17656 Federal Register / Vol. 60, No. 67 / Friday, April 7, 1995 / Proposed Rules

under § 316.301. Service under the

employee’s excepted appointment

counts against the maximum limit for

the term appointment.

* * * * *

[FR Doc. 95–8597 Filed 4–6–95; 8:45 am]

BILLING CODE 6325–01–M

FEDERAL TRADE COMMISSION

16 CFR Part 436

Request for Comments Concerning

Trade Regulation Rule on Disclosure

Requirements and Prohibitions

Concerning Franchising and Business

Opportunity Ventures

AGENCY: Federal Trade Commission.

ACTION: Request for public comments.

SUMMARY: The Federal Trade

Commission (the ‘‘Commission’’) is

requesting public comments on its

Trade Regulation Rule on Disclosure

Requirements and Prohibitions

Concerning Franchising and Business

Opportunity Ventures (‘‘the Franchise

Rule’’ or ‘‘the Rule’’). The Commission

is requesting comments about the

overall costs and benefits of the Rule

and its overall regulatory and economic

impact as a part of its systematic review

of all current Commission regulations

and guides. The Commission also is

requesting comment on whether the

Rule should be modified to: Replace the

Rule’s disclosure requirements with

those set forth in the revised Uniform

Franchise Offering Circular Guidelines,

approved by the Commission on

December 30, 1993; modify the scope of

disclosure requirements for business

opportunity ventures; clarify the

applicability of the Rule to trade show

promoters; and require the disclosure of

earnings information. All interested

persons are hereby given notice of the

opportunity to submit written data,

views, and arguments concerning the

Rule.

DATES: Written comments will be

accepted on or before August 11, 1995.

ADDRESSES: Comments should be

directed to: Secretary, Federal Trade

Commission, Room H–159, Sixth and

Pennsylvania Ave., NW., Washington,

DC 20580. Comments about the

Franchise Rule should be identified as

‘‘16 CFR Part 436—Comment.’’

Notification of interest in the Public

Workshop-Conference should be

submitted in writing to Myra Howard,

Division of Marketing Practices, Federal

Trade Commission, Washington, DC

20580.

FOR FURTHER INFORMATION CONTACT:

Steven Toporoff, (202) 326–3135, or

Myra Howard, (202) 326–2047, Division

of Marketing Practices, Bureau of

Consumer Protection, Federal Trade

Commission, Washington, DC 20580.

SUPPLEMENTARY INFORMATION: The

Commission has determined, as part of

its oversight responsibilities, to review

Rules and guides periodically. These

reviews seek information about the costs

and benefits of the Commission’s Rules

and guides and their regulatory and

economic impact. The information

obtained assists the Commission in

identifying Rules and guides that

warrant modification or rescission.

The Commission is currently seeking

comment on several issues specific to

the Franchise Rule. The Commission

recognizes that there have been changes

in the franchise industry since the Rule

was promulgated in 1978. Among these

changes is the modification of the

Uniform Franchise Offering Circular

(‘‘UFOC’’) Guidelines by the North

American Securities Administrators

Association (‘‘NASAA’’). In 1986,

NASAA revised Item 19 of the

Guidelines to require franchisors who

make earnings claims to have a

reasonable basis for such claims. On

April 25, 1993, NASAA revised the

entire UFOC Guidelines. The

Commission approved the revised

UFOC Guidelines on December 30,

1993. The Commission now seeks

comment on the desirability of replacing

the current Rule disclosure

requirements with those set forth in the

revised UFOC Guidelines. The

Commission also seeks comment on the

desirability of modifying the scope of

the Rule as it pertains to the sale of

business opportunities. In addition, the

Commission seeks comment on whether

it should revoke the current conditional

exemption for trade show promoters

and whether it should modify the Rule

to add specific disclosure requirements

or prohibitions concerning trade show

promoters. Finally, there has been

considerable discussion in the franchise

industry and among franchise regulators

about requiring the disclosure of

earnings information to prospective

investors. The Commission solicits

comment on the desirability of

modifying the Rule to require the

disclosure of earnings information, and

if so, what form those disclosures

should take.

A. Background

The Franchise Rule was promulgated

by the Commission on December 21,

1978. 43 Fed. Reg. 59,614. The Rule

makes it an unfair or deceptive act or

practice for franchisors and franchise

brokers to fail to disclose to prospective

franchisees specific information about

the franchisor, franchise business, and

terms of the franchise agreement.

Franchisors and franchise brokers must

disclose additional information if they

make any claim about actual or

potential earnings to prospective

franchisees or to the media. The Rule

sets forth both the form and content of

the required disclosures. Franchisors

must provide prospective franchisees

with the required disclosures before any

sale is made.

B. Issues for Comment

1. The Revised UFOC

The Franchise Rule sets forth the

content and form of the required

disclosures. 16 CFR 436.1(a)–(e). In lieu

of the Rule’s format, the Commission

has accepted the UFOC Guidelines

originally adopted by the Midwest

Securities Commissioners Association

on September 5, 1975. 44 FR 49,966,

49,970, and as subsequently amended

by NASAA on November 27, 1986. 52

FR 22,686. Most recently, NASAA

petitioned the Commission to approve

new amendments to the UFOC

Guidelines, which NASAA adopted on

April 25, 1993. See Extra Edition, Bus.

Fran. Guide (CCH), Rpt. No. 161 (May

25, 1993). The Commission approved

the use of the new UFOC on December

30, 1993. 58 FR 69,224. The new

amendments are the product of a

comprehensive revision of the UFOC

Guidelines. The Commission is

concerned about costs and other

potential disadvantages to franchisors

and franchisees that may result from a

lack of uniformity between federal and

state regulations. Accordingly, the

Commission solicits comments on

whether it is desirable to revise the Rule

by replacing the current Rule disclosure

requirements with those set forth in the

revised UFOC Guidelines.

2. The Application of the Franchise

Rule to Business Opportunities

The Franchise Rule applies to both

franchises and business opportunities.

The Rule currently does not provide a

specific definition of the term ‘‘business

opportunity.’’ Rather, the Rule’s

definition of the term ‘‘franchise’’

includes some forms of business

opportunities. Specifically, if the

following three conditions are met, a

business opportunity will be deemed a

franchise:

(A) A person (hereinafter

‘‘franchisee’’) offers, sells, or distributes

to any person other than a ‘‘franchisor’’

(as hereinafter defined), goods,

commodities, or services which are:
Federal Register / Vol. 60, No. 67 / Friday, April 7, 1995 / Proposed Rules 17657

(1) Supplied by another person

(hereinafter ‘‘franchisor’’), or

(2) Supplied by a third person (e.g., a

supplier) with whom the franchisee is

directly or indirectly required to do

business by another person (hereinafter

‘‘franchisor’’); or

(3) Supplied by a third person (e.g., a

supplier) with whom the franchisee is

directly or indirectly advised to do

business by another person (hereinafter

‘‘franchisor’’) where such third person is

affiliated with the franchisor; and

(B) The franchisor:

(1) Secures for the franchisee retail

outlets or accounts for said goods,

commodities, or services; or

(2) Secures for the franchisee

locations or sites for vending machines,

rack displays, or any other product sales

display used by the franchisee in the

offering, sale, or distribution of said

goods, commodities, or services; or

(3) Provides to the franchisee the

services of a person able to secure the

retail outlets, accounts, sites or locations

* * *; and

(C) The franchisee is required as a

condition of obtaining or commencing

the franchise operation to make a

payment or a commitment to pay [at

least $500 within the first six months of

operation] to the franchisor, or to a

person affiliated with the franchisor.

16 CFR 436.2(a)(1)(ii)(A)–(B) and (a)(2).

Accordingly, the Commission seeks

comment on the desirability of

modifying the Rule to include a specific

definition of the term ‘‘business

opportunity.’’ The Commission also

seeks comment on whether such a

definition should include other business

opportunity formats that are currently

not covered by the Rule, such as multilevel marketing, seller assisted market

plans, work-at-home plans, and certain

distributorships and licenses.

The Commission is also concerned

that the Rule’s disclosure requirements

may not be well suited to the sale of

business opportunities and may impose

unnecessary costs on both business

opportunity sellers and buyers.

Accordingly, the Commission seeks

comment on whether to modify the Rule

to require different disclosures for the

sale of business opportunities.

Specifically, the Commission seeks

comment on what disclosures are most

relevant to business opportunity

purchasers. The Commission asks

whether certain Rule disclosures should

be eliminated and if any additional

disclosures should be required.

3. Trade Show Promoter Liability

The Franchise Rule applies to

franchisors and franchise brokers.

Franchise brokers are jointly and

severally liable for violations of the

Franchise Rule. 16 CFR 436.1, 436.2(j).

In 1981, the Commission advised trade

show promoters that they would be

exempt from Rule coverage as brokers if

they provided trade show attendees

with a specific consumer education

notice. The notice advises consumers

that the Commission’s Franchise Rule

grants them rights to receive certain

information about a franchise

investment prior to signing agreements.

See 46 FR 52327 (October 27, 1981). The

exemption requires trade show

promoters to give trade show attendees

the required notice upon their first entry

to the show. Trade show promoters who

fail to distribute the required consumer

education notice may be held jointly

and severally liable for all participating

franchisors’ Rule violations that may

occur at the shows.

Since the Commission issued this

conditional exemption in 1981, the sale

of franchises and business opportunities

at trade shows has increased

significantly. In 1994, the Commission

settled charges of Rule violations against

two trade show promoters who

allegedly failed to provide the required

consumer education notices at their

respective shows. The Commission

solicits comments on the desirability of

revoking the conditional exemption for

trade show promoters. In addition, the

Commission seeks comment on whether

the Rule should be revised to provide

separate disclosure requirements and

prohibitions for trade show promoters.

4. Earnings Disclosure Requirements

Franchisors making claims about

actual or potential sales, profits, or

earnings must provide detailed

disclosures mandated by § 436.1(b)–(e)

of the Rule. Section 436.1(b) enumerates

the substantiation requirements for

claims based on projections or forecasts;

§ 436.1(c), for claims based on actual

operating results; and § 436.1(e), for

claims that appear in media advertising.

The franchisor must have a ‘‘reasonable

basis’’ for all such claims; they must be

‘‘geographically relevant’’ to the

potential franchisee’s market area; and,

if they are based on operating results,

must be prepared in accordance with

generally accepted accounting

principles.

The franchisor must also give a

separate earnings claim disclosure

document to any potential investor to

whom such a claim is made. The

earnings claim document must contain

a cover page specified by § 436.1(d); a

full statement of the basis and

assumptions for the claim; prescribed

cautionary language; a notice that

substantiating material is available for

inspection by investors; a disclosure of

the number and percentage of the

franchisor’s outlets that have achieved

the same or better results; and various

additional information, depending on

the type of claim made.

The Franchise Rule does not mandate

the disclosure of actual or projected

earnings information. The NASAA

Franchise Committee and some

members of its Industry Advisory

Committee, however, have proposed

that franchisors and promoters of

business opportunities be required to

disclose and provide substantiation for

some form of earnings information to

potential investors. They are concerned

that, in the absence of required earnings

disclosures, prospective investors

seeking information about potential

earnings may receive unsubstantiated,

misleading, deceptive, and possibly

false earnings information. The

Commission shares this concern. Over

the past five years, allegations of false

and deceptive earnings claims have

been the most common allegation set

forth in Commission complaints filed

against franchisors and business

opportunity promoters. Therefore, the

Commission seeks comments on the

desirability of modifying the Rule to

include a mandatory earnings

disclosure. In particular, the

Commission seeks comments on the

specific benefits of such disclosures to

prospective investors as well as the

potential for mandated earnings

disclosures to mislead prospective

investors. In addition, the Commission

requests comment on potential burdens

and compliance costs that such Rule

modification might impose on

prospective franchisees and franchisors.

The Commission specifically requests

commentors to submit statistical

information, including survey data, or

other report materials, in support of

their comments.

C. Request for Comment

At this time, the Commission solicits

written public comments on the

following questions:

(1) Is there a continuing need for the

Rule?

(a) To what extent do franchisors use

the Commission’s Franchise Rule

format?

(b) What benefits has the Rule

provided to purchasers of franchises

and business opportunities?

(c) Has the Rule imposed costs on

purchasers? Explain.

(2) What changes, if any, should be

made to the Rule to increase the benefit

of the Rule to purchasers?
17658 Federal Register / Vol. 60, No. 67 / Friday, April 7, 1995 / Proposed Rules

(a) How would these changes affect

the costs the Rule imposes on firms

subject to its requirements?

(3) What significant burdens or costs

has the Rule imposed on firms subject

to its requirements?

(a) Has the Rule provided benefits to

such firms? Explain.

(4) What changes, if any, should be

made to the Rule to reduce the burdens

or costs imposed on firms subject to its

requirements?

(a) How would these changes affect

the benefits provided by the Rule?

(5) Does the Rule overlap or conflict

with other Federal, state, or local laws

or regulations?

(6) Since the Rule was issued, what

effects, if any, have changes in relevant

technology, economic conditions, and

industry practices had on the Rule?

The Revised UFOC Guidelines

(7) Would it be in the public interest

for the Commission to establish one

national franchise disclosure standard?

(8) Should the Commission revise the

Rule by replacing the Rule’s required

disclosures with those set forth in the

revised UFOC Guidelines, approved by

the Commission on December 31, 1993?

Explain.

(a) What would be the costs and

benefits of such a revised Rule on sellers

of franchises and business

opportunities?

(b) What would be the costs and

benefits of such a revised Rule on

purchasers of franchises and business

opportunities?

The Applicability of the Rule to

Business Opportunities

(9) To what extent do business

opportunity sellers currently comply

with the Rule?

(10) What are the costs and benefits of

the Rule to business opportunity sellers

subject to the Rule’s disclosure

requirements?

(11) What are the costs and benefits of

the Rule to prospective purchasers of

business opportunities?

(12) To what extent do purchasers of

business opportunities obtain relevant

and material information from the

required disclosures? Explain.

(13) Should the Commission clarify

the Rule by adding a separate definition

of the term ‘‘business opportunity?’’

Explain.

(a) Should such a definition of

‘‘business opportunity’’ be expanded

beyond the current definition of a

‘‘business opportunity’’ franchise?

Explain.

(b) Should such a definition include

the sale of other business arrangements

such as multi-level marketing, seller

assisted marketing plans, work-at-home

plans, and certain distributorships and

licenses? Explain.

(14) Should the Commission revise

the Rule’s disclosure requirements for

sellers of business opportunities?

Explain.

(a) Should the Commission require a

different disclosure document for

business opportunities?

(b) What information do purchasers of

business opportunities need that is not

currently required by the Rule?

(c) What disclosures currently

required by the Rule should be

eliminated?

(15) What would be the costs and

benefits to firms that would be subject

to such revised disclosure

requirements?

(16) What would be the costs and

benefits of such revised disclosure

requirements to purchasers of business

opportunities?

Trade Show Promoter Liability

(17) Should the Commission revoke

the current conditional exemption to the

Rule for trade show promoters? Explain.

(a) To what extent do consumers

purchase franchises or business

opportunities as a result of attending

franchise trade shows?

(b) To what extent do exhibitors at

trade shows violate the Rule in their

presentations to consumers? What is the

nature of any such violations?

(c) What would be the costs and

benefits of revoking the conditional

exemption to the Rule?

(18) Should the Commission revise

the Rule to include separate disclosures

and prohibitions for trade show

promoters? Explain.

(a) What disclosures should trade

show promoters be required to make to

show attendees?

(b) What conduct should the Rule

prohibit trade show promoters from

engaging in?

(c) What would be the costs and

benefits of such a revised Rule?

Earnings Information

Background

(19) To what extent do prospective

franchisees want information about (a)

actual earnings and (b) projected

earnings?

(20) To what extent do prospective

franchisees receive pre-sale written or

oral earnings information?

(a) To what extent do franchisees

receive historical earnings information?

(b) To what extent do franchisees

receive earnings projections or other

earnings claims?

(c) To what extent do franchisees

receive substantiation for such earnings

information or earnings projections?

(21) To what extent do franchisors

currently provide earnings disclosures

to prospective franchisees?

(a) To what extent do franchisors

provide historical earnings information?

(b) To what extent do franchisors

provide earnings projections or other

earnings claims?

(c) To what extent do franchisors

substantiate such earnings information

or earnings projections?

(22) For those franchisors that do

provide earnings information:

(a) In what industries are these

franchisors engaged?

(b) What is their size (e.g., number of

franchisees and gross revenues of the

franchise system)?

(c) Does the franchisor use the UFOC

or FTC disclosure document format?

(23) To what extent do (a) the Rule

requirements and (b) the UFOC

requirements inhibit franchisors from

providing historical earnings

information or earnings projections to

prospective franchisees? Explain.

(24) In the absence of earnings

disclosures under the Rule or UFOC, is

earnings information available to

prospective franchisees from other

sources? Explain.

(a) What are the costs to prospective

franchisees to obtain such information?

(b) To what extent is such information

accurate and reliable?

Financial Data Currently Available to

Franchisors

(25) To what extent do franchisors

routinely receive financial and/or other

operating performance information from

franchisees?

(a) What types of information do

franchisors receive?

(b) Do franchisees give the

information voluntarily or by

contractual requirements?

(c) How often do franchisors receive

such information?

(d) How long is such information

retained by franchisors?

(26) Are the financial data currently

submitted by franchisees sufficient to

enable franchisors to provide

prospective franchisees with an accurate

appraisal of the financial risks of

investing in a franchise? Explain.

(a) If the data are insufficient to

provide such information, what

additional information would correct

the deficiency?

(b) What would be the additional

costs and benefits of obtaining and

providing this additional information to

prospective franchisees?
Federal Register / Vol. 60, No. 67 / Friday, April 7, 1995 / Proposed Rules 17659

(27) To what extent do franchisors

conduct periodic audits of franchisee

financial operations? Explain.

(28) To what extent do franchisors

require franchisees to use particular

accounting formats? Explain.

Possible Required Earnings Disclosures

(29) Would it be in the public interest

for the Commission to establish one

national earnings claims disclosure

requirement? Explain.

(30) What types of earnings data, or

other measures of franchisee operating

performance, would be most useful to

prospective franchisees (e.g., revenues,

royalties, net income before income

taxes, break-even sales volume, time to

reach a break-even point, return on

investment)? Describe.

(31) Are there industries for which

traditional financial measures of

operating performance are either

irrelevant or inadequate to provide

prospective franchisees with useful

earnings information?

(a) What are these industries?

(b) What supplemental information

could these industry franchisors provide

to ensure that prospective franchisees

receive useful earnings information?

(32) Should the Rule be revised to

require franchisors to disclose

information about franchisee success

rates? If so, which measure of success

(e.g., failures, turnover, or longevity in

a franchise system) would most help

franchisees gauge the financial success

of the system? Explain.

(a) How should a franchisee failure be

defined? Explain.

(b) What type of franchisee failure

data (number of failures, failure rates, or

longevity of franchisees who fail) would

be most useful to prospective

franchisees?

(c) How should franchisee turnover be

defined? Explain.

(d) What type of franchisee turnover

data (number of failures, terminations,

cancellations, or transfers) would be

most useful to prospective franchisees?

(e) Should information about

franchisee longevity in a franchise

system, regardless of reasons for

departure, be disclosed to prospective

franchisees? Explain.

(f) What are the costs and benefits of

requiring franchisors to disclose

information about franchisee failures,

turnover, or longevity in a franchise

system?

(33) Is it possible to have a uniform

earnings disclosure requirement for all

franchise systems? Explain.

(34) How can an earnings disclosure

requirement be configured to assure

relevancy to the market location being

considered? What types of earnings

information would be relevant? Explain.

(35) How can an earnings disclosure

requirement be configured to reflect

differences in the length of franchisees’

operating experience? Explain.

(36) How frequently should earnings

disclosures be updated?

(37) How long should prospective

franchisees be given to review required

earnings disclosures before signing a

contract? Is the Rule’s ten-day minimum

review period sufficient? Explain.

(38) If the Commission requires

earnings disclosures, should franchisors

be prohibited from making earnings

disclosures other than those mandated

by the revised Rule? Explain.

(39) In what ways might a mandatory

earnings disclosure be misleading or

deceptive to prospective franchisees?

Explain the specific form of earnings

disclosure (e.g., gross sales, profit and

loss statements, average net income) and

why it may be misleading or deceptive.

Possible Exemptions and Special

Circumstances

(40) What kind of meaningful

earnings information can new franchise

systems provide to prospective

franchisees? Explain.

(a) Should a new franchise system be

exempt from an earnings disclosure

requirement?

(b) What would be an appropriate

exemption period?

(c) Should a new franchisor be

required to provide a negative

disclosure cautioning prospective

franchisees that its franchise system has

not been in business long enough to

provide an accurate earnings history?

(41) What kind of meaningful

earnings information can a small

franchise system provide to prospective

franchisees? Explain.

(a) How should the term ‘‘small

franchise system’’ be defined?

(b) Would compliance with an

earnings disclosure requirement impose

significant burdens and costs on small

franchise systems?

(c) Should a small franchise system be

exempt from an earnings disclosure

requirement? If so, should a qualifying

small franchise system be required to

provide a negative disclosure cautioning

prospective franchisees that its

franchise system cannot provide

accurate and reliable earnings

information?

(42) Should the Commission consider

exemptions to an earnings disclosure

requirement for other circumstances?

Explain.

Additional Considerations

(43) What concerns do franchisors

have about being required to provide

earnings information to prospective

franchise purchasers? How can the

Commission address these concerns?

(44) If the Commission adopts a

mandatory earnings disclosure

requirement, franchisors might be

compelled to collect financial data from

franchisees. What concerns do

franchisees have about: (a) revealing

financial data to their franchisors; and

(b) franchisors’ use of their financial

data to comply with an earnings

disclosure requirement? How can the

Commission address these concerns?

(45) To what extent do franchisors’

contractual agreements with franchisees

prevent franchisees from disclosing

information about their own operating

performance to prospective franchisees?

How should the Commission address

this concern?

D. Invitation to Comment

In reviewing the Franchise Rule,

Commission staff will consider all

comments submitted by August 11,

1995. Comments submitted will be

available for public inspection in

accordance with the Freedom of

Information Act (5 U.S.C. 552) and

Commission regulations, on normal

business days between the hours of 8:30

a.m. and 5 p.m. at the Public Reference

Section, Room 130, Federal Trade

Commission, 6th Street and

Pennsylvania Avenue, N.W.,

Washington, D.C. 20580.

E. Public Workshop Conference

The FTC staff will conduct a Public

Workshop Conference to discuss written

comments received in response to this

Request for Comments. The purpose of

the conference is to afford Commission

staff and interested parties a further

opportunity to openly discuss and

explore issues raised during the rule

review, and, in particular, to examine

publicly any areas of significant

controversy or divergent opinions that

are raised in the written comments.

Commission staff will consider the

views and suggestions made during the

conference, in conjunction with the

written comments, in formulating its

final recommendation to the

Commission concerning the review of

the Franchise Rule.

Commission staff will select a limited

number of parties, from among those

who submit written comments, to

represent the significant interests

affected by the Rule Review. These

parties will participate in an open

discussion of the issues. It is

contemplated that the selected parties

might ask and answer questions based

on their respective comments.

In addition, the conference will be

open to the general public. Members of
17660 Federal Register / Vol. 60, No. 67 / Friday, April 7, 1995 / Proposed Rules

1Numbers in parentheses identify documents

listed at the end of this notice.

the general public who attend the

conference may have an opportunity to

make a brief oral statement presenting

their views on issues raised in the Rule

Review. Oral statements of views by

members of the general public will be

limited to a few minutes in length. The

time allotted for these statements will be

determined on the basis of the time

allotted for discussion of the issues by

the selected parties, as well as by the

number of persons who wish to make

statements.

Written submissions of views, or any

other written or visual materials, will

not be accepted during the conference.

The discussion will be transcribed and

the transcription placed on the public

record.

The conference will be held in the

early fall over the course of two

consecutive days. A forthcoming

announcement will provide the exact

dates and location. Parties interested in

participating must notify Commission

staff by August 11, 1995.

List of Subjects in 16 CFR Part 436

Advertising, Business and industry,

Franchising, Trade practices.

Authority: 15 U.S.C. 41–58.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 95–8619 Filed 4–6–95; 8:45 am]

BILLING CODE 6750–01–P

CONSUMER PRODUCT SAFETY

COMMISSION

16 CFR Part 1700

Poison Prevention Packaging

Requirements; Proposed Exemption of

Certain Iron-Containing Dietary

Supplement Powders

AGENCY: Consumer Product Safety

Commission.

ACTION: Proposed rule.

SUMMARY: The Commission proposes to

amend its regulations to exempt from

child-resistant packaging requirements

those dietary supplement powders that

have no more than the equivalent of

0.12 percent weight-to-weight elemental

iron. The Commission proposes this

exemption because there are no known

poisoning incidents with these

products, and the dry powdered form

deters children from ingesting them in

harmful amounts.

DATES: Comments on the proposed rule

must be received by the Commission no

later than June 21, 1995.

ADDRESSES: Comments should be

mailed, preferably in five (5) copies, to

the Office of the Secretary, Consumer

Product Safety Commission,

Washington, D.C. 20207, or delivered to

the Office of the Secretary, Consumer

Product Safety Commission, Room 502,

4330 East-West Highway, Bethesda,

Maryland 20814; telephone (301) 504–

0470.

FOR FURTHER INFORMATION CONTACT:

Jacqueline Ferrante, Ph.D., Project

Manager, Directorate for Health

Sciences, Consumer Product Safety

Commission, Washington, D.C. 20207;

telephone (301) 504–0477.

SUPPLEMENTARY INFORMATION:

A. Background

Although iron is essential for good

health, in large doses it can be toxic. For

this reason, in 1978, the Consumer

Product Safety Commission (‘‘the

Commission’’) required child-resistant

packaging (‘‘CRP’’) for drugs and dietary

supplements that contain iron. 16 CFR

1700.14(a)(12) and (13). The

Commission issued these rules under

the Poison Prevention Packaging Act

(‘‘PPPA’’), 15 U.S.C. 1471–1476, which

authorizes the Commission to require

CRP to protect children under 5 years of

age from poisoning hazards posed by

harmful household substances.

Specifically, CRP is required for

dietary supplements ‘‘that contain an

equivalent of 250 milligrams or more of

elemental iron, from any source, in a

single package in concentrations of

0.025 percent or more on a weight-tovolume basis for liquids and 0.05

percent or more on a weight-to-weight

basis for nonliquids.’’ 16 CFR

1700.14(a)(13). This requirement does

not apply if iron is present only as a

colorant. Id.

On May 11, 1994, Nutritech, Inc.,

petitioned the Commission to exempt

unflavored, unsweetened iron powders

from CRP requirements for dietary

supplements containing iron. Nutritech

manufactures an unsweetened,

unflavored vitamin, mineral, and amino

acid powder intended to be mixed with

fruit juice. The petitioner stated that

CRP is unnecessary for this dietary

supplement because: (i) The substance

alone is unpalatable; (ii) due to the

powder consistency of this substance, a

child would not consume a toxic

amount without gagging; and (iii) to

Nutritech’s knowledge, there have been

no poisoning incidents involving this

product in its 22 year history.(1) 1 The

Commission published a notice in the

Federal Register soliciting comments on

the petition, 59 FR 39747, and has

received no responses.

B. Toxicity Data

The minimum toxic and lethal doses

of iron are not well defined. Generally,

doses of elemental iron from 20 to 60

milligrams per kilogram of body weight

(‘‘mg/kg’’) may produce mild symptoms

of poisoning, 60 mg/kg is the minimal

dose for serious toxicity, and

approximately 180 to 250 mg/kg is

considered a lethal dose. However,

fatalities of young children have been

reported at lower doses.(2)(3)

According to the relevant scientific

and medical literature, where

information on the formulation was

available, the majority of pediatric

poisoning incidents involved solid

iron—in the form of tablets or

capsules—with the remaining cases

involving liquid preparations. Among

the reported ingestion incidents,

fatalities and serious cases of toxicity

usually involve ingestion of adult

preparations (such as prenatal vitamins)

that contain 60 mg or more of elemental

iron per tablet. The literature search did

not identify a single case of pediatric

poisoning involving powdered iron

formulations.(2)(3)

Recently, the Food and Drug

Administration (‘‘FDA’’) published

proposed labeling and packaging

requirements for iron-containing dietary

supplements and drugs. 59 FR 51030

(October 6, 1994). Based on its review

of iron poisonings involving children

under 6 years of age, the FDA decided

to limit its proposed rules to products

in solid oral dosage forms (capsules and

tablets) and not include liquid or

powder products.(2)

The Commission’s own 1994 study of

pediatric iron poisonings and fatalities

found that the majority of serious

outcomes involved products in solid or

capsule forms. The report showed that

all 36 of the in-depth investigations of

iron ingestion deaths of children under

5 years old occurring between 1986 and

1993 involved solid capsule or tablet

formulations. In 1993, 57 hospital

emergency room cases documented

through NEISS involved ingestion of

iron capsules or tablets by children

under 5 years old, and one involved

liquid iron. As noted, there were no

known pediatric poisonings that

involved powdered formulations. This

study was based on data from the

Commission’s National Electronic Injury

Surveillance System (‘‘NEISS’’), indepth investigations, the National

Center for Health Statistics (‘‘NCHS’’)

and the American Association of Poison

Control Centers (‘‘AAPCC’’).(2)