Comments Invited

We invite you to send us any written relevant data, views, or arguments regarding this proposal. Send your comments to an address listed under ADDRESSES . Include “Docket No. FAA-2008-1207; Directorate Identifier 2007-NE-47-AD” in the subject line of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the proposed AD. We will consider all comments received by the closing date and may amend the proposed AD in light of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov , including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this proposed AD. Using the search function of the Web site, anyone can find and read the comments in any of our dockets, including, if provided, the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc.). You may review the DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477-78).

You may examine the AD docket on the Internet at http://www.regulations.gov ; or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this proposed AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is the same as the Mail address provided in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

The HPC first stage disc has an area from which too much material could be removed during the balancing operation. We received reports of two HPC first stage discs with too much material removed from the balance material of the disc. Honeywell revised the engine overhaul manual to clarify the limits for removed balance material. Removing too much material from the balance area of the disc may result in a reduced fatigue life of the disc. This condition, if not corrected, could result in the disc fracturing before reaching its currently published life limit. A disc fracture could result in an uncontained failure of the disc and damage to the airplane.

We have reviewed and approved the technical contents of Honeywell Alert Service Bulletin (ASB) ALF/LF A72-1102, dated April 24, 2007, that describes procedures for inspecting the HPC first stage disc for missing balance material.

We have evaluated all pertinent information and identified an unsafe condition that is likely to exist or develop on other products of this same type design. We are proposing this AD, which would require at the next shop visit, but not later than 2,500 cycles-in-service after the effective date of this proposed AD, inspecting the HPC first stage disc for excessive missing balance material and a magnetic particle inspection.

We estimate that this proposed AD would affect 148 engines installed on airplanes of U.S. registry. We also estimate that it would take about 3 work-hours per engine to perform the proposed actions, and that the average labor rate is $80 per work-hour. Required parts would cost about $21,000 per engine. Based on these figures, we estimate the total cost of the proposed AD to U.S. operators to be $3,143,520.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that the proposed AD:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Would not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD. You may get a copy of this summary at the address listed under ADDRESSES .

Under the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend 14 CFR part 39 as follows:

The Guides, 16 C.F.R. Part 255, are designed to assist businesses and others in conforming their endorsement and testimonial advertising practices to the requirements of Section 5 of the FTC Act. Although the Guides interpret laws administered by the Commission, and thus are advisory in nature, proceedings to enforce the requirements of law as explained in the Guides can be brought under the FTC Act. In any such proceeding, the Commission would have the burden of proving that a particular use of an endorsement or testimonial was deceptive.

The Guides define both endorsements and testimonials broadly to mean any advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experience of a party other than the sponsoring advertiser. 16 C.F.R. §§ 255.0(a) and (b). The Guides state that endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser. 16 C.F.R. § 255.1(a). Furthermore, endorsements may not contain any representations that would be deceptive, or could not be substantiated, if made directly by the advertiser. Id.

The Guides advise that an advertisement employing a consumer endorsement on a central or key attribute of a product will be interpreted as representing that the endorser’s experience is representative of what consumers will generally achieve. 16 C.F.R. § 255.2(a). If an advertiser does not have adequate substantiation that the endorser’s experience is representative, the advertisement should clearly and conspicuously disclose either what the generally expected performance would be in the depicted circumstances or the limited applicability of the endorser’s experience to what consumers may generally expect to achieve. Id.

The Guides define an expert endorser as someone who, as a result of experience, study, or training, possesses knowledge of a particular subject that is superior to that generally acquired by ordinary individuals. 16 C.F.R. § 255.0(d). An expert endorser’s qualifications must, in fact, give him or her the expertise that he or she is represented as possessing with respect to the endorsement. 16 C.F.R. § 255.3(a). Moreover, an expert endorsement must be supported by an actual exercise of expertise and the expert’s evaluation of the product must have been at least as extensive as someone with the same degree of expertise would normally need to conduct in order to support the conclusions presented. 16 C.F.R. § 255.3(b).

Among other things, the Guides also state that:

(1) Advertisements presenting endorsements by what are represented to be “actual consumers” should utilize actual consumers, or clearly and conspicuously disclose that the persons are not actual consumers. 16 C.F.R. § 255.2(b).

(2) An organization’s endorsement must be reached by a process sufficient to ensure that the endorsement fairly reflects the collective judgment of the organization. 16 C.F.R. § 255.4.

(3) When there is a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement ( i.e. , the connection is not reasonably expected by the audience), such connection must be fully disclosed. 16 C.F.R. § 255.5.

In December 1972, the Commission published for public comment proposed Guides Concerning the Use of Endorsements and Testimonials in Advertising, 37 Fed. Reg. 25548 (1972). Extensive comment was received from interested parties. On May 21, 1975, the Commission promulgated three sections of the 1972 proposal as final guidelines (16 C.F.R. §§ 255.0, 255.3, and 255.4) and republished three others, in modified form, for additional public comment. 40 Fed. Reg. 22127 (1975); 40 Fed. Reg. 22146 (1975). Public comment was received on the three re-proposed guidelines, as well as on one of the final guidelines. On January 18, 1980, the Commission promulgated three new sections as final guidelines (16 C.F.R. §§ 255.1, 255.2, and 255.5) and modified one example to one of the final guidelines adopted in May 1975 (16 C.F.R. § 255.0 Example 4). 45 Fed. Reg. 3870 (1980).

In January 2007, as part of its ongoing regulatory review process, the Commission published a Federal Register notice seeking comment on the overall costs, benefits, and regulatory and economic impact of its Guides Concerning the Use of Endorsements and Testimonials in Advertising. 72 Fed. Reg. 2214 (Jan. 18, 2007). The Commission simultaneously put on the public record and requested comment on two reports on consumer research regarding the messages conveyed by consumer endorsements, as well as several other endorsement-related issues, including the use of so-called “disclaimers of typicality” accompanying testimonials that do not represent experiences consumers will generally achieve with the advertised product. 2 The first report, “The Effect of Consumer Testimonials and Disclosures of Ad Communication for a Dietary Supplement” (“the Endorsement Booklet Study”), was designed to examine whether consumer endorsements communicate product efficacy and typicality, and whether any of several prominent disclosures qualify or limit the claims conveyed by the ads. The second report, “Effects of Consumer Testimonials in Weight Loss, Dietary Supplement and Business Opportunity Advertisements” (“the Second Endorsement Study”), was designed to explore the communication of product efficacy and typicality by advertisements containing testimonials of individuals who claimed to have achieved specific (that is, numerically quantified) results with the advertised product or system. Those reports are discussed in Part IV, below.

The Commission received 22 comments in response to its regulatory review notice. 3 Having considered those comments, as well as the staff’s consumer research, and its own extensive consumer protection experience, the Commission now proposes various amendments to the Guides and invites comments on these proposed changes.

A number of the comments specifically praised the current Guides for striking an appropriate balance between protecting consumers and allowing advertisers to communicate creatively and effectively to potential customers. 4 Several others also noted that the Guides are beneficial and should be retained; 5 one commenter stated that Guides were needed even more today than when they were originally issued. 6 One comment suggested that the current Guides are more restrictive than necessary to protect consumers. 7

Most of the comments submitted in response to the January 2007 Federal Register notice, however, responded to specific questions the Commission posed concerning the provisions of the current Guides that address (1) the use of consumer endorsements reflecting experiences exceeding those that consumers can generally expect to achieve with the advertised product, or (2) the disclosure of material connections between advertisers and endorsers. Those comments are discussed in Part IV, below, in the context of the specific Guide provisions to which they relate.

In addition, a few comments addressed other issues. For example, several noted that advertisers have started using some new technologies to reach consumers in recent years. 8 Two suggested that the Commission consider whether the Guides should be revised to deal with new types of advertising ( e.g. , to include examples using email or the Internet). 9 Another noted that unlike the case with traditional media, the marketer is not in complete control of the message when certain of these new technologies are used; for example, in word-of-mouth marketing, the marketer may initially share information with one consumer, but subsequent exchanges between that consumer and others are outside the marketer’s control. 10 This commenter pointed out that the current Guides have one standard for both traditional advertising and non-traditional (unmeasured) marketing, despite “the vastly different levels of control that can be exercised by marketers using embedded advertising versus word of mouth and non-traditional (unmeasured) media.” 11

The Commission agrees that it would be useful to illustrate the application of the Guides’ long-established principles to new media. Although these fields are still evolving, the Commission is proposing to include in the Guides several new examples that address the issues of advertiser and endorser liability and disclosure of material connections in various high-tech contexts. 12

The Commission has concluded that the Guides should be retained, but that a number of revisions are appropriate. Many of the proposed changes are simply clarifications or additional examples of the principles embodied in the existing Guides. Others enunciate basic principles that are not expressly set forth in the current Guides, but have been established in Commission enforcement actions. Several represent substantive changes from the current Guides, based upon increased knowledge of how consumers view endorsements and taking into consideration the comments submitted in response to the January 2007 Regulatory Review notice.

The Commission seeks comments on these proposed revisions, which are discussed below by Section. 13

The Guides currently begin with a definitions section, which the Commission proposes to expand to include an introductory subsection explaining the purpose of the Guides. This new Section 255.0(a) would note that the Guides are administrative interpretations of laws enforced by the Commission and provide the basis for voluntary compliance with the law by advertisers and endorsers. 14 It would also indicate that, although the Guides set forth the general principles that the Commission will apply in examining endorsements, the question of whether a particular endorsement or testimonial is deceptive will depend on the specific factual circumstances of the advertisement at issue. Other Commission guides begin with similar statements. 15

Current Section 255.0(b) defines an endorsement as any advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experience of a party other than the sponsoring advertiser. The Commission proposes revising that section to clarify that in determining whether statements in an ad constitute an endorsement, it does not matter whether the statements made by an endorser are identical to or different than those made by the sponsoring advertiser. Similarly, the Commission proposes a minor modification of Example 4 (deleting from the penultimate sentence the reference to the views of the sponsoring advertiser) to make it clear that the only relevant criterion in determining whether a statement is an endorsement is whether consumers believe it reflects the endorser’s views.

Example 1 to Section 255.0 currently provides one example of an endorsement and also illustrates the principle that an endorsement may not be presented out of context or reworded so as to distort the endorser’s opinion. The Commission proposes to add a cross-reference to Section 255.1(b), which states this principle explicitly.

The Commission proposes adding a new Example 6 to Section 255.0, to illustrate that the determination of whether a speaker’s statement is an endorsement depends solely on whether consumers believe that it represents the endorser’s own view. Specifically, the new example clarifies that whether the person making the statement is speaking from a script, or giving the endorsement in his or her words, is irrelevant to the determination.

The Commission also proposes adding a new Example 7 to Section 255.0, to illustrate that well-known persons can appear in advertising without being deemed endorsers.

Section 255.1 sets forth principles that apply to endorsements generally ( e.g. , endorsements must reflect the honest opinions or experience of the endorser, and may not convey any representation that would be deceptive if made directly by the advertiser). The Commission proposes one significant revision to this section of the Guides, the addition of a new Section 255.1(d) explicitly recognizing two principles that the Commission’s law enforcement activities have already made clear. The first is that advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers. The second is that endorsers may also be subject to liability for their statements. The Commission has brought law enforcement actions against both expert endorsers and well-known personalities ( i.e. , celebrities) who have acted as endorsers. E.g., FTC v. National Urological Group, Inc. , No. 04-CV-3294-CAP, 2008 U.S. Dist. LEXIS 44145, at *24-25 (N.D. Ga. June 4, 2008) (order granting FTC’s motion for summary judgment finds expert liable for deceptive endorsement); Snore Formula, Inc. , 136 F.T.C. 214 (2003) (consent order); James L. McElhaney, M.D, 116 F.T.C. 1137 (1993) (consent order); Leroy Gordon Cooper, Jr. , 94 F.T.C. 674 (1979) (consent order); and Cooga Mooga, Inc. , 92 F.T.C. 310 (1978) (consent order). Two new examples illustrate situations in which the Commission could impose liability on expert and celebrity endorsers; both of these examples note that the advertiser is also liable for misrepresentations made through the endorsement. A third new example illustrates the potential liability of advertisers who use bloggers to promote their products and of the bloggers themselves.

The Commission also proposes two minor revisions to Section 255.1(a). First, to make it clear that the Guides cover the communication of both express and implied representations, the phrase “may not convey any express or implied representation” is being added to the second sentence of that provision (which currently states that endorsements may not contain any representations that would be deceptive if made directly by the advertiser). Second, an additional cross-reference is being added at the end of revised Section 255.1(a). Currently, the only cross-reference is to an example in Section 255.3, in which an endorsement by an expert testing organization is used to illustrate the principle that “a valid endorsement may constitute all or part of an advertiser’s substantiation.” As revised, the cross-references would refer to Sections 255.2(a) and (b) regarding the substantiation of claims conveyed by consumer endorsements, discussed below, as well as to Section 255.3.

Section 255.2 of the Guides provides guidance specific to the use of consumer endorsements, commonly referred to as testimonials. The Commission proposes to add a new Section 255.2(a) to articulate several fundamental principles that are not expressly set forth in the current Guides, to modify the existing Section 255.2(a), and to delete the existing Section 255.2(c).

The Commission’s proposed new Section 255.2(a) would state that an advertisement employing endorsements by one or more consumers about the performance of an advertised product or service will be interpreted as a representation that the product or service is effective for the purpose represented in the endorsement. Consumer endorsements convey not only that the advertised product or service worked for the consumers depicted in the advertisement, but also that it will work for others. This is the natural implication of an advertiser’s use of a consumer endorsement, and this view is supported by the consumer research conducted for the Commission. Specifically, in the Endorsement Booklet Study, between 50.0% and 75.0% of the respondents who were exposed to a promotional booklet with testimonials touting the advertised supplement’s use for breathing problems, low energy, and pain said that the booklet claimed or implied that the product was effective for reducing breathing problems, increasing energy levels, and relieving chronic or persistent pain. ( See Table 2b of the Endorsement Booklet Study.)

New Section 255.2(a) also states that an advertiser who uses consumer endorsements must possess and rely upon adequate substantiation to support efficacy claims made through endorsements, just as the advertiser would be required to do if it had made the representation directly. 16 It also notes that consumer endorsements themselves do not constitute competent and reliable scientific evidence; anecdotal evidence about the individual experience of consumers is not sufficient to substantiate claims requiring scientific evidence. 17 Even if those experiences are genuine, they may be attributable to a placebo effect or other factors unrelated to the advertised product or service. 18

Current Section 255.2(a), which would be renumbered Section 255.2(b), presently provides that an advertisement employing an endorsement reflecting the experience of an individual or a group of consumers on a central or key attribute of the product or service will be interpreted as representing that the endorser’s experience is representative of what consumers will generally achieve with the advertised product in actual, albeit variable, conditions of use. The newly available empirical evidence (as well as the Commission’s findings in several litigated cases 19 ) supports the Guides’ position that consumers interpret advertisements containing endorsements as representing that the results achieved by the endorsers are generally representative of what new users can expect. In the Endorsement Booklet Study, between 41.2% and 70.5% of respondents indicated that the dietary supplement in question would reduce breathing problems, increase energy levels, and relieve pain in at least half of the people who try it. ( See Table 3b of the Endorsement Booklet Study.)

In the Second Endorsement Study, ads featuring individuals who claimed certain specifically quantified benefits from having used the advertised weight loss program, cholesterol lowering supplement, or business opportunity ( e.g. , “I am earning an extra $2,200 a month”) conveyed to between 31.23% and 57.81% of respondents that at least half of new users would achieve results similar to the endorsers featured in the advertisements. ( See Tables 2a and 5a of the Second Endorsement Study). 20 For example, 32.69% of consumers exposed to an ad in which endorsers claimed to have lost between 48 and 72 pounds thought the ad conveyed that at least half of new users would lose at least 48 pounds. ( See Table 2a of the Second Endorsement Study.)

Nevertheless, the Commission believes that certain advertisements employing testimonials may not convey that the endorser’s experience is representative of what consumers will generally achieve with the advertised product or service. For example, if an advertisement for a casino features a $100,000 slot machine winner, consumers likely understand from the nature of gambling that the winner’s experience is not generally representative of those who use the casino’s slot machines. The Commission therefore proposes to qualify the currently unequivocal language of renumbered Section 255.2(b) to state that “an advertisement employing an endorsement reflecting the experience of an individual or a group of consumers on a central or key attribute of the product or service will likely be interpreted as representing that the endorser’s experience is representative of what consumers will generally achieve with the advertised product in actual, albeit variable, conditions of use” (emphasis added).

As currently written, renumbered Section 255.2(b) also provides that in the event an advertiser does not have adequate substantiation that the experience described by the endorser is representative of what consumers will generally achieve, the advertiser can either: (1) clearly and conspicuously disclose what the generally expected performance would be in the depicted circumstances, or (2) disclose the limited applicability of the endorser’s experience to what consumers may generally expect to achieve, i.e. , that the depicted results are not representative. The Commission has long been concerned about potential deception arising from the use of the second category of disclosures, which are often referred to as “disclaimers of typicality.”

In its 1975 Federal Register notice promulgating several sections of the Guides in final form and republishing several others (including this section) for comment, the Commission stated that consumers view endorsements about product performance as conveying a typicality claim under the depicted circumstances and that if the represented performance was not typical, the ad should clearly and conspicuously disclose what the typical or ordinary performance would be in the depicted circumstances. 40 Fed. Reg. 22146, 22147 (May 21, 1975). Five years later, when it adopted current Section 255.2(a), the Commission stated that it strongly favored consumer endorsements depicting typical experiences but recognized that endorsements depicting non-typical experiences might not be deceptive if they were accompanied by adequate disclosures. 45 Fed. Reg. 3870, 3871 (Jan. 18, 1980). The Commission went on to say that “[g]enerally, a disclaimer alone probably will not be considered sufficient to dispel the representation that the experience is typical, but . . . the Commission is not prepared to hold that in every instance a bare disclaimer would be inadequate . . . .” Id. Accordingly, although reliance on a disclaimer would not be a per se violation of Section 5 of the FTC Act, the net effect of an endorsement with a disclaimer would be “studied to determine if the ad has the capacity to deceive.” Id. However, notwithstanding its concern about advertisers attempting to use disclosures to disclaim typicality messages conveyed by consumer endorsements, the Commission ultimately decided to provide a safe harbor for such disclaimers.

Since that time, the Commission has brought a number of enforcement actions against marketers for deceptive advertising containing consumer endorsements. Many of these endorsements have been accompanied by statements that purport to inform consumers that the experiences of the featured endorsers are not representative of what consumers can expect. The disclosures are often buried in fine print footnotes or flashed as video superscripts too quickly for consumers to read them. Not only are the disclosures far from clear and conspicuous, but usually they merely say “results not typical” or “results may vary” or similar statements that do little to inform consumers how rare or extreme the featured results are.

The results of the staff’s Endorsement Booklet Study and the Second Endorsement Study further confirm that the concerns expressed by the Commission in 1980 about advertisers attempting to use disclosures to disclaim typicality messages conveyed by consumer endorsements were well-founded. In the Endorsement Booklet Study, despite the presence of strongly worded, highly prominent disclaimers of typicality, between 44.1% and 70.5% of respondents indicated that the dietary supplement in question would reduce breathing problems, increase energy levels, and relieve pain in at least half of the people who try it. ( See Table 3b of the Endorsement Booklet Study).

In the Second Endorsement Study, consumer testimonials communicated to a substantial number of respondents that the results claimed by the testimonialists were generally representative of the results that other consumers could expect. Even with the disclosures “Results not typical” and “These testimonials are based on the experiences of a few people. You are not likely to have similar results,” between 22.58% and 50.75% of respondents thought that at least half of new users would achieve results similar to those experienced by the endorsers featured in the advertisements. ( See Tables 2 and 5 of the Second Endorsement Study.) 21

By contrast, the disclosure of actual expected results significantly reduced the communication that the experiences depicted are generally representative. ( See Table 2 of the Second Endorsement Study.) This was particularly true when there was a large difference between the amounts claimed by the testimonialists and the disclosed actual expected results. Of the consumers exposed to an ad in which endorsers claimed to have lost between 48 and 72 pounds—but which clearly disclosed that the average user loses 10 pounds—only 3.23% thought the ad conveyed that at least half of new users would lose at least 48 pounds. This figure is almost identical to the 3.13% who—after seeing an ad with no numbers—thought that the average user would lose at least 48 pounds.

In light of these studies and its own history of law enforcement challenges to misleading testimonials, the Commission asked in January 2007 for comment on: (1) the potential effects on advertisers and consumers if the Guides called for clear and conspicuous disclosure of generally expected results whenever the testimonial is not generally representative of what consumers can generally achieve with the advertised product— i.e. , if disclosing the limited applicability of the depicted results no longer provided a “safe harbor” for the use of testimonials relating non-typical experiences; and (2) what information, other than what is required to substantiate an efficacy or performance claim, would be required for an advertiser to determine generally expected results, and how difficult it would be for advertisers to make this determination. Most of the comments the Commission received focused specifically on these issues.

Several comments stated that advertisers should not be able to use nonrepresentative testimonials and merely accompany them with disclaimers stating that those results were not typical. 22 One said that the current Guides invite weight-loss testimonials that advertisers know to be false and deceptive, simply by pairing the claim with a “results not typical” disclaimer. 23

Two other commenters stated that the Guides should require that endorsements reflect typical consumer experience. 24 One of them opined that even requiring that atypical testimonials include disclosure of typical results would not eliminate deception. 25 The other stated that if the Guides do continue to permit the use of nonrepresentative testimonials, the disclaimer of typicality should appear through the entire testimonial and be accompanied by disclosure of typical results. 26 Another commenter stated that consumer testimonials should be accompanied by a clear and conspicuous disclosure describing the typical results obtained, or at least that the Guides should ensure that the “results not typical” disclosure actually changes the net impression of the advertisement. 27

Other commenters stated that the Guides should continue to allow nonrepresentative testimonials to be accompanied by disclaimers of typicality, and should not require disclosure of generally expected results. Virtually all of the comments urging the Commission to retain Section 255.2(a) of the Guides in its current form made one or more of the following arguments:

(a) “Aspirational” testimonials motivate consumers without misleading them.

Several of the commenters asserted that in the weight-loss field, “aspirational” or “inspirational” testimonials that truthfully relate the experiences of consumers who have successfully lost weight using the advertised product or program are important advertising tools. 28 Even though those testimonials might not reflect what consumers typically experience with that particular product or program, they remind customers of their own fitness goals and motivate them to try to achieve similar results by starting responsible weight loss programs. 29

According to two commenters who stressed the importance of “aspirational” testimonials in weight-loss advertising, consumers understand that the weight loss achieved by the testimonialist does not necessarily reflect the experience they will have using the product or program. 30 As one put it, the “variables that affect the rate and extent to which a person can lose weight are so varied and well-known to the viewer . . . that it is difficult to believe that consumers are not capable of understanding that their result may be different from those that are shown in advertising depending on multiple factors, but that success nonetheless, is absolutely achievable.” 31 Thus, a 150-pound person who sees a testimonial from a woman who lost 100 pounds knows she will not lose 100 pounds but that she could lose 20-30 pounds; conversely, a 400 pound person who sees the same ad “could equally see that there is hope for them to lose over 200 pounds.” 32

The Commission agrees that “aspirational” testimonials are commonly used in the marketing of weight-loss products and programs, and that they may induce consumers to purchase or enroll in these products or programs. 33 However, the fact that a testimonial is truthful or is being used to promote a product or program that advocates responsible lifestyle changes ( i.e. , reduced caloric intake and increased caloric expenditure) does not necessarily prevent it from conveying a misleading message to consumers. If consumers are deciding to purchase a product or enroll in a program based on advertising that conveys to them that they are likely to achieve results similar to the testimonialists, and the advertiser lacks substantiation for that representation, then those consumers are being misled.

Moreover, as the Commission has stated, “An interpretation [of an advertisement] may be reasonable even though it is not shared by a majority of consumers in the relevant class, or by particularly sophisticated consumers. A material practice that misleads a significant minority of reasonable consumers is deceptive.” 34 As with all advertising, the fundamental question to be answered is whether, taken in its entirety, 35 an advertisement that uses testimonials is likely to convey to reasonable consumers a message that is false or for which the advertiser does not have substantiation. The substantiation requirements for advertisements that convey performance claims are the same, whether the claim is made with or without the use of testimonials. Advertisers cannot use testimonials to convey claims they could not make through other means.

(b) Requiring disclosure of the results consumers generally achieve with the advertised product or program would impose a substantial burden on advertisers.

Several commenters stated that determining generally representative results would be very difficult for certain advertisers. According to some commenters, in the weight-loss field, for example, determining generally representative results would necessitate computations across a diverse customer base (men, women, young, old, obese, and non-obese), a difficult and costly endeavor that would require ongoing monitoring of customers’ progress and frequent updating of calculations. 36 One commenter stated that it was impossible for an advertiser whose weight-loss program promoted both exercise and diet to know what is typical. 37 Another stated that when the effectiveness of the products depends on variables associated with individual use, typicality either cannot be shown or shown only with great difficulty so that advertisers in these businesses would not be able to use testimonials, even though advertisers in other fields would be able to continue doing so. 38

One commenter suggested that a disclosure requirement would incorrectly assume that all types of claims can be measured by generally expected results, even though preference claims or personal experience claims for certain products—such as video games, movies, and restaurants—are not susceptible to such measurements. 39 If the Guides called for non-representative testimonials to be accompanied by disclosure of generally expected results, these advertisers would have to have studies showing the likeability of their products before they could use endorsements; as a result, many would stop using testimonials. 40 This commenter also opined that such a change would mean that advertisements using testimonials would be subject to stricter substantiation requirements than advertisements making the same claim without the use of testimonials. 41

Several commenters also suggested that requiring disclosure of generally expected results could create competitive disadvantages for certain businesses, thereby upsetting the level playing field that exists under the current Guides for, among others, new businesses attempting to compete with established enterprises. 42 Others stated that the burden of any new disclosure requirements would, ironically, fall on marketers of responsible weight loss programs (those complying with government recommendations of decreased caloric intake and increased physical activity) because they would expend resources to comply with the requirements, while marketers of pills and supplements with no scientific support would ignore those requirements or manipulate their data to produce fictitious averages. 43

At the outset, the Commission notes that such a change in the Guides would not mean that advertising using testimonials would be subject to stricter legal standards than other advertising—to the contrary, it would merely eliminate a safe harbor that has allowed advertisers to avoid the general requirement that they be able to substantiate all material claims conveyed by their advertising to reasonable consumers.

The Commission does recognize that a revision of renumbered Section 255.2(b) calling for non-typical testimonials to be accompanied by disclosure of the results consumers generally achieve with the advertised product would increase costs for those advertisers who have not previously tracked consumers’ experiences with their products, and could present an impediment to the use of such testimonials by certain advertisers. The commenters, however, may be overestimating those costs. In the vast majority of cases—particularly those for legitimate products and programs whose efficacy has already been demonstrated by competent and reliable scientific evidence—that information is likely to be present.

The Commission also believes that, for most products, it is possible to devise a methodologically sound means of determining the generally expected results. 44 Moreover, other alternatives may be available. For example, an advertiser may use testimonials from a defined subset of users for which it can determine the typical results. 45 Or, given the Commission’s proposal to revise the Guides so that they no longer provide unequivocally that testimonials will convey typicality claims, the advertiser could write its ad in such a way that consumers would not take away the message that they can expect to achieve the same results as the testimonialist. 46

Moreover, the Commission does not assume that the use of testimonials necessarily gives rise to typicality messages, and thus to a need for disclosures, regardless of the nature of the product. Advertisements that use testimonials to promote products for which consumers’ reactions are inherently subjective and their endorsements thus merely statements of personal opinion ( e.g. , restaurants or games) are less likely to convey typicality messages than ads using testimonials to make objective, quantifiable claims ( e.g. , pounds lost, money saved). 47 Indeed, Section 255.2(a) of the Guides speaks of “what consumers will generally achieve with the advertised product in actual, albeit variable, conditions of use.” 48 The concept of using a product to achieve certain results implies a factual scenario very different from testimonials expressing opinions about a particular book or movie. Accordingly, unless an advertisement made a claim such as “preferred 2-1 over the best-selling video game,” the advertiser would not need a likeability study before using endorsements in which consumers stated how much they enjoyed the game. 49

Although requiring disclosure of generally expected results might impede the ability of newly established companies to use testimonials, such an outcome would not necessarily be inappropriate. Businesses are entitled to compete based on truthful, nonmisleading advertising claims, but they are not entitled to use techniques that mislead consumers. If a company does not have adequate substantiation for an ad that said “you will lose 20 pounds in 10 weeks using our product,” it cannot have a testimonialist convey the same message in an advertisement that merely includes a small disclaimer that says “results not typical.” Until such time as it has an adequate data to determine what results consumers can expect from its product, a company might have to tout other aspects of its program ( e.g. , that it provides easy-to-follow menus with inexpensive, low-calorie, pre-made food). Moreover, it is likely that in most instances, the evidence substantiating the efficacy claim will provide sufficiently meaningful information to establish the parameters of the generally expected results. The Commission is also mindful that marketers of unproven, “miracle in a bottle” weight-loss products might either ignore revised Guides or fabricate exaggerated data for use in disclosures accompanying their testimonials, thereby putting marketers of legitimate weight-loss programs at a competitive disadvantage. Advertising by these marketers would likely attract the Commission’s attention, however, prompting enforcement actions to enjoin these practices. Moreover, as a matter of policy, this argument could not justify allowing a safe harbor for claims the Commission had determined were deceptive. If consumers are being misled by the widespread use of inadequately qualified, non-typical testimonials, the fact that some scofflaws will continue trying to defraud consumers does not outweigh the considerations in favor of revising the Guides.

(c) Even if advertisers could determine the results consumers generally achieve with the advertised product or program, disclosing those results would confuse consumers.

Several commenters asserted that even if advertisers of weight-loss programs attempted to comply with a new requirement to disclose generally expected results, disclosure of the resulting “average” weight loss results would not only be confusing to consumers—because of the amount of information advertisers would have to provide in order to enable them to interpret those averages—but could also discourage them from even starting a weight-loss program that might be the first step to a healthier lifestyle. 50

The commenters did not submit any empirical evidence supporting their contentions that disclosure of generally expected results would be confusing to consumers, and would even deter them from starting a new weight loss program. Absent such evidence, the Commission doubts that disclosure of average weight-loss results—whether presented separately by gender or simply as a single figure 51 —would be less confusing to consumers than the information they currently receive: data from statistical outliers with no indication as to what most consumers achieve. 52 It may also be that insofar as the current Guides provide no incentive for a company to track and analyze consumers’ success (or lack thereof) with its product or program, they actually decrease the amount of useful information that could be made available to consumers.

Turning to the commenters’ contention that such a change in the Guides would discourage consumers from even attempting to lose weight, the Commission notes two points. First, no commenters submitted empirical evidence that “aspirational” testimonials actually benefit consumers. Indeed, it seems just as likely that consumers induced into buying a weight-loss product or enrolling in a program based on what are, in effect, statistical outliers, may be more easily frustrated by their lack of comparable success—and give up sooner—than consumers who have realistic expectations based on accurate information. Second, although the commenters simply assume that advertising using non-typical testimonials would not be “aspirational” if the ads disclosed the generally expected results, there is no apparent reason why consumers might not think they can do better than the average. For example, an advertisement that features highly successful testimonialists but discloses the results consumers generally achieve could provide positive motivation to consumers by conveying to them that they can expect to lose about 30 pounds on that program over six months, but that if they are conscientious and stay on the program longer than the average consumer, they might even lose 75 pounds—like the testimonialist.

A number of commenters stated that the Commission has successfully used post-market law enforcement actions to address deceptive advertising, and should continue to do so, rather than revise the Guides to impose disclosure requirements that affect all advertisers and may chill dissemination of helpful information. 53 One specifically noted that in the last five years, the FTC has created an enforcement climate (including its identification of “Red Flag” claims and issuance in January 2007 of four cases challenging allegedly deceptive weight-loss claims) that should provide a powerful deterrent against deceptive weight-loss advertising. 54 Another urged the Commission to continue using its Red Flags guide and other means to pursue deceptive weight-loss advertising, rather than change the Guides. 55 One noted that the Commission has filed comments with the FDA stressing both the value of commercial speech that gives consumers access to useful information and the advantages of the Commission’s post-market law enforcement approach over the use of pre-market regulation of commercial speech. 56

Several of these commenters also asserted that there are important differences between weight-loss products and programs that are based on recognized principles of reduced calorie consumption and increased energy expenditure, on the one hand, and unsubstantiated “miracle in a bottle” products that are not based on science, on the other, and that if the Commission does decide to revise Section 255.2(a) (notwithstanding their arguments to the contrary), it should distinguish between the two. 57 According to these commenters, weight-loss programs based on reduced caloric intake and increased energy expenditure present no risk to consumers, nor does advertising for these programs that contains truthful testimonials. 58 Accordingly, these commenters urge, if the Commission does revise the Guides to require disclosure of typical results, it should exempt efficacious meal replacement programs that conform to government recommendations for responsible weight loss. 59

Contrary to the views expressed by several commenters, revising the Guides to state that non-typical testimonials should be accompanied by clear and conspicuous disclosure of generally expected results would not represent a departure from the agency’s traditional use of post-market law enforcement actions. As noted above, the Guides merely set forth the general principles that the Commission will apply in examining endorsements within the confines of its traditional Section 5 authority; they do not provide an independent source of legal authority. Thus, even if the Commission were to revise the Guides with respect to the use of non-typical testimonials 255.2(a), it would continue to enforce Section 5 by means of post-market law enforcement actions, with the question in each case being whether a particular advertisement conveyed a false or unsubstantiated message to consumers in violation of Section 5. Nor is there any reason to expect that the Red Flags guides would not continue to be used in evaluating cases for investigation and enforcement action.

Finally, it would not be appropriate to exempt the marketers of certain kinds of weight- loss products and programs from Section 255.2(a) of the Guides. As noted above, the purpose of the Guides is to assist businesses in conforming their advertising to the requirements of Section 5 of the FTC Act. Consumers can be deceived by an advertisement even for a “legitimate” weight-loss program, if the ad conveys that the testimonialist’s experience is representative of what consumers can generally expect, and the advertiser cannot substantiate that claim.

A number of commenters asserted that the staff’s two consumer research reports do not provide a reliable basis for the potential revision about which the Commission inquired. Some comments simply raised concerns about specific elements of the design or analysis of the studies; one provided a report summarizing the proceedings of two focus groups it had sponsored; and another included two reports by a marketing professor raising a number of issues concerning the studies.

Specifically, some of the commenters suggested that the design of the studies ( e.g. , testing only four print ads, three of which were for dietary supplements or weight-loss programs) and the demographic breakdown of the consumers who participated (80% of the respondents in the first study were over age 60) was such that their results cannot be extrapolated to other media or products. 60 Others questioned the statistical power of the studies, and asked the Commission to submit them to outside experts for review to determine whether they have utility in the Commission’s review of the Guides; 61 suggested that the studies did not discern what the language contained in the ads actually conveyed to consumers, but only what consumers remembered after having previously read the ads; 62 or suggested that the claims used in both surveys were the kind that the Commission has warned consumers to be suspicious about— i.e. , touting “secret ingredients” and promising “amazing results”—rather than more moderated and scientifically supported testimonials, and that somewhat older respondents in the Endorsement Booklet Study might not have access to information on the Internet that can help consumers in choosing healthcare products. 63

The Commission acknowledges that the staff’s research did not attempt to determine what messages consumers take away from testimonials and disclaimers in all media and for all products. The Commission is not aware of any reason to expect that the results would be different with other media or products, however; nor did the commenters provide any empirical evidence supporting that proposition. 64 Furthermore, with respect to the statistical power of the Endorsement Booklet Study, it is correct that the treatment cells used in that study were smaller than those used in the Second Endorsement Study. However, the communication of typicality was so high in all of the cells in the Endorsement Booklet Study that it is reasonable to conclude that the disclaimers were having no practical effect. Similarly, although the respondents in the Endorsement Booklet Study were somewhat older than the average population (because of the intended audience for the advertising at issue in the law enforcement investigation that prompted this research), the results are consistent with those seen in the Second Endorsement study and thus support those conclusions.

According to the commenter that sponsored its own focus groups, the FTC’s studies do not adequately illustrate the complexity of consumer perception and understanding of testimonials. 65 In contrast, this commenter stated, the focus groups showed that consumers understand that testimonials relate individual experiences of satisfied customers (often, “best case” results), are inherently skeptical of testimonial-based advertising, and do not expect that they would get the same results as the testimonialists. 66 This commenter further said that the focus group discussions showed that, given consumers’ understanding of the limited applicability of testimonials, nothing more than a “results not typical” disclaimer is needed. 67

The Commission notes that the process by which consumers view (and discuss) advertising in a focus group is very different from how they ordinarily experience it. 68 Focus groups are very dependent on group dynamics, and one or two participants can dominate the discussion and even influence other participants. 69 Accordingly, the Commission believes that general impressions gained from focus group discussions are not as informative as a well-designed copy test involving hundreds of consumers.

Finally, the issues raised by marketing professor Thomas Maronick, Ph.D., on behalf of ERA/CRN 70 included: (1) whether the questions used to qualify respondents for participation in the study (“screener questions”) sensitized them to the issues in the study, thereby potentially affecting their responses; (2) whether the age distribution of the respondents in the Second Endorsement Study suggests that the marketing firm did not follow instructions; (3) whether the instructions given to respondents when they were shown the ads used in the test caused them to read the ads more carefully than they ordinarily would have, thereby increasing the probability of seeing the performance claims; (4) that the statistics reported in the studies were not offset for “yeasaying” ( i.e. , the tendency for some consumers to answer affirmatively to a question even when the ad contained no information related to the question); and (5) that if the consumers who answered “about half” to a question probing the communication of typicality were counted as not regarding the testimonial claims as typical, there would not be a statistically significant difference between the proportion of consumers who took a typicality claim and those who did not for the business opportunity and dietary supplement advertisements. 71 Based on these reports, this commenter asserted, the studies cannot be relied on to measure what messages consumers take from the ads tested or the effectiveness of disclosures. 72

With respect to Dr. Maronick’s first concern, the Commission notes that screening is a universal and necessary part of copy test research, because it is important to test consumers who might potentially buy such a product or service. Although it might have been desirable to have included in the Second Endorsement Study “clutter” questions asking consumers about product categories other than those that were the subject of the advertisements used in the research, there is no reason to believe that the short advance warning of the general product category led to biased interpretations of testimonial claims.

Second, the fact that respondents’ ages were not evenly distributed across the spectrum in the Second Endorsement Study actually shows that the individuals conducting the screening were following instructions: they had been instructed to obtain specific percentages of respondents in the 18-44 years and 45+ groups for each of the product categories in the study. 73

Third, consumer surveys vary in terms of how many times respondents are allowed to view the ad in question, and what the interviewers say to them when they show them the ads. Sometimes, consumers are shown an ad only once and instructed to look at it as they would in a magazine or newspaper. Consumers often see advertisements more than once, however, in the real world. In the Second Endorsement Study, consumers were told to read the advertisement “carefully,” and then, after only being asked the name of the product being advertised, were shown the ad a second time, told to look at it carefully, and then asked additional questions after the ad had been removed from view. To the extent these procedures might have caused respondents to study the ad more carefully than they ordinarily would, and thus increased the probability of taking away messages of efficacy and typicality, they should also have increased the probability that respondents would see the tested disclaimers. Accordingly, the procedure used in this study actually confirms the data showing that most of the disclaimers did not have an appreciable impact on consumer take-away.

Fourth, with respect to “yeasaying,” Dr. Maronick counted as “yeasayers” both consumers who replied that the ad said something when it did not, and respondents who said the ad did not say something when it in fact did. In fact, the latter category does not constitute bias, but merely reflects that some respondents did not see a component of the ad and accurately reported that fact. 74

In addition, even though the data coming from questions that asked for numerical—as opposed to “yes” and “no” answers—should not have been subject to yeasaying, both studies included treatment cells that would capture the effects of both yeasaying and prior beliefs. In the Endorsement Booklet Study report, Tables 2b and 3b presented data that were adjusted using responses provided by a group that saw a letter touting the product but not mentioning any specific health conditions or diseases; these analyses showed that the effects of testimonials on efficacy and typicality assessments were strong even after accounting for yeasaying and prior beliefs. The Second Endorsement Study included ads featuring multiple testimonials that touted the product but did not provide any numerical statement of the results that had been achieved by the testimonialist. Tables 1, 2, 4, and 5 in the Second Endorsement Study show that the communication of efficacy and typicality in these “no numbers” test conditions was generally quite modest. 75 However, as noted above, the Commission is putting on the public record new Tables 1a, 2a, 4a, and 5a that present the results adjusted for the responses obtained in these “no numbers” conditions.

Finally, although Dr. Maronick calculates what the results would be for communication of typicality in the Second Endorsement Study if respondents who answered “about half” when asked how many new users could expect to achieve the results achieved by the testimonialists were tallied with those who said “some,” “very few,” or “none,” rather than with those who said “all” or “most,” he does not offer any reason why that approach would be more appropriate than the approach taken by the study authors. Indeed, in lay terms, “about half” is consistent with the concept of generally expected results, and thus respondents giving that answer were properly grouped in the Second Endorsement Study. However, even adopting Dr. Maronick’s approach, there can be no question that a substantial percentage of the respondents in all three conditions took away the message that new users could generally expect to achieve results similar to those achieved by the testimonialists. 76

After reviewing the staff’s consumer research reports (including the new tables), as well as all of the issues raised by the commenters, the Commission believes that the results of the staff’s studies do provide useful empirical evidence concerning the messages that testimonials convey to consumers and the effects of various types of disclaimers on the communication of efficacy and typicality claims. 77

Eight comments raised First Amendment concerns. 78 These comments argued that the revision about which the Commission inquired in its Federal Register Notice would not pass constitutional scrutiny, or at least, would raise grave First Amendment concerns.

The comments generally did not dispute that the Commission could appropriately restrict deceptive testimonials consistent with the First Amendment. 79 But they argued in favor of case-by-case analysis rather than broader across-the-board restrictions, and contended that consumers are adequately protected from potential deception by the current practices of: (1) requiring that the testimonialist’s experience be truthful and substantiated, and (2) adding a simple disclaimer that the stated results are not typical. 80

Some comments stated that government restrictions on commercial speech must not be more restrictive than necessary, and that requiring disclosure of generally expected results would go beyond the means necessary to achieve the FTC’s interest in preventing deception. 81 Others asserted that a revision of the Guides calling for disclosure of typical results when testimonials reporting atypical experience are used would not advance a substantial government interest. 82 Some argued that such a change in the Guides would prohibit not just false or misleading messages but would also chill truthful speech because some advertisers might be deterred from using truthful testimonials if they could be found liable for violating Section 5 of the FTC Act. 83

The Commission agrees that non-deceptive commercial speech is entitled to First Amendment protection, as set forth in Central Hudson . A revision of the Guides calling for disclosure of generally expected results would comport with that standard, however, if such disclosure is necessary to eliminate a deceptive message of typicality conveyed by the advertiser’s use of atypical consumer endorsements. 84

As noted above, the Commission is proposing to revise renumbered Section 255.2(b) to provide that endorsements about product performance are likely to convey an implied claim that the stated results are typical under the depicted circumstances, thereby revisiting its 1980 conclusion that such endorsements necessarily convey such a claim. The Commission’s extensive law enforcement experience with consumer testimonials since 1980, 85 its expertise in ad interpretation, and the staff’s two consumer research studies would provide an ample basis for concluding that consumers are likely to interpret unqualified endorsements about product performance as representations of the results typically achieved. See generally FTC v. Colgate Palmolive , 380 U.S. 374, 391-92 (1964); Kraft, Inc. v. FTC , 970 F.2d 311, 319-20 (7th Cir. 1992); Thompson Medical Co., Inc. v. F.T.C. , 791 F.2d 189, 197 (D.C. Cir. 1986). Moreover, a representation of typicality is deceptive if the results related by the endorser are not what consumers can generally expect from use of the product or service, and deceptive speech is not protected by the First Amendment. 86 Indeed, the Supreme Court has repeatedly stated that the government can restrict, or even ban, such speech. Zauderer v. Office of Disciplinary Counsel , 471 U.S. 626 (1985). 87 Thus, the Commission may appropriately restrict the use of consumer endorsements that convey the false or unsubstantiated message that the results experienced by the testimonialists are typical of those consumers can generally expect.

In such circumstances, providing a safe harbor for testimonials that are accompanied by a clear and conspicuous disclosure of the results generally achieved by consumers does not offend the First Amendment. 88 Likewise, failure to embrace a blanket safe harbor for the use of disclaimers such as “results not typical” in the context of Commission guidance where the available evidence suggests that such disclaimers are ineffective would not raise any significant First Amendment issues, particularly when the Guides recognize that not every testimonial will convey a typicality claim, and , as discussed below, also do not rule out the possibility that a strong disclaimer of typicality could be effective in the context of a particular advertisement.

Even if analyzed under the more rigorous three-part test set forth in Central Hudson for restrictions on speech involving lawful activity that is not misleading, a revision to the Guides providing a safe harbor only for disclosure of “generally expected results” when advertisers cannot substantiate that consumers can generally expect the result achieved by the testimonialist would pass First Amendment scrutiny. 89 First, the Commission’s interest in requiring this disclosure is to prevent deception. The Court repeatedly has held that preventing fraud and deception is a substantial state interest. Edenfeld v. Fane , 507 U.S. 761, 769 (1993) (“there is no question that [the government’s] interest in ensuring the accuracy of commercial information is substantial”); Pearson v. Shalala , 164 F.3d 650, 655-56 (D.C. Cir. 1999).

Second, disclosure of generally expected results would directly and materially advance the government’s interest in preventing deception, by providing consumers additional factual information about the advertised product or service, and allowing them to assess the information accurately. 90 Again, the Commission’s established expertise in the area of deceptive consumer endorsements and the staff’s two consumer research studies provide an adequate basis for the Commission’s decision that inadequately qualified testimonials that convey, incorrectly, that the results experienced by the testimonialist are typical, are likely to mislead reasonable consumers, and that more detailed disclosure reduces the potential for deception. See Florida Bar v. Went for It, Inc. , 515 U.S. 618, 629 (1995); Zauderer , 471 U.S. at 652-53 (citing FTC v. Colgate Palmolive , 380 U.S. 374 (1964)). It bears repeating in this context that under Commission law, an advertisement can be capable of several reasonable interpretations, and if any one of them is misleading, the advertisement is deceptive in violation of Section 5. See Deception Policy Statement, 103 F.T.C. at 178.

And third, disclosure of “generally expected results” would not be more extensive than reasonably necessary to serve the government’s interest in preventing deception. 91 The commenters do not contest that the Commission can require clear and conspicuous disclaimers to eliminate a deceptive impression of typicality. A disclaimer beyond “results not typical” can be justified by the studies that the Commission put on the public record in January 2007, which show that the simple disclosure is not adequate, while disclosure of average results greatly reduces the potential for deception. Moreover, the Guides would be calling for more speech, not less: they would not ban the use of atypical endorsements or even the use of “results not typical” disclaimers, but instead would advise advertisers who choose to use testimonials that convey a typicality message to include additional information to prevent a misleading impression. Therefore, there is a reasonable fit. 92

Based upon the staff’s empirical research and its law enforcement experience, the Commission believes that disclaimers regarding the limited applicability of an endorser’s experience to what consumers may generally expect to achieve are unlikely to be effective, and therefore that the Guides’ current safe harbor for such disclaimers should be eliminated. Accordingly, and having considered the comments submitted in response to the January 2007 Federal Register notice, the Commission now proposes to revise the renumbered Section 255.2(b) not only to provide that testimonials reflecting consumer experience on a key attribute of the product will likely be interpreted as representing that the endorser’s experience is representative of what consumers will generally achieve with the advertised product in actual, albeit variable, conditions of use, but also to provide that when testimonials do so convey, and the advertiser does not possess adequate substantiation for this representation, the advertiser should clearly and conspicuously disclose the generally expected performance in the depicted circumstances.

The Commission specifically seeks comment on whether there are product categories for which this requirement would prevent advertisers from using endorsements even though the advertiser believes that the endorsers’ experiences are or likely are generally representative. For any such product categories, the Commission seeks information concerning the costs and benefits to the advertiser, to competition, and to consumers of the inability to use such endorsements in advertisements, together with any supporting empirical data.

Finally, as noted above, notwithstanding the results of the staff’s consumer research, the Commission cannot rule out the possibility that a strong disclaimer of typicality could be effective in the context of a particular advertisement. Therefore, the Commission also proposes adding a footnote to this subsection acknowledging this possibility. The footnote also notes that an advertiser employing a strong disclaimer will avoid the risk of FTC law enforcement action if it has valid empirical testing demonstrating that the net impression of its advertisement is non-deceptive. The Commission seeks comment on these proposed revisions.

The Commission proposes to eliminate Section 255.2(c) in the current Guides, which prohibits efficacy claims in consumer endorsements for drugs or devices unless the advertiser has adequate scientific substantiation for the claims and the claims are not inconsistent with any determination by the Food and Drug Administration concerning the drug or device. The Commission believes this section to be unnecessary. Revised Sections 255.2(a) and 255.2(b) effectively prohibit consumer endorsements for drugs or devices unless the advertiser has adequate scientific substantiation for any efficacy claims conveyed by the ads.

The Commission is also proposing to add five new examples to Section 255.2. The first, new Example 1, involving consumer endorsements for a baldness treatment, illustrates that testimonials can convey an efficacy claim, even though the advertisement in which they appear makes no other representations about the product. 93 The example also shows that the advertiser must have substantiation for that efficacy claim—in the case of a baldness cure, competent and reliable scientific evidence—and that the ad will likely communicate that the endorsers’ experiences are representative of what new users of the product can generally expect. New Example 1 also illustrates that an advertiser is unlikely to avoid liability under Section 5 simply by attempting to disclaim the typicality representations made through consumer endorsements. Specifically, new Example 1 provides that if the advertiser does not have adequate substantiation that new users typically will experience results similar to the spectacular results experienced by the testimonialists, the advertisement will be deceptive.

This example illustrates a long-standing principle that pro forma statements or disclaimers may not cure otherwise deceptive messages. 94 The Commission’s consumer research also supports this proposition. In the Endorsement Booklet Study, ads with prominent, strong disclosures still communicated efficacy claims to substantial percentages of consumers. Specifically, even with the disclosure used in Example 1—“Notice: These testimonials do not prove our product works. You should not expect to have similar results.”—between 53.0% and 64.7% of the respondents took away the claim that the advertised supplement was effective for reducing breathing problems, increasing energy levels, and relieving chronic or persistent pain. ( See Table 2b of the Endorsement Booklet Study.)

In new Example 2, endorsements are provided by three individuals who describe their monthly savings from using the advertised heat pump. The ad is interpreted as conveying that such savings represent what consumers who buy the company’s heat pump can generally expect to experience, and, in this example, the advertiser does not have substantiation for this representation because fewer than 20% of purchasers will save even the smallest amount mentioned in the ad. As discussed above, the Commission’s consumer research shows that consumers interpret testimonials to convey that about half of new consumers could expect the claimed results. Nonetheless, the Commission is not presently prepared to incorporate a specific numerical standard for “generally representative” that would apply to all endorsements for all products. Instead, new Example 2 clearly indicates that fewer than 20% is not generally representative. 95

New Example 2 also clearly indicates that disclaimers such as “Results not typical” or “These testimonials are based on the experiences of a few people and you are not likely to have similar results” will be insufficient to prevent the ad from being deceptive. The example states that the ad is less likely to be deceptive if it clearly and conspicuously discloses the generally expected savings and the advertiser has adequate substantiation for that claim. Finally, new Example 2 illustrates several of the multiple ways such a disclosure could be phrased.

New Example 3 illustrates that use of the recommended disclosure does not obviate the need to have substantiation for the efficacy claims conveyed by the ad. In this example, an ad for a cholesterol-lowering product features an individual who claims to have reduced his serum cholesterol level by 120 points, without any lifestyle changes. A well-conducted clinical study shows that the product reduces the cholesterol levels of individuals with elevated cholesterol by 15% and the advertisement clearly and conspicuously discloses this fact. The example makes clear that the advertiser must have adequate substantiation that the product is capable of causing the specific results claimed by the endorser—a 120-point reduction in serum cholesterol without any lifestyle changes. Without that substantiation, the ad will be deceptive even with the disclosure of the generally expected results.

In new Example 4, the endorsement itself so clearly describes the limited and truly exceptional circumstances under which the endorser achieved the results claimed (six months of eating nothing but raw vegetables, six hours of vigorous exercise every day, and use of the advertised product enabled a 250-pound woman to lose 110 pounds), that the ad is unlikely to convey that consumers who use the advertised product under ordinary and typical circumstances should generally expect to achieve the results achieved by the endorser. Nonetheless, the advertiser must have substantiation for any performance claims conveyed by the endorsement ( e.g. , that the advertised product causes substantial weight loss). Finally, the example illustrates that a vague reference to the extreme circumstances under which the depicted results were achieved (“together with diet and exercise”) will likely be insufficient to avoid communicating that the depicted results are representative.

New Example 7 illustrates another situation in which consumer endorsements will not trigger an obligation for the advertiser to determine whether the testimonialist’s experience is typical of what other consumers can expect. Consumers should realize that the positive reviews given by three individuals exiting a movie theater are inherently subjective, and that they may not have the same reaction.

Section 255.3 provides guidance with respect to expert endorsements. The Commission is proposing the addition of two new examples to this section, the modification of two examples in the current Guides, and the deletion of another. 96

New Example 2 provides additional illustration of the principle that an expert endorser must possess the level of expertise that the ad implies he or she has. This illustration notes that if an endorser of a hearing aid is simply referred to as “Doctor” during the course of an advertisement, the likely implication—given the nature of the product being advertised—is that the endorser is a medical doctor with substantial experience in the area of hearing. If the endorser is not a medical doctor with substantial experience in audiology (in this example the endorser has a doctorate in exercise physiology), the endorsement is likely deceptive. The example notes that a non-medical “doctor” or a physician without substantial experience in the area of hearing can endorse the product, but if the endorser is referred to as “doctor,” the advertisement must make clear the nature and limits of the endorser’s expertise.

Example 2 in the current Guides addresses an endorsement by an institution whose name implies that the entity is a bona fide independent testing organization with appropriate expertise. The current example (renumbered Example 3) assumes that such is the case. The Commission proposes to add a sentence to clarify that if the endorser is not such a bona fide independent testing organization ( e.g. , if it was established and operated by the advertiser), the endorsement would be deceptive.

Example 3 in the current Guides discusses a hospital’s endorsement of a non-prescription drug. In this example (which would be renumbered Example 4), the hospital has selected that particular product over its competitors because the manufacturer sells individually packaged doses to institutional users, although not to the general public. The Commission proposes to supplement the reasons currently given as to why this example is deceptive, to include the fact that the basis for the hospital’s decision is not disclosed to consumers.

Example 4 in the current Guides suggests that if the president of a home cleaning company says that he or she uses a particular brand of cleanser in his or her business, this conveys that the individual believes that the advertised cleanser is at least as effective as other cleansers. The Commission has rewritten this example (renumbered as Example 5) to clarify why the endorser is considered an expert, and to indicate more clearly that the expert is comparing the cleanser to the product’s leading competitors that the expert has tried and that the basis of this comparison is the cleanser’s performance.

New Example 6 is intended to provide an example of an instance when an expert’s endorsement is not supported by an adequate exercise of expertise. The example posits the situation where a medical doctor states that a drug will safely allow consumers to lower their cholesterol by 50 points after having reviewed only letters from satisfied consumers or the results of a rodent test. The example is premised on the assumption that these are not the types of evidence that others with the same degree of expertise would consider adequate to support conclusions about the product’s safety and efficacy.

Section 255.4 provides guidance specific to the use of endorsements by organizations. The Commission is not proposing any substantive revisions to this section.

Section 255.5 of the current Guides states that advertisers must disclose connections between themselves and their endorsers that might materially affect the weight or credibility of the endorsement ( i.e. , the connection is not reasonably expected by the audience). It also indicates that consumers will ordinarily expect that endorsers who are well-known personalities ( i.e. , celebrities) or experts will be compensated for their endorsements; therefore, unless the advertiser represents that a celebrity or expert endorser has given an endorsement without compensation, the advertiser need not disclose the payment of compensation to that endorser. The Guides make no distinction between an endorser who receives a flat fee for the endorsement and one who earns a royalty for each product sold after the ad containing the endorsement is disseminated.

The Commission believes that the requirement that advertisers disclose material connections with their endorsers is appropriate and should be retained. The Commission proposes to delete the second sentence of current Section 255.5, however, because it believes: (1) that consumers’ expectations about celebrities and about experts may not be completely congruent; and (2) that even with respect to celebrities, knowledge of the individual’s connections with the product’s marketer may be material to consumers for endorsements made in certain nontraditional contexts. In other words, the assumptions behind the across-the-board statement in the second sentence of current Section 255.5 no longer appear warranted.

With respect to celebrities, the Commission does not believe that it is relevant to consumers how or how much these individuals are compensated for their services in the context of conventional advertising. Accordingly, Example 2 is being revised to clarify that a royalty payment paid to an actor for each product sold need not be disclosed.

Unlike the case with celebrities, however, there could be situations in which the nature or amount of an expert’s compensation might be relevant to consumers. Stated differently, although consumers likely expect that an expert will be paid for the time he or she spends conducting the analysis necessary to render an expert opinion, there could be certain compensation arrangements the knowledge of which would affect consumer purchase decisions.

Several Commission cases have specifically challenged an advertiser’s failure to disclose an expert endorser’s financial interest in promoting the sale of the advertised product, 97 and in new Example 4, these kinds of relationships are deemed likely to materially affect the weight that consumers give to a physician’s endorsement of an anti-snoring product. The Commission specifically seeks comment on this example: if consumers know that an expert has a significant financial interest in sales of the product (such as an ownership interest in the company or compensation based on product sales), is this information likely to affect their assessments of the expert’s credibility? Are there also other financial compensation arrangements ( e.g. , lump sum payments over a certain threshold) that would also be relevant to consumers’ assessment of the expert’s credibility?

The Commission further notes that even with respect to celebrities, distinctions would appear to arise between endorsements made in conventional advertising and those made in nontraditional contexts. In the latter context, as discussed below, disclosure may be necessary.

In its January 2007 Regulatory Review notice, the Commission referred to a 2003 petition from the consumer advocacy organization Commercial Alert, which suggested an exception to the principle that consumers will ordinarily expect that endorsers who are well- known personalities are compensated for their endorsements: when celebrities are paid for touting the performance of brand-name drugs on talk shows and other television programs, but do not mention on the air their financial ties to the drug’s manufacturer. 72 Fed. Reg. at 2217. The Commission asked for any extrinsic evidence regarding consumer expectations about celebrity endorsements made during interviews, and specifically solicited written public comment on whether knowledge that a celebrity endorsing a product during such an interview is being paid for doing so would affect the weight or credibility consumers give to the celebrity’s endorsement.

Two comments specifically addressed these issues, although neither submitted any extrinsic evidence about consumers’ expectations. One noted that when a celebrity speaks favorably about his or her own use of a product in an interview, rather than in a conventional ad, it seems even more sincere; consequently, if the celebrity’s compensation is not disclosed, his or her opinion may be taken as even more legitimate. 98

Another commenter suggested that absent evidence that celebrities were frequently endorsing products in contexts other than conventional advertising, the FTC should not address this practice in the Guides. 99 This commenter noted that celebrities often appear publicly wearing brand name clothing and suggested that it would be extremely difficult to distinguish those situations when consumers would expect them to be compensated from those when they would not. Furthermore, the commenter said, celebrities retain their right under the First Amendment to speak on public issues, and many of their public statements would likely be noncommercial speech.

A third comment suggested that the real problem with celebrity endorsements is the failure of advertisers to disclose the compensation celebrities receive when they endorse prescription drugs. 100 According to this commenter, because the Food and Drug Administration assumes that consumers understand celebrities are compensated for drug endorsements, the FTC does not challenge these endorsements even though prescription drugs—in the view of this commenter—pose more risks to consumer health than do dietary supplements. 101

The Commission believes that when celebrities are paid spokespersons, their endorsements are commercial messages, regardless of whether they are disseminated in a traditional advertising context— i.e. , a television commercial or print ad—or elsewhere. In the context of an interview, there is no reason for consumers to suspect that the endorsement is anything more than a spontaneous mention by a celebrity who has no apparent connection with the product’s marketer.

The Commission is proposing a new Example 3 to address this issue. 102 This example makes it clear that consumers would not expect a celebrity endorsing a product during a routine interview to be paid for doing so, and that knowledge of such a financial interest would likely affect the weight or credibility consumers give to the celebrity’s endorsement. In order to avoid the possibility of deception, the celebrity’s financial connection to the advertiser should be disclosed.

New Example 3 then goes on to distinguish this situation from one in which the celebrity appears during the interview wearing clothes bearing the insignia of a company with which she has an endorsement contract, but does not mention the company or discuss the clothes. No disclosure is required because she is not making any representation about the clothes. The Commission requests comment on both parts of new Example 3.

The Commission is also proposing the addition of several other new examples to Section 255.5. New Example 6 addresses the situation where “extras” who want to work in commercials are recruited to use a product in order to give endorsements in exchange for compensation and exposure. Viewers would not expect that “consumer endorsers” are actors who were asked to use the product so that they could appear in the commercial or that they were compensated. The example states that an advertisement that fails to disclose these facts is deceptive.

New Examples 7, 8, and 9 apply the general principle that material connections between the endorser and the advertiser should be disclosed to several new forms of marketing—blogs, discussion boards, and “street teams.” The Commission specifically seeks comment on these examples, with particular focus on the expectations held by consumers as to the relationships that exist between advertisers and endorsers in these new marketing contexts.

The Commission notes in this regard that WOMMA, a trade association whose members are engaged in word-of-mouth and other new types of marketing, stated in its comment that the relationship between endorsers and advertisers should not be concealed, and that the principles of transparency that form the basis of its code of ethics require, among other things, that endorsers not misrepresent their opinions or their identities (for example, by creating artificial entities to endorse products). 103 The Commission has long believed that industry self-regulatory codes play an important role in consumer protection, and that the development of ethical standards emphasizing transparency for marketers who engage in new forms of marketing is an important step to this end.

Finally, the Attorneys General suggested in their comment that the Commission add a new provision to the Guides providing that when an advertisement relies on a study that was sponsored by the advertiser itself, the advertisement should clearly disclose this information. 104 The Attorneys General note that although the Guides require the disclosure of material connections between endorsers and advertisers, current Example 1 under Section 255.5 specifies that an advertiser’s payment of expenses to the entity that conducted a touted study need not be disclosed in the advertisement. The Attorneys General believe that the advertiser’s funding of the study would, in fact, be a material factor for consumers to consider in deciding how much weight or credibility to give the endorsement. 105

The Commission is not proposing to change Example 1 substantively at this time, but it is proposing certain modifications to provide additional factual background and to explain why disclosure of the funding for that test would not be required. The Commission seeks comment on these modifications, and on the suggestion made by the Attorneys General that there is a discrepancy between Section 255.5 of the Guides and current Example 1. The Commission also particularly seeks extrinsic evidence of consumer understanding concerning this issue.

FTC Guides Concerning Use of Endorsements and Testimonials in Advertising

Sec. 255.0 Purpose and definitions.

255.1 General considerations.

255.2 Consumer endorsements.

255.3 Expert endorsements.

255.4 Endorsements by organizations.

255.5 Disclosure of material connections.

Authority: 38 Stat. 717, as amended; 15 U.S.C. 41 - 58.

(a) The Guides in this part represent administrative interpretations of laws enforced by the Federal Trade Commission for the guidance of the public in conducting its affairs in conformity with legal requirements. Specifically, the Guides address the application of Section 5 of the FTC Act (15 U.S.C. § 45) to the use of endorsements and testimonials in advertising. The Guides provide the basis for voluntary compliance with the law by advertisers and endorsers. Practices inconsistent with these Guides may result in corrective action by the Commission under Section 5 if, after investigation, the Commission has reason to believe that the practices fall within the scope of conduct declared unlawful by the statute.

The Guides set forth the general principles that the Commission will use in evaluating endorsements and testimonials, together with examples illustrating the application of those principles. The Guides do not purport to cover every possible use of endorsements in advertising. Whether a particular endorsement or testimonial is deceptive will depend on the specific factual circumstances of the advertisement at issue.

(b) For purposes of this part, an endorsement means any advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser. The party whose opinions, beliefs, findings, or experience the message appears to reflect will be called the endorser and may be an individual, group, or institution.

(c) The Commission intends to treat endorsements and testimonials identically in the context of its enforcement of the Federal Trade Commission Act and for purposes of this part. The term endorsements is therefore generally used hereinafter to cover both terms and situations.

(d) For purposes of this part, the term product includes any product, service, company or industry.

(e) For purposes of this part, an expert is an individual, group, or institution possessing, as a result of experience, study, or training, knowledge of a particular subject, which knowledge is superior to what ordinary individuals generally acquire.

Example 1: A film critic’s review of a movie is excerpted in an advertisement. When so used, the review meets the definition of an endorsement because it is viewed by readers as a statement of the critic’s own opinions and not those of the film producer, distributor, or exhibitor. Any alteration in or quotation from the text of the review that does not fairly reflect its substance would be a violation of the standards set by this part because it would distort the endorser’s opinion. [ See § 255.1(b).]

Example 2: A TV commercial depicts two women in a supermarket buying a laundry detergent. The women are not identified outside the context of the advertisement. One comments to the other how clean her brand makes her family’s clothes, and the other then comments that she will try it because she has not been fully satisfied with her own brand. This obvious fictional dramatization of a real life situation would not be an endorsement.

Example 3: In an advertisement for a pain remedy, an announcer who is not familiar to consumers except as a spokesman for the advertising drug company praises the drug’s ability to deliver fast and lasting pain relief. He purports to speak, not on the basis of his own opinions, but rather in the place of and on behalf of the drug company. The announcer’s statements would not be considered an endorsement.

Example 4: A manufacturer of automobile tires hires a well-known professional automobile racing driver to deliver its advertising message in television commercials. In these commercials, the driver speaks of the smooth ride, strength, and long life of the tires. Even though the message is not expressly declared to be the personal opinion of the driver, it may nevertheless constitute an endorsement of the tires. Many consumers will recognize this individual as being primarily a racing driver and not merely a spokesperson or announcer for the advertiser. Accordingly, they may well believe the driver would not speak for an automotive product unless he actually believed in what he was saying and had personal knowledge sufficient to form that belief. Hence, they would think that the advertising message reflects the driver’s personal views. This attribution of the underlying views to the driver brings the advertisement within the definition of an endorsement for purposes of this part.

Example 5: A television advertisement for a particular brand of golf balls shows a prominent and well-recognized professional golfer practicing numerous drives off the tee. This would be an endorsement by the golfer even though she makes no verbal statement in the advertisement.

Example 6: An infomercial for a home fitness system is hosted by a well-known entertainer. During the infomercial, the entertainer demonstrates the machine and states that it is the most effective and easy-to-use home exercise machine that she has ever tried. Even if she is reading from a script, this statement would be an endorsement, because consumers are likely to believe it reflects the entertainer’s views.

Example 7: A television advertisement for a housewares store features a well-known female comedian and a well-known male baseball player engaging in light-hearted banter about products each one intends to purchase for the other. The comedian says that she will buy him a Brand X, portable, high-definition television so he can finally see the strike zone. He says that he will get her a Brand Y juicer so she can make juice with all the fruit and vegetables thrown at her during her performances. The comedian and baseball player are not likely to be deemed endorsers because consumers will likely realize that the individuals are not expressing their own views.

(a) Endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser. Furthermore, an endorsement may not convey any express or implied representation that would be deceptive if made directly by the advertiser. [ See §§ 255.2(a) and (b) regarding substantiation of representations conveyed by consumer endorsements. See also Example 3 to Guide 3 (§ 255.3) illustrating how a valid endorsement by an expert endorser may constitute all or part of an advertiser’s substantiation, depending on the claim.]

(b) The endorsement message need not be phrased in the exact words of the endorser, unless the advertisement affirmatively so represents. However, the endorsement may not be presented out of context or reworded so as to distort in any way the endorser’s opinion or experience with the product. An advertiser may use an endorsement of an expert or celebrity only so long as it has good reason to believe that the endorser continues to subscribe to the views presented. An advertiser may satisfy this obligation by securing the endorser’s views at reasonable intervals where reasonableness will be determined by such factors as new information on the performance or effectiveness of the product, a material alteration in the product, changes in the performance of competitors’ products, and the advertiser’s contract commitments.

(c) When the advertisement represents that the endorser uses the endorsed product, the endorser must have been a bona fide user of it at the time the endorsement was given. Additionally, the advertiser may continue to run the advertisement only so long as it has good reason to believe that the endorser remains a bona fide user of the product. [ See § 255.1(b) regarding the “good reason to believe” requirement.]

(d) Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers [ see § 255.5]. Endorsers also may be liable for statements made in the course of their endorsements.

Example 1: A building contractor states in an advertisement that he uses the advertiser’s exterior house paint because of its remarkable quick drying properties and durability. This endorsement must comply with the pertinent requirements of Section 255.3 (Expert Endorsements). Subsequently, the advertiser reformulates its paint to enable it to cover exterior surfaces with only one coat. Prior to continued use of the contractor’s endorsement, the advertiser must contact the contractor in order to determine whether the contractor would continue to specify the paint and to subscribe to the views presented previously.

Example 2: A television advertisement portrays a woman seated at a desk on which rest five unmarked computer keyboards. An announcer says, “We asked X, an administrative assistant for over ten years, to try these five unmarked keyboards and tell us which one she liked best.” The advertisement portrays X typing on each keyboard and then picking the advertiser’s brand. The announcer asks her why, and X gives her reasons. This endorsement would probably not represent that X actually uses the advertiser’s keyboard at work. In addition, the endorsement also may be required to meet the standards of Section 255.3 (Expert Endorsements).

Example 3: An ad for an acne treatment features a dermatologist who claims that the product is “clinically proven” to work. Before giving the endorsement, she received a write-up of the clinical study in question, which indicates flaws in the design and conduct of the study that are so serious that they preclude any conclusions about the efficacy of the product. The dermatologist is subject to liability for the false statements she made in the advertisement. The advertiser is also liable for misrepresentations made through the endorsement.

Example 4: A well-known celebrity appears in an infomercial for an oven roasting bag that purportedly cooks every chicken perfectly in thirty minutes. During the shooting of the infomercial, the celebrity watches five attempts to cook chickens using the bag. In each attempt, the chicken is undercooked after thirty minutes and requires sixty minutes of cooking time. In the commercial, the celebrity places an uncooked chicken in the oven roasting bag and places the bag in one oven. He then takes a chicken roasting bag from a second oven, removes from the bag what appears to be a perfectly cooked chicken, tastes the chicken, and says that if you want perfect chicken every time, in just thirty minutes, this is the product you need. A significant percentage of consumers are likely to believe the celebrity’s statements represent his own views even though he is reading from a script. The celebrity is subject to liability for his statement about the product. The advertiser is also liable for misrepresentations made through the endorsement.

Example 5: A skin care products advertiser participates in a blog advertising service. The service matches up advertisers with bloggers who will promote the advertiser’s products on their personal blogs. The advertiser requests that a blogger try a new body lotion and write a review of the product on her blog. Although the advertiser does not make any specific claims about the lotion’s ability to cure skin conditions and the blogger does not ask the advertiser whether there is substantiation for the claim, in her review the blogger writes that the lotion cures eczema and recommends the product to her blog readers who suffer from this condition. The advertiser is subject to liability for false or unsubstantiated statements made through the blogger’s endorsement. The blogger also is subject to liability for representations made in the course of her endorsement. The blogger is also liable if she fails to disclose clearly and conspicuously that she is being paid for her services. [ See § 255.5.]

In order to limit its potential liability, the advertiser should ensure that the advertising service provides guidance and training to its bloggers concerning the need to ensure that statements they make are truthful and substantiated. The advertiser should also monitor bloggers who are being paid to promote its products and take steps necessary to halt the continued publication of deceptive representations when they are discovered.

(a) An advertisement employing endorsements by one or more consumers about the performance of an advertised product or service will be interpreted as representing that the product or service is effective for the purpose depicted in the advertisement. Therefore, the advertiser must possess and rely upon adequate substantiation, including, when appropriate, competent and reliable scientific evidence, to support such claims made through endorsements in the same manner the advertiser would be required to do if it had made the representation directly, i.e. , without using endorsements. Consumer endorsements themselves are not competent and reliable scientific evidence.

(b) An advertisement containing an endorsement relating the experience of one or more consumers on a central or key attribute of the product or service also will likely be interpreted as representing that the endorser’s experience is representative of what consumers will generally achieve with the advertised product in actual, albeit variable, conditions of use. Therefore, an advertiser should possess and rely upon adequate substantiation for this representation. If the advertiser does not have substantiation that the endorser’s experience is representative of what consumers will generally achieve, the advertisement should clearly and conspicuously disclose the generally expected performance in the depicted circumstances, and the advertiser must possess and rely on adequate substantiation for that representation. 106

(c) Advertisements presenting endorsements by what are represented, directly or by implication, to be “actual consumers” should utilize actual consumers in both the audio and video, or clearly and conspicuously disclose that the persons in such advertisements are not actual consumers of the advertised product.

Example 1: A brochure for a baldness treatment consists entirely of testimonials from satisfied customers who say that after using the product, they had amazing hair growth and their hair is as thick and strong as it was when they were teenagers. The advertiser must have competent and reliable scientific evidence that its product is effective in producing new hair growth.

The ad will also likely communicate that the endorsers’ experiences are representative of what new users of the product can generally expect. Therefore, even if the advertiser includes a disclaimer such as, “Notice: These testimonials do not prove our product works. You should not expect to have similar results,” the ad is likely to be deceptive unless the advertiser has adequate substantiation that new users typically will experience results similar to those experienced by the testimonialists.

Example 2: An advertisement disseminated by a company that sells heat pumps presents endorsements from three individuals who state that after installing the company’s heat pump in their homes, their monthly utility bills went down by $100, $125, and $150, respectively. The ad will likely be interpreted as conveying that such savings are representative of what consumers who buy the company’s heat pump can generally expect. The advertiser does not have substantiation for that representation because, in fact, less than 20% of purchasers will save $100 or more. A disclosure such as, “Results not typical” or, “These testimonials are based on the experiences of a few people and you are not likely to have similar results” is insufficient to prevent this ad from being deceptive because consumers will still interpret the ad as conveying that the specified savings are representative of what consumers can generally expect. The ad is less likely to be deceptive if it clearly and conspicuously discloses the generally expected savings and the advertiser has adequate substantiation that homeowners can achieve those results. There are multiple ways that such a disclosure could be phrased, e.g. , “the average homeowner saves $35 per month,” “the typical family saves $50 per month during cold months and $20 per month in warm months,” or “most families save 10% on their utility bills.”

Example 3: An advertisement for a cholesterol-lowering product features an individual who claims that his serum cholesterol went down by 120 points and does not mention having made any lifestyle changes. A well-conducted clinical study shows that the product reduces the cholesterol levels of individuals with elevated cholesterol by an average of 15% and the advertisement clearly and conspicuously discloses this fact. Despite the presence of this disclosure, the advertisement would be deceptive if the advertiser does not have adequate substantiation that the product can produce the specific results claimed by the endorser ( i.e. , a 120-point drop in serum cholesterol without any lifestyle changes).

Example 4: An advertisement for a weight-loss product features a formerly obese woman. She says in the ad, “Every day, I drank 2 WeightAway shakes, only ate raw vegetables, and exercised vigorously for six hours at the gym. By the end of six months, I had gone from 250 pounds to 140 pounds.” The advertisement accurately describes the woman’s experience, and such a result is within the range that would be generally experienced by an extremely overweight individual who consumed WeightAway shakes, only ate raw vegetables, and exercised as the endorser did. Because the endorser clearly describes the limited and truly exceptional circumstances under which she achieved her results, the ad does not convey that consumers who weigh substantially less or use WeightAway under less extreme circumstances should generally expect to lose something in the vicinity of 110 pounds in six months. The advertiser must have substantiation, however, for any performance claims conveyed by the endorsement ( e.g. , that WeightAway is an effective weight loss product).

If, in the alternative, the advertisement simply says that the endorser lost 110 pounds in six months using WeightAway together with diet and exercise, the advertisement would likely convey that her results were representative of what consumers can generally expect to lose with WeightAway.

Example 5: An advertisement presents the results of a poll of consumers who have used the advertiser’s cake mixes as well as their own recipes. The results purport to show that the majority believed that their families could not tell the difference between the advertised mix and their own cakes baked from scratch. Many of the consumers are actually pictured in the advertisement along with relevant, quoted portions of their statements endorsing the product. This use of the results of a poll or survey of consumers represents that this is the typical result that ordinary consumers can expect from the advertiser’s cake mix.

Example 6: An advertisement purports to portray a “hidden camera” situation in a crowded cafeteria at breakfast time. A spokesperson for the advertiser asks a series of actual patrons of the cafeteria for their spontaneous, honest opinions of the advertiser’s recently introduced breakfast cereal. Even though the words “hidden camera” are not displayed on the screen, and even though none of the actual patrons is specifically identified during the advertisement, the net impression conveyed to consumers may well be that these are actual customers, and not actors. If actors have been employed, this fact should be clearly and conspicuously disclosed.

Example 7: An advertisement for a recently released motion picture shows three individuals coming out of a theater, each of whom gives a positive statement about the movie. These individuals are actual consumers expressing their personal views about the movie. The advertiser does not need to have substantiation that their views are representative of the opinions that most consumers will have about the movie because this advertisement is not likely to convey a typicality message.

If the motion picture studio had approached these individuals outside the theater and offered them free tickets if they would talk about the movie on camera afterwards, that arrangement should be clearly and conspicuously disclosed. [ See § 255.5.]

(a) Whenever an advertisement represents, directly or by implication, that the endorser is an expert with respect to the endorsement message, then the endorser’s qualifications must in fact give the endorser the expertise that he or she is represented as possessing with respect to the endorsement.

(b) Although the expert may, in endorsing a product, take into account factors not within his or her expertise ( e.g. , matters of taste or price), the endorsement must be supported by an actual exercise of that expertise in evaluating product features or characteristics with respect to which he or she is expert and which are relevant to an ordinary consumer’s use of or experience with the product and are available to the ordinary consumer. This evaluation must have included an examination or testing of the product at least as extensive as someone with the same degree of expertise would normally need to conduct in order to support the conclusions presented in the endorsement. To the extent that the advertisement implies that the endorsement was based upon a comparison, such comparison must have been included in the expert’s evaluation; and as a result of such comparison, the expert must have concluded that, with respect to those features on which he or she is expert and which are relevant and available to an ordinary consumer, the endorsed product is at least equal overall to the competitors’ products. Moreover, where the net impression created by the endorsement is that the advertised product is superior to other products with respect to any such feature or features, then the expert must in fact have found such superiority. [ See § 255.1(d) regarding the liability of endorsers.]

Example 1: An endorsement of a particular automobile by one described as an “engineer” implies that the endorser’s professional training and experience are such that he is well acquainted with the design and performance of automobiles. If the endorser’s field is, for example, chemical engineering, the endorsement would be deceptive.

Example 2: An endorser of a hearing aid is simply referred to as “Doctor” during the course of an advertisement. The ad likely implies that the endorser is a medical doctor with substantial experience in the area of hearing. If the endorser is not a medical doctor with substantial experience in audiology, the endorsement would likely be deceptive. A non-medical “doctor” ( e.g. , an individual with a Ph.D. in exercise physiology) or a physician without substantial experience in the area of hearing can endorse the product, but if the endorser is referred to as “doctor,” the advertisement must make clear the nature and limits of the endorser’s expertise.

Example 3: A manufacturer of automobile parts advertises that its products are approved by the “American Institute of Science.” From its name, consumers would infer that the “American Institute of Science” is a bona fide independent testing organization with expertise in judging automobile parts and that, as such, it would not approve any automobile part without first testing its efficacy by means of valid scientific methods. If the American Institute of Science is not such a bona fide independent testing organization ( e.g. , if it was established and operated by an automotive parts manufacturer), the endorsement would be deceptive. Even if the American Institute of Science is an independent bona fide expert testing organization, the endorsement may nevertheless be deceptive unless the Institute has conducted valid scientific tests of the advertised products and the test results support the endorsement message.

Example 4: A manufacturer of a non-prescription drug product represents that its product has been selected over competing products by a large metropolitan hospital. The hospital has selected the product because the manufacturer, unlike its competitors, has packaged each dose of the product separately. This package form is not generally available to the public. Under the circumstances, the endorsement would be deceptive because the basis for the hospital’s choice—convenience of packaging— is neither relevant nor available to consumers, and the basis for the hospital’s decision is not disclosed to consumers.

Example 5: A woman who is identified as the president of a commercial “home cleaning service” states in a television advertisement that the service uses a particular brand of cleanser, instead of leading competitors it has tried, because of this brand’s performance. Because cleaning services extensively use cleansers in the course of their business, the ad likely conveys that the president has knowledge superior to that of ordinary consumers. Accordingly, the president’s statement will be deemed to be an expert endorsement. The service must, of course, actually use the endorsed cleanser. In addition, because the advertisement implies that the cleaning service has experience with a reasonable number of leading competitors to the advertised cleanser, the service must, in fact, have such experience, and, on the basis of its expertise, it must have determined that the cleaning ability of the endorsed cleanser is at least equal (or superior, if such is the net impression conveyed by the advertisement) to that of leading competitors’ products with which the service has had experience and which remain reasonably available to it. Because in this example the cleaning service’s president makes no mention that the endorsed cleanser was “chosen,” “selected,” or otherwise evaluated in side-by-side comparisons against its competitors, it is sufficient if the service has relied solely upon its accumulated experience in evaluating cleansers without having performed side-by-side or scientific comparisons.

Example 6: A medical doctor states in an advertisement for a drug that the product will safely allow consumers to lower their cholesterol by 50 points. If the materials the doctor reviewed were merely letters from satisfied consumers or the results of a rodent study, the endorsement would be deceptive assuming that those materials are not what others with the same degree of expertise would consider adequate to support this conclusion about the product’s safety and efficacy.

Endorsements by organizations, especially expert ones, are viewed as representing the judgment of a group whose collective experience exceeds that of any individual member, and whose judgments are generally free of the sort of subjective factors that vary from individual to individual. Therefore, an organization’s endorsement must be reached by a process sufficient to ensure that the endorsement fairly reflects the collective judgment of the organization. Moreover, if an organization is represented as being expert, then, in conjunction with a proper exercise of its expertise in evaluating the product under § 255.3 (expert endorsements), it must utilize an expert or experts recognized as such by the organization or standards previously adopted by the organization and suitable for judging the relevant merits of such products. [ See § 255.1(d) regarding the liability of endorsers.]

Example: A mattress seller advertises that its product is endorsed by a chiropractic association. Because the association would be regarded as expert with respect to judging mattresses, its endorsement must be supported by an evaluation by an expert or experts recognized as such by the organization, or by compliance with standards previously adopted by the organization and aimed at measuring the performance of mattresses in general and not designed with the unique features of the advertised mattress in mind. ( See also § 255.3, Example 5.)

When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement ( i.e. , the connection is not reasonably expected by the audience), such connection must be fully disclosed. For example, when the endorser is neither represented in the advertisement as an expert nor is known to a significant portion of the viewing public, then the advertiser should clearly and conspicuously disclose either the payment or promise of compensation prior to and in exchange for the endorsement or the fact that the endorser knew or had reasons to know or to believe that if the endorsement favors the advertised product some benefit, such as an appearance on TV, would be extended to the endorser. Additional guidance concerning endorsements by celebrities and experts is provided by the examples below.

Example 1: A drug company commissions research on its product by an outside organization. The drug company determines the overall subject of the research ( e.g. , to test the efficacy of a newly developed product) and pays a substantial share of the expenses of the research project, but the research organization determines the protocol for the study and is responsible for conducting it. A subsequent advertisement by the drug company mentions the research results as the “findings” of that research organization. Where, as here, the design and conduct of the research project are controlled by the outside research organization, the weight consumers place on the reported results would not likely be materially affected by knowing that the advertiser had funded the project. Therefore, the advertiser’s payment of expenses to the research organization need not be disclosed in this advertisement.

Example 2: A film star endorses a particular food product. The endorsement regards only points of taste and individual preference. This endorsement must, of course, comply with § 255.1; but regardless of whether the star’s compensation for the commercial is a $1 million cash payment or a royalty for each product sold by the advertiser during the next year, no disclosure is required because such payments likely are ordinarily expected by viewers.

Example 3: During an appearance by a well-known professional tennis player on a television talk show, the host comments that the past few months have been the best of her career and during this time she has risen to her highest level ever in the rankings. She responds by attributing the improvement in her game to the fact that she is seeing the ball better than she used to, ever since having laser vision correction surgery at a clinic that she identifies by name. She continues talking about the ease of the procedure, the kindness of the clinic’s doctors, her speedy recovery, and how she can now engage in a variety of activities without glasses, including driving at night. The athlete does not disclose that, even though she does not appear in commercials for the clinic, she has a contractual relationship with it, and her contract pays her for speaking publicly about her surgery when she can do so. Consumers would not expect that a celebrity discussing a medical procedure in a television interview to be paid for doing so, and knowledge of such payments would likely affect the weight or credibility consumers give to the celebrity’s endorsement. Without a clear and conspicuous disclosure that the athlete has been engaged as a spokesperson for the clinic, this endorsement is likely to be deceptive. Furthermore, if consumers are likely to take away from her story that her experience was typical of those who undergo the same procedure at the clinic, the advertiser must have substantiation for that claim.

Assume that during that same appearance, the tennis player is wearing clothes bearing the insignia of an athletic wear company with whom she also has an endorsement contract. Although this contract requires that she wear the company’s clothes not only on the court but also in public appearances, when possible, she does not mention them or the company during her appearance on the show. No disclosure is required because no representation is being made about the clothes in this context.

Example 4: An ad for an anti-snoring product features a physician who says that he has seen dozens of products come on the market over the years and, in his opinion, this is the best ever. Consumers would expect the physician to be reasonably compensated for his appearance in the ad. Consumers are unlikely, however, to expect that the physician receives a percentage of gross product sales or that he owns part of the company, and either of these facts would likely materially affect the credibility that consumers attach to the endorsement. Accordingly, the advertisement should clearly and conspicuously disclose such a connection between the company and the physician.

Example 5: An actual patron of a restaurant, who is neither known to the public nor presented as an expert, is shown seated at the counter. He is asked for his “spontaneous” opinion of a new food product served in the restaurant. Assume, first, that the advertiser had posted a sign on the door of the restaurant informing all who entered that day that patrons would be interviewed by the advertiser as part of its TV promotion of its new soy protein “steak.” This notification would materially affect the weight or credibility of the patron’s endorsement, and, therefore, viewers of the advertisement should be clearly and conspicuously informed of the circumstances under which the endorsement was obtained.

Assume, in the alternative, that the advertiser had not posted a sign on the door of the restaurant, but had informed all interviewed customers of the “hidden camera” only after interviews were completed and the customers had no reason to know or believe that their response was being recorded for use in an advertisement. Even if patrons were also told that they would be paid for allowing the use of their opinions in advertising, these facts need not be disclosed.

Example 6: An infomercial producer wants to include consumer endorsements for an automotive additive product featured in her commercial, but because the product has not yet been sold, there are no consumer users. The producer’s staff reviews the profiles of individuals interested in working as “extras” in commercials and identifies several who are interested in automobiles. The extras are asked to use the product for several weeks and then report back to the producer. They are told that if they are selected to endorse the product in the producer’s infomercial, they will receive a small payment. Viewers would not expect that these “consumer endorsers” are actors who were asked to use the product so that they could appear in the commercial or that they were compensated. Because the advertisement fails to disclose these facts, it is deceptive.

Example 7: A college student who has earned a reputation as a video game expert maintains a personal weblog or “blog” where he posts entries about his gaming experiences. Readers of his blog frequently seek his opinions about video game hardware and software. As it has done in the past, the manufacturer of a newly released video game system sends the student a free copy of the system and asks him to write about it on his blog. He tests the new gaming system and writes a favorable review. The readers of his blog are unlikely to expect that he has received the video game system free of charge in exchange for his review of the product, and given the value of the video game system, this fact would likely materially affect the credibility they attach to his endorsement. Accordingly, the blogger should clearly and conspicuously disclose that he received the gaming system free of charge.

Example 8: An online message board designated for discussions of new music download technology is frequented by MP3 player enthusiasts. They exchange information about new products, utilities, and the functionality of numerous playback devices. Unbeknownst to the message board community, an employee of a leading playback device manufacturer has been posting messages on the discussion board promoting the manufacturer’s product. Knowledge of this poster’s employment likely would affect the weight or credibility of her endorsement. Therefore, the poster should clearly and conspicuously disclose her relationship to the manufacturer to members and readers of the message board.

Example 9: A young man signs up to be part of a “street team” program in which points are awarded each time a team member talks to his or her friends about a particular advertiser’s products. Team members can then exchange their points for prizes, such as concert tickets or electronics. These incentives would materially affect the weight or credibility of the team member’s endorsements. They should be clearly and conspicuously disclosed, and the advertiser should take steps to ensure that these disclosures are being provided.

The Commission invites interested members of the public to submit written data, views, facts, and arguments addressing the issues raised by this Notice, including the proposed changes to the Guides. Such comments must be received by January 30, 2009, and must be filed in accordance with the instructions in the ADDRESSES section of this document.

By direction of the Commission.

The subject of the public hearing is the notice of proposed rulemaking (REG-140029-07) that was published in the Federal Register on Thursday, August 7, 2008 (73 FR 45908).

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing that submitted written comments by November 5, 2008, must submit an outline of the topics to be addressed and the amount of time to be denoted to each topic (Signed original and eight copies).

A period of 10 minutes is allotted to each person for presenting oral comments. After the deadline for receiving outlines has passed, the IRS will prepare an agenda containing the schedule of speakers. Copies of the agenda will be made available, free of charge, at the hearing or in the Freedom of Information Reading Room (FOIA RR) (Room 1621) which is located at the 11th and Pennsylvania Avenue, NW., entrance, 1111 Constitution Avenue, NW., Washington, DC.

Because of access restrictions, the IRS will not admit visitors beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section of this document.

This document proposes to amend the regulations at 38 CFR part 51 (referred to below as the regulations), which set forth a mechanism for paying per diem to State homes providing nursing home care to eligible veterans. Under the regulations, VA pays per diem to a State for providing nursing home care to eligible veterans in a facility if the Under Secretary for Health recognizes the facility as a State home based on a determination that the facility meets the standards set forth in subpart D of the regulations. The standards set forth minimum requirements that are intended to ensure that VA pays per diem for eligible veterans only if the State homes provide quality care. This document also proposes to make corresponding changes concerning VA forms set forth at 38 CFR part 58.

The current regulations refer to the Geriatrics and Extended Care Strategic Healthcare Group (114) in a number of places. This has been renamed the Office of Geriatrics and Extended Care (114). Accordingly, we propose to amend the regulations to reflect this change.

Current § 51.20(a) requires an application for recognition and certification of a State home for nursing home care to be submitted to the Under Secretary for Health (10), VA Headquarters, 810 Vermont Avenue, NW., Washington, DC 20420. We would change this provision to have the submission instead be addressed to the Chief Consultant, Office of Geriatrics and Extended Care (114), VA Central Office, 810 Vermont Avenue, NW., Washington, DC 20420, who processes applications for the Under Secretary for Health.

Current § 51.30(a)(1) provides that the Under Secretary for Health will make the determination regarding recognition and the initial determination regarding certification after receipt of a “tentative determination” from the director of the VA medical center of jurisdiction regarding whether, based on a VA survey, the facility and facility management meet or do not meet the standards of subpart D of the regulations. The term “tentative determination” has caused confusion as to who makes the final decision that a State home meets VA standards for purposes of recognizing a State home. It was intended that the Under Secretary for Health would make this final determination. Accordingly, we propose to amend § 51.30(a)(1) to prescribe that the Under Secretary will make a final decision regarding recognition of a State home after considering the recommendation of the medical center director.

In § 51.30(a)(1), with respect to the requirement that the recommendation be “based on a VA survey,” we propose that VA will not conduct the recognition survey for purposes of recognizing a home until (i) the facility under consideration for recognition has at least 21 residents or (ii) the number of residents in the facility equals 50 percent or more of the new bed capacity of the facility. Because the majority of VA standards for payment of per diem are directly related to resident care, it is important that there is a representative sample of residents in the facility to be able to determine if the facility meets the standards. We need to know whether a facility can meet the standards while providing adequate services for at least a unit of average size. The average unit size in a nursing home is 21 residents. We also believe 50 percent of the total resident capacity in the facility represents a reasonable number of residents when a facility is renovating or adding a small number of beds.

Current § 51.30(d), (e), and (f) set forth appeal provisions that apply if a director of a VA medical center of jurisdiction determines that a State home facility or facility management does not meet the standards of subpart D. To clarify that these appeal provisions apply to the Under Secretary for Health's initial decision recognition and certification, as well as a director's subsequent determinations regarding a home's failure to meet the standards of subpart D, we propose to amend § 51.30(d), (e), and (f) accordingly.

With respect to per diem for nursing home care, current § 51.40 prescribes that VA will pay the lesser of:

• One-half of the cost of the care for each day the veteran is in the facility, or

• $50.55 for each day the veteran is in the facility.

Payment in the amount of $50.55 was established for use in Fiscal Year 2000 and has been increased every year since in accordance with 38 U.S.C. 1741(c), which prescribes criteria for increasing basic per diem payments. We propose to change this amount to $71.42 for Fiscal Year 2008 and to state that the amounts for subsequent fiscal years would be set in accordance with the criteria in section 1741(c).

Under the provisions of 38 U.S.C. 1745(a), which were established by section 211 of the Veterans Benefits, Health Care, and Information Technology Act of 2006, the basic per diem rate no longer applies for:

• Any veteran in need of nursing home care for a service-connected disability, or

• Any veteran who has a service-connected disability rated at 70 percent or more and is in need of nursing home care.

Instead, under the provisions of 38 U.S.C. 1745(a), the rate for such veterans is the lesser of:

• The applicable or prevailing rate payable in the geographic area in which the State home is located, as determined by the Secretary, for nursing home care furnished in a non-Department nursing home (a public or private institution not under the direct jurisdiction of VA which furnishes nursing home care); or

• A rate not to exceed the daily cost of care in the State home facility, as determined by the Secretary, following a report to the Secretary by the director of the State home.

Proposed § 51.41(a) reflects these statutory provisions.

The proposal interprets the statutory eligibility provisions for veterans who have “a service-connected disability rated at 70 percent or more” to cover veterans with “a singular or combined rating of 70 percent or more based on one or more service-connected disabilities or a rating of total disability based on individual unemployability.” We believe that this reflects the statutory intent and is consistent with our other interpretation of similar statutory provisions, e.g., for enrollment purposes we interpreted percentage ratings to include all service-connected disabilities combined, as well as a rating of total disability based on individual unemployability. (See 38 CFR 17.36(b) (1)-(2)).

We propose to establish criteria for determining the applicable or prevailing rate payable in the geographic area based on the information provided below. VA's per diem rate based on service connection will be a daily rate that will include both a direct nursing home care charge and a physician charge.

The Federal Medicare program reimburses nursing homes for skilled nursing care provided to Medicare beneficiaries. The Centers for Medicare & Medicaid Services (CMS) administers the Medicare program and thus has developed a national system for paying for this care. The current system has been used and improved since 1997. In our view, this system, which does not include physician charges, comes closest to determining what the reimbursement rate per day for nursing home care should be in a manner that is analytically based and that considers the cost differences in all parts of the United States. As such, except for physician charges, we believe that it meets the statutory mandate that VA reimburse State homes at “the applicable or prevailing rate payable in the geographic area in which the State home is located * * * for nursing home care furnished in a non-Department nursing home.” We would thus compute a daily rate for each State home using the formula set forth in proposed § 51.41 and discussed below.

This formula is based on CMS' Medicare payment model in which per diem payments for each admission are case-mix adjusted using a resident classification system (Resource Utilization Groups, version III (RUG III)). The RUG III system is based on data from resident assessments (Minimum Data Set 2.0) and relative weights developed from staff time data. Each case mix is assigned a Federal rate with a labor portion and a non-labor portion. To adjust the amount to reflect the prevailing rate in the local geographic area, the labor portion is multiplied by the CMS hospital wage index for the local jurisdiction. The CMS information regarding these calculations is published in the Federal Register every summer and is effective beginning October 1 for the entire fiscal year. See 72 FR 43412 (August 3, 2007) for information for the 2008 Federal fiscal year. VA is considering a modification to the proposed payment structure to be introduced after two or three years of experience with the RUG III approach. In the modification, VA would use the actual case-mix of the individual state veteran nursing home to determine the reimbursement rate, rather than assuming that every nursing home has an equal number of veterans in each of the 53 RUG III levels. This modification will allow for more accurate payments, reimbursing nursing homes at a higher rate for treating veterans with more intensive needs. VA is seeking public comment on this modification.

The proposed physician charge would be a daily charge based on information set forth in the SMS and Supplemental Survey PE/HR which was published by the American Medical Association until 1999 and is used by CMS to develop the practice expense portion of the Medicare physician fee schedule amounts. To find the daily charge we would use the average hourly rate for all physicians from the fee schedule and modify this hourly rate by the applicable geographic adjustment factor used under the Medicare physician fee schedule for the area where the State home is located. We would use the modified hourly rate as the monthly visit rate based on our finding that the total time for the multiple physician visits during the month would average approximately one hour. We would then multiply the modified hourly rate by 12 (months in year) and then divide it by the number of days in the year. This daily rate would be added to the average per diem, described above. We are using an hourly rate and geographic index that does not include business taxes or malpractice expenses. This is because most states provide physician services using salaried state employees. However, we are soliciting comments on this issue. The prevailing rates computed under this provision will be updated each year using the Medical Economic Index.

The rate paid to a State home for care of certain service-connected veterans would thus be the lesser of the applicable or prevailing rate payable in the geographic area in which the State home is located or a rate not to exceed the daily cost of care for the month in the State home. The actual daily cost of care would be submitted by the State home on VA Form 10-5588. Without the submission of such information VA cannot pay per diem based on service connection because VA cannot determine the amount to pay.

Section 211(a)(5) of Public Law 109-461 required the higher rate for certain service-connected veterans to take effect on March 21, 2007 (90 days after enactment of the law). Accordingly, VA proposes to make retroactive payments constituting the difference between the amount of per diem actually paid and the amount calculated under the formula set forth in these regulations for care provided to these veterans on or after March 21, 2007. However, VA would not make retroactive payments if the State home received any payment for such care from any source unless the amount received was returned to the payor. It is not administratively feasible for VA to oversee and verify accuracy of partial payments.

Moreover, to reflect 38 U.S.C. 1745(a)(3), paragraph (c) states that, as a condition of receiving payments under proposed § 51.41, a State home must agree not to accept drugs or medicines from VA on behalf of veterans provided under 38 U.S.C. 1712(d) and corresponding VA regulations. The direct nursing home care payments to be made to State homes under proposed § 51.41 include payment for drugs and medicines.

The provisions of 38 U.S.C. 1745(b), which were established by section 211(a)(2) of the Veterans Benefits, Health Care, and Information Technology Act of 2006, require VA to furnish recognized State homes with such drugs and medicines as may be ordered by prescription of a duly licensed physician as specific therapy in the treatment of illness or injury for certain eligible veterans. Proposed § 51.42(a) reflects the statutory provisions and, for reasons explained above, we interpreted categories of veterans based on ratings to include singular or combined ratings.

Under proposed § 51.42(b), VA would furnish a drug or medicine only if the drug or medicine is included on VA's National Formulary, unless VA determines a non-Formulary drug or medicine is medically necessary. This should result in significant savings since, insofar as possible, the VA National Formulary consists of generic medications that often cost much less than brand medications. These are the same medications used for VA nursing home patients. Under proposed § 51.42(c), VA would furnish the drugs or medicines to the State home by mail or other means determined by VA. We believe it will be most feasible to provide the drugs and medicines by mail. However, it may be more practical to provide them by other means. For example, if the State home were located next to the VA facility, it might be more practical to hand-deliver the drugs and medicines.

Section 211(a)(5) of Public Law 109-461 required that the provision of such drugs and medicines take effect on March 21, 2007 (90 days after enactment of the law). Accordingly, VA would make retroactive payments constituting the amount State homes paid for such drugs and medicines not including any administrative costs incurred by the State home. However, VA would not pay any amounts for drugs and medicines if the State home received any payment for such drugs and medicines from any source unless the amount received was returned to the payor. It is not administratively feasible for VA to oversee and verify accuracy of partial payments. To receive these retroactive payments, a State home would have to complete a VA Form 10-0460 and submit it to the VA medical center of jurisdiction.

Current § 51.40(a)(5), which we propose to move to § 51.43, provides that as a condition for receiving payment of per diem, the State home must submit to the VA medical center of jurisdiction for each veteran a completed VA Form 10-10EZ, Application for Medical Benefits and a completed VA Form 10-10SH, State Home Program Application for Care—Medical Certification. The regulations also provide that these VA Forms should be submitted at the time of admission to the home and with any request for a change in the level of care (domiciliary, hospital care or adult day health care). In many cases a completed VA Form 10-10EZ may already be on file with VA. In those cases, proposed § 51.43(a) would provide that a VA Form 10-10EZR be submitted instead. This form would not ask for any additional information. It would merely ask for an update on a portion of the information already submitted by the VA Form 10-10EZ. VA Forms 10-10EZ and 10-10SH are set forth in full at §§ 58.12 and 58.13. VA Form 10-10EZR is set forth in full at proposed § 58.12.

Current § 51.40(a)(2) concerns payment of per diem for the days that a veteran is considered to be a resident at the facility and prescribes payment only for each full day that a veteran is a resident at the facility. We propose to clarify this concept by stating that per diem would be paid for each day that the veteran is receiving care and has an overnight stay.

Current § 51.40(a)(2) sets forth the VA rule regarding the payment of per diem for bed holds. Payment of per diem for bed holds assures that nursing home residents who are hospitalized or who are granted leave for other purposes are assured a nursing home bed upon return to the nursing home. The current regulations provide that VA will deem the veteran to be a resident at a facility and pay per diem during any absence from the facility that lasts for no more than 96 consecutive hours except that VA will not pay per diem when the veteran is receiving care outside the State home facility at VA expense. Also, the current regulations provide that an “absence will be considered to have ended when the veteran returns as a resident if the veteran's stay is for at least a continuous 24-hour period.”

We propose to make changes to the bed hold rule. Proposed § 51.43(c) would provide that per diem will be paid for a bed hold only if the veteran has established residency by being in the facility for 30 consecutive days (including overnight stays) and the facility has an occupancy rate of 90 percent or greater. In addition, we propose that per diem for a bed hold will be paid only for the first ten (10) consecutive overnight absences at a VA or other hospital (this could occur more than once in a calendar year) and for the first twelve (12) other types of overnight absences in a calendar year.

We believe that State homes should receive per diem payments to hold beds only for permanent residents and only if the State home would likely fill the bed without such payments. Allowing payments for bed holds only after a veteran has been in a nursing home for at least 30 consecutive days (including overnight stays) appears to be sufficient to establish permanent residency. Further, there is no need to pay per diem for bed holds for those facilities with an occupancy of less than 90 percent because it is unlikely that those facilities would fill the bed of an absent resident.

The current 96-hour rule for absences coupled with the 24-hour return-period rule allow a State home to receive per diem payments for a veteran who spends four days per week away from the nursing home. This is inconsistent with the purpose for providing nursing home care, i.e., providing care for those unable to function outside a nursing home. This generous standard for bed holds was established when nursing home census was high. We do not propose a limit on the number of hospital stays because absences for hospital care do not suggest that an individual no longer needs nursing home care. However, a limit of ten (10) consecutive overnight hospital absences and a limit of twelve (12) other overnight absences in a calendar year are consistent with many Medicaid State plans which generally provide for bed holds of around 12 days. Further, we believe the rationale for paying for bed holds would apply whether or not a veteran's hospital care outside the State home is being provided at VA expense. We thus propose to remove this distinction in the regulations.

Under the proposed rule, the provisions of paragraphs (a)(3) through (a)(5) and paragraph (b) of current § 51.40 would be moved to proposed § 51.43 with certain non-substantive changes, including changes that correspond to those discussed above in this document.

Also, we propose to revise VA Forms 10-5588 and 10-10SH and established a new VA Form 10-0460, as set forth in the text portion of this document at 38 CFR 58.11, 58.13, and 58.18. These VA Forms would include changes that correspond to the changes discussed above in this document.

Current § 51.70(c)(5) provides that “[u]pon the death of a resident with a personal fund deposited with the facility, the facility management must convey within 30 days the resident's funds, and a final accounting of those funds, to the individual or probate jurisdiction administering the resident's estate; or other appropriate individual or entity, if State law allows.” State home representatives have requested that the 30 day time limit be changed to 90 calendar days based on the observation that it often takes a longer period to verify which individual or entity is the appropriate recipient of the funds and to provide the final accounting. Based on the rationale set forth by State home representatives, we propose to change the 30 day time limit to a more realistic 90 calendar days.

Current § 51.150 provides that a resident must be seen by the primary physician within specified timeframes. These regulations also state that, at the option of the primary physician, required visits in the facility after the initial visit may alternate between personal visits by the primary physician and visits by a certified physician assistant, certified nurse practitioner, or a clinical nurse specialist. The regulations further allow such visits by a clinical nurse specialist only if acting within the scope of practice as authorized by State law and only if acting under the supervision of the primary physician.

The term “clinical nurse specialist” is defined in current § 51.2 as “a licensed professional nurse with a master's degree in nursing with a major in a clinical nursing specialty from an academic program accredited by the National League for Nursing and at least 2 years of successful clinical practice in the specialized area of nursing practice following this academic preparation.” We propose to change the definition to delete the requirement that such an individual have “at least 2 years of successful clinical practice in the specialized area of nursing practice following this academic preparation” and require instead that the individual must be currently certified by a nationally recognized credentialing body (such as the American Nurses Credentialing Center). To obtain the master's degree, the individual would necessarily gain substantial clinical practice experience. However, the certification appears to be necessary to ensure that a clinical nurse specialist retains skills necessary for the position. Such certifying bodies require that certified individuals complete continuing education and thereby help them stay current with advances in the profession.

The term “nurse practitioner” is also defined in current § 51.2 as “a licensed professional nurse who is currently licensed to practice in the State; who meets the State's requirements governing the qualifications of nurse practitioners; and who is currently certified as an adult, family, or gerontological nurse practitioner by the American Nurses' Association.” We propose to delete the requirement of certification by the American Nurses' Association because it does not provide such certification. Instead, we propose to require certification by any nationally recognized body that provides such certification for nurse practitioners, such as the American Nurses' Credentialing Center or the American Academy of Nurse Practitioners. The certification appears to be necessary to ensure that a nurse practitioner retains skills necessary for the position. Such certifying bodies require that certified individuals complete continuing education and thereby help them stay current with advances in the profession.

Current § 51.100(h)(2) provides that “[a] nursing home with 100 or more beds must employ a qualified social worker on a full-time basis.” This requirement was intended to ensure that the nursing home receives qualified social worker services and was not intended to require that the services be provided by one individual. We propose to clarify the regulations to specify that a nursing home with 100 or more beds would be required to employ one or more qualified social workers who work for a total period that equals at least the work time of one full-time employee (FTE). We also propose to clarify the regulations to specify that a State home must provide qualified social worker services in proportion to the total number of beds in the home, specifically one or more social worker FTE per 100 beds. For example, a nursing home with 50 beds would be required to employ one or more qualified social workers who work for a total period equaling at least one-half FTE and a nursing home with 150 beds would be required to employ qualified social workers who work for a total period equaling at least one and one-half FTE. This would give State homes more flexibility in hiring social workers and ensure that veterans in all State homes receive roughly the same amount of social work services.

Current § 51.110 (introductory text) requires facility management to “conduct initially, annually and as required by a change in the resident's condition a comprehensive, accurate, standardized, reproducible assessment of each resident's functional capability.” Current § 51.110(b)(3) also requires quarterly reassessments.

Current § 51.110(b)(1)(i) requires officials conducting such assessments, among other things, to use the Health Care Financing Administration Long Term Care Resident Assessment Instrument Version 2.0 in conducting the assessment. Current § 51.110(b)(1)(iii) also requires all nursing homes to have been in compliance with use of such assessment instrument by no later than January 1, 2000. This instrument is now called the Centers for Medicare and Medicaid Services (CMS) Resident Assessment Instrument Minimum Data Set (RAI/MDS), Version 2.0, and we propose to amend our regulations to reflect this change. Also, we propose to delete the provision requiring compliance by January 1, 2000, since this requirement has been fully met.

Also, we propose to require each State home to submit to VA at an email address provided by VA to the State home, each assessment (initial, annual, change in condition, and quarterly) using the CMS assessment instrument described above within 30 days after completion of the instrument. This is the best method for VA to monitor whether adequate care is being provided to residents. Also, it appears that 30 days after completion provides ample time for the submissions to VA.

Current § 51.200 requires State home facilities to meet certain provisions of the National Fire Protection Association's NFPA 101, Life Safety Code (1997 edition) and the NFPA 99, Standard for Health Care Facilities (1996 edition). These documents are incorporated by reference in accordance with the provisions of 5 U.S.C. 552(a) and 1 CFR Part 51. We propose to change the regulations to update these documents to refer to the current editions of the NFPA code and standard. This change will assure that State home facilities meet current industry-wide standards regarding life safety and fire safety. We will again request approval of the incorporation by reference from the Office of the Federal Register.

These materials for which we are seeking incorporation by reference are available for inspection by appointment (call (202) 461-4902 for an appointment) at the Department of Veterans Affairs, Office of Regulation Policy and Management, Room 1063B, 810 Vermont Avenue , NW., Washington, DC 20420 between the hours of 8 a.m. and 4:30 p.m., Monday through Friday (except holidays). They are also available at the National Archives and Records Administration (NARA). For information on the availability of these materials at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html. In addition, copies may be obtained from the National Fire Protection Association, 1 Batterymarch Park. Box 9101, Quincy, MA 02269-9101. (For ordering information, call toll-free 1-800-344-3555.)

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in an expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any given year. This rule will have no such effect on State, local, and tribal governments, or on the private sector.

The Office of Management and Budget (OMB) assigns a control number for each collection of information it approves. Except for emergency approvals under 44 U.S.C. 3507(j), VA may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.

Proposed §§ 51.43, 58.11, 58.13, and 58.18 contain collections of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). These regulations set forth a mechanism for State homes to obtain a per diem as well as drugs and medicines.

The proposed rule at § 51.110 contains a collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). VA has already obtained OMB clearance for the use of Minimum Data Sets (initial, annual, significant change in condition, and quarterly) (OMB control Number xxxxx). However, the proposed rule would require such Minimum Data Sets to be electronically transmitted to VA.

Accordingly, under section 3507(d) of the Act, VA has submitted a copy of this rulemaking action to OMB for its review of the collection of information.

Comments on the collections of information contained in this rule should be submitted to the Office of Management and Budget, Attention: Desk Officer for the Department of Veterans Affairs, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies sent by mail or hand delivery to the Director, Regulations Management (02REG), Department of Veterans Affairs, 810 Vermont Ave., NW, Room 1068, Washington, DC 20420; fax to (202) 273-9026; or e-mail comments through http://www.Regulations.gov. Comments should indicate that they are submitted in response to “RIN 2900-AM97.”

We are requesting comments on the collection of information provisions contained in §§ 51.43, 58.11, 58.13, 58.18, and 51.110. Comments must be submitted by December 29, 2008.

Title: Submission of VA Form 10-10EZR.

Summary of collection of information: Proposed § 51.43 would allow the use of VA Form 10-10EZR instead of VA Form 10-10EZ in appropriate cases.

Description of the need for information and proposed use of information: This information is needed for VA to determine veteran eligibility for per diem.

Description of likely respondents: State homes receiving per diem for providing nursing home care to eligible veterans.

Estimated number of respondents per year: 127.

Estimated frequency of responses per year: 4,000.

Estimated total annual reporting and recordkeeping burden: 1,600 hours.

Estimated annual burden per collection: 24 minutes.

Title: Submission of VA Form 10-5588.

Summary of collection of information: Proposed § 58.11 would revise VA Form 10-5588 for State homes to obtain Federal aid.

Description of the need for information and proposed use of information: This information is needed for VA to determine how much to pay State homes.

Description of likely respondents: State homes receiving per diem for providing nursing home care to eligible veterans.

Estimated number of respondents per year: 124.

Estimated frequency of responses per year: 1,488.

Estimated total annual reporting and recordkeeping burden: 1,488 hours.

Estimated annual burden per collection: 1 hour.

Title: Submission of VA Form 10-10SH.

Summary of collection of information: Proposed § 58.13 would revise VA Form 10-10SH concerning medical certifications required for eligibility for Federal aid.

Description of the need for information and proposed use of information: This information is needed for VA to determine eligibility for paying State homes.

Description of likely respondents: State homes receiving per diem for providing nursing home care to eligible veterans.

Estimated number of respondents per year: 127.

Estimated frequency of responses per year: 5,000.

Estimated total annual reporting and recordkeeping burden: 2,500 hours.

Estimated annual burden per collection: 30 minutes.

Title: Submission of VA Form 10-0460.

Summary of collection of information: Proposed § 58.18 would establish VA Form 10-0460 concerning drugs and medicines for eligible veterans.

Description of the need for information and proposed use of information: This information is needed for VA to determine which veterans are eligible for drugs and medicines.

Description of likely respondents: State homes requesting drugs and medicines for eligible veterans.

Estimated number of respondents per year: 420.

Estimated frequency of responses per year: 420.

Estimated total annual reporting and recordkeeping burden: 105 hours.

Estimated annual burden per collection: 15 minutes.

Title: Submission of assessments.

Summary of collection of information: Proposed § 51.110 contains provisions regarding electronic submission to VA of copies of each assessment using the Centers for Medicare and Medicaid Services (CMS) Resident Assessment Instrument Minimum Data Set, Version 2.0.

Description of the need for information and proposed use of information: This information is needed for VA to monitor whether adequate care is being provided to residents.

Description of likely respondents: State homes receiving per diem for providing nursing home care to eligible veterans.

Estimated number of respondents per year: 119.

Estimated frequency of responses per year: 72,000.

Estimated total annual reporting and recordkeeping burden: 36,000 hours.

Estimated annual burden per collection: 30 minutes.

The Department considers comments by the public on collections of information in—

• Evaluating whether the collections of information are necessary for the proper performance of the functions of the Department, including whether the information will have practical utility;

• Evaluating the accuracy of the Department's estimate of the burden of the collections of information, including the validity of the methodology and assumptions used;

• Enhancing the quality, usefulness, and clarity of the information to be collected; and

• Minimizing the burden of the collections of information on those who are to respond, including responses through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.

VA believes, based upon its many contacts with interested members of the public including the families of veterans in State homes, State veterans' homes and State departments of veterans affairs, and members of Congress, that there is strong interest in implementation of this rule as soon as possible. VA is aware of the many veterans and State nursing homes that will be assisted by the adoption of this rule. In order to implement the legislation and benefit these homes and veterans as quickly as possible, it is very important that VA takes action as soon as practicable. Accordingly, VA has determined that it would not be in the public interest to provide a 60-day comment period for this proposed rule and has instead specified that comments must be received within 30 days of publication in the Federal Register .

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The Executive Order classifies a “significant regulatory action” requiring review by OMB, as any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) create a serious inconsistency or interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of entitlement recipients; (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in Executive Order.

The economic, interagency, budgetary, legal, and policy implications of this proposed rule have been examined and it has been determined to be a significant regulatory action under Executive Order 12866 because it may result in a rule that raises novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The Secretary hereby certifies that this regulatory amendment will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. This rulemaking will affect veterans, State homes, and pharmacies. The State homes that are subject to this rulemaking are State government entities under the control of State governments. All State homes are owned, operated and managed by State governments except for a small number that are operated by entities under contract with State governments. These contractors are not small entities. Also, this rulemaking will have only an insignificant impact on a small number pharmacies that could be considered small entities. Therefore, pursuant to 5 U.S.C. 605(b), this amendment is exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.

The Catalog of Federal Domestic Assistance numbers and titles for the programs affected by this document are 64.005, Grants to States for Construction of State Home Facilities; 64.007, Blind Rehabilitation Centers; 64.008, Veterans Domiciliary Care; 64.009, Veterans Medical Care Benefits; 64.010, Veterans Nursing Home Care; 64.011, Veterans Dental Care; 64.012, Veterans Prescription Service; 64.013, Veterans Prosthetic Appliances; 64.014, Veterans State Domiciliary Care; 64.015, Veterans State Nursing Home Care; 64.016, Veterans State Hospital Care; 64.018, Sharing Specialized Medical Resources; 64.019, Veterans Rehabilitation Alcohol and Drug Dependence; 64.022, Veterans Home Based Primary Care; and 64.026, Veterans State Adult Day Health Care.

For the reasons set forth in the preamble, we propose to amend 38 CFR parts 51 and 58 as follows:

This proposed rule concerns Clean Air Act (CAA) restrictions on the consumption, production, and use of methyl bromide (a Class I, Group VI controlled substance) for critical uses during calendar year 2009. Under the Clean Air Act, methyl bromide consumption (consumption is defined under the CAA as production plus imports minus exports) and production was phased out on January 1, 2005, apart from allowable exemptions, such as the critical use exemption and the quarantine and preshipment exemption. With this action, EPA is proposing and seeking comment on the uses that will qualify for the 2009 critical use exemption as well as specific amounts of methyl bromide that may be produced, imported, or sold from pre-phaseout inventory for proposed critical uses in 2009.

Entities potentially regulated by this proposed action are those associated with the production, import, export, sale, application, and use of methyl bromide covered by an approved critical use exemption. Potentially regulated categories and entities include producers, importers, and exporters of methyl bromide; applicators and distributors of methyl bromide; users of methyl bromide, e.g., farmers of vegetable crops, fruits and nursery stock; owners of stored food commodities and structures such as grain mills and processors; and agricultural researchers.

This list is not intended to be exhaustive, but rather to provide a guide for readers regarding entities likely to be regulated by this proposed action. To determine whether your facility, company, business, or organization could be regulated by this proposed action, you should carefully examine the regulations promulgated at 40 CFR part 82, subpart A. If you have questions regarding the applicability of this action to a particular entity, consult the person listed in the preceding section.

1. Confidential Business Information. Do not submit confidential business information (CBI) to EPA through http://www.regulations.gov or e-mail. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD-ROM that you mail to EPA, mark the outside of the disk or CD-ROM as CBI and then identify electronically within the disk or CD-ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR Part 2.

2. Tips for Preparing Your Comments. When submitting comments, remember to:

• Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date, and page number).

• Follow directions—The agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.

• Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.

• Describe any assumptions and provide any technical information and/or data that you used.

• If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

• Provide specific examples to illustrate your concerns, and suggest alternatives.

• Explain your views as clearly as possible, avoiding the use of profanity or personal threats.

• Make sure to submit your comments by the comment period deadline identified.

Methyl bromide is an odorless, colorless, toxic gas which is used as a broad-spectrum pesticide and is controlled under the CAA as a Class I ozone-depleting substance (ODS). Methyl bromide is used in the U.S. and throughout the world as a fumigant to control a variety of pests such as insects, weeds, rodents, pathogens, and nematodes. Information on methyl bromide can be found at http://www.epa.gov/ozone/mbr and http://www.unep.org/ozone .

Methyl bromide is also regulated by EPA under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) and other statutes and regulatory authority, as well as by States under their own statutes and regulatory authority. Under FIFRA, methyl bromide is a restricted use pesticide. Restricted use pesticides are subject to certain Federal and State requirements governing their sale, distribution, and use. Nothing in this proposed rule implementing the Clean Air Act is intended to derogate from provisions in any other Federal, State, or local laws or regulations governing actions including, but not limited to, the sale, distribution, transfer, and use of methyl bromide. All entities that would be affected by provisions of this proposal must continue to comply with FIFRA and other pertinent statutory and regulatory requirements for pesticides (including, but not limited to, requirements pertaining to restricted use pesticides) when importing, exporting, acquiring, selling, distributing, transferring, or using methyl bromide for critical uses. The regulations in this proposed action are intended only to implement the CAA restrictions on the production, consumption, and use of methyl bromide for critical uses exempted from the phaseout of methyl bromide.

The current regulatory requirements of the stratospheric ozone protection program that limit production and consumption of ozone-depleting substances can be found at 40 CFR part 82, subpart A. The regulatory program was originally published in the Federal Register on August 12, 1988 (53 FR 30566), in response to the 1987 signing and subsequent ratification of the Montreal Protocol on Substances that Deplete the Ozone Layer (Montreal Protocol). The Montreal Protocol is the international agreement aimed at reducing and eliminating the production and consumption of stratospheric ozone-depleting substances. The U.S. was one of the original signatories to the 1987 Montreal Protocol and the U.S. ratified the Protocol on April 12, 1988. Congress then enacted, and President George H.W. Bush signed into law, the Clean Air Act Amendments of 1990 (CAAA of 1990) which included Title VI on Stratospheric Ozone Protection, codified as 42 U.S.C. Chapter 85, Subchapter VI, to ensure that the United States could satisfy its obligations under the Protocol. EPA issued regulations to implement this legislation and has since amended the regulations as needed.

Methyl bromide was added to the Protocol as an ozone-depleting substance in 1992 through the Copenhagen Amendment to the Protocol. The Parties to the Montreal Protocol (Parties) agreed that each industrialized country's level of methyl bromide production and consumption in 1991 should be the baseline for establishing a freeze in the level of methyl bromide production and consumption for industrialized countries. EPA published a final rule in the Federal Register on December 10, 1993 (58 FR 65018), listing methyl bromide as a Class I, Group VI controlled substance, freezing U.S. production and consumption at this 1991 baseline level of 25,528,270 kilograms, and setting forth the percentage of baseline allowances for methyl bromide granted to companies in each control period (each calendar year) until 2001, when the complete phaseout would occur. This phaseout date was established in response to a petition filed in 1991 under sections 602(c)(3) and 606(b) of the CAAA of 1990, requesting that EPA list methyl bromide as a Class I substance and phase out its production and consumption. This date was consistent with section 602(d) of the CAAA of 1990, which for newly listed Class I ozone depleting substances provides that “no extension [of the phaseout schedule in section 604] under this subsection may extend the date for termination of production of any class I substance to a date more than 7 years after January 1 of the year after the year in which the substance is added to the list of class I substances.”

At the Seventh Meeting of the Parties (MOP) in 1995, the Parties made adjustments to the methyl bromide control measures and agreed to reduction steps and a 2010 phaseout date for industrialized countries with exemptions permitted for critical uses. At that time, the U.S. continued to have a 2001 phaseout date in accordance with Section 602(d) of the CAAA of 1990. At the Ninth MOP in 1997, the Parties agreed to further adjustments to the phaseout schedule for methyl bromide in industrialized countries, with reduction steps leading to a 2005 phaseout.

In October 1998, the U.S. Congress amended the CAA to prohibit the termination of production of methyl bromide prior to January 1, 2005, to require EPA to bring the U.S. phaseout of methyl bromide in line with the schedule specified under the Protocol, and to authorize EPA to provide certain exemptions. These amendments were contained in Section 764 of the 1999 Omnibus Consolidated and Emergency Supplemental Appropriations Act (Pub. L. 105-277, October 21, 1998) and were codified in Section 604 of the CAA, 42 U.S.C. 7671c. The amendment that specifically addresses the critical use exemption appears at section 604(d)(6), 42 U.S.C. 7671c(d)(6). EPA revised the phaseout schedule for methyl bromide production and consumption in a direct final rulemaking on November 28, 2000 (65 FR 70795), which allowed for the phased reduction in methyl bromide consumption specified under the Protocol and extended the phaseout to 2005. EPA again amended the regulations to allow for an exemption for quarantine and preshipment (QPS) purposes on July 19, 2001 (66 FR 37751), with an interim final rule and with a final rule on January 2, 2003 (68 FR 238).

On December 23, 2004 (69 FR 76982), EPA published a final rule that established the framework for the critical use exemption; set forth a list of approved critical uses for 2005; and specified the amount of methyl bromide that could be supplied in 2005 from stocks and new production or import to meet the needs of approved critical uses. EPA subsequently published rules applying the critical use exemption framework to the 2006, 2007, and 2008 control periods. Under authority of section 604(d)(6) of the CAA, this action proposes the uses that will qualify as approved critical uses in 2009 and the amount of methyl bromide that may be produced, imported, or supplied from inventory to satisfy those uses.

This proposed action reflects Decision XIX/9, taken at the Nineteenth Meeting of the Parties in September 2007. In accordance with Article 2H(5), the Parties have issued several Decisions pertaining to the critical use exemption. These include Decisions IX/6 and Ex. I/4, which set forth criteria for review of proposed critical uses. The status of Decisions is addressed in NRDC v. EPA , (464 F.3d 1, D.C. Cir. 2006) and in EPA's “Supplemental Brief for the Respondent,” filed in NRDC v. EPA and available in the docket for this action. In this proposed rule, EPA is honoring commitments made by the United States in the Montreal Protocol context.

Starting in 2002, EPA began notifying applicants of the process for obtaining a critical use exemption from the methyl bromide phaseout. The critical use exemption is designed to permit the production and import of methyl bromide for uses that do not have technically and economically feasible alternatives. On May 8, 2003, the Agency published its first notice in the Federal Register (68 FR 24737) announcing the availability of the application for a critical use exemption and the deadline for submission of the requisite data. Applicants were informed that they may apply as individuals or as part of a group of users (a “consortium”) who face the same limiting critical conditions (i.e. specific conditions that establish a critical need for methyl bromide). EPA has repeated this process annually since then.

The criteria for the exemption initially appeared in Decision IX/6. In that Decision, the Parties agreed that “a use of methyl bromide should qualify as ‘critical' only if the nominating Party determines that: (i) The specific use is critical because the lack of availability of methyl bromide for that use would result in a significant market disruption; and (ii) there are no technically and economically feasible alternatives or substitutes available to the user that are acceptable from the standpoint of environment and public health and are suitable to the crops and circumstances of the nomination.” These criteria are reflected in EPA's definition of “critical use” at 40 CFR 82.3.

In response to the annual requests for critical use exemption applications published in the Federal Register , applicants provide data on the technical and economic feasibility of using alternatives to methyl bromide. Applicants also submit data on their use of methyl bromide, on research programs into the use of alternatives to methyl bromide, and on efforts to minimize use and emissions of methyl bromide.

EPA's Office of Pesticide Programs reviews the data submitted by applicants, as well as data from governmental and academic sources, to establish whether there are technically and economically feasible alternatives available for a particular use of methyl bromide and whether there would be a significant market disruption if no exemption were available. In addition, EPA reviews other parameters of the exemption applications such as dosage and emissions minimization techniques and applicants' research or transition plans. This assessment process culminates in the development of a document referred to as the critical use nomination (CUN). The U.S. Department of State submits the CUN annually to the United Nations Environment Programme (UNEP) Ozone Secretariat. The Methyl Bromide Technical Options Committee (MBTOC) and the Technology and Economic Assessment Panel (TEAP), which are independent advisory bodies to Parties to the Montreal Protocol, subsequently review the CUNs of the various countries and make recommendations to the Parties on the nominations. The Parties then take a Decision to authorize a critical use exemption for a particular country. The Decision also identifies how much methyl bromide may be supplied for the exempted critical uses. As required in section 604(d)(6) of the Clean Air Act, for each exemption period, EPA consults with the United States Department of Agriculture and other departments and institutions of the Federal government that have regulatory authority related to methyl bromide, and provides an opportunity for public comment on the amounts of methyl bromide that the Agency has determined to be necessary for critical uses and the uses that the Agency has determined meet the criteria of the critical use exemption.

More on the domestic review process and methodology employed by the Office of Pesticide Programs is available in a detailed memorandum titled “Development of 2003 Nomination for a Critical Use Exemption for Methyl Bromide for the United States of America,” contained in the docket for this rulemaking. While the particulars of the data continue to evolve and administrative matters are further streamlined, the technical review itself remains rigorous with careful consideration of new technical and economic conditions.

On December 22, 2006, the U.S. Government (USG) submitted the fifth Nomination for a Critical Use Exemption for Methyl Bromide for the United States of America to the Ozone Secretariat of the UNEP. This fifth nomination contained the request for 2009 critical uses. In February 2007, MBTOC sent questions to the USG concerning technical and economic issues in the 2009 nomination. The USG transmitted preliminary responses to MBTOC on March 13, 2007. The USG received a second round of questions from MBTOC and submitted responses to those questions in May, 2007. These documents, together with reports by the advisory bodies noted above, are in the public docket for this rulemaking. The determination in this proposed rule reflects the analysis contained in those documents.

The December 23, 2004, Framework Rule (69 FR 76982) established the operational framework for the critical use exemption program in the U.S., including definitions, prohibitions, trading provisions, and recordkeeping and reporting obligations. The preamble to the Framework Rule included EPA's determinations on key issues for the critical use exemption program.

Since publishing the Framework Rule, EPA has annually promulgated regulations to exempt from the phaseout of methyl bromide specific quantities of production and import for each control period (each calendar year) and to indicate which uses meet the criteria for the exemption program for that year. See 71 FR 5985 (calendar year 2006), 71 FR 75386 (calendar year 2007), and 72 FR 74118 (calendar year 2008).

Today's action proposes the uses that would qualify as critical uses for 2009 and the amounts of Critical Use Allowances (CUAs) and Critical Stock Allowances (CSAs) to be allocated for those uses. The uses that EPA is proposing to qualify as 2009 critical uses are the uses which the USG included in the fifth CUN, and which were approved by the Parties in Decision XIX/9. EPA is not proposing to modify the Framework Rule or the basic elements of the refined approach to determining the level of available stocks finalized in the 2008 CUE rule published on December 28, 2007.

In Decision XIX/9, taken in September 2007, the Parties to the Protocol agreed “to permit, for the agreed critical use categories for 2009, set forth in table C of the annex to the present decision for each Party, subject to the conditions set forth in the present decision and decision Ex.I/4 to the extent that those conditions are applicable, the levels of production and consumption for 2009 set forth in table D of the annex to the present decision which are necessary to satisfy critical uses * * *.”

The following uses are those set forth in table C of the annex to Decision XIX/9: Commodities, NPMA food processing structures (cocoa beans removed), 1 Mills and processors, Dried cured pork, Cucurbits, Eggplant—field, Forest nursery seedlings, Nursery stock—fruit, nut, flower, Orchard replant, Ornamentals, Peppers—field, Strawberry—field, Strawberry runners, Tomatoes—field, Sweet potato slips. The agreed critical use levels for 2009 total 4,261,974 kilograms (kg), which is equivalent to 16.7% of the U.S. 1991 methyl bromide consumption baseline of 25,528,270 kg. However, the maximum amount of allowable new production and import as set forth in table D of Decision XIX/9 is 3,961,974 kg (15.5% of baseline), minus available stocks. For the reasons described in section V.D of this preamble, EPA is proposing to allow limited amounts of new production or import of methyl bromide for critical uses for 2009 up to the amount of 1,617,921 kg (6.3% of baseline), with 2,576,987 kg (10.1% of baseline) coming from pre-phaseout inventory (i.e., stocks).

In this proposed rule, EPA is proposing to modify 40 CFR part 82, subpart A, appendix L to reflect the agreed critical use categories identified in Decision XIX/9 for the 2009 control period (calendar year). The Agency is proposing to amend the table of critical uses based, in part, on the technical analysis contained in the 2009 U.S. nomination that assesses data submitted by applicants to the critical use exemption program as well as public and proprietary data on the use of methyl bromide and its alternatives. EPA is seeking comment on the technical analysis (which is provided in the docket) and seeks information regarding changes to the registration or use of alternatives that may have transpired after the 2009 U.S. nomination was written. Such information has the potential to alter the technical or economic feasibility of an alternative and could thus cause EPA to modify the analysis that underpins EPA's determination as to which uses and what amounts of methyl bromide qualify for the critical use exemption. EPA notes that while the Agency may, in response to comments, reduce the proposed quantities of critical use methyl bromide, or decide not to approve uses authorized by the Parties, the Agency does not intend to increase the quantities or add new uses in the final rule beyond those authorized by the Parties. Therefore, if there has been a change in registration of an alternative that results in that alternative no longer being available to a particular use, EPA does not intend to add uses or amounts of methyl bromide beyond those identified here to appendix L as part of this rulemaking. Under such circumstances, the user should apply to EPA, requesting that the U.S. nominate its use for a critical use exemption in the future. Based on the information described above, EPA is proposing that the uses in Table I: Approved Critical Uses, with the limiting critical conditions specified, qualify to obtain and use critical use methyl bromide in 2009.

EPA is proposing to amend the table in 40 CFR part 82, subpart A, appendix L, as reflected above. Specifically, changes made to the table include: Adding cucurbits grown in Maryland and Delaware as a critical use under the limiting critical conditions listed in the table; moving herbaceous perennials grown in Michigan from forest nursery seedlings to ornamentals; adding “restrictions on alternatives due to karst topographical features and soils not supporting seepage irrigation” as a limiting critical condition for Georgia grown peppers; adding tomatoes grown in Maryland as a critical use under the limiting critical conditions listed in the table; adding “export to countries which do not allow the use of sulfuryl fluoride” as a limiting critical condition for commodities; and revising the description of NPMA to remove cocoa beans.

In addition, EPA is proposing editorial changes to Table I to remove redundancy and ensure that the limiting critical conditions are described uniformly throughout. For example, within a critical use, all critical users with the same limiting critical conditions are to be consolidated into the same row. EPA also proposes to move clarifying information from the table to the preamble to improve readability. Therefore, EPA clarifies here that the “local township limits prohibiting 1,3-dichloropropene” are prohibitions on the use of 1,3-dichloropropene products because local township limits on use of this alternative have been reached. In addition, “pet food” under subsection B of Food Processing refers to domestic dog and cat food. Finally, “rapid fumigation” for commodities is when a buyer provides short (two working days or fewer) notification for a purchase or there is a short period after harvest in which to fumigate and there is limited silo availability for using alternatives. EPA does not intend for these edits to change the effect of any of the limiting critical conditions, the approved critical user, location of use, or any other aspect of the table.

Since the critical use exemption was first established, many critical users have transitioned to alternatives and a variety of sectors that were once critical uses no longer are. These uses include ginger, golf courses and turf production, tobacco, cocoa beans, and pistachios.

The categories listed in Table I above have been designated critical uses for 2009 in Decision XIX/9 of the Parties. The amount of methyl bromide approved for research purposes is included in the amount of methyl bromide approved by the Parties for the commodities for which “research purposes” is indicated as a limiting critical condition in the table above. As explained in Section V.D.5., EPA is proposing to issue CSAs to allow the sale of 22,171 kg of methyl bromide from existing stocks for research purposes.

In accordance with Decision XIX/9, available on the docket for this rulemaking, EPA is proposing that the following sectors be allowed to use critical use methyl bromide for research purposes: Commodities, cucurbits, eggplant (field), nursery stock (fruit, nut, flower), orchard replant, ornamentals, peppers (field), strawberry (field), strawberry runners, sweet potato slips, and tomatoes (field). As discussed below, EPA allows the use of newly produced methyl bromide for research purposes but encourages researchers to use pre-phaseout inventory. In their applications to EPA, these sectors identified research programs that require the use of methyl bromide.

Section V.C. of this preamble explains that Table C of the annex to Decision XIX/9 lists critical uses and amounts agreed to by the Parties to the Montreal Protocol. When added together, the authorized critical use amounts for 2009 total 4,261,974 kilograms (kg), which is equivalent to 16.7% of the U.S. 1991 methyl bromide consumption baseline of 25,528,270 kg as defined at 40 CFR 82.3. However, the maximum amount of authorized new production or import as set forth in Table D of the annex to Decision XIX/9 is 3,961,974 kg (15.5% of baseline).

EPA is proposing to exempt limited amounts of new production and import of methyl bromide for critical uses for 2009 in the amount of 1,617,921 kg (6.3% of baseline) as shown in Table II. EPA is also proposing to allow sale of 2,576,987 kg (10.1% of baseline) of existing inventories for critical uses in 2009. EPA is seeking comment on the proposed total levels of exempted new production and import for critical uses and the amount of material that may be sold from stocks for critical uses. The sub-sections below explain EPA's reasons for proposing the above critical use amounts for 2009.

The December 23, 2004, Framework Rule and subsequent CUE rules each took note of language regarding stocks of methyl bromide in relevant decisions of the Parties. In developing this proposed action, the Agency notes that paragraph seven of Decision XIX/9 contains the following language: “That each Party which has an agreed critical use renews its commitment to ensure that the criteria in paragraph 1 of decision IX/6 are applied when licensing, permitting or authorizing critical use of methyl bromide and, in particular, the criterion laid down in paragraph 1(b)(ii) of decision IX/6.”

In the Framework Rule, which established the architecture of the CUE program and set out the exempted levels of critical use for 2005, EPA interpreted paragraph 5 of Decision Ex. I/3, which is similar to Decision XIX/9(7), “as meaning that the U.S. should not authorize critical use exemptions without including provisions addressing drawdown from stocks for critical uses” (69 FR 76987). Consistent with that interpretation, the Framework Rule (69 FR 52366) established provisions governing the sale of pre-phaseout inventories for critical uses, including the concept of CSAs and a prohibition on the sale of pre-phaseout inventories for critical uses in excess of the amount of CSAs held by the seller. In addition, EPA noted that pre-phaseout inventories were further taken into account through the trading provisions that allow CUAs to be converted into CSAs. EPA is not proposing changes to these basic CSA provisions for calendar year 2009.

Paragraph 5 of Decision XIX/9 further addresses pre-phaseout inventory of methyl bromide. The Decision states “that a Party with a critical use exemption level in excess of permitted levels of production and consumption for critical uses is to make up any such differences between those levels by using quantities of methyl bromide from stocks that the Party has recognized to be available.” In the August 25, 2004, proposed Framework Rule (69 FR 52366), EPA proposed to adjust the authorized level of new production and consumption for critical uses by the amount of “available stocks.” The methodology for determining the amount of available stocks considered exports, methyl bromide for feedstock uses, and the need for a buffer in case of catastrophic events. However, the final Framework Rule did not adopt the proposed methodology for determining available stocks. Instead, EPA issued CSAs in an amount equal to the difference between the total authorized CUE amount and the amount of new production or import authorized by the Parties (Total Authorized CUE Amount−Authorized New Production and Import).

In the 2006, 2007, and 2008 CUE Rules, EPA issued a number of CSAs that represented not only the difference between the total authorized CUE amount and the amount of authorized new production and import but also an additional amount. In the 2006 CUE Rule, EPA issued a total of 1,136,008 CSAs, equivalent to 4.4% of baseline. For that control period, the difference in the Parties' decision between the total CUE amount and the amount of new production and import was 3.6% of baseline. In the 2007 rule, EPA added to the minimum amount (6.3% of baseline) an additional amount (1.2% of baseline) for a total of 1,914,600 CSAs (7.5% of baseline). In the 2008 rule, EPA added to the minimum amount (3.0% of baseline) an additional amount (3.8% of baseline) for a total of 1,729,689 CSAs (6.8% of baseline). Due to allocating additional CSAs, EPA reduced the portion of CUE methyl bromide to come from new production and import in each of the 2006-2008 control periods such that the total amount of methyl bromide exempted for critical uses did not exceed the total amount authorized by the Parties for that year.

As established in these earlier rulemakings, EPA views the allocation of additional CSA amounts as an appropriate exercise of its discretion. The Agency is not required to allocate the full amount of authorized new production and consumption. The Parties agreed to “permit” a particular level of production and consumption; they did not—and could not—mandate that the U.S. authorize this level of production and consumption domestically. Nor does the CAA require EPA to exempt the full amount permitted by the Parties. Section 604(d)(6) of the Clean Air Act (CAA) does not require EPA to exempt any amount of production and consumption for critical uses, but instead specifies that the Agency “may” exempt amounts for production, importation, and consumption, thus providing EPA with substantial discretion in creating critical use exemptions.

Prior to determining the CSA amount for a particular year, EPA considers what portion of “existing” stocks is “available” for critical uses. As discussed in the 2008 rulemaking, the Parties to the Protocol recognized in their Decisions that the level of existing stocks may differ from the level of available stocks. For example, Decision IX/6 states that “production and consumption, if any, of methyl bromide for critical uses should be permitted only if * * * methyl bromide is not available in sufficient quantity and quality from existing stocks.” In addition, Decision XIX/9, as well as earlier decisions, refers to use of “quantities of methyl bromide from stocks that the Party has recognized to be available.” Thus, it is clear that individual Parties have the ability to determine their level of available stocks. Decision XIX/9 further reinforces this concept by including the phrase “minus available stocks” as a footnote to the United States' authorized level of production and consumption in Table D. Section 604(d)(6) of the Clean Air Act does not require that EPA adjust the amount of new production and import to reflect the availability of stocks: however, as explained in previous rulemakings, making such an adjustment is a reasonable exercise of EPA's discretion under this provision. In this action, EPA is not proposing to change its practice of adjusting the level of new production and import authorized by the Parties to reflect the availability of stocks.

EPA introduced in the 2008 CUE rule a refined approach for determining the amount of existing methyl bromide stocks that is available for critical uses. (72 FR 74118). That approach involves the concept of a “Supply Chain Factor” (SCF). The SCF represents EPA's technical estimate of the amount of methyl bromide inventory that would be adequate to meet a need for critical use methyl bromide after an unforeseen domestic production failure. The SCF appears in the formula finalized in the 2008 CUE rule for calculating the available stocks. That formula was expressed as AS = ES − D − SCF, where AS = available stocks; ES = existing pre-phaseout stocks of methyl bromide held in the United States by producers, importers, and distributors; and D = estimated drawdown of existing stocks. In the 2008 rulemaking, EPA stated that it would use the refined approach in 2008 and each year thereafter as appropriate and feasible (72 FR 14134). EPA is not proposing any changes to the concept of a “Supply Chain Factor” or to the formula finalized in the 2008 CUE rule for calculating the available stocks. EPA finds that this approach continues to be appropriate and feasible, as it is the most reasonable, efficient, and transparent way for the Agency to continue to facilitate responsible management of the pre-phaseout inventory. Therefore the Agency intends to use the same basic SCF approach in its calculation of how much sale of existing stocks and how much production and import to allow for critical uses in 2009. The Agency plans, however, to use more current data as inputs to some of the underlying calculations, and is proposing to adopt a new statistical model for projecting future inventory of pre-2005 methyl bromide.

In this action, EPA intends to adjust the authorized level of new production and consumption for critical uses to account for the amount of existing pre-phaseout inventory that is “available” for critical uses. EPA proposes to calculate the amount of existing stocks that is available for critical uses in 2009 based on the Supply Chain Factor and formula introduced in the 2008 CUE final rule (72 FR 74118). EPA will allow sales of the amount of existing pre-phaseout inventory that the Agency has determined to be available for critical uses by issuing an equivalent number of CSAs on a one-CSA-per-one-kilogram-of-methyl-bromide basis.

As described in the 2008 CUE Rule, EPA calculates the amount of available stocks as follows: AS 2009 = ES 2008 − D 2008 − SCF 2009 , where AS 2009 is the available stocks on January 1, 2009; ES 2008 is the existing pre-phaseout stocks of methyl bromide held in the United States by producers, importers, and distributors on January 1, 2008; D 2008 is the estimated drawdown of existing stocks during calendar year 2008; and SCF 2009 is the supply chain factor for 2009. Using the above method, EPA calculates that 2,576,987 kg (10.1% of baseline) of existing pre-phaseout stocks of methyl bromide will be “available” for critical uses on January 1, 2009. This calculation uses EPA's preferred approach to estimating the 2008 drawdown, as discussed in more detail below. If EPA were to estimate the 2008 drawdown using the approach taken in the 2008 CUE rule, the calculated amount of available stocks would be 777 MT (3% of baseline). For the reasons described below, EPA prefers the approach it is proposing in today's action. EPA, however, seeks comment on the amount of the pre-phaseout stock that it estimates will be available for critical uses on January 1, 2009.

In the above formula, “ES 2008 ” refers to pre-phaseout inventory—i.e., existing stocks of methyl bromide that was produced before January 1, 2005, and that is still held by domestic producers, distributors, and third-party applicators. January 1, 2005, was the phaseout date for production and import of methyl bromide in the United States. ES 2008 does not include critical use methyl bromide that was produced after January 1, 2005, and carried over into subsequent years. EPA addresses the carryover amount in section V.D.4 of this preamble. In the 2007 and 2008 CUE rules, EPA deducted the amount carried over into a new control period from the amount of allowable new production for the control periods in question. In this 2009 CUE proposed rule, EPA proposes to maintain the carry over deduction. “ES 2008 ” also does not include methyl bromide produced (1) under the quarantine and preshipment (QPS) exemption, (2) with Article 5 allowances to meet the basic domestic needs of Article 5 countries, or (3) for feedstock or transformation purposes. Methyl bromide produced for QPS uses or for export to Article 5 countries may not be sold to domestic entities for critical uses and, therefore, is separate from the CUE program. Thus, such amounts have been removed from the calculation of the amount of “available stocks” for critical uses. EPA also considers all pre-phaseout inventory to be suitable for both pre-plant and post harvest uses. Despite prior requests, EPA has received no data that show that pre-phaseout inventory is mixed with chloropicrin and is unsuitable for post-harvest uses. Unless the Agency receives evidence otherwise, it will assume all pre-2005 inventory is suitable for all uses. Similarly, EPA considers inventory methyl bromide to be available to users in California and the Southeastern United States. EPA bases this conclusion on the geographic distribution of the companies that are granted CSAs (See Table III). EPA welcomes comments on the availability of pre-phaseout inventory based on geography.

EPA's method for determining the amount of available stocks for critical uses includes a supply chain factor which for 2009 can be expressed as “SCF 2009 .” The supply chain factor represents EPA's technical estimate of the amount of pre-phaseout inventory that would be adequate to meet a need for critical use methyl bromide after an unforeseen domestic production failure. For 2009, EPA proposes to use a supply chain factor equal to 2,352,013 kg in the Agency's calculation of the amount of available stocks. Consistent with the 2008 CUE rule, EPA is proposing a conservative estimate of the supply chain factor that considers a supply disruption during the estimated peak 15-week period of critical use supply. As described in the 2008 CUE rule, EPA estimates that in the event of a major supply disruption, it would take 15 weeks for significant imports of methyl bromide to reach the U.S. Using updated numbers on average production during each quarter of the year, EPA estimates that critical use production in the first 15 weeks of each year (the peak supply period) accounts for 55% of annual critical use methyl bromide production. EPA, therefore, estimates that the peak 15-week shortfall in 2009 could be 2,352,013 kg (55.186% × 4,261,974 kg).

As EPA stated in the 2008 CUE Rule, the supply chain factor is not a “reserve” or “strategic inventory” of methyl bromide. Rather, it is merely an analytical tool used to provide greater transparency regarding how the Agency determines CSA amounts. For further general discussion of the supply chain factor, see the final 2008 CUE rule (72 FR 74118). Further detail about the analysis used to derive the value for the 2009 supply chain factor is provided in the Technical Support Document available on the public docket for this rulemaking.

In the 2008 CUE rule, EPA estimated the drawdown of existing stocks, the D 2008 term in the above equation, by using a simple linear fit estimation of inventory data from all available years. In this action, EPA proposes not to estimate drawdown using a linear fit projection as done last year but instead use an exponential projection for 2008. EPA invites comment on both methods of estimating the 2008 drawdown as well as on any alternative method of estimating drawdown.

EPA's projections are based on fitting either an exponential curve (the agency's preferred approach for this rulemaking) or a linear curve (the agency's approach finalized last year) to reported annual data on pre-phaseout inventory. Given the small sample size (5 data observations), the reader should be cautious about drawing inferences. However, the Agency believes, combined with other information, the exponential curve approach may present a more reasonable approach to projecting the drawdown of pre-phaseout inventory.

EPA is proposing to estimate the drawdown of inventory in 2008 based on an exponential projection. Using this method, EPA projects that the pre-phaseout methyl bromide inventory, which was 6,457,806 kg on January 1, 2008, will be drawn down by 1,528,806 kg during 2008. This will result in a pre-phaseout inventory of 4,929,000 kg on January 1, 2009. EPA's proposed methodology for estimating the inventory drawdown is described in more detail in the Technical Support Document available on the public docket for this rulemaking.

When EPA looks at the market conditions that could affect the drawdown of inventory, EPA believes that the exponential estimate (1,529 MT) provides a more reasonable reflection of market conditions than the linear estimate (3,329 MT). The exponential estimate closely matches the drawdown in 2007, which was 1,213 MT whereas the linear estimate most closely matches the drawdown in 2004, which was 3,428 MT and the highest drawdown in EPA's data set. EPA believes that the market conditions in 2008 are different enough from those in 2004 that the rate of drawdown during 2008 will be more like the rate of drawdown of 2007 than 2004. First, the Critical Use Exemption process did not exist in 2004, as that was the last year of the methyl bromide phaseout. EPA believes that the economics and use patterns pre-phaseout are different than conditions after the phaseout. Second, at the beginning of 2004, the inventory was 16,422 MT, a substantially higher amount than the estimated inventory at the end of 2008, regardless of the drawdown estimate used. Third, the price of methyl bromide has increased roughly 30-50% since 2004. Therefore, today growers face stronger economic incentive to use alternatives and reduce application rates than they did in 2004. Fourth, more alternatives are available, including sulfuryl fluoride and iodomethane, reducing the total demand for methyl bromide. Fifth, sales data reported to EPA show that less of the inventory was used for non-critical uses in 2007 than 2006. In 2006, 1,519 MT of pre-phaseout inventory was for non-critical uses, whereas in 2007, this dropped to 291 MT.

EPA also considered estimating the drawdown of inventoried methyl bromide using the simple linear fit that EPA has used in all of the previous CUE rules. Under the linear estimate, the drawdown in 2008 would be 3,329 MT. Using the equation discussed above, AS 2009 = ES 2008 −D 2008 −SCF 2009 , “Available Stocks 2009” under the linear method would be 777 MT. Therefore the CSA amount would be 777 MT, or 3.0% of baseline. Using the same calculation summarized in Section V.D.7, new production would be 3,418 MT, or 13.4% of baseline. This value falls below the 15.5% of baseline authorized by the Parties in Decision XIX/9. This amount of new production is greater than the level allocated in the 2008 CUE Rule, which was 3,084 MT, or 12.1% of baseline. EPA welcomes comment on the linear approach and its potential outcomes for the values of new production and CSAs.

The goal of EPA's methodology for the CSA allocation is to allocate CSAs equal to “available stocks” such that the private sector has the flexibility to retain in inventory the amount needed in case of a catastrophic supply chain failure (the Supply Chain Factor). As the Agency stated in the 2008 CUE Rule and in Section V.D.3 below, once the inventory declines below the SCF level, the Agency will not require any additional drawdown of stocks beyond what is required by the Parties to the Protocol.

EPA invites comment on both the linear and exponential methods of estimating 2008 drawdown. EPA also welcomes comment on any alternative method of estimating drawdown as well as the market conditions affecting the decline in inventory use. Most helpful to the Agency in determining the drawdown in 2008 is not an evaluation of statistical methods but data on whether inventory during 2008 is being depleted at rates similar to 2007 or whether it is being depleted faster than that.

EPA estimates that, as of January 1, 2009, 2,576,987 kg of pre-phaseout inventory will meet the definition of “available stocks” as calculated using the approach described in Section V.D.2. of this preamble. Based on these calculated figures and the allocation approach described in this section, and after making reductions for carry over and research amounts as explained in sections V.D.4. and V.D.5. of this preamble, EPA proposes to allocate critical use allowances (CUAs) permitting 1,617,921 kg of new methyl bromide production and import for critical uses in 2009, and to allow sale of 2,576,987 kg from existing stocks for critical uses by allocating an equivalent number of critical stock allowances (CSAs). EPA seeks comment on the amount of CUAs and CSAs that the Agency is proposing to distribute in 2009.

In this action, EPA is proposing to allocate CSAs in an amount equal to the estimated number of kilograms of available stocks on January 1, 2009. As in past years, EPA intends to allocate a total number of CUAs such that the total number of CUAs and CSAs is not greater than the total critical use amount authorized by the Parties for the year in question. To account for carry over amounts of methyl bromide, amounts for research purposes, or for other appropriate reasons, including updated information on alternatives, EPA may allocate a total number of CUAs and CSAs that is less than the total critical use amount authorized by the Parties for the year in question. As in previous CUE rules, because the proposed amount is less than the total amount authorized by the Parties, the Agency seeks comment on the reasons for, and amounts of, each reduction.

EPA recognizes that in a future CUE allocation rule proposal, the Agency could estimate, using the method described in Section V.D.2., that the amount of available stocks at the beginning of a future year is less than the difference between the total critical use amount authorized by the Parties and the amount of new production and imports authorized by the Parties for the year in question. This scenario can be described with the following inequality: Available Stocks < (Total CUE Amount Authorized−New Production and Imports Authorized). Under the approach introduced in the 2008 CUE rule, in such a case EPA would propose to allow the maximum amount of new production and imports authorized by the Parties, minus any reductions as described above and finalized in the 2008 CUE Rule. EPA would also allow critical users to access a limited amount of existing stocks by allocating a number of CSAs equal to the difference between the total CUE amount authorized by the Parties and the amount of new production and imports authorized for the year in question (CSA = Total CUE Amount Authorized−New Production and Imports Authorized), again minus any reductions as discussed here. EPA will continue to collect inventory data and make critical use allocations on an annual basis. Similarly, unless the Parties approve multi-year critical use exemptions, EPA intends to continue to calculate the amount of available stocks on an annual basis and to explain those calculations in the annual CUE allocation rulemaking process.

As described in the December 23, 2004, Framework Rule (69 FR 76997), EPA is not permitting entities to build stocks of methyl bromide produced or imported after January 1, 2005, under the critical use exemption. Under the current regulations, quantities of methyl bromide produced, imported, exported, or sold to end-users under the critical use exemption in a calendar year must be reported to EPA the following year. These reporting requirements appear at 40 CFR 82.13(f)(3), 82.13(g)(4), 82.13(h)(1), 82.13(bb)(2), and 82.13(cc)(2). EPA uses the reported information to calculate the amount of methyl bromide produced or imported under the critical use exemption, but not exported or sold to end-users in that year. An amount equivalent to this “carry over,” whether pre-plant or post-harvest, is then deducted from the total level of allowable new production and import in the year following the year of the data report. For example, the amount of carry over from 2005, which was reported in 2006, was deducted from the allowable amount of production or import for critical uses in 2007. As discussed in section V.D.2., carry over material is not included in EPA's definition of existing stocks (ES) as it applies to the proposed formula for determining the amount of available stocks (AS). EPA is not including carry over amounts as part of ES, because doing so could lead to a double-counting of carry over amounts, and thus a double reduction of critical use allowances (CUAs).

In 2008, 57 entities reported information to EPA under the reporting requirements at 40 CFR 82.13 about critical use methyl bromide production, imports, exports, sales and/or inventory holdings in 2007. 4,314,150 kg of critical use methyl bromide was acquired through production or import in 2007. The information reported to EPA indicates that 4,269,255 kg of critical use methyl bromide was exported or sold to end-users in 2007. EPA calculates that the carry over amount at the end of 2007 was 44,895 kg, which is the difference between the reported amount of critical use methyl bromide acquired in 2007 and the reported amount of exports or sales of that material to end users in 2007 (4,314,150 kg−4,269,255 kg = 44,895 kg). EPA's calculation of the amount of carry over at the end of 2007 is consistent with the method used in the final 2008 CUE Rule, and with the method agreed to by the Parties in Decision XVI/6, which established the Accounting Framework for critical use methyl bromide, for calculating column L of the U.S. Accounting Framework. The 2007 U.S. Accounting Framework is available in the public docket for this rulemaking.

As a result of stakeholder concerns regarding the completeness of reporting and in response to public comment, EPA stated in the 2008 CUE Rule (72 FR 74137) that:

On January 31, 2008, EPA sent letters to all producers, distributors, and third-party applicators of critical use methyl bromide that it was aware of asking for “the name and address of each non-end user entity (i.e. distributors of methyl bromide and third-party applicators of methyl bromide) to which your company sold critical use methyl bromide during calendar year 2007.” As a result, EPA received contact information for distributors and third-party applicators that had never reported sales data to EPA as well as actual sales reports from some of those new entities. On March 11, 2008, the Agency sent a follow-up letter to the previously unknown entities that had not reported sales data for 2007 and reminded them of their reporting obligations under 40 CFR 82.13. The Agency has received 18 responses from previously unknown entities satisfying the required annual reporting requirements. The Agency is considering options to pursue the remaining unreported data. EPA may take into account additional reports received within a reasonable time in calculating the carry over amount for the final 2009 rule.

In previous CUE rules, EPA has used the approach described in the Framework Rule for implementing carry over reductions. Consistent with that approach, EPA is proposing to reduce the total level of new production and import for critical uses by 44,895 kg to reflect the total level of carry over material in existence at the end of 2007. After applying this reduction to the total volumes of allowable new production or import, EPA pro-rated CUAs to each company based on their 1991 baseline market share.

EPA continues to seek comment on ways to improve the completeness of data reporting by affected companies. It is important for stakeholders to recognize that the process for calculating the amount of carry over CUE material each year relies on sales to end-user data reported to EPA by distributors and applicators.

As in the 2008 CUE rule, EPA is proposing to encourage research needs to be met through the sale of inventory by deducting the amount needed for research from the overall critical use production level and issuing additional CSAs in that amount.

The use of methyl bromide under the critical use exemption for research is distinct from the use of methyl bromide under the laboratory and analytical use exemption. Decision XVIII/15(1) authorizes “the production and consumption of [methyl bromide] necessary to satisfy laboratory and analytical critical uses.” Paragraph 2 of that Decision states that methyl bromide produced under the exemption for laboratory and analytical uses may be used as a reference or standard; in laboratory toxicology studies; to compare the efficacy of methyl bromide and its alternatives inside a laboratory; and as a laboratory agent which is destroyed in a chemical reaction in the manner of feedstock. On December 27, 2007, EPA promulgated regulations implementing the exemption authorized in Decision XVIII/15 (72 FR 73264).

There continues to be a need for methyl bromide for research purposes that do not meet the criteria for laboratory and analytical uses, as defined in Decision XVIII/15. A common example is an outdoor field experiment that requires methyl bromide as a standard control treatment with which to compare the trial alternatives' results. The critical use sectors that were approved by the Parties to use methyl bromide for research purposes in 2009 are listed in Section V.C. and have “research purposes” listed in their limiting critical conditions in Table I of this preamble.

In this action, EPA is proposing to allow sale of 22,171 kg of existing stocks for research purposes in 2009 to account for the amount authorized for those purposes. EPA proposes to allow methyl bromide sale from stocks for exempted research purposes by expending CSAs. An explanation of what amounts of methyl bromide and of what sectors qualify for research purposes can be found in Section V.C. of this preamble. If EPA adopts this proposal, the Agency will continue to encourage methyl bromide suppliers to sell inventory to researchers and to encourage researchers to purchase inventory for research purposes. EPA seeks comment on its proposal to issue CSAs for sale of methyl bromide stocks for exempted research purposes.

In the 2006 CUE Rule (71 FR 5985), EPA allocated less methyl bromide for critical uses than was authorized by the Parties in order to account for the recent registration of sulfuryl fluoride. The allocation reductions in that rule reflected transition rates that were included for the first time in the 2007 U.S. Critical Use Nomination (CUN). In the 2008 CUE Rule (72 FR 74139), EPA explained that the transition rates had already been applied as part of the international review process for that year, and therefore it was not necessary to apply them as part of the Agency's domestic rulemaking. EPA did, however, reduce the total volume of critical use methyl bromide in the final CUE rule for 2008 by 27,769 kg to account for new data indicating the uptake of two alternatives, sulfuryl fluoride and iodomethane.

For 2009, EPA is not proposing to make any further reductions in post-harvest or pre-plant critical use allowances to account for the uptake of sulfuryl fluoride or any other pre-plant or post-harvest alternative with the exception of iodomethane, which is discussed below. In the 2009 CUN the Agency applied transition rates for all critical use sectors. The TEAP report of August 2007 included reductions in its recommendations for critical use categories based on the transition rates in the 2009 CUN. The TEAP's recommendations were then considered in the Parties' 2009 authorization amounts, as listed in Decision XIX/9. Therefore, transition rates, which account for the uptake of alternatives, have already been applied for authorized 2009 critical use amounts.

Furthermore, the 2010 CUN, which represents the most recent analysis and the best available data for methyl bromide alternatives, does not conclude that transition rates should be increased for 2009. As the 2010 CUN reflects, the United States Government has not found new information that supports changing the 2009 transition rates included in the 2009 CUN and applied by MBTOC. EPA continues to gather information about methyl bromide alternatives through the CUE application process, and by other means.

Finally, although the Agency intends for the final rule to account for use of iodomethane in the 2009 control period, this proposed rule does not include a specific reduction to account for that use. Because EPA initially registered iodomethane on a time-limited basis, which was to expire in October 2008, EPA did not nominate its use as an alternative to the TEAP. Thus EPA did not make any reductions in the 2009 or 2010 CUNs to account for iodomethane uptake. On October 2, 2008, EPA renewed the registration of iodomethane. The Agency will account for any potential market uptake of iodomethane in the final rule given that the alternative's registration status has changed. The amount of market uptake will also depend on how many and which States have registered iodomethane for use. Iodomethane is currently registered for use in 47 states, including Florida. EPA requests comment on the amount of estimated market uptake of iodomethane to include in the final rule. For reference, the estimated market uptake for iodomethane in the 2008 rule was 14,472 kg. At that time, 14 states, which did not include Florida, had registered iodomethane for use.

EPA seeks comment on its proposal not to make further reductions in 2009 to account for the uptake of methyl bromide alternatives other than iodomethane, because the Agency has already accounted for these other alternatives' transition rates. EPA continues to support research and adoption of methyl bromide alternatives, and to request information about the economic and technical feasibility of all existing and potential alternatives.

The calculations described above for determining the level of new production and critical stock allowances are summarized in the table below: