20402 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Food and Drug Administration

21 CFR Part 520

Oral Dosage Form New Animal Drugs;

Lufenuron Suspension

AGENCY: Food and Drug Administration,

HHS.

ACTION: Final rule.

SUMMARY: The Food and Drug

Administration (FDA) is amending the

animal drug regulations to reflect

approval of a new animal drug

application (NADA) filed by Ciba

Animal Health, Ciba-Geigy Corp. The

NADA provides for oral administration

of lufenuron suspension to cats for the

control of flea populations.

EFFECTIVE DATE: April 26, 1995.

FOR FURTHER INFORMATION CONTACT:

Marcia K. Larkins, Center for Veterinary

Medicine (HFV–112), Food and Drug

Administration, 7500 Standish Pl.,

Rockville, MD 20855, 301–594–0614.

SUPPLEMENTARY INFORMATION: Ciba

Animal Health, Ciba-Geigy Corp., P.O.

Box 18300, Greensboro, NC 27419–

8300, filed NADA 141–026, which

provides for oral administration of

Program (Lufenuron) Suspension to

cats 6 weeks of age or older. The drug

is provided once a month, mixed in

food, for the control of flea populations.

The product contains six individual

dose packs of 135 or 270 milligrams

lufenuron. Lufenuron has no deleterious

effect on adult fleas, but it prevents

most flea eggs from hatching or

maturing into adults. The NADA is

approved as of March 28, 1995, and the

regulations are amended in part 520 (21

CFR 520) by adding new § 520.1289 to

reflect the approval. The basis for

approval is discussed in the freedom of

information summary.

In accordance with the freedom of

information provisions of part 20 (21

CFR part 20) and § 514.11(e)(2)(ii) (21

CFR 514.11(e)(2)(ii)), a summary of

safety and effectiveness data and

information submitted to support

approval of this application may be seen

in the Dockets Management Branch

(HFA–305), Food and Drug

Administration, rm. 1–23, 12420

Parklawn Dr., Rockville, MD 20857,

between 9 a.m. and 4 p.m., Monday

through Friday.

Under section 512(c)(2)(F)(ii) of the

Federal Food, Drug, and Cosmetic Act

(21 U.S.C. 360b(c)(2)(F)(ii)), this

approval qualifies for 3 years of

marketing exclusivity beginning March

28, 1995, because it contains reports of

new clinical or field investigations,

other than bioequivalence or residue

studies, essential to the approval and

conducted or sponsored by the

applicant.

The agency has carefully considered

the potential environmental effects of

this action. FDA has concluded that the

action will not have a significant impact

on the human environment, and that an

environmental impact statement is not

required. The agency’s finding of no

significant impact and the evidence

supporting that finding, contained in an

environmental assessment, may be seen

in the Dockets Management Branch

(address above) between 9 a.m. and 4

p.m., Monday through Friday.

List of Subjects in 21 CFR Part 520

Animal drugs.

Therefore, under the Federal Food,

Drug, and Cosmetic Act and under

authority delegated to the Commissioner

of Food and Drugs and redelegated to

the Center for Veterinary Medicine, 21

CFR part 520 is amended as follows:

PART 520—ORAL DOSAGE FORM

NEW ANIMAL DRUGS

1. The authority citation for 21 CFR

part 520 continues to read as follows:

Authority: Sec. 512 of the Federal Food,

Drug, and Cosmetic Act (21 U.S.C. 360b).

2. New § 520.1289 is added to read as

follows:

§ 520.1289 Lufenuron suspension.

(a) Specifications. Each individual

dose pack contains either 135 or 270

milligrams of lufenuron.

(b) Sponsor. See No. 058198 in

§ 510.600(c) of this chapter.

(c) Conditions of use in cats—(1)

Amount. Minimum of 13.6 milligrams

per pound of body weight (30

milligrams per kilogram).

Recommended dose of 135 milligrams

for up to 10 pounds of body weight or

270 milligrams for 11 to 20 pounds. Cats

over 20 pounds are provided the

appropriate combination of packs.

(2) Indications for use. For control of

flea populations.

(3) Limitations. For oral use in cats 6

weeks of age or older, once a month,

mixed with food. Administer in

conjunction with a full meal to ensure

adequate absorption. Treat all cats in the

household to ensure maximum benefits.

Because the drug has no affect on adult

fleas, the concurrent use of insecticides

that kill adults may be necessary

depending on the severity of the

infestation. Federal law restricts this

drug to use by or on the order of a

licensed veterinarian.

Dated: April 19, 1995.

Stephen F. Sundlof,

Director, Center for Veterinary Medicine.

[FR Doc. 95–10273 Filed 4–25–95; 8:45 am]

BILLING CODE 4160–01–F

DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and

Firearms

27 CFR Parts 6, 8, 10 and 11

[T.D. ATF–364, Re: Notice No. 794 and

Notice No. 796]

RIN 1512–AB10

Unfair Trade Practices Under the

Federal Alcohol Administration Act

(93F–003P)

AGENCY: Bureau of Alcohol, Tobacco

and Firearms (ATF), Treasury.

ACTION: Final rule, Treasury decision.

SUMMARY: The Bureau of Alcohol,

Tobacco and Firearms (ATF) is

amending trade practice regulations

under the Federal Alcohol

Administration (FAA) Act on tiedhouse, exclusive outlets, commercial

bribery, and consignment sales by

adding standards for enforcing the

‘‘exclusion’’ element where appropriate.

Under the FAA Act, ‘‘exclusion, in

whole or in part, of distilled spirits,

wine, or malt beverages, sold or offered

for sale by other persons’’ is a necessary

element of a violation of the tied-house,

exclusive outlets or commercial bribery

provisions. In this final rule, ATF

promulgates a framework for

establishing ‘‘exclusion,’’ identifies

promotional practices which result in

control of a retailer or in exclusion

under the Act, identifies factors which

will apply in evaluating exclusion, and

identifies those practices for which

there is no likelihood that exclusion

will result and for which the Bureau

will not take action (safe harbors). Other

regulatory amendments are also made as

a result of an ATF review of the

regulations and an industry petition

submitted in 1992.

EFFECTIVE DATE: May 26, 1995.

FOR FURTHER INFORMATION CONTACT:

James R. Crandall, Coordinator, Market

Compliance Branch, 650 Massachusetts

Avenue, NW, Washington, DC 20226;

telephone (202) 927–8100.

SUPPLEMENTARY INFORMATION:

Background

The Federal Alcohol Administration Act

The Federal Alcohol Administration

Act (hereinafter referred to as FAA Act
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations 20403

or Act) provides for Federal regulation

of the alcoholic beverage industry. The

FAA Act contains particular restrictions

that are unique to the alcoholic beverage

industry and reflects Congress’ concern

with a variety of trade practices and

abuses that took place before, during

and immediately after Prohibition. This

final rule amends regulations under four

parts of the statute, Exclusive Outlet (27

U.S.C. 205(a)), Tied-House (27 U.S.C.

205(b)), Commercial Bribery (27 U.S.C.

205(c)), and Consignment Sales (27

U.S.C. 205(d)). The supplementary

information is divided into two

sections. The first section deals with the

subject of exclusion, and the second

section covers other changes

implemented as a result of an internal

review of trade practice regulations and

an industry petition.

Exclusion

One element which is necessary for

these practices (other than consignment

sales) to result in violation of Federal

law is ‘‘exclusion, in whole or in part,

of distilled spirits, wine, or malt

beverages, sold or offered for sale by

other persons.’’

Although exclusion is not defined in

the FAA Act or in the current

implementing regulations at 27 CFR

Parts 6, 8 and 10, ATF has, in the past,

held that ‘‘exclusion in part’’ includes

simply causing retailers to purchase less

of a competing brand than they

otherwise would have bought.

In Fedway Associates, Inc., et al. v.

United States Treasury, Bureau of

Alcohol, Tobacco and Firearms, 976

F.2d 1416 (DC Cir. 1992) (Fedway),

however, the United States Court of

Appeals for the District of Columbia

Circuit held that Congress had intended

something more than just a retailer

purchasing less of a competing brand

than it otherwise would have. For a

violation to occur there must also be a

tie or link between a supplier and

retailer that at least threatens the

retailer’s independence (that is, in

addition to affecting the retailer’s

purchasing pattern).

The court based this conclusion on

several points. The court said

‘‘exclusion’’ means to exclude a rival

product from the marketplace by some

direct action of the violator. Merely

taking some action which influences a

retailer not to purchase a rival product

is not exclusion under the Act if the

retailer’s response is the result of a free

economic choice. This interpretation of

exclusion as meaning the shutting out or

expelling of a rival’s product, according

to the court, is consistent with conduct

addressed by the Act such as tied-house,

commercial bribery and exclusive

outlets. Any broader interpretation

would, in the view of the court, likely

result in restriction of pro-competitive

activities.

The Fedway court was concerned that

ATF enforcement actions could hinder

legitimate competitive activities.

Consequently, the opinion states that if

ATF suspects a particular practice

places retailer independence at risk then

the agency must provide substantial

support backing up its suspicion. The

court recognized the utility of the

rulemaking process to provide evidence

which substantially supports the

conclusion that a particular practice

either actually or potentially threatens

retailer independence.

Factual or substantive proof is

necessary, the court stated, to ensure

that the Government does not take an

overly-broad enforcement posture in its

efforts to prevent potential threats to

retailer independence and risk

outlawing conduct that fosters a

competitive alcohol market. In the

Fedway proceeding, the court held this

factual basis was not met because the

only datum or evidence presented was

the fact that certain retailers purchased

less of a rival product.

In summary, the court offered the

following guidance about this statutory

element:

Congress, we are satisfied, used

‘‘exclusion’’ to indicate placement of retailer

independence at risk by means of a ‘‘tie’’ or

‘‘link’’ between the wholesaler and the

retailer or by any other means of wholesaler

control.

[We demand] a factual showing that

retailer independence is potentially

threatened * * *.

[ATF should] take reasonable account of

both policy interests underlying the [trade

practice] provisions * * * that the alcohol

industry requires special oversight and

regulation * * * and the value of procompetitive wholesale promotions. This

value derives not only from the traditional

benefits of competition in terms of lower

prices and improved quality, but also * * *

from the fact that a competitive alcohol

market helps deter the formation of a corrupt

black market.

Finally, in arriving at a reasonable

interpretation of ‘‘exclusion’’ * * * the

Bureau must take care to distinguish

rationally between those promotions it

decides are lawful and those it decides are

not.

Notice of Proposed Rulemaking

On April 26, 1994, ATF published

Notice No. 794 (59 FR 21698), proposing

amendments to the trade practice

regulations to address the concerns of

the Fedway court and to make other

changes suggested by its internal review

and the industry petition. Notice No.

794 solicited comments on these

proposed changes by June 27, 1994. The

comment due date was extended to July

27, 1994 by Notice No. 796 (59 FR

29215).

ATF emphasizes that the revision of

the trade practices regulations is an

ongoing process. Any interested person

may petition ATF under 27 CFR

71.41(c) for a rule change.

Comments on Notice of Proposed

Rulemaking

ATF received 1,347 letters of

comment on Notice No. 794, containing

a total of 1,593 signatures. Comments

were submitted by alcoholic beverage

producers, importers, wholesalers,

retailers, trade associations, related

businesses, consumers and government

agencies.

National trade associations who

commented on trade practices include:

American Brandy Association

American Vintners Association (AVA)

Beer Institute

Brewers’ Association of America (BAA)

Distilled Spirits Council of the United

States (DISCUS)

Institute for Brewing Studies

National Alcohol Beverage Control

Association (NABCA)

National Association of Beverage

Importers (NABI)

National Association of Beverage

Retailers (NABR)

National Association of Convenience

Stores (NACS)

National Beer Wholesalers Association

(NBWA)

Presidents’ Forum of the Beverage

Alcohol Industry (the Forum)

The National Wine Coalition

Wine and Spirits Wholesalers of

America (WSWA)

Wine Institute

Summary of Proposals, Comments and

Changes Incorporated in this Final Rule

The following paragraphs provide a

summary of ATF’s original proposals,

the comments received on each as a

result of Notice No. 794, and an

explanation of ATF’s decision

concerning each issue. Proposals which

concern a general topic will be

addressed first, followed by discussion

of proposals concerning individual

sections of the regulations.

Proposed New Subparts on Exclusion

ATF proposed amendments and

additions to the regulations on the

subject of exclusion which follow a

framework which ATF believes is

consistent with the statutory

interpretation of exclusion adopted by

the Fedway court as well as similar

concerns previously raised in Foremost

Sales Promotions, Inc. v. Director,
20404 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

Bureau of Alcohol, Tobacco and

Firearms, 860 F.2d 229 (7th Cir., 1988)

(Foremost). The courts in both Fedway

and Foremost found that ‘‘exclusion’’ as

used in the FAA Act cannot occur

without a relationship or arrangement

between the industry member and the

retailer which actually or potentially

threatens the retailer’s independence.

ATF proposed to amend regulatory

parts of Title 27 CFR relating to

exclusive outlet (Part 8), tied-house

(Part 6), and commercial bribery (Part

10), by adding new subparts on

exclusion. Even though the exclusive

outlet provision was not involved in the

Fedway or Foremost decisions, the

provision is impacted by the decisions

since the provision requires the showing

of exclusion in order for a violation to

arise.

ATF proposed a two-step framework

to describe exclusion, in whole or in

part, of distilled spirits, wine or malt

beverages sold or offered for sale by

others as occurring (1) when a practice

places retailer independence at risk by

means of a tie or link between the

industry member and retailer or by any

other means of industry control over the

retailer, and (2) such a practice by an

industry member, whether direct,

indirect, or through an affiliate, results

in the retailer purchasing less than it

otherwise would have of a competitor’s

product. The proposed regulations

included a set of criteria by which ATF

will determine the existence of the first

element. These criteria include the

duration of the practice or promotion,

the degree to which a practice involves

an industry member in the day-to-day

operations of a retailer, and, in some

cases, the non-discrimination feature of

the practice where it is available to all

retailers. Exclusion under the Act will

exist when ATF can establish the

presence of both of these elements.

General Comments on Exclusion

While some commenters expressed

support for the approach ATF took in

the proposed rule, others objected to

certain areas of the proposals. For

example, NABI stated it was

‘‘disappointed to see BATF reassert the

so-called ‘hair trigger’ or ‘one bottle less’

test for determining exclusion. Proposed

section 6.152(a)(2) was pointedly

rejected by the court in Fedway, yet

BATF drags up this albatross once

again.’’ Secondly, NABI quoted the

Fedway decision which said the ‘‘* * *

definition of the ‘exclusion’ criterion

must also recognize adequately—as the

agency’s current definition does not—

the value of pro-competitive wholesale

promotion.’’ The DISCUS comment

stated similar concerns and asked that

the second element, relating to retailer

purchases, be deleted.

ATF disagrees with the DISCUS/NABI

comment about the second part of ATF’s

two-step framework of exclusion

(§§ 6.151(a)(2), 8.51(a)(2), and

10.51(a)(2)) where ATF states that a

practice must result in a retailer or trade

buyer purchasing less than it would

have of competitor’s product for

exclusion to occur. On this subject, the

Fedway court stated:

The Bureau explains that the phrase means

that the inducement in question must be

successful, i.e., it must in fact cause retailers

to buy comparatively less from competitors—

a minimal requirement, to be sure, but not a

meaningless one.

It was the showing of this minimal

requirement in conjunction with

evidence that a particular practice

threatens retailer independence that the

court held is exclusion under the Act.

Under the two-step framework,

exclusion is present only if both parts or

elements of the framework are

established. If ATF were to drop the

second element as requested by NABI

and DISCUS, then ATF could prove

exclusion under the Act without ever

showing that a competing industry

member’s products were actually

excluded in whole or in part. While this

would ease ATF’s burden in proving a

violation it would ignore the statutory

requirement of ‘‘exclusion, in whole or

in part’’ which by its terms requires

some impact on a retailer’s purchases.

Regarding NABI’s second observation,

ATF’s goal in airing these proposals and

soliciting interested persons’ response

was to develop a public record showing

why certain practices are

anticompetitive, in that they threaten

retailer independence, and why other

practices do not threaten retailer

independence. (In the context of

commercial bribery, the trade buyer’s

independence is evaluated.) Relying on

all of the comments received, ATF has

made adjustments to its original

proposals and developed a final rule

which it believes does, as Fedway

directed, ‘‘distinguish rationally

between those promotions it decides are

lawful and those it decides are not.’’

The Federal Trade Commission (FTC)

staff (rather than the Commission or

Commissioners) submitted comments

on the general approach to exclusion.

While the staff concurs that the threat to

retailer independence analysis is

consistent with promoting a competitive

market, they recommend that ATF

adopt more of a market share or ‘‘market

power’’ approach.

Before responding to the particular

FTC staff comments, ATF feels it is

necessary to point out that the FAA Act

is concerned with the impact of a

particular marketing practice on an

individual retailer and not on the entire

retail market in any particular locality

(e.g., ‘‘relevant market’’). The latter

market focus is the concern of the

antitrust laws enforced by the FTC and

explains why the vertical restraint

framework applied by the FTC is not

relevant to an FAA Act analysis.

Congress deemed the general antitrust

laws insufficient to address the unique

unfair trade practice problems in the

alcoholic beverage industry. This is why

the FAA Act itself does not contain the

term ‘‘competitive’’ unlike the general

antitrust laws: an absence

acknowledged by the FTC staff. Instead,

the Act focuses on the transactions

between an industry member and ‘‘any

retailer’’ or ‘‘any trade buyer.’’

The FTC staff comments implicitly

recognize this difference when they

state that the FAA Act speaks in terms

of supplier power over retailers rather

than simply a supplier’s market share or

power. If the proper focus of the FAA

Act were market share or power, then

the Act would be identical to the

general antitrust laws rather than merely

‘‘analogous’’ as Congress intended.

Turning to the particular comments,

the staff objects to the second part of the

general approach to exclusion that

requires ATF to show the retailer

purchased less of a competitor’s product

than it would have, as a result of a

supplier’s promotional practices. The

FTC staff suggests that this is

‘‘ambiguous’’ since there may be many

legitimate reasons explaining a decrease

in a retailer’s purchases. The FTC staff

also suggests that the FAA Act does not

require the fact of reduced purchases as

an element of a statutory violation.

In promulgating the regulation on the

exclusion approach, ATF is not

concluding that a mere reduction in

purchases results in a violation. ATF

has deliberately taken a narrow

approach to ensure that legitimate

competition is not hindered. The fact of

reduced purchases is only relevant

when that fact results from a supplier

practice that creates a tie or link (or

other method of control) that threatens

retailer independence. By requiring this

nexus, ATF is ensuring that reduced

purchase situations resulting from free

economic choice or pro-competitive

marketing practices are not pursued as

a violation.

ATF believes that the FAA Act

mandates a consideration of whether the

retailer’s purchases have been impacted

by a practice because the statute speaks

of ‘‘exclusion, in whole or in part’’ of a

competing supplier’s products as a
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations 20405

result of a transaction between the

industry member and any retailer. As

noted above, the Fedway court

recognized this impact as ‘‘a minimal

requirement, to be sure, but not a

meaningless one.’’ (The FTC staff also

commented on the criteria used to

evaluate exclusion, and those comments

will be discussed in that section.)

Finally, E. & J. Gallo Winery, in its

comment, noted that the Fedway court

did not ‘‘question ATF’s authority to

strike at threats to retailer independence

in their incipiency, before harm

occurred.’’ Their comment quoted the

Fedway court’s demand that ATF make

a ‘‘factual showing that retailer

independence is potentially

threatened.’’ The Wine Institute also

noted the Fedway court demanded only

‘‘a factual showing that retailer

independence is potentially

threatened.’’ These comments caused

ATF to review its proposed rule and

amend the discussion of exclusion, in

general, to address this potential threat

by adding ‘‘places (or has the potential

to place) retailer independence at risk’’

in each subpart on exclusion. This

revision is consistent with the

discussion of the exclusion standard in

both the Fedway and Foremost

decisions, since those decisions refer to

potential threats.

Practices Which Place Retailer or Trade

Buyer Independence at Risk and

Practices Not Resulting in Exclusion

In each part, ATF proposed to identify

certain practices which the rulemaking

record and judicial precedent indicate

place retailer independence at risk by

their very existence. When such

practices are undertaken, ATF would

determine through the course of an

investigation whether the other part of

the exclusion element relating to the

actual impact on a retailer’s purchases

is present. In the exclusive outlet and

commercial bribery regulations, ATF

also proposed sections for discussion of

practices not resulting in exclusion. In

the tied-house regulations, ATF

proposed to revise and expand the

Subpart D exceptions to provide safe

harbors.

Exclusive Outlet

Section 105(a) of the FAA Act makes

it unlawful for an industry member to

require, by agreement or otherwise, any

retailer engaged in the sale of alcoholic

beverages to purchase any such product

from such person to the exclusion in

whole or in part of alcoholic beverages

sold or offered for sale by other persons

in interstate or foreign commerce,

provided one of the three interstate or

foreign commerce jurisdictional clauses

is met.

Retailer independence is threatened

in an exclusive outlet arrangement

when the ability of the retailer to decide

which brands of alcoholic beverages to

purchase is restricted or impeded. In the

Fedway context, the question is whether

any restriction negates the retailer’s free

economic choice or has been utilized by

the industry member to restrict such

choice.

In that regard, ATF proposed adding

a new section 8.52 to identify two

practices that clearly result in exclusion

under section 105(a) of the Act. The first

practice involves purchases of distilled

spirits, wine, or malt beverages by a

retailer as a result, directly or indirectly,

of a threat or act of physical or

economic harm by the selling industry

member. The second practice involves

contracts between an industry member

and a retailer which require the retailer

to purchase distilled spirits, wine or

malt beverages from that industry

member and expressly restrict the

retailer from purchasing, in whole or in

part, such products from another

industry member. In both situations,

exclusion of a competitor’s products

results directly from the arrangement or

the contract without any action by the

retailer. Further, ATF has always

viewed an exclusive outlet arrangement

as including a situation where the

retailer offers exclusivity privileges and

the industry member accepts that offer.

In other words, it does not matter

whether the requirement originates with

the industry member or the retailer;

rather, the requirement is within the

exclusive outlet prohibition so long as it

is understood as part of the bargain.

This position was enunciated in

Industry Circulars 75–20 and 76–18,

concerning sales to the U.S. military or

other trade buyers. By availing itself of

the requirement offer, the industry

member has, in effect, specifically

conditioned the promotional

arrangement on this understanding.

ATF also proposed to add a new

section 8.53 to describe practices not

resulting in exclusion. Only one

practice was identified in the proposed

rule, a supply contract for one year or

less, under which an industry member

agrees to sell alcoholic beverage

products to a retailer on an ‘‘as needed’’

basis provided that the retailer is not

required to purchase any minimum

quantity of such products. Commenters

Hinman & Carmichael expressed

concern that retailers’ private label wine

supply contracts would not be within

this safe harbor, since they often last for

more than a year. The commenters state

there are legitimate business reasons for

the longer duration of the contract, such

as the time needed for product

development and promotion and wine

production. After consideration, ATF

believes the one year duration is

appropriate since the supply contracts

which ATF has reviewed have involved

that timeframe. ATF is concerned that

supply contracts for three years involve

a continuing relationship that has a

potential, under certain circumstances,

for tying that retailer to the industry

member. Nevertheless, the fact that

longer contracts are outside this safe

harbor does not foreclose their use; it

only means that ATF will apply the

criteria in section 8.54 to these

situations. Sections 8.52 and 8.53 are

adopted without change in the final

rule.

Part 6—‘‘Tied-House’’

Section 105(b) of the FAA Act makes

it unlawful for an industry member to

induce through any of the following

means, any retailer engaged in the sale

of alcoholic beverages to purchase any

such products from such person to the

exclusion in whole or in part of

alcoholic beverages sold or offered for

sale by other persons in interstate or

foreign commerce, provided one of the

three jurisdictional clauses is met:

(1) By acquiring or holding any

interest in any license with respect to

the premises of the retailer; or

(2) By acquiring any interest in real or

personal property owned, occupied, or

used by the retailer in the conduct of the

business; or

(3) By furnishing, giving, renting,

lending, or selling to the retailer, any

equipment, fixtures, signs, supplies,

money, or other things of value, subject

to the exceptions prescribed by

regulations, having due regard to public

health, the quantity and value of articles

involved, established trade customs not

contrary to the public interest and the

purposes of the subsection; or

(4) By paying or crediting the retailer

for any advertising, display, or

distribution service; or

(5) By guaranteeing any loan or

repayment of any financial obligation of

the retailer; or

(6) By extending to the retailer credit

for a period in excess of the credit

period usual and customary to the

industry for the particular class of

transactions as ascertained by the

Secretary and prescribed by regulation;

or

(7) By requiring the retailer to take

and dispose of a certain quota of any of

such products.

Retailer independence can be

threatened in a tied-house arrangement

between an industry member and a
20406 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

retailer when the arrangement involves

a continuing business relationship

which restricts the retailer’s ability to

make free economic choices on which

brands of products to purchase. In

effect, competition is restricted because

the retailer who is dependent on or tied

to an industry member cannot make free

and rational business choices on

whether to make a current purchase

from another industry member based on

current business considerations such as

consumer demand or lower prices

offered by the competition.

The proposed regulations identified

threats to a retailer’s independence

which include: a wholesaler’s partial

ownership of a retailer, sales where the

wholesaler conditions the purchase of

one distilled spirits product on the

retailer purchasing another distilled

spirits product at the same time, and

wholesaler control over the retailer

through controlling the resetting of the

products on a retailer’s premises.

Commenters on the other practices

listed in § 6.152 requested several

amendments to these practices. The law

firm of Schreiber, Simmons, MacKnight

& Tweedy, commenting on behalf of an

Asian brewer, expressed concern that

because of the way paragraph (c) is

worded, it appears that partial

ownership of a retailer by an industry

member is automatically deemed to put

retailer independence at risk. E. & J.

Gallo Winery also commented on this

section, recommending that ATF allow

industry members to own small

amounts of stock in publicly traded

retailers. ATF revised the wording of

this section to show use of the

ownership of a less than 100 percent

interest in a retailer to influence the

retailer’s purchases is the act deemed to

put retailer independence at risk, not

partial ownership alone.

With respect to all the practices listed

in proposed § 6.152, ATF will also be

required to determine whether the

practice results in the retailer

purchasing less than it otherwise would

have of a competitor’s product.

ATF also proposed to revise and

consolidate several of the provisions

contained in Subpart D of Part 6 of the

current regulations which find that

certain practices will not result in

exclusion under the tied-house

provisions (that is, safe harbors).

The classification of these practices in

Subpart D of Part 6 is intended to

provide guidance to the regulated

industry so that legitimate product

marketing programs can be developed

without the uncertainty of a potential

Federal enforcement action. Legitimate

product marketing encourages

competition, by large and small

businesses alike, on the basis of price,

product quality and service. (Proposed

revisions to these regulatory exceptions

and related comments are examined in

detail in the discussion of changes to

individual sections, below.)

Commercial Bribery

Section 105(c) of the FAA Act makes

it unlawful for an industry member to

induce through any of the following

means, any trade buyer engaged in the

sale of alcoholic beverages, to purchase

any such products from such person to

the exclusion in whole or in part of

alcoholic beverages sold or offered for

sale by other persons in interstate or

foreign commerce, provided one of the

three jurisdictional clauses is met:

(1) By commercial bribery; or

(2) By offering or giving any bonus,

premium, or compensation to any

officer, or employee, or representative of

the trade buyer.

Commercial bribery situations involve

the receipt of money or a premium by

an officer, employee, or representative

of the trade buyer. Payments made

directly to business entities (i.e., the

corporation, partnership, or individual

owning the business) for the use of the

business do not constitute a commercial

bribe. The independence of the trade

buyer is threatened in a commercial

bribery situation because the officer,

employee, or representative of the trade

buyer is making a purchasing decision

as a result of the money or premium

received personally and not based on

business or marketing factors which

further the interests of the trade buyer

itself.

Proposed section 10.52 identifies

promotional conduct by an industry

member that involves the payment of

money or another premium to an

employee or representative of a trade

buyer without the knowledge of the

trade buyer as practices under the Act

that place trade buyer independence at

risk. The Fedway court noted that

previous case law upheld as actionable

these types of payments. These

payments were viewed as anticompetitive because one competitor

gained a competitive advantage over

another competitor by reason of a

‘‘secret and corrupt dealing with

employees or agents of prospective

purchasers.’’ See, American Distilling

Co. v. Wisconsin Liquor Co., 104 F.2d

582 (7th Cir. 1939). Even where such

practices exist, ATF would still be

required to demonstrate that they affect

the trade buyer’s purchases in order to

establish exclusion. With respect to

those practices not mentioned herein,

ATF would be required to demonstrate

the existence of both of the elements of

exclusion set forth above.

ATF also proposed adding a new

section 10.53 to discuss practices which

do not place trade buyer independence

at risk, but proposed no specific

examples.

These two sections were adopted in

the final rule without any changes.

Criteria for Determining Retailer or

Trade Buyer Independence

ATF proposed adding §§ 6.153, 8.54

and 10.54 to list criteria by which ATF

would evaluate whether or not a

particular practice places retailer or

trade buyer independence at risk.

Elements which have repeatedly been

mentioned in court cases are degree of

control exercised over trade buyers’

purchasing decisions, duration of the

practice, indiscriminateness and

contractual or other enforceable

requirements. The goal of regulating

trade practices in the alcoholic beverage

industry has been identified as healthy

competition in order to insure the best

possible price, quality and selection for

the consumer and to prevent formation

of a corrupt black market.

The proposed criteria are indications

that a particular practice, other than

those in sections 6.152 and 8.52, places

retailer independence at risk. A practice

need not meet all of the criteria

specified in order to place retailer

independence at risk. The proposed

criteria are:

(a) The practice restricts or hampers

the free economic choice of a retailer to

decide which products to purchase and

the quantity in which to purchase them

for sale to consumers.

(b) The industry member obligates the

retailer to participate in the promotion

to obtain the industry member’s

product.

(c) The retailer has a continuing

obligation to purchase or otherwise

promote the industry member’s product.

(d) The retailer has a commitment not

to terminate its relationship with the

industry member with respect to

purchase of the industry member’s

products.

(e) The practice involves the industry

member in the day-to-day operations of

the retailer. For example, the industry

member controls the retailer’s decisions

on which brand of products to purchase,

the pricing of products, or the manner

in which the products will be displayed

on the retailer’s premises.

(f) The practice is discriminatory in

that it is not offered to all retailers in the

local market on the same terms without

business reasons present to justify the

difference in treatment.
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations 20407

In the case of commercial bribery, the

risk to the wholesale or retail trade

buyer’s independence is evaluated using

similar criteria in section 10.54. A

number of commenters expressed

concern that ATF’s application of these

criteria to wholesaler trade buyers was

overly broad and could disrupt

legitimate franchise arrangements or

‘‘promotional partnerships’’ between

industry members and their wholesaler

trade buyers. In response, ATF wishes

to emphasize that the only ‘‘practices’’

being evaluated in section 10.54 are

commercial bribery or the offering or

giving of a bonus, premium, or

compensation to any individual officer,

or employee, or representative of the

trade buyer. Transactions with the trade

buyer entity are not in question here,

unless circumstances indicate the trade

buyer entity is merely a conduit

between the industry member and the

individual.

In their comment, DISCUS proposed

an alternative to these criteria, which

they called ‘‘guidelines for evaluating

exclusion.’’ To some extent, these

guidelines paraphrased the general

principles enunciated in proposed

§§ 6.152, 8.52 and 10.52, but stated

them in terms that narrow their

application to specific factual situations.

The final rule retains the general

principles in its criteria rather than the

more limited guidelines proposed in the

DISCUS comment, since the industry is

provided clearer guidance by the use of

principles of general application rather

than more narrow factual

characterizations.

The FTC staff also addressed the

criteria ATF will apply in evaluating a

promotional practice not otherwise

covered in another regulation. In

general, the FTC staff criticized the

criteria since they feel that each one of

the criteria could be a feature of a

normal commercial relationship under

the right circumstances. Rather than

recommend different criteria, the FTC

staff again returns to their view that the

factor of market share or ‘‘market

power’’ is the proper approach.

For the reasons discussed under

‘‘Exclusion, in general’’ above, a market

share or ‘‘market power’’ approach is

not consistent with the statutory

language of the FAA Act or Congress’

intent in enacting the unfair trade

practice provisions. Rather, ATF has

developed these criteria based on the

factors stressed by the various Federal

courts that have addressed violations of

the unfair trade practice provisions. No

one factor is determinative. To the

extent that applying a particular factor

in a particular case will result in

restricting a pro-competitive practice,

the factor will not be applied in

evaluating that practice. This is clearly

a case-by-case determination. However,

the FTC staff suggestion that a criterion

does not in all cases demonstrate a tie

or link that threatens retailer

independence does not render the factor

irrelevant in those cases where it is

evidence of such a tie or link.

After reviewing the FTC staff

comments, ATF determined, for reasons

of clarity, that criterion (a) in §§ 6.153,

8.54 and 10.54 should read ‘‘which

products or what quantity’’ (the

proposed rule read ‘‘which products

and what quantity’’). ATF has changed

the final rule accordingly.

Slotting Fees

In Notice No. 794, ATF proposed

adding slotting fees to two areas of the

regulations: first, as an example of a

practice which has the potential to

threaten a retailer’s independence

(proposed section 6.152), and second, as

‘‘other than a bona fide sale’’ (proposed

section 11.24). Slotting fees were

described in Notice No. 794 as fees paid

to a retailer in order to obtain premium

shelf space. ATF sought comments on

whether slotting fees should be

addressed in tied-house and/or

consignment sale regulations. In the

notice, ATF requested data and

information on the effect of such fees,

rather than solely statements of

preference by a particular commenter.

Slotting fees, also referred to as

slotting allowances, are not specifically

addressed in the current FAA Act

regulations. In the past, ATF interpreted

such fees as ‘‘things of value’’ given to

retailers or as ‘‘paying or crediting the

retailer for any advertising, display or

distribution service’’ and investigated

slotting fee arrangements as potential

violations of the tied-house provisions

of the FAA Act, 27 U.S.C. 205(b)(3) or

205(b)(4).

ATF received 1,347 letters of

comment on Notice No. 794, containing

a total of 1,593 signatures; of these,

1,309 letters (1,554 signatures),

expressed support for ATF’s stated

position on slotting fees. Several trade

associations who supported ATF’s

proposed treatment of slotting

allowances enclosed substantive and

detailed analyses on the subject by

authorities outside the alcoholic

beverage industry in addition to their

own comments. The Wine Institute

submitted a statement prepared by Paul

N. Bloom, Professor of Marketing at the

University of North Carolina at Chapel

Hill (‘‘Bloom’’). The Beer Institute

submitted statements prepared by David

P. Kaplan, President of Capital

Economics, a Washington, D.C.,

economic research and consulting firm

(‘‘Kaplan’’) and Robert Goodale, Deputy

Secretary of Commerce for the State of

North Carolina (‘‘Goodale’’). The

Brewers Association of America

submitted a statement by Gregory T.

Gundlach, of the College of Business

Administration , University of Notre

Dame (‘‘Gundlach’’). Most other

commenters who supported the ATF

proposal commented with conclusory

statements that slotting fees are anticompetitive, but submitted no

accompanying data in support of these

conclusions.

The commenters supporting the

proposed rule did so from a number of

different perspectives. Approximately

1,130 of the letters written in support of

ATF’s proposed rules on slotting

addressed only that issue. Most of these

letters came from beer wholesalers, and

many stated simply that slotting fees

should continue to be considered a

potential violation in both the tiedhouse and consignment sales

regulations. The reasons given included

the statements that slotting fees will

hurt competition, reduce consumer

choice, discriminate against small

businesses and raise costs in an already

tight market. However, no supporting

evidence was furnished in most of these

letters. A few of these commenters went

on to describe likely costs in terms of

money, lost jobs, or product failures

from their experience with soft drinks or

snacks.

Of the commenters who wrote only

about slotting, 71 requested that ATF

expand its definition of slotting to

encompass ‘‘purchasing, renting or

maintaining display and storage space

as well as shelf space.’’

ATF also received four comments

from individual consumers who

expressed concern that slotting

allowances may have the effect of

dampening innovation, especially in the

fledgling domestic craft brewing

industry, by making the cost of

introducing a new product prohibitively

high.

In identical letters, six commenters

identifying themselves as small retailers

expressed concern that ‘‘slotting fees

would give giant retailers more money

to drive me out of business.’’

Five commenters argued in favor of a

change in ATF’s proposed treatment of

slotting fees. These commenters were

the National Association of

Convenience Stores (NACS), the

Minnesota Licensed Beverage

Association, Inc. (MLBA), The Kansas

Retail Liquor Dealers Association, Inc.,

the Circle K Corporation, which owns

and operates convenience stores, and

The Chapter House, a brewpub. NACS
20408 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

and the Circle K corporation both

argued that slotting fees are simply

reimbursement for the expenses

incurred by a retailer when it stocks a

new product or moves a product already

in stock to a more prominent location,

including rearranging warehouses,

changing accounting and inventory

control systems, and planning new

displays and shelf arrangements. No

specific examples or data were

submitted. NACS cited the high number

of new products introduced each year

and argued that slotting fees enable the

products to be available to consumers at

the retail premises. However, no

marketing data or studies were

submitted in support of this purported

effect. MLBA and the Chapter House

both noted that consumers, by their

purchases, ultimately control the

retailer’s purchasing decisions, whether

or not slotting fees are paid.

Evaluation of Comments on Slotting

Fees

In examining slotting allowances or

fees, also called ‘‘display fees,’’

‘‘introductory allowances,’’ ‘‘pay-to-stay

fees,’’ ‘‘stocking allowances,’’ ‘‘annual

renewal fees,’’ ‘‘up front fees,’’

‘‘maintenance fees,’’ ‘‘push money,’’ and

‘‘failure fees,’’ ATF has relied heavily

upon the aforementioned statements by

Bloom, Kaplan, Goodale and Gundlach,

since so little objective data was

submitted with the other comments.

Where material from these statements is

cited, ATF will include a reference to

the author and page number.

In his statement, Bloom (page 15)

notes that slotting fees ‘‘have become

entrenched, with both grocery

manufacturers and retailers expecting

these fees to be a part of every

transaction involving a new product.’’

Since these fees have become so

commonplace in other industries and

are not being treated as illegal in those

industries, it is appropriate to review

ATF’s reasons for believing they should

continue to be prohibited in the

alcoholic beverage industry.

Fedway directed ATF to consider the

benefits of legitimate competitive

practices in evaluating whether a

practice is exclusionary. Several of the

statements addressed this aspect of

slotting fees. One expected benefit of

fair competition is that it will result in

better quality, selection or prices for

consumers. Goodale (page 8) says

slotting allowances ‘‘do not benefit

consumers. Retailers do not pass on the

proceeds from slotting allowances in the

form of lower prices for the favored

products. Moreover, competition by

slotting allowances may actually tend to

displace competition in other forms

more likely to be passed on to

consumers, such as lower prices to

retailers, special promotions, or

coupons. To the extent that they reduce

the availability or visibility of

competing products, slotting allowances

also reduce consumer choice.’’

Many commenters expressed concern

that allocation of shelf space to products

under slotting fee agreements is not

based on perceived consumer demand,

but on money factors. These concerns

appear to be borne out by the expert

statements and the published material

attached to them. Several made the

distinction between ‘‘pull’’ marketing,

in which the supplier uses advertising,

coupons, and other means to create

consumer demand, and ‘‘push’’

marketing, in which the supplier

essentially pays the retailer to ‘‘push’’

the product by guaranteeing its

availability and prominence at retail

outlets. Slotting fees, sometimes called

‘‘push money’’ fall into this latter

category. In Fedway, the court

acknowledged the ‘‘general belief that

cheap and plentiful alcohol is not an

unmitigated social good (as opposed,

say, to cheap and plentiful home

heating oil or shoes) suggest[s] that the

alcohol industry requires special

oversight and regulation.’’ There is at

least a perceived danger in allowing

slotting fees in the alcoholic beverage

industry that heavily promoted products

would be overrepresented or ‘‘pushed’’

at the retail level.

Bloom (pages 4 through 6 and page

23) points out that ‘‘the channels of

distribution through which an industry

member may market its beverages are far

more limited than those faced by a

manufacturer of other beverages or of

other unregulated consumer products.’’

Availability of retail outlets for

alcoholic beverages is ‘‘restricted in

number and location, by state licensing

requirements’’ and ‘‘manufacturers in

this industry may not sell their goods

through mail order in many states.’’

Bloom states the argument that there are

alternative retail outlets (that is, that a

supplier barred from selling to one

customer may sell to others) does not

apply in the alcoholic beverage industry

because of these factors.

One of ATF’s proposed criteria for

determining retailer independence, that

is, whether the practice has a

discriminatory aspect, also has a bearing

on the evaluation of the impact of this

rulemaking on small businesses under

the Regulatory Flexibility Act. Bloom

(page 11) states that ‘‘some argue that

slotting fees may be beneficial to small

business, by offering the opportunity for

an untested product to ‘buy’ its way into

a retailer. I consider this view somewhat

naive, since, even if such an

opportunity exists in theory, it is not a

realistic or practical one for most small

or start-up businesses. These are

precisely the companies that cannot win

the bidding war for retail space because

they do not have the funding to pay

hundreds of thousands of dollars in upfront fees. It is highly relevant that small

food manufacturers have been among

the most vocal opponents of slotting

fees.’’ Bloom further notes ‘‘since

slotting fees usually bear little relation

to the costs of a retailer or wholesaler,

often causing manufacturers to pay

different amounts to different resellers

to stock the same item, such fees can

adversely affect small retailers as well.’’

(page 25—emphasis in original.)

Goodale (page 6) makes a similar

observation: ‘‘Individual stores and

smaller chains have considerably less or

no leverage and consequently receive

disproportionately less in ’slotting

allowances,’ if any at all.’’

Kaplan (pages 18 and 19) discusses

competition and performance in the

beer and wine industries. ‘‘By any

standard, both industries have exhibited

healthy competition and excellent

performance under a regulatory regime

in which slotting allowances were

clearly prohibited. The healthy level of

industry performance strongly suggests

that material alterations to the

regulatory treatment of slotting

allowances and other long-prohibited

trade practices should be approached

cautiously.’’ Bloom (pages 5 and 6) also

notes, despite ‘‘the vigor of competition

in the industry, however, the * * *

regulatory structure, by directing

competition and creating entry barriers,

can sometimes make it more difficult to

market products in the alcoholic

beverage industry than in others.

Accordingly, marketing practices which

may be benign in other industries may

have severe adverse consequences in

this one.’’

Kaplan (pages 4 and 5) performs a

comparison between ATF’s criteria to

determine whether a practice places

retailer independence at risk and the

characteristics of slotting allowances.

Kaplan states, ‘‘[i]n my opinion, the

payment of a slotting allowance by a

supplier restricts or hampers the

retailer’s choice of which products to

purchase (during the time period in

which the shelf space has been

purchased or rented), represents a

continuing obligation on behalf of the

retailer to purchase and stock the

supplier’s product, represents a

commitment by the retailer not to

terminate its relationship with the

supplier with respect to purchase of the

supplier’s products, reduces the amount
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations 20409

of shelf space available for competing

products, and generally results in a

reduction in the sales of the displaced

products.’’ Goodale (pages 6 and 7)

performs a similar analysis, with similar

findings. He adds that ‘‘[s]lotting

allowances involve manufacturers in the

day-to-day decisions of the retailer

regarding what products the retailer will

purchase and how products will be

displayed in the store. Payment of

slotting allowances is almost always

discriminatory among retailers in any

given area.’’

With particular reference to the

continuing character of the obligation,

and the danger of a tie or link between

the industry member and the retailer,

Bloom (page 7) states that

‘‘manufacturers often make continuing

payments to retailers and wholesalers

either to keep a product on the shelves

or in the warehouse when the product

does not sell in the volume expected by

the retailers, or to obtain preferential

display space. In other words,

manufacturers may be required to make

ongoing payments even after they have

paid the entry fee and even if the

product sells well. These are referred to

as ‘pay-to-stay’ fees.

‘‘Goodale (page 6) noted

‘‘Manufacturers pay slotting allowances

only with the agreement of retailers to

provide their products some benefit or

favorable treatment. A slotting

allowance is part of a mutually binding

contract between manufacturer and

retailer. Thus, a retailer that accepts a

slotting allowance is obligated to fulfill

the terms of its agreement with the

paying manufacturer. Moreover,

retailers do not treat this obligation

lightly. A retailer that did not fulfill its

part of a slotting allowance agreement

would quickly acquire a reputation as a

‘welcher’ that would damage its ability

to collect slotting allowances in the

future. Thus, retailers have a strong

incentive to honor their commitment to

favor the paying manufacturer’s

product.’’ Bearing out this notion of an

incentive to favor a supplier who pays

slotting fees, Bloom attached an article

from Journal of Public Policy and

Marketing by Joseph P. Cannon and

Paul N. Bloom, called ‘‘Are Slotting

Allowances Legal Under the Antitrust

Laws?’’ The article noted:

Whether slotting allowances have served as

anticompetitive weapons or insurance fees,

grocery chains have benefited from their

existence. Historically, profits rarely

exceeded 1 percent of sales, but the last

several years have seen profits in the 2

percent range [Sullivan 1989].

Although the article noted there were

other contributing factors in this striking

increase in profitability, a retailer would

be reluctant to give up any practice

which contributes to such an increase.

Goodale (page 6), stated that, for large

retailers, ‘‘slotting allowances are a

major source of revenue, accounting for

perhaps more than 10% of after-tax

profits.’’ This underscores the potential

for a retailer to become dependent on a

slotting fee arrangement, thus creating

the tie or link which is an element of

exclusion.

Nature and Effect of Slotting Fees

The proposed description of slotting

fees in § 6.152(b), read, in part,

‘‘purchasing or renting specific shelf

space * * * where such purchase

reduces the availability of other shelf

space for the distilled spirits, wine or

malt beverages of another industry

member.’’

As noted earlier in the discussion of

the comments on slotting, a number of

commenters requested that this

definition be expanded because slotting

fees cover more than just the purchase

of specific shelf space.

Goodale (pages 8 and 9) states ‘‘in my

view, the slotting allowance provision

in § 6.152(b) of the NPR is too narrow.

The reference to ‘purchasing or renting

specific shelf space’ would not include

many of the slotting allowance

arrangements discussed above that have

the same adverse effect on retailer

independence. The draft regulation

should be modified to make clear that

all forms of slotting allowance

arrangements will be treated as putting

retailer independence at risk, as in fact

they most certainly do.’’ The slotting

practices listed by Goodale (pages 2

through 4) were:

Payments made by manufacturers to

retailers and wholesalers to set up a new item

in their store or warehouse.

Payments made by manufacturers to

retailers in return for an obligation to, for

some agreed-upon period of time:

Allocate a specified quantity of shelf or

refrigerator space to the manufacturer’s

product;

Allocate a favorable shelf or display

position to the manufacturer’s product (aisle

end or eye level, for instance);

Feature the manufacturer’s products in

advertising and displays during times of peak

demand, such as holidays;

Set aside warehouse or backroom space on

the retail premises for storage of the

manufacturer’s product, to reduce the

number of deliveries and facilitate restocking

of the store shelves;

In some product categories (greeting cards

and light bulbs, for example) the retailer may

carry one manufacturer’s product

exclusively.

Based upon the evidence noted, ATF

believes that slotting fees put retailer

independence at risk, and proposed

§ 6.152(b) is adopted in this final rule,

with two changes. In the final rule, ATF

has expanded the description of slotting

fees to more accurately reflect the

variety of practices which come under

this category. ATF also dropped the

condition that the purchase of shelf

space reduce the availability of space for

competitors’ products from § 6.152(b),

since that factor must always be shown

within the framework discussed in

§ 6.151(a)(2).

Slotting Fees as Consignment Sales

In Notice No. 794, ATF proposed to

classify payment of slotting allowances

as ‘‘not a bona fide sale’’ in the

consignment sale regulations in Part 11.

This classification grows out of the

description of consignment sales in 27

U.S.C. 205(d), ‘‘to sell * * * on

consignment or under conditional sale

or with the privilege of return or on any

basis otherwise than a bona fide sale.’’

ATF argued the practical effect of

‘‘slotting allowances’’ is to refund, in

whole or in part, the purchase price of

a product that has not been sold, in

proportion to the period of time that it

remains unsold.

At a minimum, payment of ‘‘slotting

allowances’’ may reimburse the trade

buyer for the cost of shelf space

occupied by the industry member’s

products. In addition, it may also

compensate the trade buyer for the lost

opportunity cost of having capital tied

up in inventory acquired from the

industry member. Ultimately, the

amount refunded by this mechanism

can, over any specified period of time,

be the economic equivalent of simply

buying back a product at the end of that

period of time.

ATF believes that its regulations

should address all arrangements that

clearly embody the substance of the

‘‘consignment sale’’ practice proscribed

by Congress, and not merely particular

forms of that practice. Therefore, ATF

proposed to amend its regulations to

specify payment of ‘‘slotting

allowances’’ from an industry member

to a trade buyer is a form of

consignment sale.

NACS, in its comment, stated that

slotting allowances cannot be equated

with consignment sales. They argue that

it is unlikely that, even over time, the

slotting allowances would be the

equivalent of the wholesale price, and

that ATF cannot presume ‘‘that slotting

allowances would have this effect in all

circumstances.’’

Other commenters offered contrasting

views on this subject. E. & J. Gallo

Winery cited remarks by FTC

Commissioner Deborah K. Owen on the

subject of slotting fees. She called them
20410 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

a ‘‘form of insurance for the retailer

* * * [which] reduce, and perhaps

eliminate his risk—or at least transfer

some of it to the producer—by charging

a fee that, essentially, provides

indemnification from the loss of profits

that would arise if the new product fails

to sell well.’’ Statements submitted by

retailers opposing ATF’s proposals on

slotting fees corroborated that slotting

fees do serve the function of shifting the

risk of loss back to the supplier/

wholesaler.

Kaplan (page 13) describes ‘‘failure

fees.’’ ‘‘These fees are being paid if a

‘new product does not meet sales

expectations.’ ’’ Kaplan’s example

described a grocery chain which

reportedly asks its suppliers to agree,

under contract, to cover the retail cost

of merchandise remaining unsold after a

120-day introductory period if the

product has not met its weekly volume

target. The supplier ‘‘has the option’’ of

removing the remaining inventory.

Bloom (page 17) said ‘‘a manufacturer

which performs poorly is often able to

‘pay to stay,’ and make up for the

shortfall in profits contributed.’’ Bloom

went on to describe slotting fees in the

grocery industry as ‘‘a form of

‘insurance’ for retailers. It is wellrecognized that retailers have reduced

the risk of carrying new products by

charging slotting fees. Indeed, several

[interviewees] suggested that many

supermarkets may not be in the risky

grocery business anymore. Instead, they

see some supermarket chains as

essentially being in the real estate

business, selling and leasing shelf space

to manufacturers.’’

In view of these comments, ATF

believes the purported use and purpose

of slotting fees clearly demonstrate that

a sale which involves a slotting fee is

‘‘not a bona fide sale.’’ Proposed § 11.24

is retained in the final rule, but

amended to reflect the broader

description of slotting fees adopted in

§ 6.152(b).

Slotting Fees as Commercial Bribery or

Exclusive Outlet

Although there was no formal request

for inclusion of slotting fees under the

commercial bribery part of the

regulations, a number of commenters

characterized slotting fees as bribery or

‘‘payola.’’ As discussed earlier, the FAA

prohibition of commercial bribery

relates to the offering or giving of a

bribe, bonus, premium or compensation

to any individual officer, employee or

representative of a trade buyer, and not

to the trade buyer entity. As slotting fees

have been described in the comments,

they appear to be transactions with the

entity, and not with an individual. If an

investigation disclosed payments to an

individual for influencing the display or

stocking of a product, ATF would

pursue that as a case of commercial

bribery, if the other necessary criteria

were met.

Coors Brewing Company suggested

adding a new section to Part 8—

Exclusive Outlets, to prohibit slotting

allowances, saying a slotting allowance

‘‘necessarily involves a requirement

imposed upon a retailer by a voluntary

agreement.’’ ATF disagrees; slotting

allowance agreements appear to be

limited to manner of display or stocking

of product, not to exclusivity of

purchase, which is the focus of the

exclusive outlet rules. Certainly, if ATF

found an industry member was

requiring a retailer to purchase its

products to the exclusion of similar

products sold or offered for sale by other

industry members as part of a slotting

fee arrangement, ATF would also

pursue the exclusive outlet aspect of the

case.

Other Proposed Changes

ATF proposed to revise or add

regulations in 27 CFR Parts 6, 8, 10, and

11, in areas suggested by the industry

petition and in areas identified by ATF

as appropriate for rulemaking. The

proposed revisions and additions are

discussed below.

In 1988, ATF designated an agency

task force to review the trade practice

regulations and ATF’s enforcement

experience, since 1980, and determine

whether revisions were needed. ATF

determined that certain regulations

could be modified or clarified to

provide guidance to the industry on

ATF’s interpretations of the trade

practice statute. Such guidance has been

provided by rulings and industry

circulars. Notice No. 794 proposed

incorporating these rulings and industry

circulars into the regulations.

In addition to changes identified in

the Bureau’s own review, this notice

responded to changes suggested in a

February, 1992, petition filed by

representatives of the Distilled Spirits

Council of the United States, Inc.

(DISCUS), the National Association of

Beverage Importers, Inc. (NABI), Wine

and Spirits Wholesalers of America, Inc.

(WSWA), the National Licensed

Beverage Association (NLBA), and the

National Liquor Stores Association, Inc.

(NLSA). This petition superseded an

earlier petition filed by DISCUS and

NABI with ATF. ATF suggested that

DISCUS and NABI work with all

segments of the alcohol beverage

industry to reach a consensus

concerning the various proposals to

revise the trade practice regulations.

The 1992 petition reflects a culmination

of that effort by the supplier,

wholesaler, and retailer organizations

noted above.

Scope of Parts 6, 8, 10 and 11

ATF proposed to revise §§ 6.1, 8.1,

10.1 and 11.1 to reflect the

recodification of the Federal Alcohol

Administration Act which included

renumbering the trade practice section

from section 5 to section 105 and to

better reflect the function of the

proposed regulations. No commenters

objected to these changes, and they are

adopted as proposed. DISCUS suggested

removing the sentence ‘‘This part does

not attempt to enumerate all of the

practices which may be a

violation * * *’’ from each of these

sections, but gave no reason for this

suggestion. This sentence was retained

in each part because it is an accurate

statement; each part does not list all of

the practices which can result in a

violation. The deletion of this sentence

would mislead a person into believing

that each part constitutes a complete or

exhaustive list of every practice within

the trade practice proscriptions.

Sections 6.3 and 8.3, Application

Although ATF had proposed no

change to § 6.3(b) or § 8.3(b), the

National Alcohol Beverage Control

Association (NABCA) renewed its

request (originally aired during the last

trade practice rulemaking in 1980) that

all control states be categorized as

wholesalers, even if they meet the

definition of retailer contained in

sections 6.11 and 8.11. NABCA states in

the comment submitted on its behalf by

Tendler, Goldgerg, Biggins & Geltzer,

that this simplification is needed

because Control State arrangements vary

widely from State to State and create a

confusing ‘‘patchwork’’ of rules. ATF

maintains its 1980 position that there is

no statutory authority for such a change.

Therefore, no change is made in these

sections in the final rule.

Administrative Provisions in Parts 6, 8,

10 and 11

Section 102(c) of the FAA Act (27

U.S.C. 202(c)) incorporates by reference

the provisions of sections 49 and 50 of

Title 15, U.S.C. of the Federal Trade

Commission Act which vests in ATF

investigative subpoena authority and

the right to examine and copy relevant

data subject to an FAA Act

investigation. In addition, section 102(d)

provides authority to require such

reports as are necessary to effectuate the

purposes of the statute. ATF proposed

adding new regulations at 27 CFR 6.5,

8.5, 10.5 and 11.5 delegating these
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations 20411

authorities to specific officials. There

were numerous comments on these two

proposals, and they will be addressed

separately below:

Examination and Subpoena

Pursuant to 15 U.S.C. 49 and 50 as

made applicable by section 102(c), ATF

may examine, at all reasonable times,

any documentary evidence which is

necessary to determine whether the

person, partnership, or corporation

being investigated or proceeded against

violated the FAA Act. The right to

examine includes the right to copy any

such documentary evidence. In

addition, section 49 authorizes the

issuance of a subpoena for any person,

partnership, or corporation to produce

records or give testimony relevant to an

investigation of a violation of the FAA

Act. ATF proposed to delegate the

authority to examine and copy records

to the Director or any ATF officer, and

to delegate the authority to issue

subpoenas to the Director. Sixty two

commenters (many using similar

language, as if following a sample letter)

questioned the need for this provision

and ATF’s interpretation of the statute.

Other commenters requested that ATF

explain the reasons for its authority for

using the subpoena power in

investigations.

Many of the commenters cited Serr v.

Sullivan 270 F. Supp. 544 (E.D. Pa.

1967), aff’d 390 F. 2d 619 (3d Cir. 1968)

(Serr), for the proposition that ATF does

not have the authority to use subpoenas

in connection with any type of

investigation prior to the issuance of an

order to show cause against a basic

permit.

Subsequent to the Serr decision, in

consultation with the Department of

Justice, ATF concluded that it would

not follow the decision outside the 3rd

circuit and planned to litigate the issue

in another circuit. ATF has continued to

use its subpoena power in other circuits

and has not been challenged.

In Serr, the court narrowly interpreted

the incorporation by reference in 27

U.S.C. 202(c) of the investigatory

subpoena authorized under the Federal

Trade Commission Act. The Serr

decision held that Congress provided no

express investigation power to the

agency administering the FAA Act and,

therefore, the subpoena authority could

only be used in an administrative

proceeding against a basic permit

pursuant to 27 U.S.C. 204. The court

based this conclusion on the fact that

other Federal statutes containing similar

incorporations of the Federal Trade

Commission Act subpoena power

contained express provisions

authorizing investigations and,

additionally, Congress had expressly

rejected an investigation provision in

the FAA Act.

A review of other Federal statutes

cited by the court reveals that the power

to conduct investigations into possible

violations is granted either in

conjunction with the broader power to

call for general fact finding

investigations, or supplemental to a

third party complaint system of

enforcement, or both. The court’s

summary conclusions about these

investigation powers did not entail an

analysis of the types of ‘‘investigations’’

contemplated by these other provisions.

ATF does not conduct these types of

general fact finding investigations or use

a third party complaint system. Instead,

ATF traditionally conducts

investigations into specific violations by

specific industry members.

Likewise, the investigation provision

rejected by Congress authorized the

agency to make investigations and

studies with reports to the President and

Congress on the production, distribution

and consumption of alcoholic

beverages. The provision did not

address the power of the agency to

conduct specific investigations into

whether an industry member violated a

specific provision of the FAA Act.

Therefore, the failure of Congress to

enact this provision indicates nothing

about Congress’ intent on whether the

administrating agency could conduct an

investigation to determine whether the

industry member violated the statute. It

is fair to conclude that Congress

intended that the administering agency

have routine investigatory authority as

an inherent part of the given ‘‘duties

and powers’’ to administer and enforce

the unfair trade practice provisions

when there is reason to believe that an

industry member violated the FAA Act.

Finally, the court’s conclusion that

suspension or revocation of basic

permits is sufficient for effective

enforcement of the Act fails to recognize

that the FAA Act contains other

enforcement mechanisms such as

injunctions, consent decrees, and offers

in compromise which are used outside

of an administrative proceeding against

a basic permit, as well as ignores the

fact that brewers do not hold basic

permits. Such reasoning also fails to

recognize that an investigation is a prerequisite to developing adequate facts to

support issuing an order to show cause

that alleges a specific violation. For all

of these reasons, it is illogical to

conclude that Congress, on the one

hand, gave the administering agency

these other traditional enforcement

mechanisms and authorized the use of

other Government agencies and the

submission of reports under 27 U.S.C.

202(b) and (d) and, on the other hand,

denied the same agency the inherent

authority to conduct traditional

investigations into whether an industry

member has violated a specific trade

practice provision. Accordingly, ATF

has retained the proposed examination

and subpoena provisions in Parts 6, 8,

10 and 11 of the final rule.

One change was made in these

provisions in the final rule because ATF

noted some industry concern that these

powers will be used for ‘‘fishing,’’ rather

than as part of a specific investigation.

ATF has added language to require a

showing that the requested evidence

may reasonably be expected to yield

information relevant to a violation of the

statute by a particular industry member

being investigated under the Act.

Report of Promotional Activities

In addition, pursuant to section

102(d) of the FAA Act, new regulations

were proposed in §§ 6.5, 8.5, and 10.5,

authorizing the regional director

(compliance) to require a letter report

from industry members regarding

information on sponsorships,

advertisements, promotions, and other

activities conducted by, or on behalf of,

or benefiting the industry member. The

reporting requirement would be used on

a case-by-case basis, rather than as a

recurrent and periodic reporting

requirement such as a monthly report of

activities applying to all industry

members. ATF did not propose adding

a reporting requirement in Part 11,

Consignment Sales.

Most of the 66 comments on this

section described the subject reports as

‘‘advertising reports’’ and noted that

ATF already had ‘‘abundant’’ authority

to regulate advertising. The remainder

of the comments on this report

addressed three main areas: The perjury

statement requirement, the delegation to

the regional director (compliance) and

the absence of limits or safeguards.

The proposed rule required that the

letter report be ‘‘executed under the

penalties of perjury.’’ Commenters were

critical of this requirement because,

they pointed out, perjury carries a

criminal penalty, whereas most

practices which are under investigation,

if found to be violations, would be

handled administratively. ATF is

retaining this requirement in the final

rule for consistency with requirements

for other documents filed under the

FAA Act regulations, such as

applications for basic permits and

certificates of label approval. Further,

even if the perjury statement were not

required, giving a false statement in a

document presented to a government
20412 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

official and relied on by that official is

still a criminal offense under 18 U.S.C.

1001.

In the proposed rule, ATF delegated

authority for requiring this report to the

regional director (compliance). Several

commenters expressed concern that

these reports could be required at any

time, without any justification, and that

the policy for requiring such reports

might vary from region to region. ATF

addressed these concerns by revising

the final rule to authorize the Deputy

Associate Director (Regulatory

Enforcement Programs) to require these

reports, and by adding language to the

section specifying that the reports

would only be required as part of an

investigation. Further, the final rule also

provides that the report shall cover a

period of no more than three years.

Several commenters expressed the

opinion that ATF had understated the

time needed to comply with this

requirement, but since no alternative

time burden estimate was offered, ATF

is retaining the one hour estimated

burden in the final rule. Comments on

this estimate may be submitted to the

address shown in the Paperwork

Reduction Act section of the supporting

data.

Meaning of Terms Revisions in Parts 6,

8, 10 and 11

ATF proposed to add the terms ‘‘ATF

officer’’ and ‘‘Director’’ to the

definitions in 27 CFR 6.11, 8.11, 10.11,

and 11.11 to correspond to the terms in

the proposed administrative provisions

in §§ 6.5, 8.5, 10.5, and 11.5, discussed

above. ATF also proposed adding the

term ‘‘Regional director (compliance)’’

to the definitions in 27 CFR 6.11, 8.11

and 10.11 to correspond to the term in

the proposed administrative provisions.

In view of the change in this delegation

in the final rule, a definition for

‘‘Deputy Associate Director (Regulatory

Enforcement Programs)’’ has been

substituted.

ATF proposed to define the term

‘‘brand’’ in 27 CFR 6.11, since a number

of dollar limitations on things of value

which may lawfully be given to retailers

is on a ‘‘per brand’’ basis. The definition

proposed was drawn from ATF Ruling

81–1, Q.B. 1981–2, page 27, excluding

changes in the color or design of the

label. Commenters on this issue were

divided.

While most commenters supported

narrowing the definition of the word

‘‘brand’’ as proposed, Hinman &

Carmichael, attorneys, noted in their

comment that label color is sometimes

used to distinguish ‘‘different quality

designations of similar products

produced by the same manufacturer,’’

and suggested adding ‘‘different quality

standard or grade’’ to the list of

examples of different brands. ATF

believes the items listed in the proposed

definition, such as age and alcohol

content, should address most such

differences.

NBWA and the President’s Forum of

the Beverage Alcohol Industry both

commented that the proposed increase

in the dollar limits in Part 6, Subpart D,

combined with such a broad definition

of the term ‘‘brand,’’ would have an

anticompetitive effect by allowing

industry members with diverse brand

portfolios to give a large number of

valuable items to retailers. As discussed

later in the supplementary information,

a number of commenters expressed

concern about the large proposed

increase in the dollar limitations, but

did not comment on the proposed

definition of brand. Since ATF has

decided to address these concerns by

raising the dollar limitations less than

originally proposed, it will not be

necessary to further narrow the

proposed definition of ‘‘brand.’’

NBWA expressed concern that

beverage varieties ‘‘have proliferated at

an unprecedented rate’’ and that ‘‘even

the most subtle variation in the product

line would be construed to create

another ‘brand’ ’’ under our proposed

definition. NBWA further stated in their

comment that the ‘‘whole matter of what

constitutes a brand is at the center of

controversy and litigation across the

country.’’ They suggested airing this

issue in a separate rulemaking and, if a

definition is adopted at all, specifying

that the definition is only intended to

apply to Part 6. In view of this

comment, ATF has decided to adopt the

definition of brand as proposed, with

the addition of a note in the definition

that it only applies to the administration

of the exceptions in Part 6.

Although the petitioners suggested

revising the definition of ‘‘retailer’’ in 27

CFR Parts 6 and 8, ATF proposed no

changes in this definition. The

petitioners suggested removing the

language which specifies that a

wholesaler who makes incidental retail

sales representing less than 5 percent of

its sales during the preceding two

months shall not be considered a

retailer. The petitioners state that a

supplier cannot know whether the

wholesaler’s retail sales are within the

5 percent limitation and suggest

eliminating that standard. The

petitioners also believe that the

definition of ‘‘retailer’’ should be

clarified in order to ensure that this

definition is consistent with § 6.2 which

defines the territorial extent of Part 6 of

the regulations.

ATF believes that removal of the 5

percent limitation would make the

definition too broad. For example,

without the percent limitations, a

wholesaler who makes a single sale to

a consumer is deemed to be a retailer.

Also, the petitioners’ proposed

definition would exclude, as a retailer,

someone within the United States who

makes sales for consumption outside of

the United States; i.e., a duty free shop.

The FAA Act itself does not allow this

type of exception to the territorial

coverage of the law. Therefore, ATF did

not agree with this proposal, and

proposed no change to the definition of

‘‘retailer.’’ DISCUS, in their comment on

the proposed rules, reiterated the

request for these revisions, but

presented no new arguments. No other

comments addressed the definition of

the word ‘‘retailer.’’ For the same

reasons, ATF did not propose

conforming amendments to the

definition of ‘‘retailer establishment.’’

ATF holds to its comments as expressed

in Notice No. 794, and made no changes

to these definitions in the final rule.

ATF proposed to change the term

‘‘retailer establishment’’ in 27 CFR 6.11

to ‘‘retail establishment’’, since that is

the term used in 27 CFR Part 6

regulations. The term ‘‘retail

establishment’’ in 27 CFR 8.11 will be

removed because the term is not used in

27 CFR Part 8 regulations. No

commenters objected to these proposals,

and they were adopted in the final rule.

Since the term ‘‘retailer’’ is being added

to Part 11, ATF has added a definition

for that term in section 11.11 which

conforms to the definition in 6.11.

Discussion of Changes to Individual

Sections

Sections 6.25 through 6.33, Interest in

Retail Licensee

The petitioners stated that these

sections of the regulations provide

identical treatment concerning an

interest of an industry member in a

license with respect to a retailer’s

premises (Sections 6.25–6.27) and in

real or personal property owned,

occupied, or used by the retailer in the

conduct of the business (Sections 6.31–

6.33). The petitioners proposed

combining the provisions which they

believe parallel each other (Sections

6.25 and 6.31; 6.26 and 6.32; and 6.27

and 6.33).

ATF does not believe that the

provisions of §§ 6.25 through 6.33

should be combined in the various ways

proposed by the petitioners. From a

structural point of view, merging §§ 6.25

through 6.33 fundamentally alters the

organization of Subpart C of Part 6.
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations 20413

Subpart C is divided into topics (with

titles) which parallel sections 105(b)(1)

through (7) of the FAA Act. The

proposed merger of the corresponding

sections will mean that the regulations

applicable to an interest in retail

property under section 105(b)(2) will be

contained in a group of the regulations

categorized under an interest in a retail

license under section 105(b)(1). ATF

believes that it may be confusing for a

person or industry representative

relying on the Part 6 regulations to look

under the regulations on a retail license

for a regulation relating to an interest in

retail property. ATF proposed no

change with respect to this request,

received no additional requests for such

a merger, and makes no such change in

the final rule.

Further, the petitioners recommended

clarifying changes to existing

regulations to ensure that there is no

misunderstanding that a violation of the

FAA Act does not occur merely upon a

finding of the existence of the means to

induce. The petitioners believe that the

wording of several existing regulations

describing various means to induce

results in industry confusion since such

sections are written in terms describing

‘‘prohibited means to induce.’’

The petitioners believe that the term

‘‘prohibited’’ should be deleted from

such sections in order to avoid any

contention or confusion that this

provision, read separately from section

6.21, allows for finding a violation of

the FAA Act without also establishing

that the means to induce results in

exclusion. While the petitioners

recognize that these sections are subject

to the general application provisions of

section 6.21, which states that these

means to induce are unlawful only if

they result in exclusion, they believe

such a change will help reduce the

possibility of industry confusion on this

issue. The same request was made

concerning §§ 6.31, 6.41, 6.51, 6.61, 6.65

and 6.71, which all contain similar

language.

ATF proposed to amend §§ 6.25, 6.27,

6.31, 6.33, 6.41, 6.51, 6.61, 6.65 and 6.71

by replacing the word ‘‘prohibited,’’

with the phrase, ‘‘a means to induce,’’

in order to correspond with the wording

of the FAA Act. No objections to this

change were received, and it is adopted

in the final rule.

Section 6.42, Third Party Arrangements

ATF’s review of its regulations

disclosed that some confusion exists

over the breadth of the proscription on

indirect means to induce. Some

industry members incorrectly view the

two examples in § 6.42 as exclusive of

the situations covered by the regulation.

Additionally, ATF believes some

industry members interpret the

examples as meaning the third party

receiving the means to induce must be

an agent of an individual retailer.

By enacting the phrase ‘‘directly or

indirectly or through an affiliate,’’

Congress intended the broadest possible

application of the proscriptions of the

FAA Act. The term ‘‘indirectly’’

encompasses more than simply trade

practice activities with agents of

retailers. It covers such activities with

any representative of a retailer or

industry member, whether or not such

representative is technically an agent of

the retailer or industry member. Thus,

an industry member providing the

means to induce to any third party who

will pass the means on to the retailer,

or use them in a manner to benefit the

retailer, is indirectly providing the

means to induce to the retailer.

Accordingly, ATF proposed adding a

sentence to § 6.42 to clarify that the

examples are simply illustrative and not

exclusive of the situations resulting in

indirect inducements. ATF also

proposed to revise the final sentence for

clarity.

Several commenters expressed

concern that ATF appeared to hold

industry members responsible for any

inducement provided to a retailer by a

third party, whether or not the industry

member knew or intended that it would

be provided. In response to these

comments, ATF revised the section to

clarify that an inducement will not arise

where the thing of value was furnished

to a retailer by a third party without the

knowledge or intent of the industry

member, or the industry member did

not reasonably foresee that the thing of

value would be furnished to a retailer.

In evaluating the second point of this

exception, ATF will determine if the

item given was of such a nature or

character that the industry member

could reasonably foresee that it would

be furnished to a retailer.

Section 6.43, Sale of Equipment

The petitioners recommended

deleting the last sentence of § 6.43,

which states that negotiation by an

industry member of a special price to a

retailer for equipment from an

equipment company is a thing of value.

They argued that this negotiation should

not be considered a thing of value

unless the industry member subsidizes

the special price. ATF disagreed since

the thing of value is not the special

price, but the service provided by the

industry member in negotiating with the

equipment company, or using its

influence on behalf of the retailer. In the

past, ATF has experienced cases in

which a retailer, believing that it

received special price consideration,

altered its buying patterns resulting in

exclusion of a competitor’s products.

ATF did not propose deleting this

language, but did propose a conforming

change to the cross-reference.

In its comment, DISCUS reiterated the

petitioners’ request for deletion of the

last sentence, but did not present any

new information. ATF maintains its

position that the last sentence of § 6.43

describes a service which is a thing of

value (that is, a means to induce a

retailers’ purchases) and should not be

deleted. No comments were received

objecting to the change in cross

reference, so that change is adopted in

the final rule.

Section 6.46, Outside Signs

ATF proposed to repeal this section

and add a new § 6.102 to allow industry

members to furnish outside signs to

retailers as an exception in subpart D.

As discussed under § 6.102, ATF

received mixed comments on this

proposal and has made some changes to

§ 6.102 as it appears in the final rule.

Accordingly, § 6.46 is deleted by the

final rule.

Section 6.47, Items Intended for

Consumers

The petitioners recommended

deleting this section because they

believe that it is redundant and

unnecessary in light of § 6.93 and their

proposed revisions to § 6.87.

ATF proposed to remove this section

since the general prohibition in § 6.41

covers things of value not specifically

excepted in Subpart D. ATF proposed to

allow certain items listed in § 6.47 by

listing them in the proposed revision of

§ 6.84, Point of sale advertising and

consumer advertising specialties. No

negative comments were received on

this proposal, and the section is

removed in the final rule.

Section 6.51, General

ATF proposed revising this section to

replace the word ‘‘prohibited’’ with the

phrase ‘‘means to induce.’’ No adverse

public comments on this proposal were

received, but a commenter within ATF

pointed out that the regulation should

be further clarified. A review of the

history of the section shows that it is

intended to cover two situations,

reimbursements to a retailer for

advertising or display services directly

provided by the retailer, and

reimbursements for such services if

purchased by the retailer from a third

party. The final rule is revised

accordingly.
20414 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

Section 6.52, Cooperative Advertising

ATF proposed deleting the phrase

‘‘placed by the retailer’’ from this

section and cross-referencing § 6.52 to

§ 6.98, Advertising Service. DISCUS, in

its comment, requested that the section

be retained in its present form.

Upon review, ATF concurs. The

phrase ‘‘placed by the retailer’’ should

be retained in § 6.52, since the section

is based on 27 U.S.C. 205(b)(4), and

advertisements placed by the industry

member would be evaluated as ‘‘things

of value’’ under 27 U.S.C. 205(b)(3).

Further, it is not appropriate to crossreference § 6.52 to § 6.98, which is an

exception under 205(b)(3). ATF

withdraws its proposal; no change is

made to this section in the final rule.

Section 6.67, Sales to a Retailer Whose

Account is in Arrears

ATF’s current position is contained in

Revenue Ruling 54–162, 1954–1 C.B.

340. On August 1, 1979, ATF proposed

a regulation (Notice No. 327, 44 FR

45298) on credit arrears which would

have provided that a supplier could

continue to sell to a retailer, with

unpaid purchases existing in excess of

30 days, without violating the extension

of credit provision if the retailer either

made payments in accordance with

Revenue Ruling 54–162 or the amount

of arrears did not exceed an average

purchase by the retailer from the

supplier over the preceding 4 month

period.

Commenters at the time objected to

the proposal stating that it would

require extensive bookkeeping checks or

it might force repayment of large

outstanding debts in order to keep

dealing with a wholesaler. Several

commenters recommended that ATF

simply adhere to the credit

requirements imposed by State law.

ATF withdrew the proposal (T.D. ATF–

74, 45 FR 63242, September 23, 1980)

from further consideration. In Notice

No. 794, ATF again proposed to adopt

in the regulations the position stated in

Revenue Ruling 54–162. However,

comments on other possible approaches

were solicited.

Several commenters endorsed the

proposed change as set forth in Notice

No. 794 and some opposed allowing

industry members to extend credit to

retailers at all. Other commenters again

suggested that State law be the guideline

on extension of credit. E. & J. Gallo

Winery, in its comment, suggested that

ATF allow industry members to accept

cash on delivery instead of cash with

the order, to be more consistent with

most State credit laws. After reviewing

the comments, ATF believes it is

appropriate to incorporate its

longstanding policy as stated in

Revenue Ruling 54–162 into the

regulations.

ATF has adopted the proposed rule,

but modified it to show that a sale to a

retailer who is in arrears is not a means

to induce ‘‘so long as the retailer pays

in advance or on delivery’’ for that

current order and to show that it applies

only to products as defined in § 6.11.

Where State rules are more restrictive

than the Federal rules, retailers and

industry members must still comply

with State law.

Section 6.71, Quota Sales and Section

6.72, Tie-In Sales

In addition to the language change to

§ 6.71 discussed under § 6.41, the

petitioners proposed to eliminate the

tie-in prohibition in § 6.72 and

consolidate the remaining provisions

into § 6.71. The petitioners

recommended deleting the first two

sentences of § 6.72 because they

believed that there is no statutory basis

for this regulation under the FAA Act.

The petitioners stated that the classic

‘‘tying relationship’’ prohibited by the

antitrust laws is not addressed by

section 105 of the FAA Act

notwithstanding that subsection 105(b)

of the FAA Act bears the heading ‘‘TiedHouse.’’ The petitioners further stated

that prohibitions against tie-in

agreements are covered adequately by

the Federal antitrust laws.

The tie-in sale described in the

regulations is a form of quota sale

covered by the Act. Moreover, ATF feels

that § 6.71 and § 6.72 are distinct from

one another and should be kept separate

to insure clarity and foster

understanding of the regulations. The

fact that another Federal law may also

apply to such a practice is not relevant

to whether such a practice is covered by

the FAA Act. In enacting the FAA Act,

Congress expressly decided that reliance

on the more general antitrust laws was

inadequate in this field. Finally, ATF

proposed revising § 6.72 to cover

expressly a particular type of

transaction as a tie-in sale.

DISCUS reiterated the requests from

the petition in its comment. ATF sees

no reason to change its position on these

sections. DISCUS, E. & J. Gallo Winery,

and Hinman and Carmichael all asked

that ATF clarify § 6.72 to show that it

does not cover combination packaging

allowed in § 6.93. The combination

packaging addressed in § 6.93 involves

combinations of alcoholic beverages

with nonalcoholic products, whereas

§ 6.72 addresses combinations of

alcoholic beverages only since this

section deals only with ‘‘products’’ as

defined in section 6.11. A cross

reference to § 6.93 was added for

clarification.

Subpart D—Exceptions

Many changes discussed in the first

section of the Supplementary

Information on Exclusion affect this

subpart. The discussion which follows

is limited to specific requests by the

industry or findings of ATF’s own

internal review which were not

discussed in that earlier section.

Section 6.81, General

The petitioners proposed amending

§ 6.81(a) by deleting the second

sentence which prohibits an industry

member from conditioning the

providing of items or services allowed

under Subpart D on the purchase of

distilled spirits, wine, or malt beverages.

ATF agreed this prohibition is not

necessary for most items, and proposed

to remove the prohibition from the

general section and place it in the

specific sections where such

conditioning has been a concern, for

instance, § 6.83 on product displays. No

one commented specifically on this

proposal. While ATF agrees to delete

the general prohibition, industry

members should be aware that abusive

conditioning will be evaluated as a

quota sale under 27 U.S.C. 205(b)(7).

Section 6.81(b), Recordkeeping

requirements, requires industry

members to maintain certain records

which can be used to substantiate

claims that items provided to retailers

are within the Subpart D exceptions to

the tied-house prohibitions. The

petitioners proposed deleting § 6.81(b)

in its entirety, thereby eliminating all

recordkeeping requirements. The

petitioners stated that ‘‘(t)his change

should be adopted because the FAA Act

neither provides nor suggests that any

such requirements can be imposed.’’

The petitioners further stated that if it

is decided not to delete § 6.81(b) in its

entirety, they recommend the addition

of language to this paragraph to make it

clear that no separate violation of the

FAA Act shall arise from the failure of

an industry member to maintain records

in accordance with the requirements of

§ 6.81(b). The petitioners believe that

the FAA Act neither creates nor

supports the existence of any such

violation of the FAA Act.

In Notice No. 794, ATF did not

propose to eliminate the requirement to

keep records which substantiate

industry members’ claims that items

provided retailers are within the

exceptions of Subpart D. Such a change

would negate ATF’s capability to verify
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations 20415

compliance with the dollar limitations

and any other requirements of Subpart

D. The limitations in each exception

section of the regulations would be

unenforceable if ATF had no way to

verify compliance with the

requirements of such exceptions. ATF

did propose to add a sentence to

§ 6.81(b) to state that, where an industry

member fails to keep the required

records, such industry member is not

eligible for the regulatory exception in

that particular transaction. No separate

recordkeeping violation would be

charged.

In its comment, DISCUS continued to

request elimination of § 6.81(b) in its

entirety, but said if § 6.81(b) is retained,

ATF should amend it to allow industry

members to use unspecified other

means to show compliance. ATF

disagrees, since the recordkeeping

requirement as written gives

considerable flexibility to the industry

member. No specific form or record has

been prescribed, as long as the industry

member can provide information an

ATF officer would need to verify that a

promotion is within the scope of

Subpart D. ATF is adopting § 6.81 as

proposed, except for some minor editing

changes suggested by the Federal

Register.

Section 6.82, Cost Adjustment Factor

While the petitioners did not request

a specific change to this section, they

requested that ATF explore alternate

methods which would be cost effective

for ATF to convey this information in a

manner that continues to ensure that all

permittees are apprised of the annual

dollar adjustments. Instead, ATF

proposed to delete this section, increase

the dollar limitations and periodically

review the amounts if necessary.

Although a few commenters

supported the proposal, most objected

to the size of the proposed increase in

the dollar limitations. For instance, on

product displays, ATF had proposed to

increase the limitation from $160 (1994

adjusted rate) to $500. Many

commenters who characterized

themselves as small or medium size

businesses said they simply could not

afford to compete with large industry

members if their competitors were

providing displays worth $500 per

brand.

After a thorough review of the

comments, ATF concurs that such a

large increase could create the sort of tie

or link identified by Fedway. ATF has

determined that making a smaller

increase in the dollar amounts is

appropriate. The final rule deletes this

section as proposed in Notice No. 794.

Section 6.83, Product Displays

The petitioners recommended

amending the definition of product

display to substitute ‘‘* * * and similar

items the primary function of which is

to hold, display or shelve consumer

products’’ for ‘‘* * * and the like,’’

which appears in the current regulation.

ATF proposed this change, but used the

phrase ‘‘hold and display’’ for clarity.

The petitioners also requested that

ATF amend the dollar limitation in the

regulation to reflect the current adjusted

rate of $160. Instead, ATF proposed

changing the dollar limit to $500 per

brand at any one time per retail

establishment, from the current $100 (as

adjusted) per brand at any one time per

retail establishment.

Although the general prohibition

against an industry member imposing

conditions on receipt of items allowed

in Subpart D has been removed from

§ 6.81, ATF proposed adding a

statement to § 6.83 that giving or selling

product displays may be conditioned

upon the purchase of the distilled

spirits, wine or malt beverage product

advertised thereon in a quantity only

necessary for the initial completion of

the product display. From the mid1960s to the 1980 recodification of the

trade practice regulations, conditioning

was allowed for window or other

interior displays. Industry members

have long argued that they should be

allowed to condition receipt of product

displays on the purchase of a limited

quantity of the product advertised. ATF

also proposed to delete the language

which allows lending or renting of

product displays in the current

regulation. Such a continuing tie would

not be consistent with the intent of the

Act. In making these proposals, ATF

believed the dollar limit of $500 per

brand, coupled with the requirements

for permanently inscribed advertising

and transfer of ownership of product

displays to the retailer minimizes the

inducement value to the retailer. The

combination of these factors would

allow product displays to be excepted

from the regulations of Part 6, and

would be the basis for allowing the

industry member to condition receipt of

such materials as described above.

Commenters requested a number of

amendments to this proposed section.

First, E. & J. Gallo Winery noted that in

the preamble, ATF had said § 6.83

would allow conditioning product

displays upon the purchase of the

product advertised thereon in a quantity

only necessary for the initial completion

of the product display, and yet the

regulatory text omitted the word

‘‘initial.’’ This omission is corrected in

the final rule.

In the proposed amendment to § 6.83,

ATF eliminated the words ‘‘furnish,

loan or rent.’’ DISCUS requested

reinstatement of these options, but ATF

maintains its position that allowing

lending or renting of product displays

creates a tie or link which is

inconsistent with the goals of the FAA

Act. As a result of the Fedway decision,

any element of a promotion which

indicates a continuing character is

subject to greater scrutiny.

Several other commenters, among

them the American Brandy Association,

expressed concern that the higher dollar

limit would allow a large industry

member to ‘‘install a new $500 display

every week in a specific store.’’ For the

reasons discussed here and under

§ 6.82, the dollar limit has been set at

$300. That dollar limit and the

aforementioned amendment to allow

only outright giving or selling of

displays should also prevent the sort of

monopolization of retail premises feared

by these commenters.

Finally, several commenters requested

substitution of the word ‘‘securely’’ for

the word ‘‘permanently’’ in describing

how the advertising material would be

inscribed or affixed to the product

display. They argued that, when they

give or sell a product display, they

cannot control the actions of a retailer,

who may choose to remove such

advertising material. ATF will use the

phrase ‘‘permanently inscribed or

securely affixed’’ in this section and in

§ 6.84. However, ATF will revisit this

subject in later rulemaking if abuses are

found.

Section 6.84, Point of Sale Advertising

and Consumer Advertising Specialties

Promotions and practices currently

allowed under the regulatory exceptions

to the tied-house provisions are safe

harbors. Notice No. 794 proposed a

revision to those exceptions which

would combine several of the current

exceptions into one general regulatory

section. The approach of having a single

general section addressing all of the

similar activities gives greater flexibility

to the industry.

The proposed regulations combine the

exceptions listed in §§ 6.84, 6.85, 6.86

and 6.87 (inside signs, retailer

advertising specialties, wine lists and

consumer advertising specialties), into a

revised § 6.84, Point of sale advertising

and consumer advertising specialties.

Items intended for consumers currently

identified in section 6.47 are also

included in the proposed listing of

exceptions. The petitioners requested

that ATF amend the dollar limitation to
20416 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

reflect the adjusted rates, but instead,

under ATF’s proposed revision there

will be no limit to the dollar value of the

specified point of sale (POS) materials

furnished by an industry member to a

retail establishment.

The petitioners also requested that the

term ‘‘wine lists’’ be expanded to

include all alcoholic beverages. Instead,

the proposed 6.84 permits all lists or

menus, subject to the conditions in

paragraph (c) of the section.

Several commenters on these

proposals requested that ATF limit lists

or menus to alcoholic beverage lists or

menus. On review, ATF concurs that

there is more of a continuing character

and more potential for industry member

involvement in day to day operations at

a retailer if full menus are allowed, and

has revised this portion of the final rule

accordingly.

DISCUS requested that ‘‘mechanical

devices,’’ which had been permitted

under ‘‘inside signs’’ in the current

regulations but had been omitted from

the proposed rule, be reinstated, and

that the rule be further expanded to

include ‘‘electronic devices.’’ After

considering this and related comments,

ATF has revised the definition of ‘‘point

of sale advertising materials’’ to

eliminate the distinctions (inside signs

and retailer advertising specialties)

within that definition and simply list

examples. In that context, ATF has

added ‘‘inside signs (electric,

mechanical or otherwise)’’ to the listing

of point of sale advertising materials in

the final rule. The restriction of

electronic devices to signs is consistent

with the current regulatory approach

and prevents abuses which could occur

if all electronic devices were allowed

(since the point of sale section contains

no dollar limitations).

In their comment, E. & J. Gallo Winery

suggested that the condition in

§ 6.84(c)(2) need not be limited to

retailer and consumer advertising

specialties, and ATF concurs. In the

final rule, the condition applies to all

point of sale materials and consumer

advertising specialties.

The Forum and the American Brandy

Association suggested an annual dollar

limit per retail location. In the past,

some of the items listed in this section

had a limitation and others did not. ATF

does not believe, given the nature of the

items described and the requirement for

substantial advertising material, that

furnishing such items would create a tie

or link between the industry member

and the retailer. In the final rule, ATF

imposes no dollar limit, but will revisit

this subject if abuses are found.

Section 6.85, Temporary Retailers

ATF proposed adding a new section

which will allow furnishing things of

value to a temporary retailer. The

proposed regulations recognize that

certain retail activities of a temporary

nature, such as weekend events and

community festivals, are so minor in the

retail marketplace so as not to justify

Federal intervention; rather, State

agencies can regulate these situations to

prevent abuses. There were numerous

comments concerning this section.

DISCUS suggested extending the

provisions to cover things of value given

to a retailer for a ‘‘temporary event.’’

ATF disagrees; the reason for excepting

temporary retailers was that their shortterm existence as a retailer did not

justify Federal intervention. However,

since a permanent retailer can operate at

a ‘‘temporary event,’’ it is proper to

apply the trade practice provisions to

the industry member’s dealings with

those retailers. A number of commenters

opposed allowing any special privileges

to temporary retail dealers. ATF

believes that the impact of giving things

of value to temporary retailers, within

the limitations of the proposed rule,

would not be disruptive to the retail

marketplace. However, the issue will be

revisited if substantial abuses are found.

NABCA suggested there may be

conflicts between ATF’s definition of a

temporary retailer and any definition in

State rules. After considering the

comments, ATF has amended the

section to show that the definition of

temporary retailers applies only for

purposes of administration of the tiedhouse rules.

Section 6.88, Glassware—Section 6.89,

Tapping Accessories—Section 6.90,

Supplies—Section 6.97, Coil Cleaning

Service

The petitioners recommended that

these four sections be combined in a

new § 6.88, under the title ‘‘Equipment

and supplies,’’ because they deal with

similar types of merchandise and

impose similar conditions. As with

other Subpart D exceptions which

combine similar types of merchandise,

(viz., §§ 6.83, 6.87 and 6.89), the

petitioners felt that combining these

items in one section will enhance the

simplicity and clarity of the rules.

The petitioners also recommended

several other revisions to this

consolidated section:

Extend coil cleaning service from ‘‘a

retailer of wine or malt beverages’’ to ‘‘a

retailer’’ to provide equal treatment for wine,

malt beverages and distilled spirits;

Substitute the term ‘‘dispensing

accessories’’ in § 6.88 for ‘‘tapping

accessories’’ because the former term more

accurately describes the modern type of

accessories falling within this category and

reflects present marketplace practices where,

for example, wine also is served by

dispensing equipment;

Add cold plates to the list of examples of

‘‘dispensing accessories’’ and,

Allow carbon dioxide gas or ice to be sold

at a price not less than the cost to the

industry member who initially purchased it.

While the petitioners’ proposal to

combine various sections into one all

inclusive section covering equipment

and supplies is structurally logical and

the terminology change from tapping

equipment to dispensing equipment has

merit, some of the items listed in the

petition have not in the past been

recognized as exceptions by ATF.

ATF proposed consolidating these

sections with the following additional

changes. ATF proposed to revise the

definition of glassware to include

similar containers made of materials

other than glass. The proposed

regulation also specifies that the

industry member must pass on the cost

of initial installation of equipment to

the retailer.

The proposed regulation expanded

the original coil cleaning service

exception currently in § 6.97 to cover

distilled spirits, as well as wine and

malt beverages. Keeping the coils clean

and free of contamination is clearly in

the interest of public health. Therefore,

it is in the public interest to allow such

services without a dollar limit.

The current regulation allows

industry members to sell carbon dioxide

gas to retailers. The regulation does not

provide for the sale of other gases, such

as nitrogen, which are used in various

existing alcoholic beverage dispensing

systems. ATF proposed modifying this

regulatory section to allow industry

members to sell any gas to a retailer

provided it is used in a beverage

dispensing system. This proposal

should not be viewed as sanctioning

treatment which would change still

wine to sparkling wine.

Comments on these proposals were

generally favorable, and the regulation

is adopted as proposed. Forum

members, in their comment, stated the

extension of coil cleaning service to

distilled spirits is unnecessary, since

spirits have a longer shelf life and a

higher alcohol content. The provision

was retained, to be used at the option of

the industry member. DISCUS asked

that ATF amend the definition of

equipment and supplies by changing the

word ‘‘means’’ to the phrase ‘‘includes,

but is not limited to.’’ The use of the

proposed phrase would add an element

of uncertainty and indefiniteness to the

scope of the exception. Therefore, ATF
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations 20417

retained the more limited wording of

the proposed rule, to emphasize that the

exception is limited to these items.

Section 6.91, Samples

The current section allows an

industry member to furnish or give

samples of distilled spirits, wine or malt

beverages to a retailer. The petitioners

recommended amending this section to

provide that industry members may

furnish a maximum of 750 milliliters

(mls.) of distilled spirits samples to

qualifying retailers, rather than the

obsolete 500 milliliter (ml.) container

cited in the regulation. They further

requested that the third sentence of this

section, which limits the size of a

sample of spirits given to a State or a

subdivision of a State to 2 liters, should

be eliminated in its entirety.

ATF agreed with the petitioners that

the reference to the obsolete 500 ml size

be replaced, but proposed a maximum

of 3 liters for distilled spirits. ATF also

proposed amending the current

regulation by limiting the number of

commonly owned retail establishments

(not to exceed four per retailer) which

can be given samples. This amendment

would allow for a control State or chain

retailer to receive sufficient samples to

determine whether to purchase a

product.

Comments on these proposed changes

were mixed. The American Brandy

Association opposed any revision to this

section. DISCUS supported the change

to a spirits sample size of 3 liters and

WSWA favored a sample size of 750 ml,

since that is the most common

commercial package size. ATF has

decided to retain its proposal to allow

a sample size of 3 liters for spirits.

The proposal to limit the number of

samples which may be given to a

‘‘chain’’ of retail outlets met with a

number of adverse comments. NABCA,

Hinman & Carmichael, DISCUS and

Wine Institute all noted that first,

individual outlets within a chain may

have the ability to request that certain

items be purchased, even though the

order is placed centrally; and second,

that samples are also provided to

retailers so their personnel can be

sufficiently familiar with a brand to

recommend or use it. Limiting samples

to four outlets per chain would restrict

an industry member’s ability to promote

its products. In light of these comments,

ATF is removing the proposed

limitation in the number of samples

which may be given to a chain from the

final rule.

Several commenters also addressed an

area which had not been changed in the

proposed amendment. E. & J. Gallo

Winery and Hinman & Carmichael both

noted that, in an industry as dynamic as

the alcoholic beverage industry, it is not

practical to limit samples to retailers

who have not previously purchased a

brand from an industry member. They

suggested a time limit of six months or

a year. The final rule has been changed

to allow samples to be given to a retailer

who has not purchased the brand from

the industry member within the last 12

months.

Section 6.92, Newspaper Cuts

In Notice No. 794, ATF proposed to

change the word ‘‘loaned’’ to the word

‘‘lent’’ in this section. However, in view

of the change to § 6.84, which

eliminates the options of renting or

lending product displays, ATF has

determined that for consistency, this

section should permit only permanent

transfers. Therefore, the words

‘‘furnished,’’ ‘‘loaned’’ and ‘‘rented’’

have been removed from this section.

Section 6.93, Combination Packages

In general, section 6.93 addresses

combination packages where an

industry member packages a nonalcoholic item with distilled spirits,

wine, or malt beverages and, in

particular, paragraph (c) requires that

the cost of the combination package be

passed on to the retailer. The petitioners

recommend deleting paragraph (c) of

section 6.93 because they feel the

condition imposed by the paragraph is

really a pricing decision outside of

ATF’s regulation under the FAA Act.

ATF proposed removing all the

conditions currently imposed on

combination packages. Some

commenters supported this proposal,

but NABCA expressed concern that, as

written, the exception could be used as

a subterfuge to deliver non-alcohol

items to the retailer with no intention

that they be passed along to consumers.

Accordingly, ATF has amended this

section in the final rule to clarify that

the combination packages must be

intended for sale to consumers.

Section 6.94, Educational Seminars

ATF proposed to clarify the final

sentence, ‘‘This does not authorize an

industry member to pay a retailer’s

expenses in conjunction with an

educational seminar.’’ by adding the

explanatory phrase ‘‘(such as travel,

lodging, and meals).’’

Many commenters objected to

excluding meals and, upon

consideration of the comments, ATF has

decided to adopt a revised final rule

which will permit an industry member

to provide nominal hospitality in

conjunction with an educational

seminar.

Section 6.96, Consumer Promotions

ATF proposed revising the text of

section 6.96(a), Coupons, to make the

language consistent with the other

sections and to simplify the conditions.

Hinman & Carmichael noted that the

restriction in paragraph (a)(1) of the

proposed rule, that redemption of the

coupons may not be limited to a

particular retailer or group of retailers,

could be read as preventing promotions

by small producers who have a limited

area of distribution, or regional

promotions by larger producers. This

restriction, which is also in the current

§ 6.96(a), was intended to prevent the

benefit of a promotion from going to

specific, named retailers. ATF modified

the provision in the final rule to require

that all retailers within the market

where the offer is made may redeem

such coupons.

Section 6.98, Advertising Service

The petitioners recommended adding

the clause ‘‘except where the exclusive

retailer in the state is a state agency’’ to

paragraph (a) to read as follows:

‘‘(a) The advertisement does not also

contain the retail price of the product,

except where the exclusive retailer in

the state is a state agency, and * * *’’

The petitioners argue that the

objectives of section 105(b) of the FAA

Act are not served by prohibiting

industry members from advertising

control States’ prices. The petitioners’

proposed revision would permit an

industry member to advertise a control

State’s state-wide retail prices as

determined by that State for product

sold within the State. The petitioners

feel that in such circumstances, there is

no possibility of any ‘‘inducement’’ or

‘‘exclusion’’ that would contravene the

intent or purpose of the FAA Act.

ATF proposed amending the current

regulation in accordance with the

industry request, modified to reflect

situations in which the sole retailer in

a jurisdiction is a State or local agency.

ATF also proposed to delete the

condition that an advertisement placed

by an industry member may not

mention events or promotions at a retail

establishment.

In response to several comments, ATF

is modifying the final rule to specify

‘‘State or political subdivision of a

State,’’ for consistency with the

language in other sections of the

regulations. DISCUS suggested using the

term ‘‘unaffiliated’’ rather than ‘‘two or

more’’ retailers, to make it clear that an

advertisement can not list outlets of a

single chain, and that change was

adopted. NABCA additionally requested

that the final rule show that prices may
20418 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

be listed for ‘‘a private retailer acting as

an agent’’ for a State or local agency.

ATF is not adopting this suggestion at

this time. The trend toward

privatization of State agency sales is an

evolving area. States which are

privatizing are doing so in various ways.

Therefore, it is not possible to set a

single rule which will cover these

changes.

Section 6.99, Stocking, Rotation, and

Pricing Service

The petitioners recommended

revising this section to allow industry

members to ‘‘recommend shelf plans.’’

The petitioners stated that this revision

would permit an industry member to

provide services to a retailer consistent

with present day marketplace realities.

ATF proposed to amend this section in

line with the petitioners’ proposal.

Most commenters approved of this

proposal, and it is adopted as proposed.

However, serious concerns were raised

by Kendall-Jackson Winery and

American Vintners’ Association about

the potential for abuse of shelf plans or

schematics, through biased analysis of

retailer needs or by an industry member

supplying additional services which are

not hereby authorized. ATF will revisit

this subject if it appears the new

exception is being abused or creating a

situation in which a retailer becomes

dependent on a single industry

member’s purchasing advice.

Section 6.100, Participation in Retailer

Association Activities

Section 6.100 permits industry

members to participate in retailer

association activities under certain

circumstances. Paragraphs (b) and (d)

permit rental of display booth space and

purchase of tickets or payment of

registration fees, respectively. Each of

these paragraphs contains the phrase ‘‘if

* * * not excessive and * * * the same

as paid by all exhibitors.’’ ATF

proposed amending the section to delete

‘‘not excessive’’ and specifying the fees

must be the same as the fees paid by all

exhibitors ‘‘at that event.’’ ATF also

proposed raising the limitation for

payments for advertisements in

programs or brochures authorized by

paragraph (e) from $100 (as adjusted) to

$500.

Several commenters objected to the

large increase in the dollar limitation, as

discussed earlier. ATF is revising the

dollar limit to $300 in the final rule.

NABCA pointed out that at some retailer

activities, there are no exhibitors, so the

term ‘‘exhibitors’’ may not always be

appropriate in paragraph (d). ATF

concurs, and has substituted the phrase,

‘‘attendees, participants or exhibitors’’

in the final rule.

Section 6.101, Merchandise

Paragraph (a) currently provides that

an industry member who also is

engaged in business as a bona fide

vendor of other merchandise may sell

such merchandise to a retailer if three

conditions are met, the first of which is

that the merchandise is ‘‘sold at its fair

market value.’’ The petitioners

recommended changing this condition

to state that the merchandise is

‘‘furnished, distributed, or sold

according to the custom and practice of

that business.’’ The petitioners also

recommended eliminating paragraph (b)

regarding things of value covered in

other sections of Part 6 since they

believe it is redundant and unnecessary

in light of other sections of Subpart D.

ATF did not propose either of these

changes. Section 6.101 excepts sales

transactions by industry members who

are engaged in the business as bona fide

vendors of other merchandise in

addition to alcoholic beverages. This

section sanctions sales of other

merchandise to retailers in addition to

alcoholic beverages if the merchandise

is sold at its fair market value, not in

combination with distilled spirits,

wines, or malt beverages, and the

merchandise is itemized separately on

the industry member’s invoices and

other records. The records are necessary

so that ATF can determine the real cost

of the merchandise to the industry

member and whether the industry

member is reselling the merchandise to

retailers at its fair market value.

Likewise, ATF needs these records to

determine whether the industry member

is a bona fide vendor of the merchandise

or whether it is using the merchandise

as a means to induce.

Accordingly, ATF proposed to revise

the records requirement of the

regulation to state that, first, acquisition

costs must appear on the industry

member’s purchase invoices (available

upon request to ATF) and, second, the

merchandise and the distilled spirits,

wines, or malt beverages sold to the

retailer in a single sales transaction

must be itemized separately on the same

invoice.

DISCUS, in its comment reiterated the

petitioners’ original requests for

changes, and noted ATF’s proposal to

require alcoholic beverages and other

merchandise to be shown on the same

invoice was not practical. WSWA

commented further:

* * * [W]e support the objective of assuring

an audit trail when other items are offered for

sale in conjunction with alcoholic beverages.

We view as impractical and unnecessarily

burdensome the proposal to require that

‘‘merchandise and distilled spirits, wines or

malt beverages sold in a single transaction’’

be ‘‘itemized separately on the same invoice

covering the sales transaction.’’

Inventory systems commonly print

invoices that sequence items sold by their

warehouse location. Alcohol beverages are

routinely stored separately from other items.

It is not unusual for delivery of non-alcoholic

items to be made on separate days or by a

separate, but affiliated company having its

own invoicing system. Furthermore, some

states forbid using the same invoice for

alcohol beverages and other items.

It should be sufficient to require that

invoices for sales of other items with alcohol

beverages to a retailer be maintained in a

manner similar to invoices for alcohol

beverages.

In response to these comments, ATF

is removing the requirement for

showing alcoholic beverages and other

merchandise on the same invoice.

Instead, the final rule will require that

the sale price of each commodity be on

the records covering the transaction.

ATF still believes the change requested

by DISCUS, from ‘‘sold at its fair market

value’’ to ‘‘furnished, distributed or sold

according to the custom and practice of

that business’’ is not appropriate. The

requested language appears to sanction

giving things of value (other

merchandise) to retailers, in direct

conflict with the statute. Additionally,

the phrase ‘‘custom and practice’’ is

vague and does not provide clarity to

the industry member relying on the

regulations. Paragraph (b), which

DISCUS advocates removing, is also

retained in the final rule.

Hinman & Carmichael expressed a

different concern in their comment on

the proposed revision to § 6.101:

Section 6.72 allows certain combination

sales of alcoholic brands or products, but

§ 6.101 seems to take this away if the

producer is also a producer (as opposed to a

vendor) of nonalcoholic beverage products. A

fairly common marketing situation in

California is the packaging of gift packs of

wine and olive oil, or wine and another

commodity produced by the winery. In this

situation, there is no acquisition cost to

report.

ATF has modified the wording of the

section to make it clear that the

exception applies to industry members

who are bona fide producers or vendors

of other merchandise, if the conditions

are met. As stated earlier, § 6.72 only

applies to ‘‘products’’ that are distilled

spirits, wine or malt beverages. In

addition, in response to this comment

and a request by DISCUS, a cross

reference to the exception for

combination packaging under § 6.93 has

been added.
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations 20419

Section 6.102, Outside Signs

ATF proposed a new section allowing

outside signs in certain circumstances

and with a $500 limit. A few

commenters opposed any change in

ATF’s treatment of outside signs, while

others, while not opposing the proposal,

expressed concern that the proposed

rule did not contain adequate safeguards

against abuse. These commenters

recommended including various

conditions and limitations in proposed

§ 6.102, among them:

Requiring that the product or the industry

member’s name appear on the sign for

consistency with other exceptions under

Subpart D;

Lowering the dollar limitation, though no

specific amount was proposed;

Clarifying whether the word ‘‘furnished’’

includes leasing;

Specifying frequency with which signs

may be provided;

Stating whether industry members may

pool this allowance to provide a sign worth

more than the dollar limitation and limiting

the number of brands which may appear on

a sign;

Limiting the location of the sign to the wall

or roof of a building adjacent to or occupied

by a retailer, or stating whether retail

premises include roofs and parking lots; and

Specifying whether the industry member

may pay for installation, repair and

maintenance of the sign.

After a careful review of the

comments, ATF has decided to adopt a

modified version of § 6.102 which

permits signs to be given or sold on the

following conditions:

(a) The sign must bear conspicuous

and substantial advertising matter about

the product or the industry member

which is permanently inscribed or

securely affixed,

(b) The retailer is not compensated,

directly or indirectly such as through a

sign company, for displaying the signs,

and

(c) The cost of the signs may not

exceed $400.

These changes were made to take into

account the concerns expressed by the

commenters and to make this section

more consistent with the rest of Subpart

D. Interested parties may petition ATF

in the future to reconsider the

conditions under which outside signs

may be provided to retailers.

27 CFR Part 8, Exclusive Outlet

New administrative provisions and

definition changes were discussed

previously.

Section 8.23, Third Party Arrangements

The current regulation can be

interpreted to mean that a violation of

the section could occur if a third party

requires the retailer to use an industry

member’s product without the

knowledge of the industry member. ATF

proposed clarifying that the industry

member’s requirement, by agreement or

otherwise, with a third party is

necessary to violate this section.

However, the requirement need not

originate with the industry member. If

the industry member knows or is aware

that the third party controlling the

retailer extends such a requirement with

respect to the products of the industry

member making payments under the

arrangement, and the industry member

avails itself of such requirement, then

the requirement within the proscription

of the FAA Act is present.

As discussed in relation to the

comments on § 6.42, ATF concurs that

the industry member must know or be

able to expect that the retailer will be

controlled by the third party, in other

words, that the industry member will

have ‘‘the benefit of the deal.’’ This is

not a new position; ATF published

Industry Circular 75–16 to discuss this

interpretation of the exclusive outlet

rules. The proposed language is adopted

in the final rule.

27 CFR Part 10, Commercial Bribery

New administrative provisions and

definition changes were discussed

previously.

Section 10.4, Jurisdictional Limits

ATF proposed amending this section

to correct the wording of paragraph

(a)(1), which appeared in error in ATF

TD–74 on September 3, 1980 (45 FR

63242). There were no objections, and

this proposal is adopted in the final

rule.

Section 10.23, Gifts or Payments to

Wholesalers

While no specific change was

proposed to this section, ATF asked for

comments as to whether the purpose of

the section should be clarified. ATF

gave an example of a sales

representative incentive program which

it views as an instance of commercial

bribery since it involves the furnishing

of a premium or bonus to an employee

of a trade buyer: An industry member

and a trade buyer meet to discuss,

among other things, upcoming programs

to promote a particular product or

products. They agree that specific

promotions will be run over a period of

time. Some of these agreed upon

promotions include sales incentive

programs in which sales representatives

can win money and/or prizes. At the

conclusion of the meeting, the parties

agree or understand, or it is implied,

that all or part of the funding for these

sales representative incentive programs

will come from monies that have been

or will be provided by the industry

member, usually under the guise of

unrestricted funds.

Several commenters addressed this

issue, and cited ATF Ruling 77–17 as

allowing the sort of promotion

described in the example above. ATF

disagrees with this interpretation of

ATF Ruling 77–17, and notes that ATF

Ruling 77–17 became obsolete when the

regulations in 27 CFR Part 10 were

originally issued in 1980 (T.D. ATF–74

45 FR 63251). In situations where the

industry member and the trade buyer

have agreed upon the promotions

benefiting employees and other

representatives and such promotions are

funded by the industry member, it

cannot be said that the money is being

furnished to the entity in any context

other than as a conduit for the employee

or representative. No change was made

to the language of § 10.23 in the final

rule.

27 CFR Part 11, Consignment Sales

New administrative provisions and

definition changes were discussed

previously.

Section 11.24, Other than Bona Fide

Sale

Section 105(d) of the Act addresses

‘‘consignment sales.’’ Section 105(d)

describes consignment sales to include

conditional sales (i.e., where an

industry member is not paid for

products until they are sold by a trade

buyer); sales with a privilege of return

(i.e., where an industry member agrees

to repurchase products that remain

unsold by the trade buyer at the end of

a specified period of time); and other

sales on any basis otherwise than a bona

fide sale.

Consignment sales are essentially

arrangements pursuant to which the

risk, or cost, of non-sale of a product is

retained by an industry member, or

transferred from a trade buyer back to an

industry member at the expiration of a

specified time period. ATF proposed

adding a new § 11.24 to the

consignment sale regulations to specify

certain other arrangements, in addition

to conditional sales and sales with a

privilege of return, in which the risk of

non-sale is transferred from the trade

buyer back to the industry member and

which therefore do not constitute bona

fide sales. The only example proposed

was the payment of ‘‘slotting

allowances,’’ which were discussed at

length earlier in this supplemental

information.

After a review of the comments, ATF

has decided the proposed language

should be modified to include purchase
20420 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

or rental of display, storage, floor or

warehouse space at premises owned or

controlled by a retailer. ATF substituted

the term ‘‘retailer’’ for ‘‘trade buyer’’ in

this provision to clarify its application.

Section 11.32, Defective Products

The current regulation specifically

allows products which are

unmarketable for specific reasons to be

exchanged for an equal quantity of

identical products, but is silent as to

whether such products may be returned

for cash or credit. Industry Circular 81–

11 states that a return of such products

for cash or credit is not precluded by

§ 11.32. ATF proposed changing this

regulation to incorporate the provisions

of Industry Circular 81–11 into the

section. The proposed revision also

deleted references to mutilated and

missing strip stamps since they are no

longer a requirement. No objection to

these changes was received, however,

DISCUS pointed out that allowing

returns for mutilated or missing tamper

evident closures would ‘‘clearly serve

the public interest.’’ ATF concurs and

has incorporated that language in the

final rule.

Section 11.34, Products Which May No

Longer Be Lawfully Sold

ATF proposed revising the current

regulation to allow the return of a

product if, due to a change in law or

regulation over which the trade buyer

has no control, a particular size or brand

is no longer permitted to be sold. The

addition of the phrase ‘‘over which the

trade buyer has no control’’ was

intended to address situations in which

the trade buyer is a State agency with

the authority to delist a particular

product.

The Forum comment said this section,

as proposed, and the preamble

discussion were confusing. ATF

intended to make it clear that by

administratively delisting a particular

product, a State or a political

subdivision of a State acting as a trade

buyer could not gain a right of return

that would not be available to a

commercial trade buyer. On review,

ATF notes that a State legislature may

have other, legitimate, reasons for

prohibiting sale of a particular product,

so the wording of the section has been

changed from ‘‘law or regulation’’ to

‘‘regulation or administrative

procedure.’’

Section 11.35, Termination of Business

ATF is revising this section to cite

§ 11.39 instead of the incorrect § 11.40

citation.

Obsolete Rulings and Circulars

The following revenue ruling, ATF

rulings and industry circulars are

incorporated into the regulations or

superseded by amended regulations;

they will become obsolete on the

effective date of these regulations:

Revenue Ruling 54–162, 1954–1 C.B.

340; ATF Ruling 81–1, 1981–2 ATF Q.B.

27 and ATF Ruling 81–6, 1981–4 ATF

Q.B. 23; Industry Circulars 81–7, 81–11

and 86–16. ATF Ruling 77–17 was made

obsolete by T.D. ATF–74 (45 FR 63242),

effective November 24, 1980, but a

number of commenters cited it in this

rulemaking.

Executive Order 12866

It has been determined that this final

rule is not a significant regulatory action

as defined by Executive Order 12866.

Therefore, a Regulatory Assessment is

not required.

Regulatory Flexibility Act

It is hereby certified under the

provisions of section 3 of the Regulatory

Flexibility Act (5 U.S.C. 605(b)) that this

final rule will not have a significant

economic impact on a substantial

number of small entities. Accordingly, a

regulatory flexibility analysis is not

required. In Notice No. 794, we

specifically asked for comments as to

whether small businesses would be

significantly affected by our proposals.

Wine Institute, the one commenter who

addressed this issue, stated that the

rules, as proposed, would not have a

significant impact on a substantial

number of small entities. A majority of

the commenters who wrote in support

of our proposals concerning slotting fees

said that any change in our policy

would have a significant adverse impact

on their small businesses. The final rule

adopts the proposals in this area, so

there should be no adverse impact.

A final area of concern to commenters

was ATF’s proposal to raise dollar limits

on things of value which may be given

to retailers under Subpart D of Part 6.

ATF proposed raising the limit on

certain promotional items from $160 to

$500, and a number of commenters

noted this large an increase would place

small and medium size businesses at a

competitive disadvantage. In view of

these comments, ATF is adopting a limit

of $300, a more moderate increase over

the existing dollar limit.

Paperwork Reduction Act

The collection of information

contained in this final rule has been

approved by the Office of Management

and Budget for review in accordance

with the Paperwork Reduction Act of

1980 (44 U.S.C. 3504(h)). Comments on

the collection of information should be

directed to the Office of Management

and Budget, Attention: Desk Officer for

the Department of the Treasury, Bureau

of Alcohol, Tobacco and Firearms,

Office of Information and Regulatory

Affairs, Washington, DC 20503, with

copies to: Reports Management Officer,

Information Programs Branch, Room

3450, Bureau of Alcohol, Tobacco and

Firearms, 650 Massachusetts Avenue,

NW, Washington, DC 20226.

The collection of information in this

regulation is in 27 CFR Parts 6, 8, and

10. This information is required by ATF

to protect the public interest and ensure

fair trade competition in the alcoholic

beverage industry. The information will

be used to analyze promotional

activities as part of an investigation. The

likely respondents are industry

members.

The authority to require reports which

is stated in this final rule is to be used

on a case-by-case basis only, and does

not apply to industry members in

general. The estimated number of

respondents in any given year is 20,

with one report being required from

each respondent. The estimated average

annual burden associated with this

collection of information is 1 hour per

respondent.

Drafting Information

The principal author of this document

is Marjorie Ruhf, Wine, Beer, Spirits and

Regulations Branch, Bureau of Alcohol,

Tobacco and Firearms. However, other

personnel of ATF and the Treasury

Department participated in developing

the document.

List of Subjects

27 CFR Part 6

Advertising, Alcohol and alcoholic

beverages, Antitrust, Credit and trade

practices.

27 CFR Part 8

Alcohol and alcoholic beverages,

Antitrust, and Trade practices.

27 CFR Part 10

Alcohol and alcoholic beverages,

Antitrust, and Trade practices.

27 CFR Part 11

Alcohol and alcoholic beverages,

Antitrust, and Trade practices.

Issuance

Title 27, Chapter I, is amended as

follows:

PART 6—‘‘TIED-HOUSE’’

Paragraph 1. The authority citation

for part 6 is revised to read as follows:
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations 20421

Authority: 15 U.S.C. 49–50; 27 U.S.C. 202

and 205; 44 U.S.C. 3504(h).

Par. 2. Section 6.1 is revised to read

as follows:

§ 6.1 General.

The regulations in this part, issued

pursuant to section 105 of the Federal

Alcohol Administration Act (27 U.S.C.

205), specify practices that are means to

induce under section 105(b) of the Act,

criteria for determining whether a

practice is a violation of section 105(b)

of the Act, and exceptions to section

105(b) of the Act. This part does not

attempt to enumerate all of the practices

that may result in a violation of section

105(b) of the Act. Nothing in this part

shall operate to exempt any person from

the requirements of any State law or

regulation.

§ 6.4 [Amended]

Par. 3. Section 6.4 is amended by

removing the reference to ‘‘section 5(b)

of the Federal Alcohol Administration

Act’’ where it appears in paragraph (b)

and replacing it with a reference to

‘‘section 105(b) of the Federal Alcohol

Administration Act’’.

Par. 4. Section 6.5 is added to subpart

A to read as follows:

§ 6.5 Administrative provisions.

(a) General. The Act makes applicable

the provisions including penalties of

sections 49 and 50 of Title 15, United

States Code, to the jurisdiction, powers

and duties of the Director under this

Act, and to any person (whether or not

a corporation) subject to the provisions

of law administered by the Director

under this Act. The Act also provides

that the Director is authorized to

require, in such manner and such form

as he or she shall prescribe, such reports

as are necessary to carry out the powers

and duties under this chapter.

(b) Examination and Subpoena. The

Director or any authorized ATF officers

shall at all reasonable times have access

to, for the purpose of examination, and

the right to copy any documentary

evidence of any person, partnership, or

corporation being investigated or

proceeded against. The Director shall

also have the power to require by

subpoena the attendance and testimony

of witnesses and the production of all

such documentary evidence relating to

any matter under investigation, upon a

satisfactory showing that the requested

evidence may reasonably be expected to

yield information relevant to any matter

being investigated under the Act.

(c) Reports required by the Deputy

Associate Director (Regulatory

Enforcement Programs).

(1) General. The Deputy Associate

Director (Regulatory Enforcement

Programs) may, as part of a trade

practice investigation of an industry

member, require such industry member

to submit a written report containing

information on sponsorships,

advertisements, promotions, and other

activities pertaining to its business

subject to the Act conducted by, or on

behalf of, or benefiting the industry

member.

(2) Preparation. The report will be

prepared by the industry member in

letter form, executed under the penalties

of perjury, and will contain the

information specified by the Deputy

Associate Director (Regulatory

Enforcement Programs). The period

covered by the report will not exceed

three years.

(3) Filing. The report will be filed in

accordance with the instructions of the

Deputy Associate Director (Regulatory

Enforcement Programs).

(Approved by the Office of Management and

Budget under control number 1512–0392)

Par. 5. Section 6.11 is amended by

adding the definitions for ‘‘ATF officer,’’

‘‘brand,’’ ‘‘Deputy Associate Director

(Regulatory Enforcement Programs)’’

and ‘‘Director’’ and by removing the

term ‘‘retailer establishment’’ and

adding in its place ‘‘retail

establishment’’ and placing it in

appropriate alphabetical order.

§ 6.11 Meaning of terms.

* * * * *

ATF officer. An officer or employee of

the Bureau of Alcohol, Tobacco and

Firearms (ATF) authorized to perform

any function relating to the

administration or enforcement of this

part Brand. For purposes of

administering this part, the term

‘‘brand’’ refers to differences in the

brand name of a product or in the nature

of a product. Examples of different

brands are products having a different

brand name or class, type, or kind

designation; appellation of origin

(wine); vintage date (wine); age

(distilled spirits); or percentage of

alcohol. Differences in packaging such

as difference in label design or color, or

a different style, type or size of

container are not considered different

brands.

Deputy Associate Director (Regulatory

Enforcement Programs). The principal

ATF headquarters official responsible

for administering regulations in this

part. Director. The Director, Bureau of

Alcohol, Tobacco and Firearms, the

Department of the Treasury,

Washington, DC.

* * * * *

Par. 6. Section 6.25 is revised to read

as follows:

§ 6.25 General.

The act by an industry member of

acquiring or holding any interest in any

license (State, county or municipal)

with respect to the premises of a retailer

constitutes a means to induce within the

meaning of the Act.

Par. 7. Section 6.27 is amended by

revising paragraph (a) to read as follows:

§ 6.27 Proprietary interest.

(a) Complete ownership. Outright

ownership of a retail business by an

industry member is not an interest

which may result in a violation of

section 105(b)(1) of the Act.

* * * * *

Par. 8. Section 6.31 is revised to read

as follows:

§ 6.31 General.

The act by an industry member of

acquiring an interest in real or personal

property owned, occupied, or used by

the retailer in the conduct of business

constitutes a means to induce within the

meaning of the Act.

Par. 9. Section 6.33 is amended by

revising paragraph (a) to read as follows:

§ 6.33 Proprietary interest.

(a) Complete ownership. Outright

ownership of a retail business by an

industry member is not an interest that

may result in a violation of section

105(b)(2) of the Act.

* * * * *

Par. 10. Section 6.41 is revised to read

as follows:

§ 6.41 General.

Subject to the exceptions listed in

Subpart D, the act by an industry

member of furnishing, giving, renting,

lending, or selling any equipment,

fixtures, signs, supplies, money,

services, or other things of value to a

retailer constitutes a means to induce

within the meaning of the Act.

Par. 11. Section 6.42 is revised to read

as follows:

§ 6.42 Indirect inducement through third

party arrangements.

(a) General. The furnishing, giving,

renting, lending, or selling of

equipment, fixtures, signs, supplies,

money, services, or other thing of value

by an industry member to a third party,

where the benefits resulting from such

things of value flow to individual

retailers, is the indirect furnishing of a

thing of value within the meaning of the

Act. Indirect furnishing of a thing of

value includes, but is not limited to,

making payments for advertising to a

retailer association or a display
20422 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

company where the resulting benefits

flow to individual retailers.

(b) Exceptions. An indirect

inducement will not arise where the

thing of value was furnished to a retailer

by the third party without the

knowledge or intent of the industry

member, or the industry member did

not reasonably foresee that the thing of

value would have been furnished to a

retailer. Things which may lawfully be

furnished, given, rented, lent, or sold by

industry members to retailers under

subpart D may also be furnished directly

by a third party to a retailer.

§ 6.43 [Amended]

Par. 12. Section 6.43 is amended by

removing the reference ‘‘§§ 6.88 and

6.89,’’ where it appears in the first

sentence and replacing it with ‘‘§ 6.88,’’.

§§ 6.46 and 6.47 [Removed and reserved]

Par. 13. Sections 6.46 and 6.47 are

removed and reserved.

Par. 14. Section 6.51 is revised to read

as follows:

§ 6.51 General.

The act by an industry member of

paying or crediting a retailer for any

advertising, display, or distribution

service constitutes a means to induce

within the meaning of the Act, whether

or not the advertising, display, or

distribution service received by the

industry member in these instances is

commensurate with the amount paid

therefor. This includes payments or

credits to retailers that are merely

reimbursements, in full or in part, for

such services purchased by a retailer

from a third party.

Par. 15. Section 6.61 is revised to read

as follows:

§ 6.61 Guaranteeing loans.

The act by an industry member of

guaranteeing any loan or the repayment

of any financial obligation of a retailer

constitutes a means to induce within the

meaning of the Act.

Par. 16. Section 6.65 is revised to read

as follows:

§ 6.65 General.

Extension of credit by an industry

member to a retailer for a period of time

in excess of 30 days from the date of

delivery constitutes a means to induce

within the meaning of the Act.

Par. 17. The text of § 6.67 is added to

read as follows:

§ 6.67 Sales to retailer whose account is in

arrears.

An extension of credit (for product

purchases) by an industry member to a

retailer whose account is in arrears does

not constitute a means to induce within

the meaning of the Act so long as such

retailer pays in advance or on delivery

an amount equal to or greater than the

value of each order, regardless of the

manner in which the industry member

applies the payment in its records.

Par. 18. Section 6.71 is revised to read

as follows:

§ 6.71 Quota sales.

The act by an industry member of

requiring a retailer to take and dispose

of any quota of distilled spirits, wine, or

malt beverages constitutes a means to

induce within the meaning of the Act.

Par. 19. Section 6.72 is revised to read

as follows:

§ 6.72 ‘‘Tie-in’’ sales.

The act by an industry member of

requiring that a retailer purchase one

product (as defined in § 6.11) in order

to obtain another constitutes a means to

induce within the meaning of the Act.

This includes the requirement to take a

minimum quantity of a product in

standard packaging in order to obtain

the same product in some type of

premium package, i.e., a distinctive

decanter, or wooden or tin box. This

also includes combination sales if one

or more products may be purchased

only in combination with other

products and not individually.

However, an industry member is not

precluded from selling two or more

kinds or brands of products to a retailer

at a special combination price, provided

the retailer has the option of purchasing

either product at the usual price, and

the retailer is not required to purchase

any product it does not want. See § 6.93

for combination packaging of products

plus non-alcoholic items.

Par. 20. Section 6.81 is revised to read

as follows:

§ 6.81 General.

(a) Application. Section 105(b)(3) of

the Act enumerates means to induce

that may be unlawful under the

subsection, subject to such exceptions

as are prescribed in regulations, having

due regard for public health, the

quantity and value of articles involved,

established trade customs not contrary

to the public interest, and the purposes

of that section. This subpart implements

section 105(b)(3) of the Act and

identifies the practices that are

exceptions to section 105(b)(3) of the

Act. An industry member may furnish a

retailer equipment, inside signs,

supplies, services, or other things of

value, under the conditions and within

the limitations prescribed in this

subpart.

(b) Recordkeeping Requirements.

(1) Industry members shall keep and

maintain records on the permit or

brewery premises, for a three year

period, of all items furnished to retailers

under §§ 6.83, 6.88, 6.91, 6.96(a), and

6.100 and the commercial records

required under § 6.101. Commercial

records or invoices may be used to

satisfy this recordkeeping requirement if

all required information is shown.

These records shall show:

(i) The name and address of the

retailer receiving the item;

(ii) The date furnished;

(iii) The item furnished;

(iv) The industry member’s cost of the

item furnished (determined by the

manufacturer’s invoice price); and

(v) Charges to the retailer for any item.

(2) Although no separate

recordkeeping violation results, an

industry member who fails to keep such

records is not eligible for the exception

claimed.

(Approved by the Office of Management and

Budget under control number 1512–0392)

§ 6.82 [Removed and Reserved]

Par. 21. Section 6.82 is removed and

reserved.

Par. 22. Section 6.83 is revised to read

as follows:

§ 6.83 Product displays.

(a) General. The act by an industry

member of giving or selling product

displays to a retailer does not constitute

a means to induce within the meaning

of section 105(b)(3) of the Act provided

that the conditions prescribed in

paragraph (c) of this section are met.

(b) Definition. ‘‘Product display’’

means any wine racks, bins, barrels,

casks, shelving, or similar items the

primary function of which is to hold

and display consumer products.

(c) Conditions and limitations.

(1) The total value of all product

displays given or sold by an industry

member under paragraph (a) of this

section may not exceed $300 per brand

at any one time in any one retail

establishment. Industry members may

not pool or combine dollar limitations

in order to provide a retailer a product

display valued in excess of $300 per

brand. The value of a product display is

the actual cost to the industry member

who initially purchased it.

Transportation and installation costs are

excluded.

(2) All product displays must bear

conspicuous and substantial advertising

matter on the product or the industry

member which is permanently inscribed

or securely affixed. The name and

address of the retailer may appear on

the product displays.

(3) The giving or selling of such

product displays may be conditioned

upon the purchase of the distilled
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations 20423

spirits, wine, or malt beverages

advertised on those displays in a

quantity necessary for the initial

completion of such display. No other

condition can be imposed by the

industry member on the retailer in order

for the retailer to receive or obtain the

product display.

Par. 23. Section 6.84 is revised to read

as follows:

§ 6.84 Point of sale advertising materials

and consumer advertising specialties.

(a) General. The act by an industry

member of giving or selling point of sale

advertising materials and consumer

advertising specialties to a retailer does

not constitute a means to induce within

the meaning of section 105(b)(3) of the

Act provided that the conditions

prescribed in paragraph (c) of this

section are met.

(b) Definitions.

(1) Point of sale advertising materials

are items designed to be used within a

retail establishment to attract consumer

attention to the products of the industry

member. Such materials include, but are

not limited to: posters, placards,

designs, inside signs (electric,

mechanical or otherwise), window

decorations, trays, coasters, mats, menu

cards, meal checks, paper napkins, foam

scrapers, back bar mats, thermometers,

clocks, calendars, and alcoholic

beverage lists or menus.

(2) Consumer advertising specialties

are items that are designed to be carried

away by the consumer, such as trading

stamps, nonalcoholic mixers, pouring

racks, ash trays, bottle or can openers,

cork screws, shopping bags, matches,

printed recipes, pamphlets, cards,

leaflets, blotters, post cards, pencils,

shirts, caps, and visors.

(c) Conditions and limitations.

(1) All point of sale advertising

materials and consumer advertising

specialties must bear conspicuous and

substantial advertising matter about the

product or the industry member which

is permanently inscribed or securely

affixed. The name and address of the

retailer may appear on the point of sale

advertising materials.

(2) The industry member may not

directly or indirectly pay or credit the

retailer for using or distributing these

materials or for any expense incidental

to their use.

Par. 24. Section 6.85 is revised to read

as follows:

§ 6.85 Temporary retailers.

(a) General. The furnishing of things

of value to a temporary retailer does not

constitute a means to induce within the

meaning of section 105(b)(3) of the Act.

(b) Definition. For purposes of

administering this part, a temporary

retailer is a dealer who is not engaged

in business as a retailer for more than

four consecutive days per event, and for

not more than five events in a calendar

year.

§§ 6.86 and 6.87 [Removed and reserved]

Par. 25. Sections 6.86 and 6.87 are

removed and reserved.

Par. 26. Section 6.88 is revised to read

as follows:

§ 6.88 Equipment and supplies.

(a) General. The act by an industry

member of selling equipment or

supplies to a retailer does not constitute

a means to induce within the meaning

of section 105(b)(3) of the Act if the

equipment or supplies are sold at a

price not less than the cost to the

industry member who initially

purchased them, and if the price is

collected within 30 days of the date of

the sale. The act by an industry member

of installing dispensing accessories at

the retailer’s establishment does not

constitute a means to induce within the

meaning of the Act as long as the

retailer bears the cost of initial

installation. The act by an industry

member of furnishing, giving, or selling

coil cleaning service to a retailer of

distilled spirits, wine, or malt beverages

does not constitute a means to induce

within the meaning of section 105(b)(3)

of the Act.

(b) Definition. ‘‘Equipment and

supplies’’ means glassware (or similar

containers made of other material),

dispensing accessories, carbon dioxide

(and other gasses used in dispensing

equipment) or ice. ‘‘Dispensing

accessories’’ include items such as

standards, faucets, cold plates, rods,

vents, taps, tap standards, hoses,

washers, couplings, gas gauges, vent

tongues, shanks, and check valves.

§§ 6.89 and 6.90 [Removed and reserved]

Par. 27. Sections 6.89 and 6.90 are

removed and reserved.

Par. 28. Section 6.91 is revised to read

as follows:

§ 6.91 Samples.

The act by an industry member of

furnishing or giving a sample of

distilled spirits, wine, or malt beverages

to a retailer who has not purchased the

brand from that industry member within

the last 12 months does not constitute

a means to induce within the meaning

of section 105(b)(3) of the Act. For each

retail establishment the industry

member may give not more than 3

gallons of any brand of malt beverage,

not more than 3 liters of any brand of

wine, and not more than 3 liters of

distilled spirits. If a particular product

is not available in a size within the

quantity limitations of this section, an

industry member may furnish to a

retailer the next larger size.

Par. 29. Section 6.92 is revised to read

as follows:

§ 6.92 Newspaper cuts.

Newspaper cuts, mats, or engraved

blocks for use in retailers’

advertisements may be given or sold by

an industry member to a retailer selling

the industry member’s products.

Par. 30. Section 6.93 is revised to read

as follows:

§ 6.93 Combination packaging.

The act by an industry member of

packaging and distributing distilled

spirits, wine, or malt beverages in

combination with other (non-alcoholic)

items for sale to consumers does not

constitute a means to induce within the

meaning of section 105(b)(3) of the Act.

Par. 31. Section 6.94 is amended by

adding the phrase ‘‘(such as travel and

lodging)’’ before the period in the final

sentence of the section, and by adding

a new sentence at the end of the section

to read as follows:

§ 6.94 Educational seminars.

* * * This does not preclude

providing nominal hospitality during

the event.

* * * * *

Par. 32. Section 6.96 is amended by

revising paragraph (a) to read as follows:

§ 6.96 Consumer promotions.

(a) Coupons. The act by an industry

member of furnishing to consumers

coupons which are redeemable at a

retail establishment does not constitute

a means to induce within the meaning

of section 105(b)(3) of the Act, provided

the following conditions are met:

(1) All retailers within the market

where the coupon offer is made may

redeem such coupons; and

(2) An industry member may not

reimburse a retailer for more than the

face value of all coupons redeemed,

plus a usual and customary handling fee

for the redemption of coupons.

* * * * *

§ 6.97 [Removed and reserved]

Par. 33. Section 6.97 is removed and

reserved.

Par. 34. Section 6.98 is revised to read

as follows:

§ 6.98 Advertising service.

The listing of the names and

addresses of two or more unaffiliated

retailers selling the products of an

industry member in an advertisement of

that industry member does not
20424 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

constitute a means to induce within the

meaning of section 105(b)(3) of the Act,

provided:

(a) The advertisement does not also

contain the retail price of the product

(except where the exclusive retailer in

the jurisdiction is a State or a political

subdivision of a State), and

(b) The listing is the only reference to

the retailers in the advertisement and is

relatively inconspicuous in relation to

the advertisement as a whole, and

(c) The advertisement does not refer

only to one retailer or only to retail

establishments controlled directly or

indirectly by the same retailer, except

where the retailer is an agency of a State

or a political subdivision of a State.

Par. 35. Section 6.99 is revised to read

as follows:

§ 6.99 Stocking, rotation, and pricing

service.

(a) General. Industry members may, at

a retail establishment, stock, rotate and

affix the price to distilled spirits, wine,

or malt beverages which they sell,

provided products of other industry

members are not altered or disturbed.

The rearranging or resetting of all or part

of a store or liquor department is not

hereby authorized.

(b) Shelf plan and shelf schematics.

The act by an industry member of

providing a recommended shelf plan or

shelf schematic for distilled spirits,

wine, or malt beverages does not

constitute a means to induce within the

meaning of section 105(b)(3) of the Act.

Par. 36. Section 6.100 is revised to

read as follows:

§ 6.100 Participation in retailer association

activities.

The following acts by an industry

member participating in retailer

association activities do not constitute a

means to induce within the meaning of

section 105(b)(3) of the Act:

(a) Displaying its products at a

convention or trade show;

(b) Renting display booth space if the

rental fee is the same as paid by all

exhibitors at the event;

(c) Providing its own hospitality

which is independent from association

sponsored activities;

(d) Purchasing tickets to functions

and paying registration fees if the

payments or fees are the same as paid

by all attendees, participants or

exhibitors at the event; and

(e) Making payments for

advertisements in programs or

brochures issued by retailer associations

at a convention or trade show if the total

payments made by an industry member

for all such advertisements do not

exceed $300 per year for any retailer

association.

Par. 37. Section 6.101 is revised to

read as follows:

§ 6.101 Merchandise.

(a) General. The act by an industry

member, who is also in business as a

bona fide producer or vendor of other

merchandise (for example, groceries or

pharmaceuticals), of selling that

merchandise to a retailer does not

constitute a means to induce within the

meaning of section 105(b)(3) of the Act,

provided:

(1) The merchandise is sold at its fair

market value;

(2) The merchandise is not sold in

combination with distilled spirits,

wines, or malt beverages (except as

provided in § 6.93);

(3) The industry member’s acquisition

or production costs of the merchandise

appears on the industry member’s

purchase invoices or other records; and

(4) The individual selling prices of

merchandise and distilled spirits,

wines, or malt beverages sold in a single

transaction can be determined from

commercial documents covering the

sales transaction.

(b) Things of value covered in other

sections of this part. The act by an

industry member of providing

equipment, fixtures, signs, glassware,

supplies, services, and advertising

specialties to retailers does not

constitute a means to induce within the

meaning of section 105(b)(3) of the Act

only as provided in other sections

within this part.

Par. 37a. Section 6.102 is added to

read as follows:

§ 6.102 Outside signs.

The act by an industry member of

giving or selling outside signs to a

retailer does not constitute a means to

induce within the meaning of section

105(b)(3) of the Act provided that:

(a) The sign must bear conspicuous

and substantial advertising matter about

the product or the industry member

which is permanently inscribed or

securely affixed;

(b) The retailer is not compensated,

directly or indirectly such as through a

sign company, for displaying the signs;

and

(c) The cost of the signs may not

exceed $400.

Par. 38. Part 6 is amended by adding

a new subpart E to read as follows:

Subpart E—Exclusion

Sec.

6.151 Exclusion, in general.

6.152 Practices which put retailer

independence at risk.

6.153 Criteria for determining retailer

independence.

Subpart E—Exclusion

§ 6.151 Exclusion, in general.

(a) Exclusion, in whole or in part

occurs:

(1) When a practice by an industry

member, whether direct, indirect, or

through an affiliate, places (or has the

potential to place) retailer independence

at risk by means of a tie or link between

the industry member and retailer or by

any other means of industry member

control over the retailer; and

(2) Such practice results in the retailer

purchasing less than it would have of a

competitor’s product.

(b) Section 6.152 lists practices that

create a tie or link that places retailer

independence at risk. Section 6.153 lists

the criteria used for determining

whether other practices can put retailer

independence at risk.

§ 6.152 Practices which put retailer

independence at risk.

The practices specified in this section

put retailer independence at risk. The

practices specified here are examples

and do not constitute a complete list of

those practices that put retailer

independence at risk.

(a) The act by an industry member of

resetting stock on a retailer’s premises

(other than stock offered for sale by the

industry member).

(b) The act by an industry member of

purchasing or renting display, shelf,

storage or warehouse space (i.e. slotting

allowance).

(c) Ownership by an industry member

of less than a 100 percent interest in a

retailer, where such ownership is used

to influence the purchases of the

retailer.

(d) The act by an industry member of

requiring a retailer to purchase one

alcoholic beverage product in order to

be allowed to purchase another

alcoholic beverage product at the same

time.

§ 6.153 Criteria for determining retailer

independence.

The criteria specified in this section

are indications that a particular practice,

other than those in § 6.152, places

retailer independence at risk. A practice

need not meet all of the criteria

specified in this section in order to

place retailer independence at risk.

(a) The practice restricts or hampers

the free economic choice of a retailer to

decide which products to purchase or

the quantity in which to purchase them

for sale to consumers.

(b) The industry member obligates the

retailer to participate in the promotion

to obtain the industry member’s

product.
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations 20425

(c) The retailer has a continuing

obligation to purchase or otherwise

promote the industry member’s product.

(d) The retailer has a commitment not

to terminate its relationship with the

industry member with respect to

purchase of the industry member’s

products.

(e) The practice involves the industry

member in the day-to-day operations of

the retailer. For example, the industry

member controls the retailer’s decisions

on which brand of products to purchase,

the pricing of products, or the manner

in which the products will be displayed

on the retailer’s premises.

(f) The practice is discriminatory in

that it is not offered to all retailers in the

local market on the same terms without

business reasons present to justify the

difference in treatment.

PART 8—EXCLUSIVE OUTLETS

Par. 39. The authority citation for part

8 is revised to read as follows:

Authority: 15 U.S.C. 49–50; 27 U.S.C. 202

and 205; 44 U.S.C. 3504(h).

Par. 40. Section 8.1 is revised to read

as follows:

§ 8.1 General.

The regulations in this part, issued

pursuant to section 105 of the Federal

Alcohol Administration Act (27 U.S.C.

205), specify arrangements which are

exclusive outlets under section 105(a) of

the Act and criteria for determining

whether a practice is a violation of

section 105(a) of the Act. This part does

not attempt to enumerate all of the

practices prohibited by section 105(a) of

the Act. Nothing in this part shall

operate to exempt any person from the

requirements of any State law or

regulation.

Par. 41. Section 8.5 is added to

subpart A to read as follows:

§ 8.5 Administrative provisions.

(a) General. The Act makes applicable

the provisions including penalties of

sections 49 and 50 of Title 15, United

States Code, to the jurisdiction, powers

and duties of the Director under this

Act, and to any person (whether or not

a corporation) subject to the provisions

of law administered by the Director

under this Act. The Act also provides

that the Director is authorized to

require, in such manner and such form

as he or she shall prescribe, such reports

as are necessary to carry out the powers

and duties under this chapter.

(b) Examination and Subpoena. The

Director or any authorized ATF officers

shall at all reasonable times have access

to, for the purpose of examination, and

the right to copy any documentary

evidence of any person, partnership, or

corporation being investigated or

proceeded against. The Director shall

also have the power to require by

subpoena the attendance and testimony

of witnesses and the production of all

such documentary evidence relating to

any matter under investigation, upon a

satisfactory showing that the requested

evidence may reasonably be expected to

yield information relevant to any matter

being investigated under the Act.

(c) Reports required by the Deputy

Associate Director (Regulatory

Enforcement Programs).

(1) General. The Deputy Associate

Director (Regulatory Enforcement

Programs) may, as part of a trade

practice investigation of an industry

member, require such industry member

to submit a written report containing

information on sponsorships,

advertisements, promotions, and other

activities pertaining to its business

subject to the Act conducted by, or on

behalf of, or benefiting the industry

member.

(2) Preparation. The report will be

prepared by the industry member in

letter form, executed under the penalties

of perjury, and will contain the

information specified by the Deputy

Associate Director (Regulatory

Enforcement Programs). The period

covered by the report will not exceed

three years.

(3) Filing. The report will be filed in

accordance with the instructions of the

Deputy Associate Director (Regulatory

Enforcement Programs).

(Approved by the Office of Management and

Budget under control number 1512–0392)

Par. 42. Section 8.11 is amended by

removing the definition for the term

‘‘retail establishment’’ and by adding

definitions for ‘‘ATF officer,’’ ‘‘Deputy

Associate Director (Regulatory

Enforcement Programs)’’ and ‘‘Director’’

as follows:

§ 8.11 Meaning of terms.

* * * * *

ATF officer. An officer or employee of

the Bureau of Alcohol, Tobacco and

Firearms (ATF) authorized to perform

any function relating to the

administration or enforcement of this

part.

Deputy Associate Director (Regulatory

Enforcement Programs). The principal

ATF headquarters official responsible

for administering regulations in this

part.

Director. The Director, Bureau of

Alcohol, Tobacco and Firearms, the

Department of the Treasury,

Washington, DC.

* * * * *

Par. 43. Section 8.23 is revised to read

as follows:

§ 8.23 Third party arrangements.

Industry member requirements, by

agreement or otherwise, with nonretailers which result in a retailer being

required to purchase the industry

member’s products are within the

exclusive outlet provisions. These

industry member requirements are

covered whether the agreement or other

arrangement originates with the

industry member or the third party. For

example, a supplier enters into a

contractual agreement or other

arrangement with a third party. This

agreement or arrangement contains an

industry member requirement as

described above. The third party, a

ballclub, or municipal or private

corporation, not acting as a retailer,

leases the concession rights and is able

to control the purchasing decisions of

the retailer. The third party, as a result

of the requirement, by agreement or

otherwise, with the industry member,

requires the retailer to purchase the

industry member’s products to the

exclusion, in whole or in part, of

products sold or offered for sale by other

persons in interstate or foreign

commerce. The business arrangements

entered into by the industry member

and the third party may consist of such

things as sponsoring radio or television

broadcasting, paying for advertising, or

providing other services or things of

value.

Par. 44. Part 8 is amended by adding

a new subpart D to read as follows:

Subpart D—Exclusion

Sec.

8.51 Exclusion, in general.

8.52 Practices which result in exclusion.

8.53 Practice not resulting in exclusion.

8.54 Criteria for determining retailer

independence.

Subpart D—Exclusion

§ 8.51 Exclusion, in general.

(a) Exclusion, in whole or in part

occurs:

(1) When a practice by an industry

member, whether direct, indirect, or

through an affiliate, places (or has the

potential to place) retailer independence

at risk by means of a tie or link between

the industry member and retailer or by

any other means of industry member

control over the retailer, and

(2) Such practice results in the retailer

purchasing less than it would have of a

competitor’s product.

(b) Section 8.52 lists practices that

result in exclusion. Section 8.53 lists

practices not resulting in exclusion.

Section 8.54 lists the criteria used for
20426 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

determining whether other practices can

put retailer independence at risk.

§ 8.52 Practices which result in exclusion.

The practices specified in this section

result in exclusion under section 105(a)

of the Act. The practices specified here

are examples and do not constitute a

complete list of such practices:

(a) Purchases of distilled spirits, wine

or malt beverages by a retailer as a

result, directly or indirectly, of a threat

or act of physical or economic harm by

the selling industry member.

(b) Contracts between an industry

member and a retailer which require the

retailer to purchase distilled spirits,

wine, or malt beverages from that

industry member and expressly restrict

the retailer from purchasing, in whole or

in part, such products from another

industry member.

§ 8.53 Practice not resulting in exclusion.

The practice specified in this section

is deemed not to result in exclusion

under section 105(a) of the Act: a supply

contract for one year or less between the

industry member and retailer under

which the industry member agrees to

sell distilled spirits, wine, or malt

beverages to the retailer on an ‘‘as

needed’’ basis provided that the retailer

is not required to purchase any

minimum quantity of such product.

§ 8.54 Criteria for determining retailer

independence.

The criteria specified in this section

are indications that a particular practice,

other than those in §§ 8.52 and 8.53,

places retailer independence at risk. A

practice need not meet all of the criteria

specified in this section in order to

place retailer independence at risk.

(a) The practice restricts or hampers

the free economic choice of a retailer to

decide which products to purchase or

the quantity in which to purchase them

for sale to consumers.

(b) The industry member obligates the

retailer to participate in the promotion

to obtain the industry member’s

product.

(c) The retailer has a continuing

obligation to purchase or otherwise

promote the industry member’s product.

(d) The retailer has a commitment not

to terminate its relationship with the

industry member with respect to

purchase of the industry member’s

products.

(e) The practice involves the industry

member in the day-to-day operations of

the retailer. For example, the industry

member controls the retailer’s decisions

on which brand of products to purchase,

the pricing of products, or the manner

in which the products will be displayed

on the retailer’s premises.

(f) The practice is discriminatory in

that it is not offered to all retailers in the

local market on the same terms without

business reasons present to justify the

difference in treatment.

PART 10—COMMERCIAL BRIBERY

Par. 45. The authority citation for part

10 is revised to read as follows:

Authority: 15 U.S.C. 49–50; 27 U.S.C. 202

and 205; 44 U.S.C. 3504(h).

Par. 46. Section 10.1 is revised to read

as follows:

§ 10.1 General.

The regulations in this part, issued

pursuant to section 105 of the Federal

Alcohol Administration Act (27 U.S.C.

205), specify practices which may result

in violations of section 105(c) of the Act

and criteria for determining whether a

practice is a violation of section 105(c)

of the Act. This part does not attempt to

enumerate all of the practices prohibited

by section 105(c) of the Act. Nothing in

this part shall operate to exempt any

person from the requirements of any

State law or regulation.

Par. 52. Section 10.4 is amended by

revising paragraph (a)(1) to read as

follows:

§ 10.4 Jurisdictional limits.

(a) General. * * *

(1) The industry member induces a

trade buyer to purchase distilled spirits,

wine, or malt beverages from such

industry member to the exclusion, in

whole or in part, of products sold or

offered for sale by other persons in

interstate or foreign commerce; and

Par. 47. Section 10.5 is added to

subpart A to read as follows:

§ 10.5 Administrative provisions.

(a) General. The Act makes applicable

the provisions including penalties of

sections 49 and 50 of Title 15, United

States Code, to the jurisdiction, powers

and duties of the Director under this

Act, and to any person (whether or not

a corporation) subject to the provisions

of law administered by the Director

under this Act. The Act also provides

that the Director is authorized to

require, in such manner and such form

as he or she shall prescribe, such reports

as are necessary to carry out the powers

and duties under this chapter.

(b) Examination and subpoena. The

Director or any authorized ATF officers

shall at all reasonable times have access

to, for the purpose of examination, and

the right to copy any documentary

evidence of any person, partnership, or

corporation being investigated or

proceeded against. The Director shall

also have the power to require by

subpoena the attendance and testimony

of witnesses and the production of all

such documentary evidence relating to

any matter under investigation, upon a

satisfactory showing that the requested

evidence may reasonably be expected to

yield information relevant to any matter

being investigated under the Act.

(c) Reports required by the Deputy

Associate Director (Regulatory

Enforcement Programs).

(1) General. The Deputy Associate

Director (Regulatory Enforcement

Programs) may, as part of a trade

practice investigation of an industry

member, require such industry member

to submit a written report containing

information on sponsorships,

advertisements, promotions, and other

activities pertaining to its business

subject to the Act conducted by, or on

behalf of, or benefiting the industry

member.

(2) Preparation. The report will be

prepared by the industry member in

letter form, executed under the penalties

of perjury, and will contain the

information specified by the Deputy

Associate Director (Regulatory

Enforcement Programs). The period

covered by the report will not exceed

three years.

(3) Filing. The report will be filed in

accordance with the instructions of the

Deputy Associate Director (Regulatory

Enforcement Programs).

(Approved by the Office of Management and

Budget under control number 1512–0392)

Par. 48. Section 10.11 is amended by

adding definitions for ‘‘ATF officer,’’

‘‘Deputy Associate Director (Regulatory

Enforcement Programs),’’ and ‘‘Director’’

as follows:

§ 10.11 Meaning of terms.

* * * * *

ATF officer. An officer or employee of

the Bureau of Alcohol, Tobacco and

Firearms (ATF) authorized to perform

any function relating to the

administration or enforcement of this

part.

Deputy Associate Director (Regulatory

Enforcement Programs). The principal

ATF headquarters official responsible

for administering regulations in this

part.

Director. The Director, Bureau of

Alcohol, Tobacco and Firearms, the

Department of the Treasury,

Washington, DC.

* * * * *

Par. 49. Part 10 is amended by adding

a new subpart D to read as follows:
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations 20427

Subpart D—Exclusion

Sec.

10.51 Exclusion, in general.

10.52 Practice which puts trade buyer

independence at risk.

10.53 Practices not resulting in exclusion.

[Reserved]

10.54 Criteria for determining trade buyer

independence.

Subpart D—Exclusion

§ 10.51 Exclusion, in general.

(a) Exclusion, in whole or in part

occurs:

(1) When a practice by an industry

member, whether direct, indirect, or

through an affiliate, places (or has the

potential to place) trade buyer

independence at risk by means of a tie

or link between the industry member

and trade buyer or by any other means

of industry member control over the

trade buyer, and

(2) Such practice results in the trade

buyer purchasing less than it would

have of a competitor’s product.

(b) Section 10.52 lists practices that

create a tie or link that places trade

buyer independence at risk. Section

10.53 is reserved and will list practices

not resulting in exclusion. Section 10.54

lists the criteria used for determining

whether other practices can put trade

buyer independence at risk.

§ 10.52 Practice which puts trade buyer

independence at risk.

The practice specified in this section

is deemed to place trade buyer

independence at risk within the

description of exclusion in § 10.51:

Industry member payments of money to

the employee(s) of a trade buyer without

the knowledge or consent of the trade

buyer-employer in return for the

employee agreeing to order distilled

spirits, wine, or malt beverages from the

industry member. The practice

enumerated here is an example and

does not constitute a complete list of

those situations which result in such

control.

§ 10.53 Practices not resulting in

exclusion. [Reserved]

§ 10.54 Criteria for determining trade

buyer independence.

The criteria specified in this section

are indications that a particular practice

between an industry member and an

officer, employee, or representative of a

trade buyer, other than those in § 10.52,

places trade buyer independence at risk.

A practice need not meet all of the

criteria specified in this section in order

to place trade buyer independence at

risk.

(a) The practice restricts or hampers

the free economic choice of a trade

buyer to decide which products to

purchase or the quantity in which to

purchase them for sale to retailers and

consumers.

(b) The industry member obligates the

trade buyer to participate in the

promotion to obtain the industry

member’s product.

(c) The trade buyer has a continuing

obligation to purchase or otherwise

promote the industry member’s product.

(d) The trade buyer has a commitment

not to terminate its relationship with the

industry member with respect to

purchase of the industry member’s

products.

(e) The practice involves the industry

member in the day-to-day operations of

the trade buyer. For example, the

industry member controls the trade

buyer’s decisions on which brand of

products to purchase, the pricing of

products, or the manner in which the

products will be displayed on the trade

buyer’s premises.

(f) The practice is discriminatory in

that it is not offered to all trade buyers

in the local market on the same terms

without business reasons present to

justify the difference in treatment.

PART 11—CONSIGNMENT SALES

Par. 50. The authority citation for 27

CFR Part 11 is revised to read as

follows:

Authority: 15 U.S.C. 49–50; 27 U.S.C. 202

and 205.

Par. 51. Section 11.1 is revised to read

as follows:

§ 11.1 General.

The regulations in this part, issued

pursuant to section 105 of the Federal

Alcohol Administration Act (27 U.S.C.

205), specify arrangements which are

consignment sales under section 105(d)

of the Act and contain guidelines

concerning return of distilled spirits,

wine and malt beverages from a trade

buyer. This part does not attempt to

enumerate all of the practices prohibited

by section 105(d) of the Act. Nothing in

this part shall operate to exempt any

person from the requirements of any

State law or regulation.

Par. 52. Section 11.5 is added to

subpart A to read as follows:

§ 11.5 Administrative provisions.

(a) General. The Act makes applicable

the provisions including penalties of

sections 49 and 50 of Title 15, United

States Code, to the jurisdiction, powers

and duties of the Director under this

Act, and to any person (whether or not

a corporation) subject to the provisions

of law administered by the Director

under this Act.

(b) Examination and subpoena. The

Director or any authorized ATF officers

shall at all reasonable times have access

to, for the purpose of examination, and

the right to copy any documentary

evidence of any person, partnership, or

corporation being investigated or

proceeded against; and the Director

shall have the power to require by

subpoena the attendance and testimony

of witnesses and the production of all

such documentary evidence relating to

any matter under investigation, upon a

satisfactory showing that the requested

evidence may reasonably be expected to

yield information relevant to any matter

being investigated under the Act.

Par. 53. Section 11.11 is amended by

adding definitions for ‘‘ATF officer,’’

‘‘Director’’ and ‘‘Retailer’’ as follows:

§ 11.11 Meaning of terms.

* * * * *

ATF officer. An officer or employee of

the Bureau of Alcohol, Tobacco and

Firearms (ATF) authorized to perform

any function relating to the

administration or enforcement of this

part.

Director. The Director, Bureau of

Alcohol, Tobacco and Firearms, the

Department of the Treasury,

Washington, DC.

* * * * *

Retailer. Any person engaged in the

sale of distilled spirits, wine or malt

beverages to consumers. A wholesaler

who makes incidental retail sales

representing less than five percent of the

wholesaler’s total sales volume for the

preceding two-month period shall not

be considered a retailer with respect to

such incidental sales.

* * * * *

Par. 54. A new § 11.24 is added to

subpart C to read as follows:

§ 11.24 Other than a bona fide sale.

‘‘Other than a bona fide sale’’

includes, but is not limited to, sales in

connection with which the industry

member purchases or rents the display,

shelf, storage or warehouse space to be

occupied by such products at premises

owned or controlled by the retailer.

Par. 55. Section 11.32 is revised to

read as follows:

§ 11.32 Defective products.

Products which are unmarketable

because of product deterioration,

leaking containers, damaged labels or

missing or mutilated tamper evident

closures may be exchanged for an equal

quantity of identical products or may be

returned for cash or credit against

outstanding indebtedness.

Par. 56. Section 11.34 is revised to

read as follows:
20428 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

§ 11.34 Products which may no longer be

lawfully sold.

Products which may no longer be

lawfully sold may be returned for cash

or credit against outstanding

indebtedness. This would include

situations where, due to a change in

regulation or administrative procedure

over which the trade buyer or an

affiliate of the trade buyer has no

control, a particular size or brand is no

longer permitted to be sold.

Par. 57. Section 11.35 is revised to

read as follows:

§ 11.35 Termination of business.

Products on hand at the time a trade

buyer terminates operations may be

returned for cash or credit against

outstanding indebtedness. This does not

include a temporary seasonal shutdown

(see § 11.39).

Signed: January 4, 1995.

Daniel R. Black,

Acting Director.

Approved: March 30, 1995.

John P. Simpson,

Deputy Assistant Secretary, (Tariff and Trade

Enforcement).

[FR Doc. 95–10116 Filed 4–24–95; 8:45 am]

BILLING CODE 4810–31–U

DEPARTMENT OF TRANSPORTATION

Coast Guard

33 CFR Part 117

[CGDO5–94–076]

Drawbridge Operation Regulations;

Atlantic Intracoastal Waterway, Scotts

Hill, NC

AGENCY: Coast Guard, DOT.

ACTION: Final rule.

SUMMARY: The Coast Guard is changing

the regulations governing the operation

of the Figure Eight Island swingbridge

across the Atlantic Intracoastal

Waterway, mile 278.1, located in Scotts

Hill, North Carolina, by restricting

recreational vessels to bridge openings

every half hour. This is intended to

reduce the amount of bridge openings to

relieve the increased volume of

vehicular traffic crossing this bridge,

while still providing for the reasonable

needs of navigation.

EFFECTIVE DATE: This rule is effective on

May 26, 1995.

FOR FURTHER INFORMATION CONTACT: Ann

B. Deaton, Bridge Administrator, Fifth

Coast Guard District, (804) 398–6222.

SUPPLEMENTARY INFORMATION:

Draft Information

The principal persons involved in

drafting this document are Bill H.

Brazier, Project Officer, and LCDR C.A.

Abel, Project Attorney, Fifth Coast

Guard District.

Regulatory History

On November 8, 1994, the Coast

Guard published a Notice of Proposed

Rulemaking entitled Atlantic

Intracoastal Waterway, Scotts Hill,

North Carolina, in the Federal Register

(59 FR 55601). The commend period

ended January 9, 1995. The Coast Guard

did not receive any comments on the

Notice of Proposed Rulemaking. On

January 13, 1995, the Coast Guard

issued Public Notice 5–845 requesting

comments on the Notice of Proposed

Rulemaking. The comment period

ended February 13, 1995. No comments

were received. A public hearing was not

requested and one was not held.

Background and Purpose

The Figure Eight Beach Homeowners

Association, Inc. has requested that

openings of the Figure Eight

swingbridge mile 278, Atlantic

Intracoastal Waterway, be restricted for

recreational vessels to every half hour

due to the increase in vehicular traffic

across the bridge. Currently, this bridge

opens on signal at all times. The Coast

Guard has decided to reduce the

required bridge openings for

recreational vessels from ‘‘on demand’’

to openings on the hour and half hour,

as needed. The bridge will continue to

open on signal at all other times for all

other vessels. The Coast Guard believes

that recreational vessels will not be

unduly restricted in passage through the

bridge, since they can plan their vessel

transits around the hour and half

opening restriction.

Regulatory Evaluation

This proposal is not a significant

regulatory action under section 3(f) of

Executive Order 12866 and does not

require an assessment of potential costs

and benefits under section 6(a)(3) of that

order. It has been exempted from review

by the Office of Management and

Budget under that order. It is not

significant under the regulatory policies

and procedures of the Department of

Transportation (DOT) (44 FR 11040;

February 26, 1979). The Coast Guard

expects the economic impact of this

final rule to be so minimal that a full

regulatory evaluation under paragraph

10e of the regulatory policies and

procedures of DOT is unnecessary.

Small Entities

Under the Regulatory Flexibility Act

(5 U.S.C. 601 et seq.), the Coast Guard

must consider whether this final rule,

will have a significant economic impact

on a substantial number of small

entities. ‘‘Small entities’’ include

independently owned and operated

small businesses that are not dominant

in their field and that otherwise qualify

as ‘‘small business concerns’’ under

section 3 of the Small Business Act (15

U.S.C. 632). Because it expects the

impact of this final rule to be minimal,

the Coast Guard certifies under 5 U.S.C.

605(b) that this final rule will not have

a significant economic impact on a

substantial number of small entities.

Collection of Information

This proposal contains no collection

of information requirements under the

Paperwork Reduction Act (44 U.S.C.

3501 et seq.).

Federalism

The Coast Guard has analyzed this

final rule under the principles and

criteria contained in Executive Order

12612, and has determined that this

final rule does not have sufficient

federalism implications to warrant the

preparation of a Federalism Assessment.

Environment

The Coast Guard considered the

environmental impact of this final rule

and concluded that under section

2.B.2.e.(32)(e) of Commandant

Instruction M16475.1B (as revised by 59

FR 38654; July 29, 1994), this rule is

categorically excluded from further

environmental documentation. A

Categorical Exclusion Determination

and checklist has been prepared and

placed in the rulemaking docket.

List of Subjects in 33 CFR Part 117

Bridges.

Regulations

In consideration of the foregoing, the

Coast Guard is amending part 117 of

Title 33, Code of Federal Regulations as

follows:

PART 117—DRAWBRIDGE

OPERATION REGULATIONS

1. The authority citation for part 117

continues to read as follows:

Authority: 33 U.S.C. 499; 49 CFR 1.46; 33

CFR 1.05.1(g); section 117.255 also issued

under the authority of Pub. L. 102–587, 106

Stat. 5039.

2. In § 117.821, paragraphs (b) (4) and

(5) are redesignated as (b) (5) and (6)

respectively, and new paragraph (b)(4)

is added to read as follows: