrate that restrictions on advertising would be 
effective.
    For example, a comment from a leading psychological association 
stated that research, common sense, and its expert opinion support 
that, if image-oriented advertising and promotion are replaced with 
text-only advertising, it would reduce the advertiser's ability to 
suggest that tobacco users project a desirable image, e.g., glamour, 
sexiness or maturity. \163\
---------------------------------------------------------------------------

    \163\ Cohen, J. B., ``Reconceptualizing Alcohol Advertising 
Effects: A Consumer Psychology Perspective,'' The Effects of the 
Mass Media on the Use and Abuse of Alcohol, Research Monograph, No. 
28, Bethesda, MD, NIH, 1995; Goldberg, M. W., J. Madill-Marshall, G. 
J. Gorn, J. Liefeld, and H. Vredenburg, ``Two Experiments Assessing 
the Visual and Semantic Images Associated with Current and Plain 
(Generic) Cigarette Packaging,'' Advances in Consumer Research, 
edited by Corfman, K. P., and J. G. Lynch, Association for Consumer 
Research, Provo, UT, vol. 23, 1996; Pollay, R. W., and A. M. Lavack, 
``The Targeting of Youths by Cigarette Marketers: Archival Evidence 
on Trial,'' Advances in Consumer Research, Association for Consumer 
Research, Provo, UT, vol. 20, pp. 266-271, 1993; Richins, M. L., 
``Social Comparison and the Idealized Images of Advertising,'' 
Journal of Consumer Research, vol. 18, pp. 71-83, 1991.
---------------------------------------------------------------------------

    FDA has concluded that restrictions on advertising and promotion 
are necessary to reduce the appeal of tobacco products to young people. 
Such restrictions will protect the access restrictions that the agency 
is adopting from being undermined and thereby the health of young 
people. To be effective,

[[Page 44490]]

these restrictions must be comprehensive, that is, they must apply to 
the many types of media currently used in a coordinated way to 
advertise cigarettes and smokeless tobacco.
    FDA finds support for the need for comprehensive regulation in the 
experiences of other countries which have enacted and put into place 
some form of restrictions on the advertising of tobacco. Some comments 
discussed the experience in other countries in which tobacco 
advertising has been banned. These comments indicated that in countries 
that have enacted restrictions on advertising that were not 
comprehensive, the industry was able to continue advertising and 
portraying attractive imagery in media left uncovered by regulations. 
For example, Canada, Finland, Great Britain, and Australia enacted 
regulations of tobacco advertising that did not completely ban or 
restrict all forms of advertising and promotion. In each of those 
instances, according to the comments, the tobacco industry was able to 
take advantage of loopholes in the system to continue to advertise to 
reach their target audience. Thus, in Canada the advertising ban, which 
did not ban nontobacco items, was accompanied by the increased use of 
nontobacco items that carried the tobacco brand name as a mechanism for 
continuing to advertise the tobacco brand and its prior image. In Great 
Britain, sophisticated colorful advertisements appeared when the use of 
human figures in tobacco advertising was banned; in Australia, 
loopholes in sports sponsorship provisions enabled the industry to 
continue sports advertising.
     Another comment detailed numerous other examples of tobacco 
companies continuing to advertise effectively in spite of a ban or 
restrictions on advertising. For example, this comment noted that after 
France banned all cigarette advertising in magazines, Philip Morris set 
up a travel agency and advertised ``Marlboro Country Travel'' in French 
magazines (Thus, although there was no longer any ``cigarette 
advertising,'' Philip Morris was able to continue using its western, 
cowboy theme in advertisements for a travel agency). The comment noted 
further that in Europe, advertising for cigarettes was replaced by 
advertisements, using the same imagery, for Camel and Marlboro sports 
watches and Camel boots. In Malaysia, cigarette companies set up travel 
agencies called Marlboro, Kent, and Peter Stuyvesant, clothing stores 
named Camel, jewelry stores named for Benson and Hedges, luxury car 
dealerships named More, Salem record stores and Salem and More concert 
and movie promotions to advertise cigarettes in a country that has 
banned cigarette advertising. FDA finds that these comments provide 
strong support for the need for the advertising restrictions to be 
comprehensive and apply to all advertising media to be effective.
    Two aspects of the evidence in this proceeding are particularly 
persuasive in evidencing that restrictions on advertising will directly 
advance the agency's goal of protecting the health of children and 
adolescents under 18. The experience of other countries that have 
adopted advertising restrictions shows that when those restrictions are 
enforced, they have resulted in reductions in the level of tobacco use. 
In addition, the courts themselves have generally found that, as a 
matter of common sense, reductions in advertising have produced a 
reduction in demand. While some comments tried to distinguish these 
cases, FDA finds that they are relevant.
    A discussion of each of these aspects of the evidence follows:
    a. International and cross country studies. FDA did not receive 
consistent comment on the international studies \164\ that it cited in 
the preamble to the 1995 proposed rule on the relationship between 
advertising restrictions and consumption.
---------------------------------------------------------------------------

    \164\ Smee, C., ``Effect of Tobacco Advertising on Tobacco 
Consumption--A Discussion Document Reviewing the Evidence,'' 
Department of Health, Economics, and Operational Research Division, 
London, 1992; ``Health or Tobacco--An End to Tobacco Advertising and 
Promotion,'' Toxic Substances Board (TSB), Wellington, New Zealand, 
May 1989; Laugesen, M., and C. Meads, ``Tobacco Advertising 
Restriction Price, Income and Tobacco Consumption in OECD Countries, 
1960-1986,'' British Journal of Addiction, vol. 86, pp. 1343-1354, 
1991.
---------------------------------------------------------------------------

    (18) Several comments stated that advertising restrictions have not 
affected tobacco product consumption, and further stated that, in fact, 
tobacco product consumption has increased in most countries with 
advertising and promotional restrictions.
    In contrast, other comments supported the findings of the same 
studies and stated that the studies support the conclusion that 
advertising and promotional restrictions can be effective in curbing 
smoking initiation among young people.
    Several comments opposing the 1995 proposed rule maintained that 
better surveys of the results of advertising restrictions abroad were 
done in conjunction with the World Health Organization (WHO). The two 
WHO surveys on the health behavior of schoolchildren in four countries 
found that smoking among schoolchildren is related to peer smoking 
behaviors and to the number of smokers in the family. \165\ More 
importantly, the comments said that the survey found ``no systematic 
differences'' between the smoking behavior of young people in countries 
where tobacco advertising is completely restricted and in countries 
where it is not. They asserted that the findings of the WHO survey 
completely repudiate FDA's assertion that advertising restrictions 
reduce tobacco consumption among young people. The comments further 
argued that a followup survey found that the prevalence of smoking 
among schoolchildren in countries with total tobacco advertising 
restrictions was actually higher than countries with fewer 
restrictions. \166\
---------------------------------------------------------------------------

    \165\ Aaro, L. E., B. Wold, L. Kannas, and M. Rimpela, ``Health 
Behavior in Schoolchildren: A WHO Cross-National Survey,'' Health 
Promotion, vol. 1, pp. 17-33, May 1986.
    \166\ Van Reek, J., H. Adriaanse, and L. Aaro, ``Smoking by 
Schoolchildren in Eleven European Countries,'' Proceedings of the 
7th World Conference on Tobacco and Health, Duroton, B., and K. 
Jamrozik, vol. 301, pp. 301-302, 1991.
---------------------------------------------------------------------------

    However, the two surveys cited by these comments did not compare 
the percentage of young people who smoked before and after the 
implementation of tobacco advertising restrictions within countries. In 
order to realistically measure the effect of advertising restrictions, 
each country must be looked at individually. For example, country A, 
with a high rate of smoking, cuts its smoking rate in half. This would 
be considered a major success for country A, but country A still may 
have a higher smoking rate than country B. Country B may not have 
instituted any advertising restrictions because its smoking rate has 
always been low. Thus, comparing the rates of countries A and B would 
be like comparing apples and oranges.
    Studies that have looked at before and after data from individual 
countries have reported downward trends in smoking rates among young 
people following advertising restrictions. \167\ For example, in Norway 
the percentage of 15-year old boys and the percentage of 15-year old 
girls who were daily smokers in 1975, before a restriction on all forms 
of tobacco advertising and promotion was put in place, was

[[Page 44491]]

approximately 23 percent and 28 percent, respectively. \168\ According 
to the WHO followup survey, the percentage of 15- to 16-year old boys 
and the percentage of 15- to 16-year old girls who were daily smokers 
in 1986-1987 was 16 percent and 17 percent, respectively. \169\ This 
represents success not only with the group that was prohibited from 
purchasing cigarettes, those younger than 16, but also with a group 
that could legally purchase cigarettes. These results also appear to 
indicate that the restrictions did not simply move the onset of smoking 
to the first legal year of purchase.
---------------------------------------------------------------------------

    \167\ Bjartveit, K., ``The Effect of an Advertising Ban--Who has 
the Burden of Proof,'' National Health Screening Service, Norway, 
1994; Rimpela, M., L. E. Aaro, and A. H. Rimpela, ``The Effects of 
Tobacco Sales Promotion on Initiation of Smoking,'' Scandinavian 
Journal of Social Medicine, 1994.
    \168\ Rimpela, M., L. E. Aaro, and A. H. Rimpela, ``The Effects 
of Tobacco Sales Promotion on Initiation of Smoking,'' Scandinavian 
Journal of Social Medicine, vol. 49, pp. 1-23, 1994.
    \169\ Van Reek, J., H. Adriaanse, and L. Aaro, ``Smoking by 
Schoolchildren in Eleven European Countries,'' Proceedings of the 
7th World Conference on Tobacco and Health, Duroton, B., and K. 
Jamrozik, vol. 301, pp. 301-302, 1991.
---------------------------------------------------------------------------

    Comments from the tobacco industry also relied upon research 
conducted by J. J. Boddewyn, which has found results contrary to those 
presented by FDA, to argue that tobacco advertising bans have not been 
a successful part of tobacco control policy. \170\ Boddewyn's research 
is directly contrary to many of the studies cited by FDA in support of 
its 1995 proposed rule and is also inconsistent with the best available 
data on smoking rates from the countries studied.
---------------------------------------------------------------------------

    \170\ Boddewyn, J. J., ``Tobacco Advertising Bans and 
Consumption in 16 Countries,'' International Advertising 
Association, 1986; Boddewyn, J. J., ``Why do Juveniles Start 
Smoking?'' Children's Research Unit of London (CRU) Study, 1986; 
Boddewyn, J. J., ``Cigarette Advertising Bans and Smoking: The 
Flawed Policy Connection,'' International Journal of Advertising, 
vol. 13, No. 4: pp. 311-332, 1994.
---------------------------------------------------------------------------

    Boddewyn has used selective data on the total number of cigarettes 
sold in a particular country as the basis for his analysis and has used 
it to justify a finding that, in those countries where advertising bans 
have been introduced, decreases in the total number of cigarettes sold 
have not followed. Relying solely on the number of cigarettes sold in a 
country to measure the effects of government restrictions fails to take 
into account the myriad of influences that can affect cigarette 
consumption and, thus, will not yield accurate results.
    First, the overall number of cigarettes sold in a country may be 
influenced by factors other than the percentage of the population that 
smokes. For example, if the population of a country has risen, or if 
those who remained smokers were the heaviest smokers, the number of 
cigarettes smoked may not fall even though the percentage of the 
population that smokes has decreased. Moreover, an analysis based on 
the number of cigarettes sold would not account for the success 
advertising restrictions might have had with those not yet addicted to 
tobacco. The preaddicted group, mostly composed of children, does not 
smoke as many cigarettes as do older addicted smokers. Therefore, any 
success in stemming initiation rates would not show up for many years 
if measured as fewer cigarettes consumed.
    Finally, Boddewyn and others have claimed that the experience in 
Norway, Finland, and Sweden supports the view that advertising 
restrictions have been ineffective in reducing smoking rates. However, 
three reports \171\ presented at the World Conference of Tobacco and 
Health in Paris, France in October 1994 support the conclusion that 
advertising restrictions, if comprehensive and enforced, are effective 
in helping to reduce the percentage of people who smoke, particularly 
young people not yet addicted to tobacco.
---------------------------------------------------------------------------

    \171\ Bjartveit, K., ``The Effect of an Advertising Ban--Who Has 
the Burden of Proof,'' National Health Screening Service, Oslo, 
Norway, October 1994; Lund, K., ``Tobacco Advertising and How to 
Measure Its Effect on Smoking Behavior,'' Tobacco and Health, Slama, 
K., ed., Plenum Press, New York, pp. 199-204, 1995; Rimpela, M., L. 
E. Aaro, and A. H. Rimpela, ``The Effects of Tobacco Sales Promotion 
on Initiation of Smoking,'' Scandinavian Journal of Social Medicine, 
vol. 49, pp. 1-23, 1994.
---------------------------------------------------------------------------

    Bjartveit's report presented the results of the Norwegian 
experience after the implementation of the 1975 Norway advertising ban. 
In 1975, Norway banned all advertising of tobacco products and 
prohibited the sale of tobacco to anyone under the age of 16. Norway 
also required warnings on packages, an educational program, and, in 
1980, a larger excise tax. The results of Norway's actions belie 
Boddewyn's claims. First, the prevalence of smoking for boys and girls 
declined between 1975 and 1990. The percentage of daily smokers aged 13 
to 15 declined from 15 percent to 9 percent for boys and from 17 
percent to less than 10 percent for girls. Per-capita consumption for 
boys and girls also declined. Between 1975 and 1994, the overall sales 
of cigarettes and smoking tobacco per person among 15 year olds has 
declined from over 2,000 grams of tobacco to less than 1,800 grams.
    In 1976, Finland banned some forms of tobacco advertising and 
promotion and increased expenditures for health education. While 
relatively little data are available on the smoking trends in Finland, 
one comment reported data that showed the government's actions did have 
an impact, although the extent has been more uneven than in Norway. 
Before the advertising restrictions, cigarette consumption was 
increasing at the rate of 2.2 percent per year. In the decade since the 
1975 Finland advertising ban, the rate of increase has been cut in half 
to a little over 1 percent per year--a meaningful change but not a 
decline. However, the greatest benefits have been for teenagers. In 
1973, 26 percent of 16 to 18 year olds in secondary school smoked. By 
1979, 2 years after restrictions went into place, this rate dropped to 
14 percent. Since that time, the decrease has continued but has leveled 
off. In 1973, 19 percent of 14-year old children in Finland smoked. By 
1979, 2 years after the ban, only 8 percent of 14-year old children in 
Finland smoked, a decrease of over 50 percent.
    Moreover, a report by Rimpela \172\ provided a more complete 
explanation of the experience that Finland has had with its advertising 
restrictions. Although the 1978 Finnish Tobacco Act banned cigarette 
advertisements in youth magazines, it did not eliminate the advertising 
of product-families or the sponsorship of events. Consequently, the 
tobacco companies found new means of sales promotion through image 
advertising in these two venues. The author concluded that a 
promotional onslaught in these two forums undercut the so-called 
advertising ban, and the weak implementation of the legislation by 
health authorities caused the advertising restrictions to be less 
effective than they might have been with a total ban. The author 
contrasted these uneven results with the success of Norway's total ban.
---------------------------------------------------------------------------

    \172\ Rimpela, M., L. E. Aaro, and A. H. Rimpela, ``The Effects 
of Tobacco Sales Promotion on Initiation of Smoking,'' Scandinavian 
Journal of Social Medicine, vol. 49, pp. 1-23, 1994.
---------------------------------------------------------------------------

    The study presents strong evidence for the need for comprehensive 
advertising restrictions covering all forms of advertising and 
promotion in order to achieve the best results in reducing youth 
tobacco use. Finally, the restrictions imposed in Sweden have not been 
in effect long enough to measure accurately.
    i. The British Health Department Report. Several comments from the 
tobacco industry criticized the findings of the British Health 
Department Report (Smee Report) that advertising increases consumption 
of tobacco products, and that restrictions on advertising decrease 
tobacco use beyond what would have occurred in the absence of

[[Page 44492]]

regulation. \173\ The Smee Report examined: (1) The relationship 
between cigarette advertising, (2) the effects of partial and complete 
advertising bans on tobacco consumption, and (3) the results of cross-
national studies. The study focused on countries for which the most 
complete data exists--Norway, Finland, Canada, New Zealand, and the 
United Kingdom. One reported result of this analysis was that in all 
five countries, bans or restrictions on cigarette advertising resulted 
in an aggregate decrease in cigarette consumption.
---------------------------------------------------------------------------

    \173\ Smee, C., ``Effect of Tobacco Advertising on Tobacco 
Consumption--A Discussion Document Reviewing Evidence,'' Department 
of Health, Economics, and Operational Research Division, London, p. 
18, 1992.
---------------------------------------------------------------------------

    (19) The comments argued that the WHO study contradicts the 
findings of this report regarding Norway, Finland, and Canada, stating 
that the findings do not indicate that advertising restrictions affect 
consumption. Several comments stated their belief that the author's 
(Smee's) ``sweeping and unjustified'' conclusions are based on ``data 
collected over a short time period'' and on a ``limited and incomplete 
review of the available evidence''. They also argued that Smee's 
reliance on existing studies linking advertising and consumption is 
misplaced. Furthermore, the comments specifically criticized the 
report's use of several of the reviewed studies, which, they claim, did 
not apply rigorous statistical analysis. Finally, the comments stated 
that the author's model made no allowances for the effect of 
externalities, such as health shocks (the Royal College of Physicians' 
Report on Smoking in 1962, the Report of the Surgeon General's Panel on 
Smoking and Lung Cancer in 1964, etc.). All the above comments 
maintained that the Smee Report should not be relied upon as evidence 
of the causal relationship between advertising restrictions and teen 
smoking behavior.
    FDA disagrees with the comments' assessment and finds the Smee 
Report to be unbiased and useful as a comprehensive survey of the 
literature. Upon examining the specific concerns expressed by the 
comments in connection with specific country analyses, FDA has found 
that the criticisms are without merit. For example, the comments stated 
that the reduction in tobacco consumption found in Norway could be 
attributed to externalities, such as to enforcement of other provisions 
of the antitobacco legislation package, e.g., health warnings, health 
education, and sales restrictions. However, Smee reported that the 
share of reduction in tobacco consumption attributable to the 
advertising ban ``is likely to account for the great majority of the 
effect.'' Another comment expressed concern that Smee, in reporting on 
the Canadian experience, failed to include income as an independent 
variable. The comment stated that this could seriously bias the results 
because real income was falling in Canada at the time the advertising 
ban went into effect. However, in the initial Smee model, the income 
variable was included, and it did not explain the variation in tobacco 
consumption. In the final model, Smee did not include the income 
variable. However, removing the income variable did not significantly 
change the estimated coefficient and would not have biased the 
estimates from the model.
    Finally, all econometric studies are subject to limitations. As 
noted in sections VI.D.4.d. and VI.D.5. of this document, it would 
require controlled studies to produce better results and it is neither 
practical nor ethical to conduct such studies. Empirical research is 
always subject to the criticism that some variables were omitted, or 
that alternative specifications would yield different results. However, 
Smee collected many studies, and hence his compilation includes many 
different specifications of tobacco demand. Thus, although it is 
difficult to evaluate the causes of variations in each study, an 
analysis of all the existing studies should yield more generalizable 
and robust results than those of a single study. The question here is 
not whether each of the studies has limitations, but to what extent 
those limitations impair the findings of the overall survey. Smee's 
study represents the best attempt to date to compile the numerous 
studies on the effects of advertising restrictions on tobacco use and 
to provide a coherent analysis. His conclusion was that restrictions on 
advertising did reduce tobacco use.
     A comment in support of the findings of the Smee Report stated 
that this study was unbiased and performed by a credible organization. 
The comment argued that advertising restrictions produced the decline 
in the percentage of young people who smoke in the countries studied. 
In response to the tobacco industry's claim that the total number of 
cigarettes consumed continued to rise in several countries, the comment 
said that ``it takes a number of years for the impact of the fact that 
fewer people are starting to smoke to show up in overall tobacco 
consumption data.''
    ii. New Zealand Toxic Substances Board Study. Several comments gave 
considerable attention to the New Zealand Government Toxic Substances 
Board (``TSB'') Study which reviewed the effect of advertising 
restrictions in 33 countries. \174\ The study concluded that there was 
a correlation between the degree of restrictions imposed in each 
country and decline in tobacco use.
---------------------------------------------------------------------------

    \174\ ``Health or Tobacco--An End to Tobacco Advertising and 
Promotion,'' TSB, Wellington, New Zealand, May 1989.
---------------------------------------------------------------------------

    (20) Comments submitted by those opposing the proposed regulations 
argued that the study lacked objectivity because of methodological 
errors, particularly in the collection, sorting and selective use of 
data. The comments argued that these errors removed all probative value 
from the study. Moreover, the comments noted that FDA's use of the 
study illustrates its inconclusive nature. In addition, one comment 
asserted that the drop-offs in consumption and the number of smokers 
may be related to events other than legislated restrictions.
    One comment argued that several studies cited by FDA in the 
preamble to the 1995 proposed rule, including Chetwynd and Harrison, do 
not support the claimed relationship between advertising expenditures 
and consumption because the studies have flawed data and fundamental 
methodological errors. For instance, the comment argued that, in the 
Laugesen study on tobacco consumption in 23 Organization for Economic 
Cooperation and Development (OECD) countries described below, \175\ the 
qualitative variables used were not relevant to the regression model 
and biased the results. Additionally, the comment criticized the 
authors of the study for ignoring contradictory findings.
---------------------------------------------------------------------------

    \175\ Laugesen, M., and C. Meads, ``Tobacco Advertising 
Restrictions, Price, Income, and Tobacco Consumption in OECD 
Countries, 1960-1986,'' British Journal of Addiction, vol. 86, pp. 
1343-1354, 1991.
---------------------------------------------------------------------------

    One comment suggested that the findings in several smaller studies 
cited by FDA \176\ do not indicate that

[[Page 44493]]

advertising affects consumption. The comment argued that one of the 
analyses failed to account for common trends resulting from the 
diffusion of information about health risks. The comment further stated 
that Chetwynd used a model in his study that was more likely to 
indicate correlation than causation. The comment also asserted that the 
model suffers from poor data and fails to take into account changing 
social mores. In addition, the comment argued that a comparable study 
(Boddewyn) has not shown a decrease in cigarette consumption in areas 
that restrict advertising. \177\
---------------------------------------------------------------------------

    \176\ Chetwynd, J., P. Coope, R. J. Brodie, and E. Wells, 
``Impact of Cigarette Advertising on Aggregate Demand for Cigarettes 
in New Zealand,'' British Journal of Addiction, vol. 83, p. 409-414, 
1988; Harrison, R., J. Chetwynd, and R. J. Brodie, ``The Influence 
of Advertising on Tobacco Consumption: A Reply to Jackson and 
Ekelund,'' British Journal of Addiction, vol. 84, pp. 1251-1254, 
1989; Raferty, J., ``Advertising and Smoking--A Smoldering 
Debate?'', British Journal of Addiction, vol. 84, pp. 1241-1246, 
1989.
    \177\ Boddewyn, J. J., ``Tobacco Advertising Bans and 
Consumption in 16 Countries,'' International Advertising 
Association, 1986.
---------------------------------------------------------------------------

    Industry comments uniformly criticized the TSB study. This study 
was also criticized by the Canadian courts in the course of litigation 
over the validity of Canada's advertising restrictions, see section 
VI.D.3.f. of this document. In response, the TSB published a 
modification of the original study that recognized that mistakes had 
been made in the initial report. The reissued report was entitled ``A 
Reply to Tobacco Industry Claims about Health or Tobacco,'' ISBN-0-477-
04574-X (hereinafter referred to as the Reply). According to one 
comment from a public interest group:
     The Reply re-analyzed the data of the impact of advertising in 
a number of countries based upon criticisms of the original report 
by the tobacco industry. Even after taking into account the 
criticisms of the tobacco industry, the New Zealand government found 
strong empirical evidence of the link between tobacco advertising 
and tobacco consumption.
    In addition to the issuance of the Reply, Laugesen and Meads \178\ 
retested the typology created by the TSB and applied it to 22 OECD 
countries for a 15-year period. In the preamble to the 1995 proposed 
rule, FDA referred to the Laugesen study as providing affirmation of 
the TSB's analysis and conclusions, that, as a group, countries 
prohibiting tobacco advertising in most or all media experienced more 
rapid percentage falls in consumption than the group of countries that 
permitted promotion (60 FR 41314 at 41334).
---------------------------------------------------------------------------

    \178\ Laugesen, M., and C. Meads, ``Tobacco Advertising 
Restriction, Price, Income, and Tobacco Consumption in OECD 
Countries, 1960-1986,'' British Journal of Addiction, vol. 86, pp. 
1343-1354, 1991.
---------------------------------------------------------------------------

    The industry comments' major criticism of the Laugesen study is 
that the scale developed by Laugeson is flawed. The comments criticized 
the amount of weight accorded to different types of advertising 
restrictions (i.e., TV ban versus warning on package). However, the 
rating scale accurately reflects the level of restrictions in each 
country. The steps between the ratings in the scale may be smaller or 
larger than the comments believe were warranted, but the relative 
rankings would remain the same regardless.
    Finally, several comments found fault with the smaller studies 
cited by FDA, including ones by Chetwynd and Harrison. Contrary to the 
comments' assertions, the studies do include the most relevant 
variables such as price, income and advertising expenditures. A major 
complaint of the industry regarding studies done abroad is that the 
advertising expenditures fail to be totally inclusive. However, the 
solution to that problem lies with the industry in most cases. 
Advertising expenditures are a closely guarded industry trade secret, 
\179\ which the companies state cannot be released to the public 
because of their commercial sensitivity. However, the industry could 
release older relevant data that are no longer sensitive for the 
purposes of investigation and study. Moreover, researchers who have had 
access to industry data have not released their data sets for 
replication by other research groups. \180\
---------------------------------------------------------------------------

    \179\ Even in the United States, only FTC has access to company 
expenditure data and it is prevented from disclosing information 
concerning advertising expenditures except at the industry-
agglomerated level.
    \180\ Beales, J. H., ``Advertising and the Determinants of 
Teenage Smoking Behavior,'' p. 44, 1993.
---------------------------------------------------------------------------

    The final study criticized by the industry, performed by Harrison, 
was written in response to earlier criticism by the industry about the 
Chetwynd study, and it therefore provided some answers to the comments' 
concerns. For example, the comments fault Chetwynd for failing to take 
into account changing social mores. Harrison stated that he retested 
Chetwynd's model and found that the model was structurally stable 
through time in the long term. He also found that the long run analyses 
indicated that the impact of cigarette advertising on consumption may 
be larger than was suggested in the original work. \181\
---------------------------------------------------------------------------

    \181\ Harrison, R., J. Chetwynd, and R. J. Brodie, ``The 
Influence of Advertising on Tobacco Consumption: A Reply to Jackson 
and Ekelund,'' British Journal of Addiction, vol. 84, pp. 1251-1254, 
1989.
---------------------------------------------------------------------------

    After reviewing the studies provided by the comments and 
reevaluating the studies relied upon in the preamble to the 1995 
proposed rule, FDA reaffirms that the statement that it made in the 
preamble is correct:
    These studies provide insight into the effects of advertising on 
the general appeal of and demand for cigarettes and smokeless 
tobacco products. They also provide evidence confirming 
advertising's effect on consumption and the effectiveness of 
advertising restrictions on reducing youth smoking.
(60 FR 41314 at 41333)
    Based on the foregoing, FDA finds that the international experience 
provides empirical evidence that restrictions on tobacco advertising, 
when given appropriate scope and when fully implemented, will reduce 
cigarette and smokeless tobacco use among children and adolescents 
under the age of 18. This experience provides strong evidence that the 
restrictions that FDA is imposing will directly advance its interest in 
protecting the health of these young people.
    b. Case law considering the effect of advertising and advertising 
restrictions upon tobacco use by young people. Virtually every court 
that has examined the issue has held that there is a direct connection 
between advertising and demand for the product advertised. For example, 
in Central Hudson Gas and Electric, 447 U.S. at 569, the Supreme Court 
stated: ``[T]he State's interest in energy conservation is directly 
advanced by the Commission order at issue here. There is an immediate 
connection between advertising and demand for electricity.'' See also 
Posadas de Puerto Rico v. Tourism Co. of Puerto Rico, 478 U.S. at 341-
342. In United States v. Edge Broadcasting Co., the Supreme Court 
carried its position in Central Hudson one step further:
     If there is an immediate connection between advertising and 
demand, and the federal regulation decreases advertising, it stands 
to reason that the policy of decreasing demand for gambling is 
correspondingly advanced.
(509 U.S. 434)
    Each circuit court that has considered the issue has also concluded 
that the regulation of advertising is reasonably aimed at reducing 
demand. (See, Anheuser-Busch, Inc. v. Schmoke, 63 F.3d 1305. 1314-15 
(4th Cir 1995), vacated and remanded 64 U.S.L.W. 3333 (May 20, 1996); 
Dunagin v. City of Oxford, Miss., 718 F.2d at 750 (``[W]e hold that 
sufficient reason exists to believe that advertising and consumption 
are linked to justify the ban, whether or not 'concrete scientific 
evidence' exists to that effect.''); and Oklahoma Telecasters Ass'n v. 
Crisp, 699 F.2d 490, 501 (10th Cir. 1983), rev'd on other grounds 
sub.nom. Capital

[[Page 44494]]

Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984)).) In Greater New 
Orleans Broadcasting Ass'n v. United States, 69 F.3d 1296, 1301 (5th 
Cir. 1995), the court said:
     They cannot seriously dispute that a prohibition of advertising 
of casino gambling directly advances the governmental interest in 
discouraging such gambling and fulfills the [second] Central Hudson 
prong. It is axiomatic that the purpose and effect of advertising is 
to increase consumer demand.
    To counter the weight of this case law, comments that opposed FDA's 
advertising restrictions made two arguments. First, several comments 
from the tobacco and advertising industries argued that the agency 
cannot rely on the assumption of a link between advertising and demand 
that is embodied in these decisions and, citing the Court's more recent 
Coors decision, contended that the agency's evidentiary record will be 
held to a higher standard of proof.
    However, as one comment correctly noted, the Court in Coors wrote:
     It is assuredly a matter of `common sense' that a restriction 
on the advertising of a product characteristic will decrease the 
extent to which consumers select a product on the basis of that 
trait.
(115 S.Ct. at 1592) Moreover, in 44 Liquormart, Inc., Justice Stevens 
quoted with apparent approval Central Hudson's reliance on the 
``immediate connection'' between ``promotional advertising'' and demand 
(116 S.Ct. at 1506, quoting Central Hudson 447 U.S. at 569). Thus, the 
Supreme Court continues to hold that there is a connection between 
advertising and demand, and FDA finds no merit to this contention in 
the contrary argument in the comments.
    The second argument that these comments made is that because 
tobacco products constitute a ``mature product'' whose availability and 
qualities are widely known to consumers, the purpose and function of 
cigarette advertising is to build market share and to maintain brand 
loyalty, not to stimulate demand. FDA considers these comments in depth 
in the following section of this document.
    c. The function of advertising in the ``mature'' market. Comments 
from the industry, advertisers, psychologists, and economists argued 
that although it may be true that advertising generally serves the 
function of increasing demand for a product category, that truism does 
not work for tobacco, which, they claim, is a mature market.
    (21) The comments argued that because tobacco is a mature product, 
advertising serves to reinforce brand loyalty and to induce current 
smokers to switch brands. They stated that because consumers are 
already aware of the tobacco category, advertising does not serve to 
inform potential consumers of the product and to entice them to become 
a user. One comment likened tobacco to other mature products such as 
soft drinks, deodorants, antiperspirants, and appliances. Moreover, 
this comment argued that ``[b]ecause FDA lacks marketing expertise,'' 
it has been misled by the size of the industry's advertising 
expenditures and assumed, incorrectly, that this means that the 
industry is attempting to expand its overall market. Finally, several 
comments stated that there are no data that clearly prove that 
advertising and promotion increase demand in the tobacco market.
    Other comments took the opposing view and agreed with FDA's 
assessment that tobacco advertisements make tobacco products more 
appealing to young people and affects tobacco use among young people. 
Several comments argued that the market for cigarettes and smokeless 
tobacco is not mature but is actually very dynamic. In addition to 
brand switching and brand loyalty, they argued that tobacco marketing 
generates market expansion. The comment noted that there is substantial 
movement at the margins with new customers entering the market, and 
many current customers trying to leave.
    FDA agrees with those comments that expressed the view that 
labeling the tobacco market as a ``mature market'' is a simplistic 
denotation, which fails to recognize the movement into the market each 
day of new young smokers often motivated in part by advertising. Even 
``mature'' markets must replenish their customer base as older 
consumers leave the market. In fact, approximately one million new 
young smokers enter the tobacco market each year. These new smokers are 
necessary to keep the mature market stable and to prevent decline. 
There is no evidence to suggest that these new smokers are predestined 
\182\ to enter the market. RJR acknowledged this in one marketing memo,
---------------------------------------------------------------------------

    \182\ Teague, C., Research Planning Memorandum on Some Thought 
about New Brands of Cigarettes for the Youth Market, 1973.
---------------------------------------------------------------------------

     ``[I]f we are to attract the nonsmoker or the presmoker, there 
is nothing in this type of product that he would currently 
understand or desire. * * * Instead, we somehow must convince him 
with wholly irrational reasons that he should try smoking.'' \183\
---------------------------------------------------------------------------

    \183\ Teague, C., Research Planning Memorandum on the Nature of 
the Tobacco Business and the Crucial Role of Nicotine Therein, 1972.
---------------------------------------------------------------------------

They must be influenced by peers, parents, and advertising, either to 
join the market or to decline to enter.
    The agency finds that regardless of whether marketers and their 
advertising agencies intentionally target children and adolescents, 
young people are still affected by advertising. Children are not 
isolated from tobacco advertising's attractiveness or inducements. 
There is no ``magic curtain around children and teenagers who seek to 
learn how to fit into the adult world,'' nor is there any evidence to 
support a claim that young people are immune from advertising's 
blandishments. \184\
---------------------------------------------------------------------------

    \184\ Cohen, J. B., ``Charting a Public Policy for Cigarettes,'' 
Marketing and Advertising Regulation: The Federal Trade Commission 
in the 1990's, edited by Murphy, P. E., and W. L. Wilkie, University 
of Notre Dame Press, Notre Dame, IN, pp. 234-254 , 1990.
---------------------------------------------------------------------------

    Comments asserting that tobacco advertising fails to increase 
consumption for the tobacco market run contrary to the views of one 
well-known advertising executive who stated:
    I am always amused by the suggestion that advertising, a 
function that has been shown to increase consumption of virtually 
every other product, somehow miraculously fails to work for tobacco 
products. \185\
---------------------------------------------------------------------------

    \185\ Foote, E., ``Advertising and Tobacco,'' JAMA, vol. 245, 
pp. 1667-1668, 1981.
---------------------------------------------------------------------------

    Further, the view that advertising does not affect consumption is 
contradicted by industry experience, logic, and evidence. It does not 
appear credible that the industry spends more than $6 billion annually 
merely to maintain brand share and to try to switch current smokers; 
this argument defies common sense. The economics of this argument are 
strained--five manufacturers control almost 100 percent of the market, 
and three of these have approximately 90 percent of the market. \186\
---------------------------------------------------------------------------

    \186\ Weidner, D., ``RJR Tobacco International Gets New Chief,'' 
Winston-Salem Journal, p. A1, Dec. 8, 1995. (Philip Morris, 45 
percent, Reynolds 27 percent.); Antunes, S., ``B & W Harassed 
Workers,'' Evening Standard, p. 47, Nov. 16, 1994. (After Brown & 
Williamson acquired American Tobacco, it had 18 percent of the 
market.)
---------------------------------------------------------------------------

    The courts have also expressed skepticism about this argument. In 
Dunagin v. City of Oxford, Miss., the advertiser's expert, a professor 
in sociology who specialized in alcoholism, testified that advertising 
merely affected brand loyalty and market share, rather than increasing 
overall consumption or consumption of individual consumers (718 F.2d at 
748). The court rejected this argument:
    It is beyond our ability to understand why huge sums of money 
would be devoted to the promotion of sales of liquor without 
expected

[[Page 44495]]

results, or continue without realized results. No doubt competitors 
want to retain and expand their share of the market, but what 
businessperson stops short with competitive comparisons? It is total 
sales, profits, that pay the advertisers and dollars go into 
advertising only if they produce sales. Money talks: it talks to the 
young and the old about what counts in the marketplace of our 
society, and it talks here in support of Mississippi's concern.
(718 F.2d at 749)
The court concluded: ``We simply do not believe that the liquor 
industry spends a billion dollars a year on advertising solely to 
acquire an added market share at the expense of competitors'' (718 F.2d 
at 750). The same reasoning applies here.
    (22) One comment discussed the results of a recent study that the 
comment said had been accepted for publication \187\ which found that 
less than 10 percent of adult smokers switch brands each year, and that 
only 6.7 percent switch companies. The commentary suggests that this 
amount of ``real'' brand switching would not justify $6.1 billion, an 
amount in annual advertising and promotional expenditures.
---------------------------------------------------------------------------

    \187\ Siegel, M., et al., ``The Extent of Cigarette Brand and 
Company Switching: Results from the Adult Use-of-Tobacco Survey,'' 
American Journal of Preventive Medicine, vol. 12, No. 1, pp. 14-16, 
1996.
---------------------------------------------------------------------------

    In addition to logic, there is empirical evidence that advertising 
can expand demand in a so-called mature market and in fact has done so 
in the cigarette market before. Smoking rates for teenage girls rose 
from 8.4 percent in 1968, when major promotional campaigns first 
targeted women, to 15.3 percent in 1974, by which time other tobacco 
companies had also begun marketing women's brands. \188\ The same 
phenomenon was captured differently in a recent study \189\ that 
tracked initiation rates for girls and women over a 40-year period. The 
study found that smoking initiation rates rose for girls under 18 
during the period between 1967 and 1973 (women's targeting period), 
even though initiation rates did not rise for women 18 and older. 
Finally, as detailed more fully in the preamble to the 1995 proposed 
rule (60 FR 41314 at 41345), another study looked at the effect of 
variations in advertising expenditures for low tar cigarettes. Although 
the advertising did not increase the advertiser's brand share, 
increased advertising for low tar cigarettes caused the entire market 
for cigarettes to increase. \190\
---------------------------------------------------------------------------

    \188\ Botvin, G. J., C. J. Goldberg, E. M. Botvin, and L. 
Dusenbury, ``Smoking Behavior of Adolescents Exposed to Cigarette 
Advertising,'' Public Health Reports, vol. 108, pp. 217, 222, 1993.
    \189\ Pierce J. P., L. Lee, and E. A. Gilpin, ``Smoking 
Initiation by Adolescent Girls, 1944 through 1988,'' Journal of the 
American Medical Association, vol. 271, No. 8, pp. 608-611, 1994.
    \190\ Roberts, M. J., and L. Samuelson, ``An Empirical Analysis 
of Dynamic, Nonprice Oligoplistic Industry,'' Rand Journal of 
Economics, vol. 19, pp. 200-220, 1988.
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    The ability of advertising to expand total demand for a particular 
class of products through market segmentation has also been 
demonstrated in other markets when the breakfast cereal industry first 
began making health claims for their products, such as those regarding 
the cancer-prevention benefits of dietary fiber. The creation of a new 
segment of the cereal market--healthy cereal--through the use of 
advertising resulted in an increase in the overall adult cereal market. 
Advertising caused an increase in aggregate demand by giving consumers 
a ``new'' product that met their needs, wants, and desires. \191\
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    \191\ Ippolito, P., and A. Mathios, Health Claims in Advertising 
and Labeling: A Study of the Cereal Market, p. 32, 1989.
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    Thus, advertising can serve an important role in meeting and 
expanding desires in the marketplace. It identifies consumers' needs 
and desires and then matches them with the attributes of particular 
product categories and brands. Advertising can perform this function 
through its use of explicit claims or through imagery, code words, or 
psychosocial cues. And, in doing so, it can both shift demand across 
the entire product category and create new demand.
    Moreover, the industry's mature market categorization assumes that 
the product category has no outside competitors, i.e., that there is no 
other product line that competes for the consumers' attentions and 
dollars. For example, soft drinks are a mature market, but more 
healthful drinks, such as milk, juices, or even water, can attempt to 
draw off part of the market. In addition, soft drinks can try to expand 
their own market share as Coca Cola and later Pepsi did a number of 
years ago \192\ when they promoted cola for breakfast.
---------------------------------------------------------------------------

    \192\ Dourado, P., ``Breakfast Cola Takes on America's Coffee 
Giants,'' The Independent, p. 28, April 15, 1990.
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    Similarly, tobacco has competitors. New users or ``presmokers,'' as 
one RJR employee refers to them, \193\ are faced not only with tobacco 
imagery but also with antismoking health messages in commercial media 
and in schools. Current smokers are faced with alternatives to smoking, 
including over-the-counter and prescription drug advertising for 
nicotine replacement products and stop-smoking cures. The tobacco 
market thus has to convince the presmoker or new smoker to switch from 
the nonuse category promoted by health professionals, public service 
announcements, and school messages, to tobacco use. Also, it must 
constantly convince the addicted smoker not to leave the market by use 
of a competing nicotine-delivery product, a nicotine replacement 
source, or by other voluntary means.
---------------------------------------------------------------------------

    \193\ Teague, C., Research Planning Memorandum on Some Thoughts 
about New Brands of Cigarettes for the Youth Market, p. 1, 1973.
---------------------------------------------------------------------------

    Finally, even the industry acknowledges that young people are a 
strategically important audience because brand loyalty often develops 
during this period of trying cigarettes and becoming a smoker. In 1973, 
RJR's research and development officer wrote ``Realistically, if our 
Company is to survive and prosper over the long term, we must get our 
share of the youth market.'' \194\ And, as noted in the preamble of the 
1995 proposed rule, these words reflect those uttered by the Canadian 
sister company of the American tobacco company, Brown and Williamson 
Tobacco Corp.
---------------------------------------------------------------------------

    \194\ Id.
---------------------------------------------------------------------------

     If the last ten years have taught us anything, it is that the 
industry is dominated by the companies who respond most effectively 
to the needs of younger smokers. \195\
---------------------------------------------------------------------------

    \195\ Overall Marketing Objectives-F88, 1988 Imperial Tobacco 
Ltd. Marketing Plan, p. 6; 60 FR 41314 at 41331.
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    FDA finds that there is no merit to the industry's claim that 
because the tobacco market is a mature market, advertising does not 
stimulate demand but only reallocates the existing market between 
companies. Not only is the industry's argument overly simplistic, but, 
as shown, advertising plays an important role in creating new 
customers, including young people. FDA shares the incredulity expressed 
by the court in Dunagin, 718 F.2d at 750, regarding this argument: ``It 
is beyond our ability to understand'' why an industry would spend 
billions a year merely to acquire market share at the expense of its 
competitors, when it has a much harder job of convincing young people 
to start a habit that is neither easy to acquire nor pleasant. 
Consequently, FDA finds that the second prong of Central Hudson is 
satisfied, i.e., the advertising restrictions directly and materially 
advance the substantial state interest.


[[Continued on page 44496]]