b'UNITED STATES OF AMERICA\n\nFEDERAL TRADE COMMISSION\nWASHINGTON, D.C. 20580\n\nBureau of Competition\nHealth Care Division\n\nSeptember 2, 2021\nJohn B. Reiss, Esq.\nVice-President, General Counsel\nand Chief Compliance Officer\nDoylestown Health\n595 West State Street\nDoylestown, PA 18901\nRe:\n\nDoylestown Health Advisory Opinion\n\nDear Mr. Reiss:\nThis letter responds to your request on behalf of Doylestown Health Foundation d/b/a\nDoylestown Health for an FTC staff advisory opinion. The question you raise is whether VIA\nAffiliates d/b/a Doylestown Health Physicians, a subsidiary of Doylestown Health, qualifies to\nprovide discounted pharmaceuticals and medical devices to Doylestown Health\xe2\x80\x99s affiliated\nhospital, Doylestown Hospital, under the Non-Profit Institutions Act (\xe2\x80\x9cNPIA\xe2\x80\x9d). The NPIA\nexempts from the Robinson-Patman Act \xe2\x80\x9cpurchases of their supplies for their own use by\nschools, colleges, universities, public libraries, churches, hospitals, and charitable institutions not\noperated for profit.\xe2\x80\x9d 1 For the reasons explained below, and with the noted caveats, we conclude\nthat the NPIA exemption applies to Doylestown Health Physicians\xe2\x80\x99 proposed arrangement to sell\ndiscounted pharmaceuticals and medical devices to Doylestown Hospital.\nDoylestown Health\nWe understand from your letter 2 that the Village Improvement Association of Doylestown,\nPennsylvania (\xe2\x80\x9cAssociation\xe2\x80\x9d), a not-for-profit, 501(c)(3) corporation, established Doylestown\nHealth to carry out the Association\xe2\x80\x99s purpose of \xe2\x80\x9cencouraging and promoting public health\nwork,\xe2\x80\x9d \xe2\x80\x9cimproving the health and welfare of the residents of . . . Doylestown and Bucks\nCounty,\xe2\x80\x9d and \xe2\x80\x9csupporting a community hospital and other health care facilities for the benefit of\nall persons.\xe2\x80\x9d 3 Doylestown Health is a healthcare system that provides a range of care, including\ninpatient and outpatient, skilled nursing, urgent care, home health, hospice, and other services.\nDoylestown Health Physicians and Doylestown Hospital, two not-for-profit, 501(c)(3)\n\n1\n\n15 U.S.C. \xc2\xa7 13c.\n\n2\n\nLetter from John Reiss, Doylestown Health, to Robert Canterman (April 16, 2021) (\xe2\x80\x9cDoylestown Letter\xe2\x80\x9d).\n\nAmended and Restated Articles of Incorporation of Village Improvement Association of Doylestown,\nPennsylvania at \xc2\xa7 3 (Doylestown Letter, Exhibit B.1).\n\n3\n\n\x0cDoylestown Health Advisory Opinion\nSeptember 2, 2021\nPage 2\ncorporations, 4 are part of Doylestown Health, and the same executive team manages both\norganizations. 5\nDoylestown Health Physicians has approximately 100 primary care and specialist physicians\npracticing in 23 locations in the Doylestown area. Several of the specialists\xe2\x80\x99 offices are located\non Doylestown Hospital\xe2\x80\x99s campus and most primary care offices are within 10 miles of the\nhospital. The physicians treat their patients requiring inpatient or outpatient care at Doylestown\nHospital. Doylestown Health Physicians\xe2\x80\x99 purpose includes \xe2\x80\x9cconducting exclusively charitable,\nscientific and educational activities within the meaning of Section 501(c)(3) of the Internal\nRevenue Code . . . including directly or indirectly managing and supporting the provision of\nhealth care and related services and making donations and other transfers to or for the benefit of\nthe Village Improvement Association . . . , Doylestown Health Foundation and Doylestown\nHospital.\xe2\x80\x9d 6\nDoylestown Hospital is a community hospital with 271 beds that serves Bucks County and part\nof Montgomery County in Pennsylvania, and parts of Hunterdon and Mercer Counties in New\nJersey. Doylestown Hospital\xe2\x80\x99s purpose includes \xe2\x80\x9coperating and maintaining a community\nhospital . . . for the benefit of all persons\xe2\x80\x9d and \xe2\x80\x9cencouraging and promoting public health in\ngeneral.\xe2\x80\x9d 7 Doylestown Hospital maintains a pharmacy at its facility for dispensing products for\nin-hospital use and does not have any affiliated retail pharmacy. 8 While Doylestown Hospital\nalso participates in a number of joint ventures that are for-profit, or include for-profit\nparticipants, to provide community health, medical imaging, outpatient surgery, and other\nservices, you have indicated that the hospital\xe2\x80\x99s participation in these joint ventures does not\naffect its not-for-profit, tax-exempt status.9\nDescription of the Proposed Arrangement\nAs you explain, Doylestown Health Physicians currently purchases discounted pharmaceuticals\nand medical devices to provide infusion therapy and other treatments administered to patients in\nits physician offices. Patients do not receive a prescription or have access to these products\noutside Doylestown Health Physicians\xe2\x80\x99 offices. As we understand from your proposal,\nDoylestown Health Physicians seeks to purchase similar pharmaceuticals and medical devices\nfor inpatients and outpatients treated at Doylestown Hospital\xe2\x80\x99s facilities.\n\nArticles of Incorporation of VIA Affiliates (\xe2\x80\x9cPhysicians Articles of Incorporation\xe2\x80\x9d) at \xc2\xa7 3 (Doylestown Letter,\nExhibit B.2); Amended and Restated Articles of Incorporation of Doylestown Hospital (\xe2\x80\x9cHospital Articles of\nIncorporation\xe2\x80\x9d) at \xc2\xa7 3 (Doylestown Letter, Exhibit D).\n\n4\n\n5\n\nDoylestown Letter at 3.\n\n6\n\nPhysicians Articles of Incorporation at \xc2\xa7 3.\n\n7\n\nHospital Articles of Incorporation at \xc2\xa7 3.\n\n8\n\nEmail from John Reiss to Robert Canterman (June 22, 2021) (\xe2\x80\x9cJune 22 Email\xe2\x80\x9d).\n\n9\n\nDoylestown Letter at 1.\n\n\x0cDoylestown Health Advisory Opinion\nSeptember 2, 2021\nPage 3\nWe understand from your letter that one or more Doylestown Health Physicians\xe2\x80\x99 offices will\npurchase and arrange for delivery of the discounted pharmaceuticals and medical devices to the\nDoylestown Hospital pharmacy (and not a retail pharmacy) or other appropriate location at the\nhospital. 10 A Doylestown Health Physicians office manager will have responsibility for\nimplementing the proposed arrangement and maintaining the chain of custody of the products.\nSimilarly, a Doylestown Hospital manager in the pharmacy or other department will have\nresponsibility for receiving and maintaining the products. These administrators will closely track\nthe purchases and chain of custody to ensure the discounted products are used only for patients\nof Doylestown Hospital or Doylestown Health Physicians, whether they are treated in the\nphysicians\xe2\x80\x99 offices or at the hospital. The executive team that manages both Doylestown Health\nPhysicians and Doylestown Hospital will ultimately be responsible for overseeing the proposed\narrangement. 11\nWe understand that Doylestown Hospital will only dispense the pharmaceuticals and use the\nmedical devices at hospital inpatient and outpatient facilities. 12 Doylestown Hospital will pay an\nadministrative fee to Doylestown Health Physicians to cover the costs of the proposed\narrangement and not for any other purpose. You have represented that Doylestown Hospital\xe2\x80\x99s\nfor-profit joint ventures will not receive or use any of the discounted products and will not\nreceive any benefit from the arrangement. 13\nAnalysis\nThe NPIA exemption is limited to certain \xe2\x80\x9celigible\xe2\x80\x9d not-for-profit entities\xe2\x80\x99 purchases of\n\xe2\x80\x9csupplies\xe2\x80\x9d for their \xe2\x80\x9cown use.\xe2\x80\x9d 14 As we understand your proposal, Doylestown Health\nPhysicians will purchase and offer the discounted pharmaceuticals and medical devices to\nDoylestown Hospital for treating inpatients and outpatients at Doylestown Hospital\xe2\x80\x99s facilities.\nTherefore, we analyze below whether (1) Doylestown Health Physicians is an \xe2\x80\x9celigible entity,\xe2\x80\x9d\nand (2) the discounted pharmaceuticals and medical devices that Doylestown Health Physicians\nproposes to offer to Doylestown Hospital are properly considered \xe2\x80\x9csupplies\xe2\x80\x9d for Doylestown\nHealth Physicians\xe2\x80\x99 \xe2\x80\x9cown use.\xe2\x80\x9d\n1.\n\nDoylestown Health Physicians Appears to be Eligible for\nthe NPIA Exemption\n\nAn \xe2\x80\x9celigible entity\xe2\x80\x9d under the NPIA includes, \xe2\x80\x9cschools, colleges, universities, public libraries,\nchurches, hospitals, and charitable institutions not operated for profit.\xe2\x80\x9d 15 In finding that health\n10\n\nDoylestown Letter at 1.\n\n11\n\nId. at 3.\n\n12\n\nJune 22 Email.\n\n13\n\nId.\n\n14\n\n15 U.S.C. \xc2\xa7 13c.\n\n15\n\nId.\n\n\x0cDoylestown Health Advisory Opinion\nSeptember 2, 2021\nPage 4\nplans are \xe2\x80\x9ccharitable institutions\xe2\x80\x9d under the NPIA, the court in De Modena v. Kaiser Foundation\nHealth Plan recognized that \xe2\x80\x9call non-profit organizations which promote health are considered\ncharitable under the law of charitable trusts.\xe2\x80\x9d 16 We concluded in an earlier FTC staff advisory\nopinion that a not-for-profit, charitable multispecialty clinic qualified as an eligible entity. 17\nWhile multispecialty physician group practices like Doylestown Health Physicians are not one of\nthe types of institutions specifically enumerated in the NPIA, we believe that it qualifies as an\n\xe2\x80\x9celigible entity\xe2\x80\x9d under the NPIA as a \xe2\x80\x9ccharitable institution not operated for profit.\xe2\x80\x9d In fact,\nDoylestown Health Physicians currently purchases discounted pharmaceuticals and medical\ndevices for its physicians to treat their patients in their offices. Based on your letter, Doylestown\nHospital, a not-for-profit hospital, also appears to be an eligible entity under the NPIA and could\nitself qualify to purchase NPIA-discounted pharmaceuticals and medical devices in accordance\nwith the \xe2\x80\x9cown use\xe2\x80\x9d requirement discussed below.\n2.\n\nDoylestown Health Physicians\xe2\x80\x99 Provision of Discounted Pharmaceuticals and\nMedical Devices to Doylestown Hospital Appears to Be for Doylestown\nHealth Physicians\xe2\x80\x99 Own Use\n\nWe next consider whether the proposal involves the purchase of \xe2\x80\x9csupplies\xe2\x80\x9d for Doylestown\nHealth Physicians\xe2\x80\x99 \xe2\x80\x9cown use.\xe2\x80\x9d\na.\n\n\xe2\x80\x9cSupplies\xe2\x80\x9d\n\nWe determined in previous advisory opinion letters that pharmaceuticals are \xe2\x80\x9csupplies\xe2\x80\x9d within\nthe meaning of the NPIA in applying the exemption. 18 The same analysis would likely apply to\nmedical devices and equipment. The Ninth Circuit in Logan Lanes, Inc. v. Brunswick Corp. 19\ninterpreted the term \xe2\x80\x9csupplies\xe2\x80\x9d broadly to include \xe2\x80\x9canything required to meet the institution\xe2\x80\x99s\nneeds, whether it is consumed or otherwise disposed of, or whether it constitutes, or becomes\npart of, a material object utilized to enable the institution to carry on its activities.\xe2\x80\x9d The court\nnoted that \xe2\x80\x9cthe underlying intent of granting such an exemption was undoubtedly to permit\ninstitutions which are not in business for a profit to operate as inexpensively as possible.\xe2\x80\x9d And it\nheld that a not-for-profit university\xe2\x80\x99s bowling alleys were \xe2\x80\x9csupplies\xe2\x80\x9d because the university used\nthe facilities for students to fulfill physical education requirements and all net income was used\n\n16\n\n743 F.2d 1388, 1392 (9th Cir. 1984).\n\nHarvard Vanguard Medical Associates, Inc. (December 18, 2001) (FTC staff opinion letter) (sale of\npharmaceuticals by not-for-profit, multispecialty clinic to employees and patients of the clinic).\n17\n\nSee, e.g., Quest Analytics Group (March 7, 2014) (FTC staff opinion letter) (NPIA exemption applied to\neducational institutions\xe2\x80\x99 purchases of discounted specialty drugs for their own use); Yakima Valley Memorial\nHospital (August 16, 2010) (FTC staff opinion letter) (not-for-profit hospital\xe2\x80\x99s provision of pharmaceuticals to\nemployees of its affiliates qualified for NPIA exemption); see also Abbott Labs. v. Portland Retail Druggists Ass\xe2\x80\x99n,\n425 U.S. 1, 5 (1976) (noting that the district court had ruled that purchases of pharmaceuticals by the hospitals were\npurchases of \xe2\x80\x9csupplies\xe2\x80\x9d for the hospitals\xe2\x80\x99 \xe2\x80\x9cown use\xe2\x80\x9d).\n\n18\n\n19\n\n378 F.2d 212, 216 (9th Cir.), cert. denied, 389 U.S. 898 (1967).\n\n\x0cDoylestown Health Advisory Opinion\nSeptember 2, 2021\nPage 5\nto finance other student activities and improvements to the university. 20 Because physicians and\nhospitals use pharmaceuticals and medical devices \xe2\x80\x9cto carry on their activities\xe2\x80\x9d of treating\npatients, we also find that they are \xe2\x80\x9csupplies\xe2\x80\x9d within the NPIA.\nb.\n\n\xe2\x80\x9cOwn Use\xe2\x80\x9d\n\nThe term \xe2\x80\x9cown use\xe2\x80\x9d means an eligible entity\xe2\x80\x99s use that \xe2\x80\x9cis a part of and promotes the [entity\xe2\x80\x99s]\nintended institutional operation.\xe2\x80\x9d 21 The principal authority on the meaning and scope of the \xe2\x80\x9cown\nuse\xe2\x80\x9d requirement is the Supreme Court\xe2\x80\x99s decision in Abbott Laboratories v. Portland Retail\nDruggists Ass\xe2\x80\x99n. 22 In Abbott, not-for-profit hospitals purchased discounted pharmaceuticals from\nmanufacturers and resold them to hospital patients. Retail pharmacies challenged the discounted\nsale of pharmaceuticals to the hospitals under the Robinson-Patman Act. The Supreme Court\nheld that the NPIA exemption is limited and does not give hospitals a \xe2\x80\x9cblank check\xe2\x80\x9d for all\npurchases of supplies. 23 Rather, the Court held that the exemption applies to purchases for a\nhospital\xe2\x80\x99s \xe2\x80\x9cown use,\xe2\x80\x9d and that own use means \xe2\x80\x9cwhat reasonably may be regarded as use by the\nhospital in the sense that such use is a part of and promotes the hospital\xe2\x80\x99s intended institutional\noperation in the care of persons who are its patients.\xe2\x80\x9d 24 The Supreme Court determined that a\nnot-for-profit hospital\xe2\x80\x99s purchases of pharmaceuticals are for its own use when dispensed to\npatients for treatment at the hospital.\nWhether the exemption applies to Doylestown Health Physicians\xe2\x80\x99 purchases of pharmaceuticals\nand medical devices for Doylestown Hospital\xe2\x80\x99s inpatients and outpatients depends on whether\nthis use is part of and promotes Doylestown Health Physicians\xe2\x80\x99 institutional mission.25 Based on\nDoylestown Health Physicians\xe2\x80\x99 stated purpose in its Articles of Incorporation, Doylestown\nHealth Physicians\xe2\x80\x99 purchases would appear to promote \xe2\x80\x9cmanaging and supporting the provision\nof health care and related services\xe2\x80\x9d and \xe2\x80\x9cmaking donations and other transfers to or for the\nbenefit of . . . Doylestown Hospital.\xe2\x80\x9d As part of an integrated health system, the physicians treat\ntheir patients requiring inpatient care at Doylestown Hospital. Doylestown Health Physicians\xe2\x80\x99\npurchase of discounted pharmaceuticals and medical devices for Doylestown Hospital\xe2\x80\x99s patients\nwill support the provision of health care and related services at Doylestown Hospital. Consistent\nwith Abbott, we find that the NPIA exemption appears to cover Doylestown Health Physicians\xe2\x80\x99\nproposal to offer discounted pharmaceuticals and medical devices to Doylestown Hospital.\nSimilarly, Doylestown Hospital\xe2\x80\x99s purchase of these supplies from Doylestown Health Physicians\nappears to be for Doylestown Hospital\xe2\x80\x99s \xe2\x80\x9cown use\xe2\x80\x9d because it will use the supplies to further its\n378 F.2d at 212 (sale of bowling equipment and lanes to a university was exempt from the Robinson-Patman Act\nunder the NPIA).\n20\n\n21\n\nAbbott Labs. v. Portland Retail Druggists Ass\xe2\x80\x99n, 425 U.S. 1, 14 (1976).\n\n22\n\nId.\n\n23\n\nId. at 13.\n\n24\n\nId. at 14.\n\n25\n\nId.\n\n\x0cDoylestown Health Advisory Opinion\nSeptember 2, 2021\nPage 6\ninstitutional purpose to operate \xe2\x80\x9ca community hospital . . . for the benefit of all persons\xe2\x80\x9d and\npromote public health.\nWe emphasize that this opinion is premised on your representation that Doylestown Hospital\xe2\x80\x99s\nfor-profit joint ventures will not have access to the discounted pharmaceuticals and medical\ndevices and your assurance that the joint ventures, or any other for-profit entities, will not benefit\nfinancially from the proposed arrangement in any way.\nConclusion\nAs discussed above, and with the noted caveats, it is our opinion that Doylestown Health\nPhysicians\xe2\x80\x99 proposal to extend the sales of discounted pharmaceuticals and medical devices to its\naffiliate, Doylestown Hospital, as described in your April 16, 2021 letter, would fall within the\nNPIA exemption to the Robinson-Patman Act.\nThis letter sets out the views of the staff of the Bureau of Competition, as authorized by the\nCommission\xe2\x80\x99s Rules of Practice, based on the facts you have presented to us. Under Commission\nRule \xc2\xa7 1.3(c), 16 C.F.R. \xc2\xa7 1.3(c), the Commission is not bound by this staff opinion and reserves\nthe right to rescind it at a later time. In addition, this office retains the right to reconsider the\nquestions involved and, with notice to the requesting party, to rescind or revoke the opinion if\nimplementation of the proposed program results in substantial anticompetitive effects, if the\nprogram is used for improper purposes, if facts change significantly, or if it would be in the\npublic interest to do so.\nSincerely,\n_________________________\nMarkus H. Meier\nAssistant Director\n\n\x0c'


b'UNITED STATES OF AMERICA\n\nFederal Trade Commission\nWashington, D.C. 20580\n\nBureau of Competition\nHealth Care Division\n\nOctober 20, 2017\nJennifer R. Bolster, Esq.\nHancock Estabrook, LLP\n1500 AXA Tower I\n100 Madison Street\nSyracuse, NY 13202\n\nRe:\n\nCrouse Health Hospital Advisory Opinion\n\nDear Ms. Bolster:\nThis letter responds to your request on behalf of Crouse Health Hospital ("Crouse Hospital") for\nan advisory opinion concerning whether its proposal to sell discounted phannaceutical products\nto the employees, retirees, and their dependents of its affiliate, Crouse Medical Practice, PLLC\n("Crouse Medical Practice"), would fall within the scope of the Non-Profit Institutions Act\n("NPIA"). The NPIA exempts from the Robinson-Patman Act "purchases of their supplies for\ntheir own use by schools, colleges, universities, public libraries, churches, hospitals, and\ncharitable institutions not operated for profit." 1 For the reasons explained below, and with the\nnoted caveats, we conclude that the NPIA exemption applies to Crouse Hospital \'s proposal.\n\nDescription of the Proposal\nWe understand from your letter that Crouse Hospital is a not-for-profit corporation that is located\nin Onondaga County, New York, and provides a variety of health-care services to patients living\nin a 15-county area in central New York. 2 Crouse Hospital \'s mission is to "provide the best in\npatient care," "promote community health," and "provid[ e] physician services designed to\nimprove the access to and quality ofhealth care." 3 As you explain, Crouse Hospital currently\nprovides a benefits package with a prescription-drug benefit to its employees, retirees, and their\ndependents. Crouse Hospital also owns and operates an on-site pharmacy that offers NPIA\xc2\xad\ndiscounted pharmaceuticals only to Crouse Hospital employees, retirees, and their dependents.\nThe employee pharmacy is separate from another pharmacy that serves Crouse Hospital\n\nI\n\n15 U.S.C. \xc2\xa7 13c.\n\n2\n\nLetter from Jennifer R. Bolster, Hancock Estabrook, LLP, to Office of the Secretary, Federal Trade Commission\nat 1 (September 29, 2017) ("Crouse Request Letter").\n3\n\nId.\n\n\x0cCrouse Health Hospital NPIA Advisory Opinion\nOctober 20, 201 7\nPage2\ninpatients.4 As we understand your proposal, Crous~ Hospital seeks to purchase NPIA\xc2\xad\ndiscounted phannaceuticals to fill prescriptions for employees, retirees, and their dependents of\nits affiliate, Crouse Medical Practice, at Crouse Hospital\' s on-site employee phannacy.\nCrouse Hospital formed Crouse Medical Practice to develop an integrated medical service\nsystem to encourage both organizations to "work in conjunction with each other to improve\naccess to care and to provide better care for patients in the community." 5 The approximately 73\nprimary care and specialist physicians and other health-care professionals employed by Crouse\nMedical Practice treat patients at Crouse Hospital and at offices close to Crouse Hospital or in\nnearby communities within Crouse Hospital\'s service area. Crouse Medical Practice requires its\nphysicians to hold and maintain good standing on Crouse Hospital\'s medical staff and requires or\nencourages its physicians to refer their patients to Crouse Hospital unless the patient prefers\notherwise or such referral is not in the patient\'s best medical interest. Crouse Medical Practice\nphysicians provide call coverage at Crouse Hospital. 6\nWe understand from your letter that Crouse Hospital formed Crouse Medical Practice as a for\xc2\xad\nprofit, professional limited liability company in compliance with requirements under New York\nlaw governing the corporate practice of medicine. As you explain in your letter, Crouse Hospital\ndoes not own Crouse Medical Practice because only a physician can own corporations\nemploying physicians in an outpatient, non-hospital setting under New York law. 7 Although\nCrouse Hospital does not own Crouse Medical Practice, Crouse Medical Practice has in place\n"various structural and financial components to ensure [Crouse] Hospital has ultimate control\nover the practice. " 8 For example, the sole member of Crouse Medical Practice is a Crouse\nHospital physician employee. Crouse Hos~ital may require the member to transfer all of his or\nher interest to a Crouse Hospital designee. Crouse Hospital appoints the Practice Administrator,\nPhysician Administrator, and Executive Director of Crouse Medical Practice. These individuals,\nalong with Crouse Hospital representatives, manage the day-to-day practice for Crouse Medical\nPractice and ensure that the practice complies with Crouse Hospital\'s charitable purpose.\nThe sole member of Crouse Medical Practice must manage and operate it "consistent with an\norganization operated exclusively to promote and support the charitable purposes of [Crouse]\n\n4\n\nId. at 4.\n\n5\n\nId. at 2.\n\n6\n\nId. at 3.\n\n7\n\nId. at 2.\n\n9\n\nAmended and Restated Operating Agreement ofCrouse Medical Practice (" Operating Agreement") at\xc2\xa7 7 .2\n(Crouse Request Letter, Attachment 2).\n\n\x0cCrouse Health Hospital NPIA Advisory Opinion\nOctober 20, 2017\nPage3\nHospital." 10 In furtherance of this requirement, Crouse Medical Practice obtained 50l(c)(3) tax\xc2\xad\nexempt status under the Internal Revenue Code based on its affiliation with and control by\nCrouse Hospital. 11 Crouse Hospital also must approve various business transactions for Crouse\nMedical Practice, including admitting new members, selling property, incurring certain debts or\n12\nloans, dissolving the medical practice, or merging with or acquiring other physician practices.\nNo part of the net earnings of Crouse Medical Practice may inure to the benefit of any members,\nemployees, officers, or private individuals other than reasonable compensation for their\nservices. 13 The sole member also irrevocably assigns his or her right to any dividends or profits\n14\nto Crouse Hospital.\n\nAnalysis\nThe NPIA exemption is limited to certain "eligible" non-profit entities\' purchases of "supplies"\nfor their "own use." 15 As we understand your proposal, Crouse Hospital will purchase and offer\nthe NPIA-discounted pharmaceuticals to Crouse Medical Practice employees, retirees, and their\ndependents. Therefore, we analyze below whether (1) Crouse Hospital is an "eligible entity," and\n(2) the NPIA-discounted pharmaceuticals that Crouse Hospital proposes to offer to Crouse\nMedical Practice are properly considered "supplies" for Crouse Hospital\' s "own use." 16\n1.\n\nCrouse Hospital\'s Eligibility for the NPIA Exemption\n\nAn "eligible entity" under the NPIA includes, among others, "hospitals .. . not operated for\nprofit." 17 As you state in your letter, Crouse Hospital is a not-for-profit hospital. Therefore, based\non the language in the NPIA, Crouse Hospital appears to qualify as an eligible entity and, in fact,\ncurrently uses the exemption to offer NPIA-discounted pharmaceuticals to its own employees,\nretirees, and their dependents.\n\n10\n\nId. at\xc2\xa7 5.2.\n\n11\n\nLetter from Internal Revenue Service to Crouse Hospital (Crouse Request Letter, Attachment 1).\n\n12\n\nCrouse Request Letter at 2.\n\n13\n\nOperating Agreement at\xc2\xa7 2.5(c).\n\n14\n\nId. at\xc2\xa7 4.3.\n\n15\n\n15 U.S.C. \xc2\xa7 13c.\n\n16\nBecause we detennine that Crouse Hospital qualifies as an " eligible entity" and that the NPIA-discounted\nphannaceuticals offered to Crouse Medical Practice are for Crouse Hospital\'s "own use," we do not need to reach\nthe question of whether Crouse Medical Practice- a for-profit corporation with 501(c)(3) tax-exempt status\xc2\xad\nqualifies as an " eligible entity."\n11 Id.\n\n\x0cCrouse Health Hospital NPIA Advisory Opinion\nOctober 20, 2017\nPage4\n\n2.\n\nCrouse Hospital\'s Provision of NPIA-Discounted Pharmaceuticals to Crouse\nMedical Practice Appears to Be for Crouse Hospital\'s Own Use\n\nWe next consider whether the proposal involves the purchase of"supplies" for Crouse Hospital\'s\n"own use." As we have found in prior advisory opinions, the term "supplies," as used in the\nNPIA, may include an eligible entity\'s purchases ofpharmaceuticals. 18 The te1m "own use"\nmeans an eligible entity\'s use that "is a part of and promotes the [entity\'s] intended institutional\noperation." 19\nThe principal authority on the meaning and scope of the "own use" requirement is Abbott\nLaboratories v. Portland Retail Druggists Ass \'n. 20 In Abbott, not-for-profit hospitals purchased\ndiscounted pharmaceuticals from manufacturers and resold them to hospital patients. Retail\npharmacies challenged the discounted sale of pharmaceuticals to the hospitals under the\nRobinson-Patman Act. The Supreme Court held that the NPIA exemption is limited and does not\ngive hospitals a "blank check" for all purchases of supplies. 2 1 Rather, the Court held that the\nexemption applies to purchases for the hospital\'s "own use," and that own use means "what\nreasonably may be regarded as use by the hospital in the sense that such use is a part of and\npromotes the hospital \'s intended institutional operation in the care of persons who are its\npatients. " 22 The Supreme Court determined that pharmaceuticals dispensed to hospital\nemployees and their dependents, among other individuals, would qualify for the hospital \'s own\nuse. In the Court\' s view, employees enable a hospital to function and providing them with\n23\npharmaceuticals "enhances the hospital function. " Consistent with Abbott, we determined in\nprior advisory opinions that offering employees, retirees, and their dependents health-insurance\nplans with prescription-drug benefits helped hospitals and other eligible entities attract and\nmaintain a capable and healthy workforce to further their intended institutional missions.24\n18\nSee, e.g., Quest Analytics Group (March 7, 2014) (FTC staff opinion letter) (NPIA exemption applied to\neducational institutions\' purchases ofdiscounted specialty drugs for their own use); Yakima Valley Memorial\nHospital (August 16, 2010) (FTC staff opinion letter) (non-profit hospital\'s provision of pharmaceuticals to\nemployees of its affiliates qualified for NPIA exemption); see also Abbott Labs. v. Portland Retail Druggists Ass \'n,\n425 U.S. 1, at 5 (1976) (noting that the district court had ruled that purchases ofpharmaceuticals by the hospitals\nwere purchases of "supplies" for the hospitals\' "own use").\n19\n\n425 U.S. at 14.\n\n20 Id.\n21\n\nId. at 13.\n\n22\n\nId. at 14.\n\n23\n\nId. at 16.\n\n24\n\nSee, e.g., Quest Analytics Group (NPIA exemption applied to educational institutions\' employees, retirees, and\ntheir dependents); Yakima Valley Memorial Hospital (NPIA exemption applied to hospital employees of hospital\naffiliates); University of Michigan (April 9, 2010) (FTC staff opinion letter) (NPIA exemption applied to\nUniversity\'s employees, retirees, and their dependents); BJC Health System (November 9, 1999) (FTC staff opinion\nletter) (NPIA exemption applied to employees of health-care system).\n\n\x0cCrouse Health Hospital NPIA Advisory Opinion\nOctober 20, 2017\nPage5\n\nWhether the exemption applies to Crouse Hospital\'s purchases of pharmaceuticals for Crouse\nMedical Group employees, retirees, and their dependents depends on whether this use of the\npharmaceuticals is part of and promotes Crouse Hospital\'s institutional mission. 25 You have\nexplained that Crouse Hospital\' s mission includes promoting community health and providing\nphysician services designed to improve access to quality health care. In furtherance of its\nmission, Crouse Hospital fonned Crouse Medical Practice to develop an integrated medical\nservice system to encourage both organizations to work together to improve care and promote\nthe charitable purposes of Crouse Hospital. Crouse Medical Practice physicians and other\nemployees provide vital services to Crouse Hospital and its patients necessary to help Crouse\nHospital fulfill its intended institutional function.\nCrouse Hospital has ultimate decision-making control and authority for Crouse Medical Practice\nas described in your letter and Crouse Medical Practice\' s Operating Agreement. Furthermore, the\nCrouse Medical Practice member assigns any profits to Crouse Hospital and neither the member\nnor the employees are entitled to any net earnings. While Crouse Hospital does not have an\nownership interest in Crouse Medical Practice, we believe that the substance of the relationship\nbetween Crouse Hospital and Crouse Medical Practice governs our analysis. 26 Based on this\nrelationship, it is reasonable to conclude that Crouse Medical Practice is an integral part of\nCrouse Hospital\'s ability to fulfill its intended institutional function of providing care and\npromoting community health. And, accordingly, it is reasonable to treat Crouse Hospital and\nCrouse Medical Practice as one unit in analyzing the applicability of the NPIA exemption. This\nconclusion is consistent with prior staff opinions. 27 Therefore, consistent with Abbott, we find\nthat the NPIA exemption covers Crouse Hospital\'s proposal to offer discounted pharmaceuticals\nto Crouse Medical Practice.\nWe emphasize that this opinion is premised on the relationship between Crouse Hospital and\nCrouse Medical Practice described in your letter and your assurance that any financial benefit\nfrom the proposal will ultimately accrue to Crouse Hospital pursuant to the relationship between\nthe two entities.\n\n25\n\nSee 425 U.S. at 14.\n\n26\n\nSee, e.g. , Arkansas Children\' s Hospital (March 13, 2003) (FTC staff opinion letter) (substance ofrelationship\nbetween two entities not under common ownership in the care of a common patient population supported conclusion\nthat the exemption applied); Valley Baptist Medical Center (March 13, 2003) (FTC staff opinion letter) (the role\ncontract workers had in hospital \'s provision of care to its patients, rather than the fact that the hospital chose not to\nemploy the workers, was relevant to determining that the exemption applied).\n\n27\n\nSee, e.g. , Yakima Valley Memorial Hospital (hospital\'s control over its affiliates effectively made affiliates part of\nthe hospital to such a degree that could treat as one unit for the purpose of the NPIA exemption).\n\n\x0cCrouse Health Hm1pital NPIA Advisory Opinion\nOctober 20> 2017\nPage6\n\nConclusion\n\nAs discussed above, and with the noted caveats, it is our opinion that Crouse Hospital\'s proposal\nto exte11d the sales of discounted phannaceuticals to its affiliate, Crouse Medical Practice, as\ndescribed in. your September29, 2017 letter, would fall within the.NPfA exemption to the\nRobinson-Patman Act. This letter sets out the views ofthe staff of the Bureau of Competition, as\nauthorized by the Commissfon\'s Rules of Practice, based on the facts you have presented to us.\nUn:der Commission Rule\xc2\xa7 1.3{c), 16 C.F.R. \xc2\xa7 1.3(c), the Commission is not bound by this staff\nopinion and reserves the right to rescind it at ala:ter time. In addition, this office retains the right\nto reconsider the questions involved and, with notice to the requesting party, to rescind or revoke\nthe opinion if implementation ofthe proposed program results in substantial anticompetitive\neffects, if the program is ti.sed for improper purposes, if facts change significantly, or if would be\nin the public interest to do so.\nSincerely,\n\nMarkus H. Meier\nAssistant Director\n\n\x0c'


b'United States of America\n\nFEDERAL TRADE COMMISSION\nWashington, DC 20580\n\nDivision of Advertising Practices\nBureau of Consumer Protection\n\nMay 9, 2017\nMark S. Brown, Esq.\nKing & Spalding LLP\n1700 Pennsylvania Ave., NW\nSuite 200\nWashington, DC 20006-47078\nRe:\n\nRequest for Informal Staff Guidance Regarding Santa Fe Natural Tobacco\nCompany\xe2\x80\x99s Consent Order (FTC Dkt. No. C-3952)\n\nDear Mr. Brown:\nThe Division of Advertising Practices has reviewed your letter submitted on behalf of\nRAI Services Company (\xe2\x80\x9cRAI\xe2\x80\x9d) and Santa Fe Natural Tobacco Company (\xe2\x80\x9cSanta Fe\xe2\x80\x9d), dated\nMarch 9, 2017, requesting informal staff guidance concerning the Federal Trade Commission\xe2\x80\x99s\nconsent order with Santa Fe (\xe2\x80\x9cConsent Order\xe2\x80\x9d).1 The consent order requires, among other\nthings, a disclosure that \xe2\x80\x9cNo additives in our tobacco does NOT mean a safer cigarette\xe2\x80\x9d in any\ncigarette advertisement that, through the use of phrases such as \xe2\x80\x9cno additives,\xe2\x80\x9d \xe2\x80\x9cno chemicals,\xe2\x80\x9d\n\xe2\x80\x9cadditive free,\xe2\x80\x9d \xe2\x80\x9cchemical-free,\xe2\x80\x9d \xe2\x80\x9cchemical-additive free,\xe2\x80\x9d \xe2\x80\x9c100% tobacco,\xe2\x80\x9d \xe2\x80\x9cpure tobacco,\xe2\x80\x9d or\nsubstantially similar terms, represents that a tobacco product has no additives or chemicals\n(\xe2\x80\x9ccigarette disclosure\xe2\x80\x9d).2\nThis request for guidance was precipitated by a Memorandum of Understanding that\nRAI/Santa Fe entered into with the U.S. Food and Drug Administration\xe2\x80\x99s (\xe2\x80\x9cFDA\xe2\x80\x9d) Center for\nTobacco Products in January 2017. Under the Memorandum of Understanding, RAI/Santa Fe,\nagreed, among other things, to remove the phrase \xe2\x80\x9cAdditive Free\xe2\x80\x9d and the term \xe2\x80\x9cnatural\xe2\x80\x9d from\n1\n\nYour letter attaches the Santa Fe agreement, which was accepted for public comment on\nApril 27, 2000. On June 16, 2000, the Commission made final that agreement and issued its\nDecision and Order (FTC Dkt. No. C-3952). See https://www.ftc.gov/enforcement/casesproceedings/992-3026/santa-fe-natural-tobacco-company-inc.\n2\n\nThe Consent Order also requires a triggered disclosure in connection with advertising and\npackaging for herbal smoking products, and other remedies. This letter addresses only the\nrequirements for the cigarette disclosure and does not provide guidance on other provisions of\nthe Consent Order.\n\n\x0cMark S. Brown, Esq.\nPage 2\nMay 9, 2017\nall Natural American Spirit cigarette product labels, labeling, advertising, and promotional\nmaterials, except that Santa Fe may retain the use of the term \xe2\x80\x9cNatural\xe2\x80\x9d in the \xe2\x80\x9cNatural American\nSpirit\xe2\x80\x9d brand name and trademarks. 3 The Memorandum of Understanding permits Santa Fe to\nuse the phrases \xe2\x80\x9cTobacco Ingredients: Tobacco & Water\xe2\x80\x9d or \xe2\x80\x9cTobacco Filler Ingredients:\nTobacco & Water\xe2\x80\x9d if it chooses to do so.\nRAI and Santa Fe request staff guidance on two issues. First, they seek staff guidance as\nto whether use of the phrases \xe2\x80\x9cTobacco Ingredients: Tobacco & Water\xe2\x80\x9d or \xe2\x80\x9cTobacco Filler\nIngredients: Tobacco & Water\xe2\x80\x9d triggers the cigarette disclosure required in the FTC\xe2\x80\x99s Consent\nOrder. As stated above, the Consent Order\xe2\x80\x99s cigarette disclosure is triggered whenever a covered\nSanta Fe advertisement uses the specific terms identified in the order or any substantially similar\nterm that represents, directly or by implication, that a tobacco product has no additives or\nchemicals. It is well-established that whether a claim is reasonably conveyed in an\nadvertisement requires an examination of the entire advertisement and an assessment of the\noverall net impression(s) conveyed. POM Wonderful, LLC v. FTC, 777 F.3d 478, 490 (D.C. Cir.\n2015. Accord ECM Biofilms, Inc. v. FTC, No. 15-4339, U.S. App. LEXIS 4609, at **14-15 (6th\nCir. Mar. 16, 2017). Thus, determining whether use of the two referenced phrases would\nconstitute \xe2\x80\x9csubstantially similar terms\xe2\x80\x9d that trigger the cigarette disclosure in the Consent Order\nwould require an evaluation of specific advertisements in their entirety, and not simply an\nevaluation of specific words or phrases. For that reason, we cannot definitively opine whether\nuse of the phrases \xe2\x80\x9cTobacco Ingredients: Tobacco & Water\xe2\x80\x9d or \xe2\x80\x9cTobacco Filler Ingredients:\nTobacco & Water\xe2\x80\x9d would trigger the cigarette disclosure required in the FTC\xe2\x80\x99s Consent Order. 4\nLooking solely at the phrases, however, raises concerns that, depending on the context,\nconsumers could reasonably interpret advertisements containing the phrases at issue to mean that\nSanta Fe Natural American Spirit cigarettes contain no additives or chemicals. In particular, the\nphrases are very similar to \xe2\x80\x9c100% tobacco\xe2\x80\x9d and \xe2\x80\x9cpure tobacco\xe2\x80\x9d \xe2\x80\x93 each of which specifically\ntriggers the cigarette disclosure. In addition, advertisements permitted under the Memorandum\nof Understanding would continue to use the term \xe2\x80\x9cNatural\xe2\x80\x9d as part of the \xe2\x80\x9cNatural American\nSpirit\xe2\x80\x9d brand name, potentially adding to an impression that the advertised cigarette contains no\nadditives or chemicals.\n\n3\n\nA copy of the Memorandum of Agreement is attached to your March 9, 2017 letter. In 2009,\nCongress enacted the Family Smoking Prevention and Tobacco Control Act (\xe2\x80\x9cTobacco Control\nAct\xe2\x80\x9d), which gives FDA broad authority over cigarettes and other tobacco products. It is under\nthat authority that RAI/Santa Fe entered into the Memorandum of Agreement with FDA. We did\nnot analyze and provide no guidance concerning RAI/Santa Fe\xe2\x80\x99s compliance with the Tobacco\nControl Act or any provision therein.\n\n4\n\nIn accordance with Section 1.1 of the Commission\xe2\x80\x99s Rules of Practice and Procedure, 16\nC.F.R. \xc2\xa7 1.1, we do not ordinarily provide advice if an informed opinion cannot be made or\ncould be made only after extensive investigation, clinical study, testing or collateral inquiry.\n\n\x0cMark S. Brown, Esq.\nPage 3\nMay 9, 2017\nThe second issue that RAJ/Santa Fe seek staff guidance on is whether they can replace\nthe Consent Order\'s required disclosure with the following disclosure: "Natural American Spirit\ncigarettes are not safer than other cigarettes." The Memorandum of Understanding states that\nFDA does not object to this disclosure. Although this disclosure differs from that set out in the\nConsent Order, both disclosures convey the core message that Santa Fe cigarettes are not safer\nthan other cigarettes. Thus, FTC staff would not recommend an enforcement action with respect\nto the mandated language of the cigarette disclosure if RAI/Santa Fe used the requested\ndisclosure rather than the specific language set out in the Consent Order as long as the disclosure\nwas displayed clearly and prominently as set forth in the Consent Order.\nThe views expressed in this letter are those of FTC staff. They have not been reviewed,\napproved, or adopted by the Commission or any individual Commissioner. They are not binding\nupon the Commission, and the views are given without prejudice to the right of the Commission\nto later rescind the guidance and, when appropriate, to commence an enforcement proceeding.\nIn addition, the views expressed in this letter are restricted to the facts described above. FTC\nstaff retains the right to reconsider its advice and, with notice to the requesting parties, rescind or\nrevoke its guidance if it would be in the public interest to do so.\nPursuant to Section 1.4 of the Commission\'s Rules of Practice and Procedure, 16 C.F.R.\n\xc2\xa7 1.4, this response, along with your request for staff guidance, will be placed on the public\nrecord.\nVery truly yours,\n\n/Mt,{L ~\'\n\nMaryK.a\n\nT\n\nAssociate Director for Advertising Practices\n\ncc:\n\nAnn Simoneau, J.D.\nDirector, Office of Compliance and Enforcement\nCenter for Tobacco Products\nU.S. Food and Drug Administration\n\n\x0cKING\n\n&\n\nSPALDING\n\nKing & Spalding LLP\n1700 Pennsylvania Ave, NW\nSuite 200\nWashington, D.C. 20006-4707\nTel: + I 202 737 0500\nFax: + I 202 626 3737\nwww.kslaw.com\nMark S. Brown\nPartner\nDirect Dial : + I 202 626 5443\nDirect Fax: + I 202 626 3737\nmbrown@kslaw.com\n\nMarch 9, 2017\n\nVia Electronic Mail\nRosemary Rosso\nDivision of Advertising Practices\nFederal Trade Commission\nConstitution Center\n5th Floor, Suite 5610 (Annex J)\n400 ?1h Street, SW\nWashington, DC 20024\nRe:\n\nRequest for Informal Staff Guidance Regarding 2017 Agreement Between\nSanta Fe Natural Tobacco Company and U.S. Food & Drug Administration\n\nDear Ms. Rosso:\nAs you know from our letter dated January 31, 201 7, and from our recent discussions, we\nrepresent RAI Services Company and Santa Fe Natural Tobacco Company (hereinafter "Santa\nFe") in connection with an agreement between Santa Fe and the U.S. Food & Drug\nAdministration ("FDA") concerning the removal of the phrase "Additive Free" from all Natural\nAmerican Spirit cigarette product labels, labeling, advertising, and promotional materials. Santa\nFe expressly reserved the right, in the agreement with FDA, to include the statement "Tobacco\nIngredients: Tobacco & Water" or "Tobacco Filler Ingredients: Tobacco & Water."\nUnder the terms of Santa Fe\'s April 27, 2000 Consent Order with the FTC (File No. 992\xc2\xad\n3026; Attachment A), Santa Fe agreed to include the disclosure "No additives in our tobacco\ndoes NOT mean a safer cigarette" (for cigarettes) or \'\'No additives in our tobacco does not mean\nsafer" (for tobacco products other than cigarettes) on any advertisement that "through the use of\nsuch phrases as "no additives," "no chemicals," "additive-free," "chemical-free," "chemical\xc2\xad\nadditive-free," "100% tobacco," "pure tobacco," or substantially similar terms, represents that a\ntobacco product has no additives or chemicals." (Emphasis supplied).\nIn the time since Santa Fe entered into the Apri l 2000 Consent Order with the FTC,\nCongress enacted the Family Smoking Prevention and Tobacco Control Act ("Tobacco Control\nAct"). The Tobacco Control Act gives FDA broad authority over tobacco products, but provides\n\n\x0cRosemary Rosso\nMarch 9, 2017\nPage 2\nfor concurrent, overlapping jurisdiction between FDA and the FTC with regard to regulation of\nadvertising practices. See 21 U.S.C. \xc2\xa7 387n.\nUnder the Tobacco Control Act, manufacturers must obtain clearance from FDA to\nmarket tobacco products as "modified risk tobacco products." The term "modified risk tobacco\nproduct" is defined as any tobacco product that is "sold or distributed for use to reduce harm or\nthe risk of tobacco-related disease associated with commercially marketed tobacco products." 2 1\nU.S.C. \xc2\xa7 387k(b)( l ). Whether a product is "sold or distributed for use to reduce harm or the risk\nof tobacco-related disease" is determined, in part, based on the product\'s label, labeling, and\nadvertising. It is under this authority that Santa Fe entered into the January 2017 agreement with\nFDA.\nTo assure that Santa Fe continues to meet its obligations under the 2000 Consent Order, it\nnow seeks an informal, written opinion from the FTC\'s Division of Advertising Practices on the\nfollowing two questions:\n(1) Are the phrases "Tobacco Ingredients: Tobacco & Water" or "Tobacco Filler\nIngredients: Tobacco & Water" "substantially similar terms" under the 2000 Consent\nOrder such that their use triggers the disclosure requirement of the 2000 Consent Order!?\n(2) If "Tobacco Ingredients: Tobacco & Water" or "Tobacco Filler Ingredients: Tobacco\n& Water" are deemed substantially similar terms, would the FTC either permit or not\notherwise object to Santa Fe replacing the disclosures required under the 2000 Santa Fe\nConsent Order with the following disclosure: "Natural American Spirit cigarettes are not\nsafer than other cigarettes."\nWe thank you for your attention to this matter, and look forward to a productive dialogue.\nIf you require any additional information, please contact me at (202) 626-5443 or\nmbrown@kslaw.com.\nSincerely,\n\nAttachments:\nA: April 27, 2000 FTC Consent Decree\nB: January 23, 2017 FDA Memorandum of Agreement\ncc:\n\nAnn Simoneau (w/attachments)\nEle Ibarra-Pratt (w/attachments)\nMitch Neuhausuer (w/attachments)\n\n\x0cMil< hC\'ll /\\. Nc\xc2\xb7uln111sc\xc2\xb71\n\nJe1viccs\n\nVice f\'1 c~id cnt and\n\nl\\ssistanl <:ic11e1 al Counsel \xc2\xb7 H<:gulatrn y\n\'101 N. Main Sl1 <\'<\'I\n\n(OJ11/Jt111Y\n\nl\'.O. !lox \'1Ci\'1\nWinston -~al<\'111,\n\nNC 1./107\n\nk lr.pho1w: :l3G i\'ll.l-\'1~00\nr.1x: :13c, OH !I\'ll! /\n\n1wuf1i1Ull1(<clrj1 l.rc1111\n\nCONFIDENTIAL, NOT l\xe2\x80\xa2\'OH PUBLIC DISCLOSURE\n\nVin UPS O\\\xe2\x80\xa2ernight\n\nJanuary 23, 2017\nAnn Simoneau, J.D.\nOffice of CompI iance and Enforcement\nFDA Center for Tobacco Products\nc/o Document Control Center\nBuilding 71, Room 0335\nI0903 New Hampshire Avenue\nSilver Spring, Maryland 20993 -0002\nDear Ms. Simoneau:\nEnclosed please find an executed original Memorandum of Agreement. 1 have also\ne-mailed a copy to Eli Ibarra-Pratt as you have requested.\n\nsub~_/\n/k--b. ?\n~\xc2\xb7/~\n\nRespectfu ll y\n\nMitchell A. Neuhauser\ncc: Eli Ibarra-Pratt\n\n/ /\n/ ; ; :/\n\n\x0cConfldentlal - Not for Public Disclosure\nMemorandum of Agreement Between\nThe United States Food and Drug Administration\'s (FDA) Center for Tobacco Products (CTP) and RAI\nServices Company (RAIS)/Santa Fe Natural Tobacco Company, Inc. (Santa Fe),\n(Dated: January 19, 2017)\nThe parties, the FDA\'s Center for Tobacco Products (CTP) end RAI Services Company (RAIS)/Santa Fe\nNatural Tobacco Company, Inc. (Santa Fe), have been engaged In discussions to resolve the Issues raised\nin CTP\'s Warning Letter dated August 27, 2015. Per those discussions, CTP and Santa Fe agree to the\nfollowing steps and conditions:\n1. Senta Fe will remove the phrase "Additive Free\xe2\x80\xa2 from all Natural American Spirit cigarette product\nlabels, labeling, advertising, and promotional materials.\n2. Santa Fe will remove the term \xe2\x80\xa2natural" from all Natural American Spirit cigarette product labels,\nlabeling, advertising, and promotional materials, except as provided In Paragraph Three (3) below.\nSanta Fe may, if It chooses to do so, use the statement "Tobacco Ingredients: Tobacco & water" or\n"Tobacco Fiiier Ingredients: Tobacco & Water" on product labels, labeling, advertising, and\npromotional materials. The use of the phrases "Tobacco Ingredients: Tobacco and Water" and\n"Tobacco Flffer Ingredients: Tobacco and Water" Is not required under this Agreement, but Santa Fe\nwishes to retain the option of using these statements.\nIf Santa Fe chooses to use the statement "Tobacco Ingredients: Tobacco & Water" or "Tobacco Filler\nIngredients: Tobacco & Water" on product labels, labeling, advertising, and promotional materials,\nSanta Fe agrees to Initiate discussions with the FTC and FDA within 30 days of signing this\nAgreement In order to address, and reach a mutually agreeable resolution regarding, whether, under\nthe Consent Decree entered in 2000 between FTC and Santa Fe regarding Santa Fe\'s advertising of\nNatural American Spirit cigarettes, FTC would require a disclosure with use of the statements\n"Tobacco Ingredients: Tobacco & Water" or "Tobacco Filler Ingredients: Tobacco & Water: CTP\'s\nposition is that no disclosure would be needed for either of the tobacco Ingredients statements In the\npreceding paragraph. .However, CTP would not object to Santa Fe\'s use of the disclosure "Natural\nAmerican Spirit cigarettes are not safer than other cigarettes" on product packaging, labels, labeling,\nadvertising and promotional materials. Santa Fe agrees to work dlllgently with FTC and FDA to reach\nresolution on this issue.\nCTP recognizes that Santa Fe will need to coordinate with Its vendors to print and Implement new\nproduct labeling and advertising. However, CTP expects that this process would be completed and\nthat changes to the labels, labeling, advertising, and promotional materials would be implemented\nwithin seven (7) months from the date Santa Fe receives In writing the agreement reached between\nFTC and FDA regarding the necessity, and, if applicable, wording, of a disclosure, and the process\nfor effectuating It, as a result of the discussions among Santa Fe, FTC, and FDA. Followlng the\nseven (7) month de~dline, Santa Fe will not utilize the terms "additive free" or \xe2\x80\xa2natural" except as\nallowed under Paragraph 3 of this Agreement on the labels, labeling, advertising, or promotional\nmaterials for Natural American Spirit cigarette products. Santa Fe need not, however, remove or\nrecall products or product labels, labeling, advertising, or promotional materials utilizing the terms\n"additive free" or \xc2\xb7natural" that were Introduced Into the market (e.g., through distribution to\nwholesalers, dlstrlbuters. retallers, or consumers) prior to the seven (7) month deadline.\n3. Santa Fe may retain use of the term "Natural" In the "Natural American Splrlr brand name and\ntrademarks.\n4. To the extent any premarket authorization requirements of section 905(j) and 910 of the FD&C Act\napply, CTP wlll not enforce them with respect to the changes specified in Paragraphs 1 and 2 above.\n5. If Santa Fe seeks labeling review from FTC for the changes described In the Agreement. Santa Fe\nwill submit a letter to CTP\'s Office of Compliance and Enforcement to inform CTP of such review\nonce the FTC has completed its review. In addition, Santa Fe will prompUy notify CTP\'s Office of\nCompliance and Enforcement in writing and provide exemplars of Its revised packaging, labels,\n\n\x0cConfidential -\xc2\xb7 Not for Public Disclosure\nlabeling, advertising, and promotional materials that reflect the removal of "addltivo free" and\n"natural" claims, and related changes, in accordance with this Agreement. Thereafter, any\nsubsequent changes to packaging, labels, labeling, advertising, and promotional materials shall be\ncommunicated In conformance with Section 905(i) of the FD&C Act.\n6. Within thirty (30) days after CTP receives exemplars of Santa Fe\'s revised packaging, labeling,\nadvertising, and promotional materials pursuant to Paragraph 5, CTP shall determine whether the\nexemplars are in compliance with the applicable requirements of the FD&C Act and notify Santa Fe\nin writing of its determination.\n7. By accepting the terms of this Agreement, Santa Fe does not admit any liability or wrongdoing.\nIf Santa Fe agrees to the conditions outlined above, CTP will commit to not initiating enforcement action\nagainst Santa Fe related to the August 27, 2015 Warning Letter during the seven (7) month timeframe set\nforth in Paragraph 2 for Santa Fe to complete and implement changes to the product packaging, labels,\nlabeling, advertising and promotional materials. The parties may agree to extend these dates by written\nagreement. CTP\'s Office of Compliance and Enforcement requests periodic updates as to Santa Fe\'s\nprogress towards meeting the terms of this Agreement.\nThis Agreement applies only to the specific products and claims described in this letter. It is Santa Fe\'s\nresponsibility to ensure that Its other tobacco products and all related labeling and/or advertising comply with\neach applicable provision of the FD&C Act and FDA\'s Implementing regulations.\n\n-?\'\n\n/~ &y-\n\n//;\xc2\xa3~ft;~\n\n/\n\n// , .\n\nMITCHELL A NEUHAUSER\n_....,7\xc2\xa3,__o_~-\xc2\xb7T--..\xc2\xb7E..,\xc2\xad\nVice President\nAssistant General Counsel-Regulatory\nRAI Services Company\n\nANN SIMONE\nDirector\nOffice of Compliance and Enforcement\nCenter for Tobacco Products\nFood and Drug Administration\n\n\x0cUNITED STATES OF AMERICA\nFEDERAL TRA DE COMMISSION\n\nIn the Matter of\nSANTA FE NATURAL TOBACCO COMPANY, INC., a corporation.)\nFILE NO. 992-3026\n\nAGREEMENT CONTAINING CONSENT ORDER\nThe Federal Trade Commission has conducted an investigation of certain acts and\npractices o f Santa Fe Natural Tobacco Company, Inc., a corporation ("proposed\nrespondent"). Proposed respondent is willing to enter into an agreement containing a\nconsent order resolving the allegations contained in the attached draft complaint.\nTherefore,\n\nIT IS HEREBY AGREED by and between Santa Fe Natural Tobacco Company, Inc.,\nby its duly authorized officer, and counsel for the Federal Trade Commission that:\n\nI. Proposed respondent Santa Fe Natural Tobacco Company, Inc. is a New Mexico\ncorporation with its principal office or place of business at 1368 Cerri llos Road, Santa\nFe, NM 87505-3507.\n2. Proposed respondent admits all the jurisdictional facts set forth in the draft complaint.\nThis agreement is for settlement purposes only and does not constitute an admission by\nproposed respondent that the law has been violated as alleged in the draft complaint, or\nthat the facts as a lleged in the draft complaint, other than the jurisdictional facts , are true.\n3. Proposed respondent waives:\na. Any fu rther procedural steps;\nb. The requirement that the Commission\'s decision contain a statement of findings\nof fact and conclusions of Jaw; and\nc. All rights to seek judicia l review or otherwise to challenge or contest the validity\nof the order entered pursuant to this agreement.\n4. This agreement shall not become part of the public record of the proceeding unless and\nunti l it is accepted by the Commission. If this agreement is accepted by the Com mission,\nit, together with the draft complaint, will be placed on the public record for a period of\nthirty (30) days and information about it publicly released. The Commission thereafter\nmay either w ithdraw its acceptance o f this agreement and so notify proposed respondent,\nin which event it will take such action as it may consider appropriate, or issue and serve\nits complaint (in such form as the circumstances may require) and decision in disposition\nof the proceeding.\n5. This agreement contemplates that, if it is accepted by the Commission, and if such\nacceptance is not subsequently withdrawn by the Commission pursuant to the provisions\nof Section 2.34 of the Commission\'s Rules, the Comm ission may, without further notice\nto proposed respondent, (I) issue its complaint corresponding in form and substance with\nthe attached draft complaint and its decision containing the following order in disposition\nof the proceeding, and (2) make in formation about it public. When so entered, the order\nshall have the same force and effect and may be a ltered, modified, or set aside in the\nsame manner and w ith in the same time provided by statute for other orders. The order\nshall become final upon service. Delivery of the complaint and decision and order to\n\n\x0cproposed respondent\'s address as stated in the agreement by any means specified in\nSection 4.4 of the Commission\'s Rules shall constitute service. Proposed respondent\nwaives any right it may have to any other manner of service. The compla int may be used\nin construing the terms of the order. No agreement, understanding, representation, or\ninterpretation not contained in the order or in the agreement may be used to vary or\ncontradict the terms of the order.\n6. Proposed respondent has read the draft complaint and consent order. It understands\nthat it may be liable fo r civil penalties in the amount provided by law and other\nappropriate rel ief for each violation of the order after it becomes fina l.\n\nORDER\nDEFINITIONS\nFor purposes of this order, the following definitions shall apply:\nI. "Competent and reliable scientific evidence" shall mean tests, analyses, research,\nstudies, or other evidence based on the expertise of professionals in the relevant area, that\nhas been conducted and evaluated in an obj ective manner by persons qualified to do so,\nusing procedures generally accepted in the profession to yield accurate and reliable\nresults.\n2. Unless otherwise specified, "respondent" sha ll mean Santa Fe Natural Tobacco\nCompany, Inc., a corporation, its successors and assigns and its officers, agents,\nrepresenta ti ves, and employees.\n3. "Commerce" shall mean as defined in Section 4 of the Federal Trade Comm ission Act,\n15 u.s.c. \xc2\xa7 44.\n4. "Advertisement" shall mean any written or verbal statement, illustration, or depiction\nthat is designed to effect a sale or create interest in the purchasing of any product,\nincluding but not limited to a statement, illustration or depiction in or on a brochure,\nnewspaper, magazine, free standing insert, pamphlet, leaflet, circular, mai ler, book insert,\nletter, coupon, catalog, poster, chart, billboard, transit advertisement, point of purchase\ndisplay, specialty or util itarian item, sponsorship material, package insert, film , slide, or\nthe Internet or other computer network or systt:m.\n5. "Tobacco product" shall mean cigarettes, cigars, cigari llos, little cigars, smokeless\ntobacco, cigarette tobacco, pipe tobacco, and any other product made or derived fro m\ntobacco that is intended for human consumption, including any component, part, or\naccessory of a tobacco product.\n6. "Herbal smok ing product" shall mean c igarettes, cigars, cigarillos, little cigars and any\nother product made or derived from plant material other than tobacco, that is intended for\nhuman smoking, inc luding any component, part, or accessory of an herbal smoking\nproduct.\n7. "Clearly and prominently" shall mean:\na. With regard to advertisements for tobacco and herbal smoking products, in black\ntype on a solid white background, or in white type on a solid red background, or in\nany other color combination that would provide an equivalent or greater degree of\nprint contrast as objectively dete rmined by densitometer or comparable\n\n\x0cmeasurements of the type and the background color. The color of the ruled\nrectang le shall be the same color as that of the type; and\nb. (i) With regard to advertisements for tobacco products, centered, both horizontally\nand vertically, in a ruled rectangle. The area enclosed by the rectangle shall be no\nless than 40% of the size of the area enclosed by the ruled rectangle surrounding\nthe health warnings for tobacco cigarettes mandated by 15 U.S.C. \xc2\xa7 1333. The\nwidth of the rule fonning the rectangle shall be no less than 50% of the width of\nthe rule required for the health warnings for tobacco cigarettes mandated by 15\nu.s.c. \xc2\xa7 1333.\n\nProvided that, if, at any time after this order becomes final, 15 U .S.C. \xc2\xa7 1333 is\namended, modified, or superseded by any other law, the area enclosed by the ruled\nrectangle shall be no less than 40% of the area required for health warnings for\ntobacco cigarettes by such amended, modified, or superseding law, and the width\nof the rule forming the rectangle shall be no less than 50% of the width of any\nsurrounding rule required for health warnings for tobacco cigarettes by such\namended, modified, or superseding law; and\n(ii) With regard to advertisements for herbal smoking products, centered, both\nhorizontally and vertically, in a ruled rectangle. The area enc losed by the rectangle\nshall be no less than the size of the area enclosed by the ruled rectangle\nsurrounding the health warnings for tobacco cigarettes mandated by 15 U.S.C. \xc2\xa7\n1333. The width of the rule forming the rectangle shall be no less than the width of\nthe rule required for the health warnings for tobacco cigarettes mandated by 15\nu.s.c. \xc2\xa7 1333.\n\nProvided that, if, at any time after this order becomes final, 15 U.S.C. \xc2\xa7 1333 is\namended, modified, or superseded by any other law, the area enclosed by the ruled\nrectangle shall be no less than the area required for health warnings for tobacco\ncigarettes by such amended, modified, or superseding law, and the width of the\nrule forming the rectangle shall be no less than the width of any surrounding rule\nrequired for health warnings for tobacco cigarettes by such amended, modified, or\nsuperseding law; and\nc. Jn the same type style and type size as that required for health warnings for\ntobacco cigarettes pursuant to 15 U.S.C. \xc2\xa7 1333.\n\nProvided that, if, at any time after this order becomes final, 15 U.S.C. \xc2\xa7 1333 is\namended, modified, or superseded by any other law, the type sty le and type size of\nthe disclosure shall be the same as the type style and type size required for health\nwarnings for tobacco cigarettes by such amended, modified, or superseding law;\nand\nd. In a clear and prominent location but not immediately next to other written or\ntextual matter or any rectangular designs, elements, or similar geometric fonns,\nincluding but not limited to any warning statement required under the Federal\nCigarette Labeling and Advertising Act, 15 U.S.C . \xc2\xa7 1331 et seq., or the\nComprehensive Smokeless Tobacco Health Education Act, 15 U .S.C. \xc2\xa7 440 I et\nseq. In addition, the disclosure shall not be positioned in the margin of a print\nadvertisement. A disclosure shall be deemed "not immediately next to" other\ngeometric or textual matter if the distance between the disclosure and the other\nmatter is as great as the distance between the outside left edge of the rule of the\nrectangle enclos ing the health warning required by 15 U. S. C. \xc2\xa7 1333 and the top\nleft point of the letter "S" in the word "SURGEON" in that health warning; and\n\n\x0cc. For audiov isual or audio advertisements, includ ing but not limited to\nadvertisements on videotapes, cassettes, discs, or the Internet; promotional film s or\nfilmstrips; and promotional audiotapes or other types of sound recordings, the\ndisclosure shall appear on the screen at the end of the advertisement in the format\ndescribed above for a length of time and in such a manner that it is easily legible\nand shall be announced simultaneously at the end of the advertisement in a manner\nthat is c learly audible.\n\nProvided, however. that in any advertisement that does not contain a visual\ncomponent, the disclosure need not appear in visual format, and in any\nadve1tisement that does not contain an audio component, the disclosure need not\nbe announced in aud io format.\n\nI.\nIT IS ORDERED that respondent, directly or through any corporation, subsidiary,\ndivision, or other device, in connection with the advertising, promotion, offering for sale,\nsale, or distribution of Natural American Spirit tobacco cigarettes or a ny other tobacco\nproduct in or affecting commerce, shall display in advertisements as specified below,\nclearly and prominently, the following disclosures (including the line breaks,\npunctuation, bold font and capitalization illustrated):\nIn cigarette advertisements:\n\nNo additives in our tobacco\ndoes NOT mean a safer cigarette.\nIn advertisements for any other tobacco product:\n\nNo additives in our tobacco\ndoes NOT mean safer.\nThese disclosures shall be displayed beginning no later than thirty (30) days after the\ndate of service of th is order, in any advertisement that, through the use of such phrases as\n"no additives;" "no chemicals," "additive-free," "chemical-free," "chemical-additive\xc2\xad\nfree," " 100% tobacco," "pure tobacco," or substantially similar terms, represents that a\ntobacco product has no additives or chemicals.\n\nProvided, that the above disclosures shall not be required in any cigarette advertisement\nthat is not required to bear a health warning pursuant to 15 U.S.C. \xc2\xa7 1333.\nProvided further, that the above disclosures shall not be required if respondent possesses\nand relies upon competent and reliable scientific evidence demonstrating that such\ncigarette or other tobacco product poses materially lower health risks than other\ncigarettes or other products of the same type.\nNothing contrary to, inconsistent with, or in mitigation of any disclosure provided for in\nthis part shall be used in any advertisement. Provided, however. that this provision shall\nnot prohibit respondent from truthfully representing, through the use of such phrases as\n"no additives," "no chemicals." "additive-free," "chemical-free," "chemical-additive\xc2\xad\nfree," " I 00% tobacco," "pure tobacco," or substantially similar terms, that a tobacco\nproduct has no additives or chemicals, where such representation is accompanied by the\ndisclosure mandated by this provision.\n\n11.\n\n\x0cIT IS FURTHER ORDERED that respondent, directly or through any corporation,\nsubsidiary, division, or other device, in connection with the advertising, promotion,\noffering for sa le, sale, or distribution of any herbal smoking product in or affecting\ncommerce, shall display in advertisements and on packaging as specified below, clearly\nand prominently, the fo llowing disclosure (including the line breaks, punctuation and\ncapitalization illustrated):\nIn advertisements and on packaging for herbal cigarettes:\n\nHerbal cigarettes are dangerous to your health.\nThey produce tar and carbon monoxide.\nIn advertisements and on packaging for other herbal smoking products:\n\nSmoking this product is dangerous to your health.\nIt produces tar and carbon monoxide.\nThese disclosures shall be displayed beginning no later than thirty (30) days after the\ndate of service of this order, in any advertisement and on any package that, through the\nuse of such phrases as "no tobacco," "tobacco-free," "herbal," or substantially similar\nterms, represents that an herbal smoking product has no tobacco.\n\nProv;ded, that the above disclosures shall not be required if respondent possesses and\nrelies upon competent and reliable scientific evidence demonstrating that such herbal\nsmoking products do not pose any material health risks.\nNothing contrary to, inconsistent with, or in mitigation of any disclosure provided for in\nthis part shall be used in any advertisement. Provided, however, that this provision shall\nnot prohibit respondent from truthfully representing, through the use of such phrases as\n"no tobacco," "tobacco-free," "herbal," or substantially similar terms, that an herbal\nsmoking product has no tobacco, where such representation is accompanied by the\ndisclosure mandated by this provision.\n\nI I I.\nIT IS FURTHER ORDERED that respondent shall:\nA. Provide, within forty-five (45) days after the date of service of this order, an exact\ncopy of the notice attached hereto as Attachment A to each retailer, distributor, or other\npurchaser for resale to whom respondent has supplied Natural American Spirit tobacco\ncigarettes since January I, 1998. Respondent shall send the notice by first class mail. The\nmailing shall not include any other documents.\nB. Di scontinue dealing with any retailer, distributor, or other purchaser for resale once\nrespondent has actual knowledge, or knowledge fairly implied on the basis of objective\ncircumstances, that such retailer, distributor, or other purchaser for resale has continued\nto use or disseminate any of respondent\'s advertisements for any of respondent\'s tobacco\nproducts that:\nI. represents, through the use of such phrases as "no additives," "no chemicals,"\n"additive-free," "chemical-free," "chemical-additive-free," "I 00% tobacco," "pure\ntobacco," or substantially similar terms, that the tobacco products have no\nadditives or chemicals; and\n\n\x0c2. does not include the disclosure specified in Part I of this order\nunless, upon notification by respondent, such retailer, distributor, or other purchaser for\nresale immediately ceases using or disseminating such advertisements. If, after such\nnotification, respondent obtains actual knowledge, or knowledge fairly implied on the\nbasis of objective circumstances, that such retailer, distributor, or other purchaser for\nresale has not permanently ceased using or dissem inating such advertisements,\nrespondent must immediately and indefinitely, discontinue dealing with such retailer,\ndistributor, or other purchaser for resale, until such time as respondent has obtained\nwritten assurance and verified that such retailer, distributor, or other purchaser for resale\nhas permanently ceased using or disseminating such advertisements.\nC . For five (5) years after the date of service of this order, maintain and upon request\nmake available to the Federal Trade Commission for inspection and copying:\n(I) copies of all notification letters sent to retailers, distributors, or other\npurchasers for resale pursuant to subparagraph A of this part; and\n(2) copies of all communications with retailers, distributors, or other purchasers for\nresale pursuant to subparagraph B of this part.\n\nJV.\nIT IS FURTHER ORDERED that respondent Santa Fe Natural Tobacco Company, Inc.,\nand its successors and assigns, shall, for five (5) years after the last date of d issemination\nof any representation covered by this order, maintain and upon request make available to\nthe Federal Trade Commission for inspection and copying:\nA. All advertisements and packaging containing the representation;\n\nB. All materials that were relied upon in disseminating the representation; and\nC. All tests, reports, studies, surveys, demonstrations, or other evidence in their\npossession or control that contradict, qualify, or call into question the\nrepresentation, or the basis relied upon for the representation, including complaints\nand other communications with consumers or with governmental or consumer\nprotection organizations.\n\nv.\nIT IS FURTHER ORDERED that respondent Santa Fe Natural Tobacco Company, Inc.,\nand its successors and assigns, sha ll deliver a copy of this order, in either paper or\nelectronic form , to all current and future principals, officers, and directors, and to all\ncurrent and future managers, employees, agents, and representatives having\nresponsibi lities w ith respect to the subject matter of this order. Respondent shall secure\nfrom each such person either I) a signed and dated statement acknowledging receipt of\nthe o rder; or 2) a dated , e lectronic acknowledgment indicating that the person has read,\ndownloaded or printed the order. Respondent shall deliver this order to current personnel\nw ith in thirty (30) days after the date of service of this order, and to future personnel\nwithin thirty (30) days after the person assumes such position or responsibilities.\nRespondent shall maintain and upon request make available to the Federal Trade\nComm ission fo r inspection and copying a copy of each signed statement acknowledging\nreceipt of the order or a record, in either electronic or paper form, of each electronic\nacknowledgment o f receipt of the order.\n\n\x0cVI.\nIT IS FURTHER ORDERED that respondent Santa Fe Natural Tobacco Company, Inc.,\nand its successors and assigns shall notify the Commission at least thirty (30) days prior\nto the sale of any of its tobacco products or herbal smoking products for which the\ncomposition or formula has been changed in such a manner as may affect compliance\nobligations arising under this order, including but not lim ited to the addition o f any\nadditives to any variety of such products. All notices required by this Part shall be sent\nby certified mail to the Associate Director, Division of Enforcement, Bureau of\nConsumer Protection, Federal Trade Commission, 600 Pennsylvania Avenue, N. W.,\nWashington, D.C. 20580.\n\nVII.\nIT IS FURTHER ORDERED that respondent Santa Fe Natural Tobacco Company, Inc.,\nand its successors and assigns shall notify the Commission at least thirty (30) days prior\nto any change in the corporation that may affect compliance obligations arising under\nthis order, including but not limited to a dissolution of a subsidiary, parent or affiliate that\nengages in any acts or practices subject to this order; the proposed filing of a bankruptcy\npetition; or a change in the corporate name or address. Provided, however, that, with\nrespect to any proposed change in the corporation about which respondent learns less\nthan thirty (30) days prior to the date such action is to take place, respondent shall notify\nthe Commission as soon as is practicable after obtaining such knowledge. All notices\nrequired by this Part shall be sent by certified mail to the Associate Director, Division of\nEnforcement, Bureau of Consumer Protection, Federal Trade Commission, 600\nPennsylvania Avenue, N.W., Washington, D.C. 20580.\n\nVIII.\nIT IS FURTHER ORDERED that respondent Santa Fe Natural Tobacco Company, Inc.,\nand its successors and assigns shall, within sixty (60) days after the date of service of this\norder, and at such other times as the Federal Trade Commission may require, file with the\nCommission a report, in writing, setting forth in detail the manner and form in which\nthey have complied with this order.\n\nIX.\nThis order will terminate twenty (20) years from the date of its issuance, or twenty (20)\nyears from the most recent date that the United States or the Federal Trade Commission\nfiles a complaint (with or without an accompanying consent decree) in federal court\nalleging any violation of the order, whichever comes later; provided, however, that the\nfiling o f such a complaint will not effect the duration of:\nA. Any Part in this order that terminates in less than twenty (20) years;\nB. This order\'s appl ication to any respondent that is not named as a defendant in\nsuch complaint; and\nC. This order if such complaint is tiled after the order has terminated pursuant to\nthis Part.\n\nProvided further, that if such complaint is dismissed or a federal court rules that the\nrespondent did not violate any provision of the order, and the dismissal or ruling is either\nnot appealed or upheld on appeal, then the order will terminate according to this Part as\nthough the complaint had never been filed, except that the order will not terminate\n\n\x0cbetween the date such complaint is filed and the later of the deadline for appealing such\ndismissal or ruling and the date such dismissal or ruling is upheld on appeal.\nSigned this _ _ _ _ day of_ _ _ _ _ _ _, 2000\nSANTA FE NATURAL TOBACCO COMPANY, INC.\nBy:\nRobin Sommers\nPresident\n\n------ ---\xc2\xad\n\nC. Randall Nuckolls\nLong Aldridge & Norman, LLP\nAttorney for Respondent\n\nMichael Ostheimer\nShira Model!\nCounsel for the Federal Trade Commission\nAPPROVED :\n\nC. Lee Peeler\nAssociate Director\nDivision of Advertising Practices\n\nJoan Z. Bernstein\nDirector\nBureau of Consumer Protection\n\nATTACHMENT A\n[To be printed on Santa Fe Natural Tobacco Company, Inc. letterhead]\n[date]\nDear [retailer, distributor, or other purchaser for resale]:\nThis letter is to inform you that Santa Fe Natural Tobacco Company, Inc. recently\nreached a settlement agreement with the Federal Trade Comm ission ("FTC") concerning\ncertain past advertising for Natural American Spirit cigarettes. The FTC has been\nreviewing "no additive" claims for cigarettes and other tobacco products as a result of\nconcerns that such representations might mislead consumers to believe that tobacco\nproducts without additives are safer than tobacco products containing additives. As part\nof this rev iew, the FTC conducted a n investigation of past advertising for Natural\nAmerican Spirit cigarettes and alleged that certain of our past advertising was\nmisleading. Although we do not admit the FTC\'s allegations, we have agreed to notify\nour distributors, retailers and others who sell our cigarettes to consumers that we will be\nadding a new disclosure statement to certain advertisements making a "no additive"\nclaim and that they should discontinue the use of certain old advertising materials not\ncontain ing the new disclosure language.\nThe FTC Agreement\n\n\x0cThe FTC claimed that because we state that the tobacco used in Natural American Spirit\ncigarettes contains no additives or chemicals, we made implied, unsubstantiated claims\nthat smoking our cigarettes is less hazardous to a smoker\'s health than smoking otherwise\ncomparable cigarettes that contain additives or chemicals. Beginning in late 1997, we\nvoluntari ly began placing the statement \'\'To our knowledge there is no research\nindicating cigarettes containing additive-free tobacco are safer than cigarettes with\ntobacco contain ing additives" in certain ads for Natural American Spirit tobacco\ncigarettes. Since early I998, we have also included the statement "We make no\nrepresentation expressed or implied that these cigarettes are any less hazardous than any\nother cigarettes" on the packaging of Natural American Spirit cigarettes. We have now\nagreed to revise our disclosure in certain advertisements for Natural American Spirit\ntobacco cigarettes to stale the following:\nNo additives in our tobacco\ndoes NOT mean a safer cigarette.\n\nOur Notifi cation Obligations\nIn addition to agreeing to revise our disclosure statement, we have also agreed to request\nthat you discontinue using, relying on or distributing certain old Natural American Spirit\nadvertisements or promotional materials in your possession that do not contain the new\ndisclosure statement. Certain existing point of sale items may continue to be used\nwithout the new disclosure statement while other items will need to be discontinued or\nremoved unless a sticker is applied containing the new disc losure statement. In the near\nfuture, we will provide instructions for dealing with these existing items and we will be\nsending you new Natural American Spirit promotional materials. If you are a distributor,\nwe also ask that you make this information available to your Natural American Spirit\ndealers who may have existing material s so that they can take similar action. The FTC\nagreement requires us to cease doing business with even our most loyal customers in the\nevent they continue using noncompliant materials, so please help us make this transition\nin an orderly and prompt fashion.\nIf you have any questions, you may call us at (xxx) xxx-xxxx. We apologize for any\ninconvenience this may cause you and thank you for your assistance.\nSincerely,\nRobin Sommers, President\nSanta Fe Natural Tobacco Company, Inc.\n\n\x0c'


b'UNITED STATES OF AMERICA\n\nFederal Trade Commission\nWASHINGTON, D.C. 20580\n\nLois C. Greisman\nAssociate Director\nDivision of Marketing Practices\n\nNovember 10, 2016\n\nMichael Bills\n132 S 600 East, Suite 204\nSalt Lake City, UT 84102\nRe:\n\nSeptember 11, 2009 Staff Opinion Letter on Soundboard Technology\n\nDear Mr. Bills:\nWe are writing to you regarding the informal staff opinion letter we provided to your\nformer company, Call Assistant, LLC, on September 11, 2009. 1 Our September 2009 letter\nresponded to Call Assistant\xe2\x80\x99s inquiry regarding whether the Telemarketing Sales Rule\xe2\x80\x99s (\xe2\x80\x9cTSR\xe2\x80\x9d)\nprovisions governing outbound telemarketing calls that deliver prerecorded messages 2 apply to\ncalls utilizing soundboard technology, which is technology that allows a live agent to\ncommunicate with a call recipient by playing recorded audio snippets instead of using his or her\nown live voice. In the September 2009 letter, staff stated its opinion that the technology, as\ndescribed by Call Assistant, would not be subject to the prerecorded message provisions of the\nTSR. Staff\xe2\x80\x99s opinion was based on important features that Call Assistant highlighted about its\ntechnology \xe2\x80\x93 i.e., that for the entire duration of a call made using the technology, a single live\nagent stays with the call from beginning to end, listens to every word spoken by the call\nrecipient, determines what is heard by the call recipient, and has the ability to interrupt\nrecordings and use his or her own voice to communicate with the call recipient if needed. In our\nview at that time, these features made the calls \xe2\x80\x9cvirtually indistinguishable\xe2\x80\x9d from normal twoway conversations with live operators and placed them outside the scope of the TSR\xe2\x80\x99s\nprerecorded message provisions.\nSince the issuance of our September 2009 letter, staff has received a steadily increasing\nvolume of formal and informal complaints from consumers about telemarketing calls utilizing\nsoundboard technology. Consumers complain that during these calls they are not receiving\nappropriate recorded responses to their questions or comments. Consumers further complain that\noften no live telemarketer intervenes to provide a human response when requested to do so, the\nrecorded audio snippets that are played do not adequately address consumer questions, or the call\n1\n\nA copy of the September 11, 2009 staff opinion letter can be found at\nhttp://www.ftc.gov/sites/default/files/documents/advisory opinions/opinion-09-1/opinion0901 1.pdf. Call\nAssistant, LLC, filed for Chapter 7 bankruptcy on August 13, 2015. In re Call Assistant LLC, Case No. 15-11708\n(KJC) (Bankr. D. Del. Aug. 13, 2015).\n2\n\n16 C.F.R. \xc2\xa7 310.4(b)(1)(v).\n\n\x0cMichael Bills\nPage 2 of 6\nis terminated in response to consumers questions. Indeed, media reports also have taken note of\nthis phenomenon, which some in the press have dubbed telemarketing \xe2\x80\x9crobot\xe2\x80\x9d calls. 3 Simply\nput, since we issued the letter in 2009, staff has seen evidence of the widespread use of\nsoundboard technology in a manner that does not represent a normal, continuous, two-way\nconversation between the call recipient and a live person. This is inconsistent with the principles\nwe laid out in our September 2009 letter as well as our understanding of the technology at the\ntime we issued the letter. 4 Moreover, this type of use does not provide the consumer benefits\nupon which we based our September 2009 opinion.\nIn response to rising complaints and concerns, staff reached out to the Professional\nAssociation for Customer Engagement (\xe2\x80\x9cPACE\xe2\x80\x9d), which is a trade association representing call\ncenters, and the Soundboard Association, a trade organization representing manufacturers and\nusers of soundboard technology. During the last few months, we have had multiple productive\ndiscussions and meetings with PACE and the Soundboard Association to learn more about\nsoundboard technology and obtain industry input regarding the regulatory status of that\ntechnology. Both PACE and the Soundboard Association were responsive to requests, provided\nmeaningful input to assist staff in its review of this technology, and highlighted the potential\nbenefits of responsible soundboard use. Staff carefully considered the input of PACE and the\nSoundboard Association.\nA fundamental premise of our September 2009 letter was that soundboard technology\nwas a surrogate for the live agent\xe2\x80\x99s actual voice. A human being cannot conduct separate\nconversations with multiple consumers at the same time using his or her own voice.\nNonetheless, some companies are routinely using soundboard technology in precisely this\nmanner, and these companies are improperly using our September 2009 letter to justify their\nactions in court proceedings 5 and in investigations. Indeed, Call Assistant noted publicly that\n3\n\nSee, e.g.., Sean Gallagher, The New Spam: Interactive Robo-Calls From the Cloud as Cheap as E-Mail, ARS\nTECHNICA, (Apr. 15, 2015), http://arstechnica.com/information-technology/2015/04/the-new-spam-interactive-robocalls-from-the-cloud-as-cheap-as-e-mail; Alexis C. Madrigal, Almost Human: The Surreal, Cyborg Future of\nTelemarketing, THE ATLANTIC, (Dec. 20, 2013), http://www.theatlantic.com/technology/archive/2013/12/almosthuman-the-surreal-cyborg-future-of-telemarketing/282537/; Alexis C. Madrigal, The Only Thing Weirder Than a\nTelemarketing Robot, THE ATLANTIC, (Dec. 13, 2013), http://www.theatlantic.com/technology/archive/2013/12/theonly-thing-weirder-than-a-telemarketing-robot/282282/; Zeke Miller & Denver Nicks, Meet the Robot Telemarketer\nWho Denies She\xe2\x80\x99s a Robot, TIME, (Dec. 10, 2013), http://newsfeed.time.com/2013/12/10/meet-the-robottelemarketer-who-denies-shes-a-robot/; Kris Hundley, These Telemarketers Never Stray From Script, TAMPA BAY\nTIMES, (Nov. 14, 2013), http://www.tampabay.com/news/these-telemarketers-never-stray-from-the-script/2152303.\n4\n\nFor example, Call Assistant highlighted the ability of its agents to use their own voices during calls using its\nsoundboard technology: \xe2\x80\x9cOur technology merely substitutes sound files for the agent\xe2\x80\x99s voice (although the agent\ncan interject with his or her voice at any time) . . . .\xe2\x80\x9d (emphasis supplied). See also September 2009 Letter at 1 (\xe2\x80\x9cIn\nresponse to the greeting, the agent may elect to speak to the call recipient using his or her voice, or may press a\nbutton to play an appropriate recorded script segment. . . . At all times, even during the playing of a recorded\nsegment, the agent retains the power to interrupt any recorded message to listen to the consumer and respond\nappropriately.\xe2\x80\x9d) (emphasis supplied).\n5\n\nSee, e.g., Fitzhenry v. ADT Corp., No. 9:14-CV-80180 (S.D. Fla.); Barrett v. ADT Corp., No. 12:15-CV-1348\n(S.D. Ohio).\n\n\x0cMichael Bills\nPage 3 of 6\none of the advantages of its technology is that \xe2\x80\x9can agent can conduct multiple calls\nsimultaneously.\xe2\x80\x9d 6 Staff also has seen evidence that call centers are using soundboard technology\nto increase the number of outbound calls they can make. In addition, in our discussions and\nmeetings, industry representatives acknowledged that call centers routinely use soundboard\ntechnology to allow a single live agent to handle more than one call at the same time.\nThe plain language of the TSR provision governing prerecorded calls imposes restrictions\non \xe2\x80\x9cany outbound telephone call that delivers a prerecorded message.\xe2\x80\x9d 7 It is indisputable that\ncalls made using soundboard technology deliver prerecorded messages. As such, under the plain\nmeaning of the words in the TSR\xe2\x80\x99s prerecorded call provision, outbound telemarketing calls\nusing soundboard technology are covered because such calls \xe2\x80\x9cdeliver a prerecorded message.\xe2\x80\x9d 8\nGiven the actual language used in the TSR, the increasing volume of consumer\ncomplaints, and all the abuses we have seen since we issued the September 2009 letter, we have\ndecided to revoke the September 2009 letter. It is now staff\xe2\x80\x99s opinion that outbound\ntelemarketing calls that utilize soundboard technology are subject to the TSR\xe2\x80\x99s prerecorded call\nprovisions because such calls do, in fact, \xe2\x80\x9cdeliver a prerecorded message\xe2\x80\x9d as set forth in the plain\nlanguage of the rule. 9 Accordingly, outbound telemarketing calls made using soundboard\ntechnology are subject to the provisions of 16 C.F.R. \xc2\xa7 310.4(b)(1)(v), and can only be made\nlegally if they comply with the requirements set forth in Section 310.4(b)(1)(v)(A) (for calls\nselling goods or services), Section 310.4(b)(1)(v)(B) (for calls seeking charitable contributions\nfrom members or prior donors), or Section 310.4(b)(1)(v)(D) (healthcare messages by a covered\nentity or its business associate under HIPAA).\nIn reaching this conclusion, staff did consider whether an express requirement that live\nagents using soundboard technology only handle one call at a time would change the analysis.\nStaff has concluded that it would not. First, even with a 1-to-1 limitation in place, such calls\nwould still \xe2\x80\x9cdeliver a prerecorded message\xe2\x80\x9d and therefore would fall within the plain language of\n16 C.F.R. 310.4(b)(1)(v). Moreover, in staff\xe2\x80\x99s view, a 1-to-1 limitation would not stop abusive\nuse of the technology. Based on preliminary information provided by industry representatives, a\nsignificant percentage of the total number of call center seats utilizing soundboard technology\nare used to make telemarketing or lead generation calls. A 1-to-1 limitation would allow a lead\ngeneration operation to use soundboard technology in which live operators simply press a button\nto play a prerecorded message offering a good or service that asks the consumer to say \xe2\x80\x9cyes\xe2\x80\x9d or\npress 1 on their phone if they are interested. If the consumer says yes or presses 1, the live agent\nwould then transfer the call to the seller who makes a telemarketing pitch. Such calls are\nindistinguishable from standard lead generation robocalls that are governed by the TSR and are\nthe subject of a large volume of consumer complaints and significant telemarketing abuse. The\n6\n\nNougar, L.C., et al. v. Revocalize, LLC, et al., No. 2:11-cv-127, DE 41 (D. Utah, Oct. 18, 2011).\n\n7\n\n16 C.F.R. \xc2\xa7 310.4(b)(1)(v).\n\n8\n\nId.\n\n9\n\nId. Staff notes that representatives of both PACE and the Soundboard Association disagree with this conclusion.\n\n\x0cMichael Bills\nPage 4 of 6\nfact that a live operator, instead of a computer, \xe2\x80\x9cdelivers\xe2\x80\x9d the prerecorded message and transfers\ninterested consumers to sellers makes little difference from the call recipient\xe2\x80\x99s perspective.\nThus, even a 1-to-1 limitation would permit soundboard technology to be used to deliver calls\nthat are indistinguishable from the telemarketing robocalls that consumers consider to be abusive\nand that are illegal under the TSR.\nFinally, staff does recognize that when the Commission adopted the TSR\xe2\x80\x99s robocall\nprovisions TSR in 2008, it foresaw that technology could evolve to allow the use of interactive\nprerecorded messages in telemarketing calls in a manner \xe2\x80\x9cessentially indistinguishable from\nconversing with a human being.\xe2\x80\x9d 10 Indeed, soundboard technology, when used properly, may\none day approach that level of proficiency. If and when such advances occur, the Commission\nnoted that parties could seek further amendment of the TSR or exemptions from the prerecorded\nmessage provisions. 11\nIn order to give industry sufficient time to make any necessary changes to bring\nthemselves into compliance, the revocation of the September 2009 letter will be effective six\nmonths from today, on May 12, 2017. As of that date, the September 11, 2009 letter will no\nlonger represent the opinions of FTC staff and cannot be used, relied upon, or cited for any\npurpose.\nIn closing, staff notes that revocation of the September 2009 opinion letter does not mean\nthat the TSR prohibits all calls made using soundboard technology. To the contrary, call centers\ncan still use soundboard technology for in-bound calls and to place a wide variety of outbound\ncalls, such as non-telemarketing calls (e.g., political calls, survey calls, and pure informational\ncalls), telemarketing calls that fall within the exemptions set forth in Section 310.4(B)(1)(v)(A),\n(B), or (D), certain types of charitable donation calls, and calls that are expressly exempt from\nthe TSR under Section 310.6 (e.g., business-to-business calls). In fact, the preliminary data\nprovided indicates that a significant percentage of call center seats that utilize soundboard\ntechnology are used for in-bound calls or to place non-telemarketing calls, such as political or\ncharitable calls. As long as those calls remain outside the scope of the TSR, companies can\ncontinue to use soundboard technology for those types of calls without violating the TSR. Please\nnote, however, that we do not opine on whether the use of such technology complies with state\nor other federal laws, including the Telephone Consumer Protection Act, 47 U.S.C. \xc2\xa7 227, or its\ncorresponding regulations implemented by the Federal Communications Commission, 47 C.F.R.\n\xc2\xa7 64.1200.\nPlease be advised that the views expressed in this letter are those of the FTC staff, subject\nto the limitations in 16 C.F.R. \xc2\xa7 1.3. They have not been approved or adopted by the\nCommission, and they are not binding upon the Commission. However, they do reflect the\nviews of staff members charged with enforcement of the TSR.\n\n10\n11\n\nTelemarketing Sales Rule, 73 Fed. Reg. 51,164, 51,1180 (Aug. 29, 2008).\n\nId. (\xe2\x80\x9cAccordingly, nothing in this notice should be interpreted to foreclose the possibility of petitions seeking\nfurther amendment of the TSR or exemptions from the provisions adopted here.\xe2\x80\x9d)\n\n\x0cMichael Bills\nPage 5 of 6\n\nSincerely,\n\nLois C. Greisman\nAssociate Director\nDivision of Marketing Practices\nCc:\n\nMichele A. Shuster, Esq.\nGeneral Counsel, PACE\n6530 W. Campus Oval, Suite 210\nNew Albany, OH 43054\nThe Soundboard Association\nc/o Peter B. Miller, Esq.\nCrowell & Moring LLP\n1001 Pennsylvania Ave., NW\nWashington, DC 20004\nCall Assistant, LLC\n78-00 3rd Street N., Suite 900\nSt. Paul, MN 55128\nRonald S. Gellert\nGellert Scali Busenkell & Brown, LLC\n1201 N. Orange Street, Suite 300\nWilmington, DE 19801\nCounsel for Debtor, Call Assistant, LLC\nDavid Carickhoff\nJennifer L. Dering\nArcher & Greiner, P.C.\n300 Delaware Ave., Suite 1100\nWilmington, DE 19801\nBankruptcy Trustee for Call Assistant, LLC\nNoguar\n5286 S 320 West\nMurray, UT 84107\nAvatar Technologies, Inc.\n138 Columbus Ave., 2nd Floor\nMount Vernon, NY 10553\n\n\x0cMichael Bills\nPage 6 of 6\nRobby H. Birnbaum\nGreenspoon Marder\nOne Boca Place, 2255 Glades Road, Suite 400-E\nBoca Raton, FL 33431\nCounsel for Avatar Technologies, Inc.\n\n\x0c'