[Federal Register Volume 59, Number 80 (Tuesday, April 26, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10041]
[[Page Unknown]]
[Federal Register: April 26, 1994]
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DEPARTMENT OF THE TREASURY
Bureau of Alcohol, Tobacco and Firearms
27 CFR Parts 6, 8, 10 and 11
[Notice No. 794]
RIN 1512-AB10
Unfair Trade Practices Under the Federal Alcohol Administration
Act (93F-003P)
AGENCY: Bureau of Alcohol, Tobacco and Firearms (ATF), Department of
the Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: ATF is proposing to amend trade practice regulations under the
Federal Alcohol Administration (FAA) Act on tied-house, exclusive
outlets, commercial bribery, and consignment sales by adding standards
for enforcing the ``exclusion'' element where appropriate and by
revising other regulations as the result of an agency review and an
industry petition. Under the FAA Act, ``exclusion, in whole or in part,
of distilled spirits, wine, or malt beverages, sold or offered for sale
by other persons'' is a necessary element of a violation of the tied-
house, exclusive outlets or commercial bribery provisions. Recent court
rulings have raised questions concerning ATF's traditional
interpretation of the term ``exclusion''. ATF intends to use rulemaking
to (1) promulgate a framework for establishing ``exclusion,'' (2)
identify promotional practices which result in retailer control, (3)
identify promotional practices which result in exclusion under the Act,
and (4) identify those practices for which there is no likelihood that
exclusion will result and for which the Bureau will not take action
(safe harbors). Other regulatory amendments are also made as a result
of an ATF review of the regulations and an industry petition submitted
in 1992.
DATES: Written comments must be received by June 27, 1994.
ADDRESSES: Send written comments to: Chief, Wine and Beer Branch,
Bureau of Alcohol, Tobacco and Firearms, P.O. Box 50221, Washington, DC
20091-0221; Notice No. 794.
Copies of written comments in response to this notice of proposed
rulemaking will be available for public inspection during normal
business hours at: ATF Reference Library, Office of Public Affairs and
Disclosure, Room 6300, 650 Massachusetts Avenue NW., Washington, DC
20226.
FOR FURTHER INFORMATION CONTACT: Marjorie Ruhf, Wine and Beer Branch,
650 Massachusetts Avenue NW., Washington, DC 20226; telephone (202)
927-8230.
SUPPLEMENTARY INFORMATION:
The Federal Alcohol Administration Act
The Federal Alcohol Administration Act (hereinafter referred to as
FAA Act or Act) provides for Federal regulation of the alcoholic
beverage industry. The FAA Act contains particular restrictions that
are unique to the alcoholic beverage industry and reflects Congress'
concern with a variety of trade practices and abuses that took place
before, during and immediately after Prohibition. This notice of
proposed rulemaking focuses on four parts of the statute, Exclusive
Outlet (27 U.S.C. 205(a)), Tied-House (27 U.S.C. 205(b)), Commercial
Bribery (27 U.S.C. 205(c)), and Consignment Sales (27 U.S.C. 205(d)).
The supplementary information is divided into two sections. The first
section deals with the subject of exclusion, and the second section
covers other changes proposed as a result of an internal review of
trade practice regulations and an industry petition.
Exclusion
One element which is necessary for these practices to result in
violation of Federal law is ``exclusion, in whole or in part, of
distilled spirits, wine, or malt beverages, sold or offered for sale by
other persons.''
Although exclusion is not defined in the FAA Act or in the current
implementing regulations at 27 CFR parts 6, 8 and 10, ATF has, in the
past, held that ``exclusion in part'' includes causing retailers to
purchase less of a competing brand than they otherwise would have
bought.
In a recent decision, however, Fedway Associates, Inc., et al. v.
United States Treasury, Bureau of Alcohol, Tobacco and Firearms
(Fedway), 976 F.2d 1416 (DC Cir. 1992) the United States Court of
Appeals for the District of Columbia Circuit, held that Congress had
intended something more than just a retailer purchasing less of a
competing brand than it otherwise would have and for a violation to
occur there must also be a tie or link between a supplier and retailer
that at least threatens the retailer's independence.
The court based this conclusion on several points. The court said
``exclusion'' means to exclude a rival product from the marketplace by
some direct action of the violator. Merely taking some action which
influences a retailer not to purchase a rival product is not exclusion
under the Act if the retailer's response is the result of a free
economic choice. This interpretation of exclusion as meaning the
shutting out or expelling of a rival's product, according to the court,
is consistent with conduct addressed by the Act such as tied-house,
commercial bribery and exclusive outlets. Any broader interpretation
would, in the view of the court, likely result in restriction of pro-
competitive activities.
The Fedway court was concerned that ATF enforcement actions could
hinder legitimate competitive activities. Consequently, the opinion
states that if ATF suspects a particular practice places retailer
independence at risk then the agency must provide substantial support
backing up its suspicion. This substantial support is especially
necessary where the anticompetitive nature of the means to induce is
``nowhere apparent on its face.''
Factual or substantive proof is necessary, the court stated, to
ensure that the Government does not take an overly-broad enforcement
posture in its efforts to prevent potential threats to retailer
independence and risk outlawing conduct that fosters a competitive
alcohol market. In the Fedway proceeding, the court held this factual
basis was not met because the only datum or evidence presented was the
fact that certain retailers purchased less of a rival product.
In summary, the court offered the following guidance about this
statutory element:
Congress, we are satisfied, used ``exclusion'' to indicate
placement of retailer independence at risk by means of a ``tie'' or
``link'' between the wholesaler and the retailer or by any other
means of wholesaler control.
[We demand] a factual showing that retailer independence is
potentially threatened. . . .
[ATF should] take reasonable account of both policy interests
underlying the [trade practice] provisions. . . . that the alcohol
industry requires special oversight and regulation. . . . and the
value of pro-competitive wholesale promotions. This value derives
not only from the traditional benefits of competition in terms of
lower prices and improved quality, but also . . . from the fact that
a competitive alcohol market helps deter the formation of a corrupt
black market.
Finally, in arriving at a reasonable interpretation of
``exclusion''. . . the Bureau must take care to distinguish
rationally between those promotions it decides are lawful and those
it decides are not.
Proposed Regulations
The proposed amendments and additions to the regulations on the
subject of exclusion follow a framework which ATF believes is
consistent with the statutory interpretation of exclusion adopted by
the Fedway court as well as similar concerns previously raised in
Foremost Sales Promotions, Inc. v. Director, Bureau of Alcohol, Tobacco
and Firearms, 860 F.2d 229 (7th Cir. 1988) (Foremost). The courts in
both Fedway and Foremost found that ``exclusion'' as used in the FAA
Act cannot occur without a relationship or arrangement between the
industry member and the retailer which directly or indirectly threatens
the retailer's independence.
ATF proposes to amend regulatory parts of title 27 CFR relating to
exclusive outlet (part 8), tied-house (part 6), and commercial bribery
(part 10), by adding new subparts on exclusion. Even though the
exclusive outlet provision was not involved in the Fedway or Foremost
decisions, the provision is impacted by the decisions since the
provision requires the showing of exclusion in order for a violation to
arise.
ATF proposes to describe exclusion, in whole or in part, of
distilled spirits, wine or malt beverages sold or offered for sale by
others as occurring (1) when a practice places retailer independence at
risk by means of a tie or link between the industry member and retailer
or by any other means of industry control over the retailer, and (2)
such a practice by an industry member, whether direct, indirect, or
through an affiliate, results in the retailer purchasing less that it
otherwise would have of a competitor's product. The proposed
regulations will contain a set of criteria by which ATF will determine
the existence of the first element. These criteria include the duration
of the practice or promotion, the degree to which a practice involves
an industry member in the day-to-day operations of a retailer, and, in
some cases, the non-discrimination feature of the practice where it is
available to all retailers. Exclusion will exist when ATF can establish
the presence of both of these elements.
In addition, ATF proposes to identify certain practices which it
believes, by their very existence, place retailer independence at risk.
When such practices are undertaken, ATF would determine through the
course of an investigation whether the other exclusionary element set
forth above is present.
In addition, ATF proposes to revise and consolidate several of the
provisions contained in Subpart D of Part 6 of the current regulations
which find that certain practices will not result in exclusion under
the FAA Act (that is, safe harbors). The classification of these
practices is intended to provide guidance to the regulated industry so
that legitimate product marketing programs can be developed without the
uncertainty of a potential Federal enforcement action. Legitimate
product marketing encourages competition, by large and small businesses
alike, on the basis of price, product quality and service.
ATF emphasizes that the revision of the trade practices regulations
is an ongoing process. Any interested person may petition for a rule
change, under 27 CFR 71.41(c).
Exclusive Outlet
Section 105(a) of the FAA Act makes it unlawful for an industry
member to require, by agreement or otherwise, any retailer engaged in
the sale of alcoholic beverages to purchase any such product from such
person to the exclusion in whole or in part of alcoholic beverages sold
or offered for sale by other persons in interstate or foreign commerce,
provided one of the three interstate or foreign commerce jurisdictional
clauses is met.
Retailer independence is threatened in an exclusive outlet
arrangement when the ability of the retailer to decide which brands of
alcoholic beverages to purchase is restricted or impeded. In the Fedway
context, the question is whether any restriction negates the retailer's
free economic choice or has been imposed by the industry member.
In that regard, the proposed regulations identify two practices
that clearly result in exclusion under section 105(a) of the Act. The
first practice involves purchases of distilled spirits, wine, or malt
beverages by a retailer as a result, directly or indirectly, of a
threat or act of physical or economic harm by the selling industry
member. The second practice involves contracts between an industry
member and a retailer which require the retailer to purchase distilled
spirits, wine or malt beverages from that industry member and expressly
restrict the retailer from purchasing, in whole or in part, such
products from another industry member. In both situations, exclusion of
a competitor's products results directly from the arrangement or the
contract without any action by the retailer. Further, ATF views an
exclusive outlet arrangement as including a situation where the
retailer offers exclusivity privileges and the industry member accepts
that offer. In other words, it does not matter whether the requirement
originates with the industry member or the retailer; rather, the
requirement is within the exclusive outlet prohibition so long as it is
part of the bargain.
Tied-House
Section 105(b) of the FAA Act makes it unlawful for an industry
member to induce through any of the following means, any retailer
engaged in the sale of alcoholic beverages to purchase any such
products from such person to the exclusion in whole or in part of
alcoholic beverages sold or offered for sale by other persons in
interstate or foreign commerce, provided one of the three
jurisdictional clauses is met:
(1) By acquiring or holding any interest in any license with
respect to the premises of the retailer; or
(2) By acquiring any interest in real or personal property owned,
occupied, or used by the retailer in the conduct of the business; or
(3) By furnishing, giving, renting, lending, or selling to the
retailer, any equipment, fixtures, signs, supplies, money, or other
things of value, subject to the exceptions prescribed by regulations,
having due regard to public health, the quantity and value of articles
involved, established trade customs not contrary to the public interest
and the purposes of the subsection; or
(4) By paying or crediting the retailer for any advertising display
or distribution service; or
(5) By guaranteeing any loan or repayment of any financial
obligation of the retailer; or
(6) By extending to the retailer credit for a period in excess of
the credit period usual and customary to the industry for the
particular class of transactions as ascertained by the Secretary and
prescribed by regulation; or
(7) By requiring the retailer to take and dispose of a certain
quota of any of such products.
Retailer independence can be threatened in a tied-house arrangement
between an industry member and a retailer when the arrangement involves
a continuing business relationship which restricts the retailer's
ability to make free economic choices on which brands of products to
purchase. In effect, competition is restricted because the retailer who
is dependent on or tied to an industry member cannot make free and
rational business choices on whether to make a current purchase from
another industry member based on current business considerations such
as consumer demand or lower prices offered by the competition.
The proposed regulations identify threats to a retailer's
independence which include: A wholesaler's use of partial ownership of
a retailer to control the retailer's purchases of alcoholic beverages,
sales where the wholesaler conditions the purchase of one distilled
spirits product on the retailer purchasing another distilled spirits
product at the same time, and wholesaler control over the retailer
through controlling the resetting of the products on a retailer's
premises.
Slotting fees are also included in this proposed category. These
fees are paid to a retailer in order to obtain premium shelf space.
Data and information on the effect of such fees is requested, rather
than solely statements of preference by a particular industry member.
As discussed in the material relating to consignment sales, the
prohibition on other than a bona fide sale is defined to include sales
in connection with which the industry member bears the cost of display
by purchasing or renting a trade buyer's shelf space to be occupied by
such products. Accordingly, slotting fees in these situations are
within the consignment sale proscriptions. Comments are sought on
whether the slotting fee should be addressed in both tied-house and
consignment sale regulations or are more appropriately covered by only
one of the provisions.
With respect to the practices listed in proposed Sec. 6.152, ATF
will be required to determine whether the practice results in the
retailer purchasing less than it otherwise would have of a competitor's
product.
The proposed regulations also identify certain practices that will
not result in exclusion. These are the practices allowed under the
regulatory exceptions to the tied-house provisions (safe harbors). For
instance, the proposed regulations recognize that certain retail
activities of a temporary nature, such as weekend events and community
festivals, are also so minor in the retail marketplace so as not to
justify Federal intervention. (Revisions to these regulatory exceptions
are also proposed in this notice and discussed in detail below.)
Commercial Bribery
Section 105(c) of the FAA Act makes it unlawful for an industry
member to induce through any of the following means, any trade buyer
engaged in the sale of alcoholic beverages, to purchase any such
products from such person to the exclusion in whole or in part of
alcoholic beverages sold or offered for sale by other persons in
interstate or foreign commerce, provided one of the three
jurisdictional clauses is met:
(1) By commercial bribery; or
(2) By offering or giving any bonus, premium, or compensation to
any officer, or employee, or representative of the trade buyer.
Commercial bribery situations involve the receipt of money or a premium
by an officer, employee, or representative of the trade buyer. Payment
made directly to business entities (i.e., the corporation, partnership,
or individual owning the business) for the use of the business does not
constitute a commercial bribe. The independence of the trade buyer is
threatened in a commercial bribery situation because the officer,
employee, or representative of the trade buyer is making a purchasing
decision as a result of the money or premium received personally and
not based on business or marketing factors which further the interests
of the trade buyer itself.
The proposed regulations identify promotional conduct by an
industry member that involves the payment of money or another premium
to an employee or representative of a trade buyer without the knowledge
of the trade buyer as practices under the Act that place retailer
independence at risk. The Fedway court noted that previous case law
upheld as actionable these types of payments. These payments were
viewed as anti-competitive because one competitor gained a competitive
advantage over another competitor by reason of a ``secret and corrupt
dealing with employees or agents of prospective purchasers.'' See,
American Distilling Co. v Wisconsin Liquor Co., 104 F.2d 582 (7th Cir.
1939). Even where such practices exist, ATF would still be required to
demonstrate that they affect the trade buyer's purchases in order to
establish exclusion. With respect to those practices not mentioned
herein, ATF would be required to demonstrate the existence of both of
the elements of exclusion set forth above.
Criteria for Determining Retailer Independence
ATF is proposing criteria by which to evaluate whether or not a
particular practice places retailer independence at risk. Elements
which have repeatedly been mentioned in court cases are degree of
control exercised over trade buyers' purchasing decisions, duration of
the practice, indiscriminateness, contractual or other enforceable
requirements. The goal of regulating trade practices in the alcoholic
beverage industry has been identified as healthy competition in order
to insure the best possible price, quality and selection for the
consumer and to prevent formation of a corrupt black market.
The proposed criteria are indications that a particular practice,
other than those in Secs. 6.152, 8.52, and 10.52, places retailer
independence at risk. A practice need not meet all of the criteria
specified in order to place retailer independence at risk.
(a) The practice restricts or hampers the free economic choice of a
retailer to decide which products to purchase and the quantity in which
to purchase them for sale to consumers.
(b) The industry member obligates the retailer to participate in
the promotion to obtain the industry member's product.
(c) The retailer has a continuing obligation to purchase or
otherwise promote the industry member's product.
(d) The retailer has a commitment not to terminate its relationship
with the industry member with respect to purchase of the industry
member's products.
(e) The practice involves the industry member in the day-to-day
operations of the retailer. For example, the industry member controls
the retailer's decisions on which brand of products to purchase, the
pricing of products, or the manner in which the products will be
displayed on the retailer's premises.
(f) The practice is discriminatory in that it is not offered to all
retailers in the local market on the same terms without business
reasons present to justify the difference in treatment.
Other Proposed Changes
In 1988, ATF designated an agency task force to review the trade
practice regulations and ATF's enforcement experience, since 1980, and
determine whether revisions were needed. ATF determined that certain
regulations may need to be modified or clarified to provide guidance to
the industry on ATF's interpretations of the trade practice statute.
Such guidance has been provided by rulings and industry circulars. This
notice proposes incorporating these rulings and industry circulars into
the regulations.
In addition to changes identified in the Bureau's own review, this
notice responds to changes suggested in a February, 1992, petition
filed by representatives of the Distilled Spirits Council of the United
States, Inc. (DISCUS), the National Association of Beverage Importers,
Inc. (NABI), Wine and Spirits Wholesalers of America, Inc. (WSWA), the
National Licensed Beverage Association (NLBA), and the National Liquor
Stores Association, Inc. (NLSA). This petition superseded an earlier
petition filed by DISCUS and NABI with ATF. ATF requested that DISCUS
and NABI work with all segments of the alcohol beverage industry to
reach a consensus concerning the various proposals to revise the trade
practice regulations. The 1992 petition reflects a culmination of that
effort by the supplier, wholesaler, and retailer organizations noted
above.
ATF is proposing to revise or add regulations in 27 CFR Parts 6, 8,
10, and 11, in areas suggested by the industry petition and in trade
practice areas identified by ATF as appropriate for rulemaking. The
proposed revisions and additions are discussed below.
Scope of Parts 6, 8, 10 and 11
ATF is proposing to revise Secs. 6.1, 8.1, 10.1 and 11.1 to reflect
the recodification of the Federal Administration Act which included
renumbering the trade practice section from section 5 to section 105
and to better reflect the function of the proposed regulations.
Administrative Provisions in Parts 6, 8, 10 and 11
ATF proposes adding new regulations stating that ATF officers are
authorized to examine relevant records of an industry member and to
subpoena relevant records from any person. These new regulations would
be codified as Secs. 6.5, 8.5, 10.5 and 11.5. Current regulations do
not contain any reference to ATF's statutory authority to examine and
subpoena records and to require reports from industry members.
Section 102(c) of the FAA Act (27 U.S.C. 202(c)) incorporates by
reference the provisions of sections 49 and 50 of title 15, U.S.C. of
the Federal Trade Commission Act which vests in ATF investigative
subpoena authority and the right to examine and copy relevant data
subject to an FAA Act investigation. In addition, section 102(d)
provides authority to require such reports as are necessary to
effectuate the purposes of the statute.
Pursuant to 15 U.S.C. 49 and 50 as made applicable by section
102(c), ATF may examine, at all reasonable times, any documentary
evidence which is necessary to determine whether the person,
partnership, or corporation being investigated or proceeded against
violated the FAA Act. The right to examine includes the right to copy
any such documentary evidence. In addition, section 49 authorizes the
issuance of a subpoena for any person, partnership, or corporation to
produce records or give testimony relevant to an investigation of a
violation of the FAA Act.
In addition, pursuant to section 102(d) of the FAA Act, new
regulations are proposed for parts 6, 8, and 10, authorizing the
regional director (compliance) to require a letter report from industry
members regarding information on sponsorships, advertisements,
promotions, and other activities conducted by, or on behalf of, or
benefiting the industry member. The reporting requirement will be used
on a case-by-case basis, rather than as a recurrent and periodic
reporting requirement such as a monthly report of activities applying
to all industry members. ATF does not feel that a reporting requirement
is needed for part 11, Consignment Sales.
Meaning of Terms Revisions in Parts 6, 8, 10 and 11
ATF is proposing to add the terms ``ATF officer'' and ``Director''
to the definitions in 27 CFR 6.11, 8.11, 10.11, and 11.11 to correspond
to the terms in the proposed administrative provisions in Secs. 6.5,
8.5, 10.5, and 11.5, discussed above.
ATF is proposing to define the term ``brand'' in 27 CFR 6.11, since
a number of dollar limitations on things of value which may lawfully be
given to retailers is on a ``per brand'' basis. The definition proposed
is drawn from ATF Ruling 81-1, Q.B. 1981-2, page 27, but ATF has
narrowed the proposed definition to exclude changes in the color or
design of the label.
ATF is proposing adding the term ``Regional director (compliance)''
to the definitions in 27 CFR 6.11, 8.11 and 10.11 to correspond to the
term in the proposed administrative provisions.
The petitioners believe that the definition of ``retailer'' should
be revised in 27 CFR parts 6 and 8. The current provision excludes
wholesalers who make incidental retail sales representing less than 5
percent of their sales during the preceding two months. The petitioners
state that a supplier cannot know whether the wholesaler's retail sales
are within the 5 percent limitation and suggest eliminating that
standard. The petitioners also believe that the definition of
``retailer'' should be clarified in order to ensure that this
definition is consistent with Sec. 6.2 which defines the territorial
extent of part 6 of the regulations.
ATF believes that removal of the 5 percent limitation would make
the definition too broad. For example, without the percent limitations,
a wholesaler who makes a single sale to a consumer is deemed to be a
retailer. Also, the petitioners' proposed definition would exclude, as
a retailer, someone within the United States who makes sales for
consumption outside of the United States; i.e., a duty free shop. The
FAA Act itself does not allow this type of exception to the territorial
coverage of the law. Therefore, ATF does not agree with this proposal.
For the same reasons, ATF does not agree with the proposed amendment to
the definition of ``retailer establishment.''
ATF is proposing to change the term ``retailer establishment'' in
27 CFR 6.11 to ``retail establishment'', since that is the term used in
27 CFR part 6 regulations. The term ``retail establishment'' in 27 CFR
8.11 will be removed because the term is not used in 27 CFR part 8
regulations.
Part 6--``Tied-House''
Sections 6.25 Through 6.33, Interest in Retail Licensee
The petitioners state that these sections of the regulations
provide identical treatment concerning an interest of an industry
member in a license with respect to a retailer's premises (Secs. 6.25-
6.27) and in real or personal property owned, occupied, or used by the
retailer in the conduct of the business (Secs. 6.31-6.33). The
petitioners feel that combining the provisions, which they believe
parallel each other (Secs. 6.25 and 6.31; 6.26 and 6.32; and 6.27 and
6.33), will enhance the simplicity and clarity of the rules.
Further, the petitioners recommend clarifying changes to existing
regulations to ensure that there is no misunderstanding that a
violation of the FAA Act does not occur merely upon a finding of the
existence of the means to induce. The petitioners believe that the
wording of several existing regulations describing various means to
induce results in industry confusion since such sections are written in
terms describing ``prohibited means to induce.''
The petitioners believe that the term ``prohibited'' should be
deleted from such sections in order to avoid any contention or
confusion that this provision, read separately from Sec. 6.21, allows
for finding a violation of the FAA Act without also establishing that
the means to induce results in exclusion. While the petitioners
recognize that these sections are subject to the general application
provisions of Sec. 6.21, which states that these means to induce are
unlawful only if they result in exclusion, they believe such a change
will help reduce the possibility of industry confusion on this issue.
The same request was made concerning Secs. 6.31, 6.41, 6.51, 6.61, 6.65
and 6.71, which all contain similar language.
ATF does not object to revising the language in Secs. 6.25, 6.31,
6.41, 6.51, 6.61, 6.65 and 6.71. ATF proposes to adopt this suggestion
but would replace the word ``inducement,'' with ``means to induce,'' in
order to correspond with the wording of the FAA Act. Conforming changes
were also made to the language in Secs. 6.27 and 6.33.
ATF does not believe that the provisions of Secs. 6.25 through 6.33
should be combined in the various ways proposed by the petitioners.
From a structural point of view, merging Secs. 6.25 through 6.33
fundamentally alters the organization of subpart C of part 6. Subpart C
is divided into topics (with titles) which parallel sections 105(b)(1)
through (7) of the FAA Act. The proposed merger of the corresponding
sections will mean that the regulations applicable to an interest in
retail property under section 105(b)(2) will be contained in a group of
the regulations categorized under an interest in a retail license under
section 105(b)(1). ATF believes that it may be confusing for a person
or industry representative relying on the part 6 regulations to look
under the regulations on a retail license for a regulation relating to
an interest in retail property.
Section 6.42, Third Party Arrangements
ATF's review of its regulations disclosed that some confusion
exists over the breadth of the proscription on indirect means to
induce. Some industry members incorrectly view the two examples in
Sec. 6.42 as exclusive of the situations covered by the regulation.
Additionally, ATF believes some industry members interpret the examples
as meaning the third party receiving the means to induce must be an
agent of an individual retailer.
By enacting the phrase ``directly or indirectly or through an
affiliate,'' Congress intended the broadest possible application of the
proscriptions of the FAA Act. The term ``indirectly'' encompasses more
than simply trade practice activities with agents of retailers. It
covers such activities with any representative of a retailer or
industry member, whether or not such representative is technically an
agent of the retailer or industry member. Thus, an industry member
providing the means to induce to any third party who will pass the
means on to the retailer, or use them in a manner to benefit the
retailer, is indirectly providing the means to induce to the retailer.
Accordingly, ATF proposes revising Sec. 6.42 to clarify that the
examples are simply illustrative and not exclusive of the situations
resulting in indirect inducements. A revision to the final sentence is
proposed for clarity.
Section 6.43, Sale of Equipment
The petitioners recommend deleting the last sentence of Sec. 6.43.
The petitioners believe that negotiation by an industry member with an
equipment company for a special price for a retailer for equipment
should not be a means to induce unless the industry member subsidizes
the special price.
ATF does not agree. The means to induce is not the special price,
but the service provided by the industry member in negotiating with the
equipment company, or using its influence on behalf of the retailer. In
the past, ATF has experienced cases in which a retailer, believing that
it received special price consideration, altered its buying patterns
resulting in exclusion of a competitor's products. Also, a conforming
change to the cross-reference is proposed.
Section 6.46, Outside Signs
ATF proposes to make outside signs an exception in subpart D. See
the discussion under proposed Sec. 6.102.
Section 6.47, Items Intended for Consumers
The petitioners recommend deleting this section because they
believe that it is redundant and unnecessary in light of Sec. 6.93 and
their proposed revisions to Sec. 6.87.
ATF proposes to remove this section since the general prohibition
in Sec. 6.41 covers things of value not specifically excepted in
subpart D. Those of the examples listed in Sec. 6.47 which ATF proposes
to allow will be listed in the proposed revision of Sec. 6.84, Point of
sale advertising and consumer advertising specialties.
Section 6.52, Cooperative Advertising
ATF proposes that the phrase ``placed by the retailer'' be deleted
from this section and that language be added to emphasize that it does
not matter whether the retailer or the industry member places the
advertisement. The means to induce to be addressed here is the
cooperative nature of the transaction and the benefit received by the
retailer.
For clarity, ATF proposes cross-referencing Sec. 6.52 to Sec. 6.98,
Advertising Service.
Section 6.67, Sales to a Retailer Whose Account is in Arrears
ATF's current position is contained in Revenue Ruling 54-162, 1954-
1 C.B. 340. On August 1, 1979, ATF proposed a regulation (Notice No.
327, 44 FR 45298) on credit arrears which would have provided that a
supplier could continue to sell to a retailer, with unpaid purchases
existing in excess of 30 days, without violating the extension of
credit provision if the retailer either made payments in accordance
with Revenue Ruling 54-162 or the amount of arrears did not exceed an
average purchase by the retailer from the supplier over the preceding 4
month period.
Commenters on the proposal objected to the proposal stating that it
would require extensive bookkeeping checks or it might force repayment
of large outstanding debts in order to keep dealing with a wholesaler.
Several commenters recommended that ATF simply adhere to the credit
requirements imposed by State law. ATF withdrew the proposal (T.D. ATF-
74, 45 FR 63242, September 23, 1980) from further consideration. ATF is
again raising the issue and proposing to adopt in the regulations the
position stated in Revenue Ruling 54-162. However, comments on other
possible approaches will be considered.
Section 6.71, Quota Sales and Section 6.72, Tie-in Sales
In addition to the language change to Sec. 6.71 discussed under
Sec. 6.41, the petitioners propose to eliminate the tie-in prohibition
in Sec. 6.72 and consolidate the remaining provisions into Sec. 6.71.
The petitioners recommend deleting the first two sentences of Sec. 6.72
because they believe that there is no statutory basis for this
regulation under the FAA Act. The petitioners state that the classic
``tying relationship'' prohibited by the antitrust laws is not
addressed by section 105 of the FAA Act notwithstanding that subsection
105(b) of the FAA Act bears the heading ``Tied-House.'' The petitioners
further state that prohibitions against tie-in agreements are covered
adequately by the Federal antitrust laws.
The tie-in sale described in the regulations is a form of quota
sale covered by the Act. Moreover, ATF feels that Sec. 6.71 and
Sec. 6.72 are distinct from one another and should be kept separate to
insure clarity and foster understanding of the regulations. The fact
that another Federal law may apply to such a practice is not relevant
to whether such a practice is covered by the FAA Act. Additionally, ATF
proposes revising Sec. 6.72 to cover expressly a particular type of
transaction as a tie-in sale.
Subpart D--Exceptions
Many changes discussed in the first section of the Supplementary
Information on Exclusion affect this subpart. The discussion which
follows is limited to specific requests by the industry or findings of
ATF's own internal review which were not discussed in that earlier
section.
Section 6.81, General
The petitioners propose amending Sec. 6.81(a) by deleting the
second sentence which prohibits an industry member from conditioning
the providing of items or services allowed under subpart D on the
purchase of distilled spirits, wine, or malt beverages. ATF agrees this
prohibition is not necessary for most items, and will remove the
prohibition from the general section and place it in the specific
sections where such conditioning has been a concern, for instance,
Sec. 6.83 on product displays.
Section 6.81(b), Recordkeeping requirements, requires industry
members to maintain certain records which can be used to substantiate
claims that items provided to retailers are within the subpart D
exceptions to the tied-house prohibitions. The petitioners propose
deleting Sec. 6.81(b) in its entirety, thereby eliminating all
recordkeeping requirements. The petitioners state that ``(t)his change
should be adopted because the FAA Act neither provides nor suggests
that any such requirements can be imposed.''
The petitioners further state that if it is decided not to delete
Sec. 6.81(b) in its entirety, they recommend the addition of language
to this paragraph to make it clear that no separate violation of the
FAA Act shall arise from the failure of an industry member to maintain
records in accordance with the requirements of Sec. 6.81(b). The
petitioners believe that the FAA Act neither creates nor supports the
existence of any such violation of the FAA Act.
The proposal to eliminate the requirement to keep records which
substantiate industry members' claims that items provided retailers are
within the exceptions would negate ATF's capability to verify
compliance with the dollar limitations and any other requirements of
subpart D. The limitations in each exception section of the regulations
would be unenforceable if ATF had no way to verify compliance with the
requirements of such exceptions. Where the industry member fails to
keep the required records, the industry member is not eligible for the
regulatory exception in that particular transaction. No separate
recordkeeping violation would be charged.
Section 6.82, Cost Adjustment Factor
While the petitioners do not request a specific change to this
section, they request that ATF explore alternate methods which would be
cost effective for ATF to convey this information in a manner that
continues to ensure that all permittees are apprised of the annual
dollar adjustments. Instead, ATF proposes to delete this section and
periodically review the amounts if necessary.
Section 6.83, Product Displays
The petitioners recommended amending the definition of product
display to substitute ``* * * and similar items the primary function of
which is to hold, display or shelve consumer products.'' for ``* * *
and the like,'' which appears in the current regulation. ATF is
incorporating this change in its proposed revision, but proposes the
phrase ``hold and display'' for clarity.
The petitioners also requested that ATF amend the dollar limitation
in the regulation to reflect the current adjusted rate. Instead, ATF
proposes a $500 per brand at any one time per retail establishment
limitation for the current limitation of $100 (as adjusted) per year
per brand per retail establishment. As noted earlier, ATF proposes
narrowing the definition of the term ``brand'' and requests comments on
the definition.
Although the general prohibition against an industry member
imposing conditions on receipt of items allowed in subpart D has been
removed from Sec. 6.81, the proposed Sec. 6.83 states that giving or
selling product displays may be conditioned upon the purchase of the
distilled spirits, wine or malt beverage product advertised thereon in
a quantity only necessary for the initial completion or use of the
product display. The loan or rental of product displays would not be
within the exception. Such a continuing tie would not be consistent
with the intent of the Act. Industry members have long argued that they
should be allowed to condition receipt of product displays on the
purchase of a limited quantity of the product advertised. The dollar
limit of $500 per brand, coupled with the requirements for permanently
inscribed advertising and transfer of ownership of product displays to
the retailer minimizes the inducement value to the retailer. The
combination of these factors allows product displays to be excepted
from the regulations of Part 6, and would be the basis for allowing the
industry member to condition receipt of such materials as described
above.
Section 6.84, Point of Sale Advertising and Consumer Advertising
Specialties
Promotions and practices currently allowed under the regulatory
exceptions to the tied-house provisions are safe harbors. This notice
proposes a revision to those exceptions which would combine several of
the current exceptions into one general regulatory section. The
approach of having a single general section addressing all of the
similar activities gives greater flexibility to the industry.
The proposed regulations combine the exceptions listed in
Secs. 6.84, 6.85, 6.86 and 6.87, (inside signs, retailer advertising
specialties, wine lists and consumer advertising specialties) into a
revised Sec. 6.84, Point of sale advertising and consumer advertising
specialties. Items intended for consumers currently identified in
Sec. 6.47 are also included in the proposed listing of exceptions. The
petitioners requested that ATF amend the dollar limitation to reflect
the adjusted rates, but instead, under ATF's proposed revision there
will be no limit to the specified point of sale (POS) materials
furnished by an industry member to a retail establishment.
The petitioners also requested that the term ``wine lists'' be
expanded to include all alcoholic beverages. Instead, the proposed
Sec. 6.84 permits all lists or menus, subject to the conditions in
paragraph (c) of the section.
Section 6.86, Temporary Retailers
ATF proposes adding a new section which will allow furnishing
things of value to a temporary retailer.
Section 6.88, Glassware--Section 6.89, Tapping Accessories--Section
6.90, Supplies--Section 6.97, Coil Cleaning Service
The petitioners recommend that these four sections be combined in a
new section 6.88, under the title ``Equipment and supplies,'' because
they deal with similar types of merchandise and impose similar
conditions. As with other subpart D exceptions which combine similar
types of merchandise, (viz., Secs. 6.83, 6.87 and 6.89), the
petitioners feel that combining these items in one section will enhance
the simplicity and clarity of the rules.
The petitioners also recommend several other revisions to this
consolidated section. They believe that the coverage of the coil
cleaning service should be extended from ``a retailer of wine or malt
beverages'' to ``a retailer.'' This amendment would provide equal
treatment for wine, malt beverages and distilled spirits.
The petitioners also recommend substituting the term ``dispensing
accessories'' in section 6.88 for ``tapping accessories'' because the
former term more accurately describes the modern type of accessories
falling within this category and reflects present marketplace practices
where, for example, wine also is served by dispensing equipment.
The petitioners also feel that cold plates should be added to the
list of examples of ``dispensing accessories'' and, as with the present
requirements for glassware and tapping accessories, carbon dioxide gas
or ice may be sold at a price not less than the cost to the industry
member who initially purchased it.
The petitioners' proposed Sec. 6.88 would read as follows:
``Sec. 6.88 Equipment and supplies. (a) Definition. Equipment and
supplies means glassware, dispensing accessories, carbon dioxide gas or
ice. Dispensing accessories include items such as standards, faucets,
cold plates, rods, vents, taps, tap standards, hoses, washers,
couplings, gas gauges, vent tongues, shanks and check valves. (b)
Application. (1) An industry member may sell equipment or supplies to a
retailer if the equipment or supplies are sold at a price not less than
the cost to the industry member who initially purchased it, and if the
price is collected within 30 days of the date of the sale. (2) If
dispensing accessories are sold pursuant to (1), the industry member
also may install them at the retailer's establishment. (c) Coil
cleaning service may be furnished, given or sold to a retailer.''
While the petitioners' proposal to combine various sections into
one all inclusive section covering equipment and supplies is
structurally logical and the terminology change from tapping equipment
to dispensing equipment has merit, some of the items listed in the
proposed section have not in the past been recognized as exceptions by
ATF.
ATF is consolidating these sections with the following additional
changes. ATF proposes to revise the definition of glassware to include
similar containers made of materials other than glass. Currently,
Sec. 6.89 enumerates the type of tapping accessories which can be sold,
at cost, to a retailer. As proposed, the regulation also specifies that
the industry member must pass on the cost of initial installation to
the retailer.
The proposed regulation would expand the original coil cleaning
service exception currently in Sec. 6.97 to cover distilled spirits, as
well as wine and malt beverages. Keeping the coils clean and free of
contamination is clearly in the interest of public health. Therefore,
it is in the public interest to allow such services without a dollar
limit.
The current regulation allows industry members to sell carbon
dioxide gas to retailers. The regulation does not provide for the sale
of other gases, such as nitrogen, which are used in various existing
alcoholic beverage dispensing systems. ATF proposes modifying this
regulatory section to allow industry members to sell any gas to a
retailer provided it is used in a beverage dispensing system. This
proposal should not be viewed as sanctioning treatment which would
change still wine to sparkling wine.
Section 6.91, Samples
The current section allows an industry member to furnish or give
samples of distilled spirits, wine or malt beverages to a retailer. The
petitioners recommend amending this section to provide that industry
members may furnish a maximum of 750 milliliters (mls.) of distilled
spirits samples to qualifying retailers. The 500 milliliter (ml.)
container is no longer an authorized size for distilled spirits.
Accordingly, the petitioners suggest that ``750 ml.'' should be
substituted for ``500 milliliters'' in the second sentence of this
section and the third sentence of this section should be eliminated in
its entirety.
ATF agrees with the petitioners that the reference to the obsolete
500 ml size be replaced, but proposes a maximum of 3 liters for either
distilled spirits or wine.
ATF also proposes amending the current regulation by limiting the
number of commonly owned retail establishments (not to exceed four per
retailer) which can be given samples. This amendment would allow for a
control State or chain retailer to receive sufficient samples to
determine whether to purchase a product.
Section 6.93, Combination Packages
In general, Sec. 6.93 addresses combination packages where an
industry member packages a non-alcoholic item with distilled spirits,
wine, or malt beverages and, in particular, paragraph (c) requires that
the cost of the combination package be passed on to the retailer. The
petitioners recommend deleting paragraph (c) of Sec. 6.93 because they
feel the condition imposed by the paragraph is really a pricing
decision outside of ATF's regulation under the FAA Act. ATF proposes
removing all the conditions currently imposed on combination packages.
Section 6.94, Educational Seminars
ATF proposes to clarify the final sentence, ``This does not
authorize an industry member to pay a retailer's expenses in
conjunction with an educational seminar.'' by adding the explanatory
phrase ``(such as travel, lodging, and meals).''
Section 6.98, Advertising Service
The petitioners recommend adding the clause ``except where the
exclusive retailer in the state is a state agency'' to paragraph (a) to
read as follows: ``Sec. 6.98 Advertising service (a) The advertisement
does not also contain the retail price of the product, except where the
exclusive retailer in the state is a state agency, and * * *''
The petitioners do not believe that the objectives of section
105(b) of the FAA Act are served by prohibiting industry members from
advertising control States' prices. The petitioners' proposed revision
would permit an industry member to advertise a control State's state-
wide retail prices as determined by that State for product sold within
the State. The petitioners feel that in such circumstances, there is no
possibility of any ``inducement'' or ``exclusion'' that would
contravene the intent or purpose of the FAA Act.
ATF proposes amending the current regulation in accordance with the
industry request, modified to reflect situations in which the sole
retailer in a jurisdiction is a State or local agency. ATF also
proposes to delete the condition that an advertisement placed by an
industry member may not mention events or promotions at a retail
establishment.
Section 6.99, Stocking, Rotation, and Pricing Service
The petitioners recommend revising this section to allow industry
members to also ``recommend shelf plans.'' The petitioners feel that
this revision would permit an industry member to provide services to a
retailer consistent with present day marketplace realities. ATF
proposes to amend this section in line with the petitioners' proposal.
Section 6.100, Participation in Retailer Association Activities
Section 6.100 permits industry members to participate in retailer
association activities under certain circumstances. Paragraphs (b) and
(d) permit rental of display booth space and purchase of tickets or
payment of registration fees, respectively. Each of these paragraphs
contains the phrase ``if * * * not excessive and * * * the same as paid
by all exhibitors.'' ATF proposes amending the section to delete ``not
excessive'' and specifying the fees must be the same as the fees paid
by all exhibitors ``at that event.'' ATF also proposes raising the
limitation for payments for advertisements in programs or brochures
authorized by paragraph (e) from $100 to $500.
Section 6.101, Merchandise
Paragraph (a) currently provides that an industry member who also
is engaged in business as a bona fide vendor of other merchandise may
sell such merchandise to a retailer if three conditions are met, the
first of which is that merchandise is ``sold at its fair market
value.'' The petitioners believe, however, that ATF has no authority to
regulate or condition legitimate marketing practices pertaining to bona
fide sales of non-alcoholic beverage products. Accordingly, the
petitioners recommend changing this condition to state that the
merchandise is ``furnished, distributed, or sold according to the
custom and practice of that business.''
The petitioners also recommend eliminating paragraph (b) regarding
things of value covered in other sections of part 6 since they believe
it is redundant and unnecessary in light of other sections of subpart
D.
ATF believes that the elimination of the phrase, ``* * * fair
market value,'' from paragraph (a), as proposed by the petitioners,
would result in an ambiguous regulation. The phrase is used in other
parts of the regulations. The adoption of the phrase ``* * * custom and
practice of that business,'' would be inconsistent and potentially
confusing. Additionally, ATF believes that the elimination of paragraph
(b) of this regulation would be a mistake. Paragraph (b) is a necessary
clarifying paragraph for the section.
As discussed above, Sec. 6.101 excepts from the prohibitions of
section 105(b)(3) of the FAA Act sales transactions by industry members
who are engaged in the business as bona fide vendors of other
merchandise in addition to alcoholic beverages. This section sanctions
sales of other merchandise to retailers in addition to alcoholic
beverages if the merchandise is sold at its fair market value, not in
combination with distilled spirits, wines, or malt beverages, and the
merchandise is itemized separately on the industry member's invoices
and other records. The records are necessary so that ATF can determine
the real cost of the merchandise to the industry member and whether the
industry member is reselling the merchandise to retailers at its fair
market value. Likewise, ATF needs these records to determine whether
the industry member is a bona fide vendor of the merchandise or whether
it is using the merchandise as a means to induce.
Accordingly, ATF is proposing to revise the records requirement of
the regulation to state that, first, acquisition costs must appear on
the industry member's purchase invoices (available upon request to ATF)
and, second, the merchandise and the distilled spirits, wines, or malt
beverages sold to the retailer in a single sales transaction must be
itemized separately on the same invoice.
Section 6.102, Outside Signs
ATF is proposing a new section allowing outside signs in certain
circumstances and with a $500 limit.
27 CFR Part 8, Exclusive Outlet
New administrative provisions and definition changes were discussed
previously.
Section 8.23, Third Party Arrangements
The current regulation can be interpreted to mean that a violation
of the section could occur if a third party requires the retailer to
use an industry member's product without the knowledge of the industry
member. ATF proposes clarifying that the industry member's requirement,
by agreement or otherwise, with a third party is necessary to violate
this section. However, the requirement need not originate with the
industry member. If the industry member knows or is aware that the
third party controlling the retailer extends such a requirement with
respect to the products of the industry member making payments under
the arrangement, and the industry member avails itself of such
requirement, then the requirement within the proscription of the FAA
Act is present.
27 CFR Part 10, Commercial Bribery
New administrative provisions and definition changes were discussed
previously.
Section 10.4, Jurisdictional Limits
ATF proposes amending this section to correct the wording of
paragraph (a)(1), which appeared in error in ATF TD-74 on September 3,
1980 (45 FR 63242).
The proposed section would read as follows: ``Sec. 10.4
Jurisdictional limits. (a) General. The regulations in this part apply
where: (1) The industry member induces a trade buyer to purchase
distilled spirits, wine, or malt beverages from such industry member to
the exclusion, in whole or in part, of products sold or offered for
sale by other persons in interstate or foreign commerce; and * * *''
Section 10.23, Gifts or Payments to Wholesalers
This section is considered for revision because ATF feels that its
purpose should be clarified. The following example of a sales
representative incentive program is viewed as being within the
commercial bribery provision: An industry member and a trade buyer meet
to discuss, among other things, upcoming programs to promote a
particular product or products. They agree that certain promotions will
be run over a period of time. Some of these promotions include sales
incentive programs in which sales representatives can win money and/or
prizes. At the conclusion of the meeting, the parties agree or
understand, or it is implied, that all or part of the funding for these
sales representative incentive programs will come from monies that have
been or will be provided by the industry member, usually under the
guise of unrestricted funds.
ATF's position is that the above example is an instance of
commercial bribery since it involves the furnishing of a premium or
bonus to an employee of a trade buyer. While no change to the language
of the section is proposed at this time, ATF solicits comments on
whether the section is unclear or ambiguous.
27 CFR Part 11, Consignment Sales
New administrative provisions and definition changes were discussed
previously.
Section 11.24, Other Than Bona Fide Sale
Section 105(d) of the Act addresses ``consignment sales.'' Section
105(d) describes consignment sales to include conditional sales (i.e.,
where an industry member is not paid for products until they are sold
by a trade buyer); sales with a privilege of return (i.e., where an
industry member agrees to repurchase products that remain unsold by the
trade buyer at the end of a specified period of time); and other sales
on any basis otherwise than a bona fide sale.
Consignment sales are essentially arrangements pursuant to which
the risk, or cost, of non-sale of a product is retained by an industry
member, or transferred from a trade buyer back to an industry member at
the expiration of a specified time period. ATF is proposing to add a
new Sec. 11.24 to its regulations to specify certain other
arrangements, in addition to conditional sales and sales with a
privilege of return, in which the risk of non-sale is transferred from
the trade buyer back to the industry member and which therefore do not
constitute bona fide sales.
In particular, the proposed rule specifies that so-called
``slotting allowances,'' arrangements pursuant to which an industry
member makes payments to a trade buyer, ostensibly for shelf space, are
a form of consignment sale. The practical effect of ``slotting
allowances'' is to refund, in whole or in part, the purchase price of a
product that has not been sold, in proportion to the period of time
that it remains unsold.
At a minimum, payment of ``slotting allowances'' may reimburse the
trade buyer for the cost of shelf space occupied by the industry
member's products. In addition, it may also compensate the trade buyer
for the lost opportunity cost of having capital tied up in inventory
acquired from the industry member. Ultimately, the amount refunded by
this mechanism can, over any specified period of time, be the economic
equivalent of simply buying back a product at the end of that period of
time.
ATF believes that its regulations should address all arrangements
that clearly embody the substance of the ``consignment sale'' practice
proscribed by Congress, and not merely particular forms of that
practice. Therefore, ATF proposes to amend its regulations to specify
payment of ``slotting allowances'' from an industry member to a trade
buyer as a form of consignment sale.
Section 11.32, Defective Products
The current regulation specifically allows products which are
unmarketable for certain reasons to be exchanged, under certain
conditions, for an equal quantity of identical products, but is silent
as to whether such products may be returned for cash or credit.
Industry Circular 81-11 states that a return of such products for cash
or credit is not precluded by section 11.32. ATF proposes changing this
regulation to incorporate the provisions of Industry Circular 81-11
into the section. The revised section would also delete references to
mutilated and missing strip stamps since they are no longer a
requirement.
Section 11.34, Products Which May No Longer Be Lawfully Sold
ATF proposes revising the current regulation to allow the return of
a product if, due to a change in law or regulation over which the trade
buyer has no control, a particular size or brand is no longer permitted
to be sold. The addition of the phrase ``over which the trade buyer has
no control'' is intended to address situations in which the trade buyer
is a State agency with the authority to delist a particular product.
Section 11.35, Termination of Business
ATF proposes revising this section to cite Sec. 11.39 instead of
the incorrect Sec. 11.40 citation.
Executive Order 12866
It has been determined that this proposed rule is not a
significant regulatory action as defined by Executive Order 12866.
Therefore, a Regulatory Assessment is not required.
Regulatory Flexibility Act
Based on information currently available, it is hereby certified
under the provisions of section 3 of the Regulatory Flexibility Act (5
U.S.C. 605(b)) that this proposed regulation, if adopted, will not have
a significant economic impact on a substantial number of small
entities. Accordingly, a regulatory flexibility analysis is not
required. It has been suggested, however, that implementing the
proposed interpretation of exclusion may have the effect of
``freezing'' industry member standings where they are. For instance, a
large wholesaler might be in a better position to offer
indiscriminately premiums for volume purchases, and retain a
competitive advantage over a small wholesaler who could not afford to
offer a similar inducement to all customers. On the trade buyer side, a
small retailer might be more likely to lose its freedom in purchasing
decisions because of a relatively minor service or piece of equipment
it receives from a particular supplier. Although ATF believes that the
proposed regulations are required to bring ATF's policy into
conformance with Federal court decisions on the FAA Act, ATF requests
the comments of small businesses and their representatives on this
subject. We will review this certification in light of any pertinent
comments we may receive.
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1980 (44
U.S.C. 3504(h)). Comments on the collection of information should be
directed to the Office of Management and Budget, Attention: Desk
Officer for the Department of the Treasury, Bureau of Alcohol, Tobacco
and Firearms, Office of Information and Regulatory Affairs, Washington,
DC 20503, with copies to: Reports Management Officer, Information
Programs Branch, Room 3450, Bureau of Alcohol, Tobacco and Firearms,
650 Massachusetts Avenue, NW., Washington, DC 20226.
The collection of information in this regulation is in 27 CFR parts
6, 8, and 10. This information is required by ATF to protect the public
interest and ensure fair trade competition in the alcoholic beverage
industry. The information will be used to analyze promotional
activities as part of an investigation. The likely respondents are
industry members.
The authority to require reports which is stated in this notice of
proposed rulemaking is to be used on a case-by-case basis only, and
does not apply to industry members in general. The estimated number of
respondents in any given year is 20, with one report being required
from each respondent. The estimated average annual burden associated
with this collection of information is 1 hour per respondent.
Public Participation
ATF requests comments from all interested persons. Comments
received no later than the closing date of the comment period will be
carefully considered. Comments received after the closing date and too
late for consideration will be treated as possible suggestions for
future ATF action. ATF will not recognize any comment as confidential.
Comments may be disclosed to the public. Any material which the
respondent considers to be confidential or inappropriate for disclosure
should not be included in the comment. The name of the person
submitting the comment is public information.
Public Hearings
It is anticipated that two public hearings will be held following
the close of the written comment period. One hearing will be in
Washington, D.C. and one in San Francisco, California. A separate
notice announcing the times and places of the hearings will be
published in a future Federal Register.
Drafting Information
The principal author of this document is Marjorie Ruhf, Wine and
Beer Branch, Bureau of Alcohol, Tobacco and Firearms.
Treatment of Rulings and Circulars
The following revenue ruling, ATF ruling and industry circulars
will be incorporated into the proposed regulations, or their provisions
will become obsolete at the time these proposed regulations become
effective: Revenue Ruling 54-162, 1954-1 C.B. 340; ATF Ruling 81-1,
1981-2 ATF Q.B. 27 and ATF Ruling 81-6, 1981-4 ATF Q.B. 23; Industry
Circulars 81-11 and 81-16.
List of Subjects
27 CFR Part 6
Advertising, alcohol and alcoholic beverages, antitrust, credit and
trade practices.
27 CFR Part 8
Alcohol and alcoholic beverages, antitrust, and trade practices.
27 CFR Part 10
Alcohol and alcoholic beverages, antitrust, and trade practices.
27 CFR Part 11
Alcohol and alcoholic beverages, antitrust, and trade practices.
Issuance
Title 27, Chapter I, is proposed to be amended as follows:
PART 6--``TIED-HOUSE''
Paragraphs 1-2. The authority citation for Part 6 is revised to
read as follows:
Authority: 15 U.S.C. 49-50; 27 U.S.C. 202 and 205; 44 U.S.C.
3504(h).
Par. 3. Section 6.1 is revised to read as follows:
Sec. 6.1 General.
The regulations in this part, issued pursuant to section 105 of the
Federal Alcohol Administration Act (27 U.S.C. 205), specify practices
that are means to induce under 105(b), criteria for determining whether
a practice is a violation of 105(b), and exceptions to 105(b). This
part does not attempt to enumerate all of the practices that may be a
violation of section 105(b) of the Act. Nothing in this part shall
operate to exempt any person from the requirements of any State law or
regulation.
Sec. 6.4 [Amended]
Par. 4. Section 6.4 is amended by removing the reference to
``section 5(b) of the Federal Alcohol Administration Act'' where it
appears in paragraph (b) and replacing it with a reference to ``section
105(b) of the Federal Alcohol Administration Act''.
Par. 5. Section 6.5 is added to subpart A to read as follows:
Sec. 6.5 Administrative provisions.
(a) General. The Act makes applicable the provisions including
penalties of sections 49 and 50 of title 15, United States Code, to the
jurisdiction, powers and duties of the Director under this Act, and to
any person (whether or not a corporation) subject to the provisions of
law administered by the Director under this Act.
(b) Examination and subpoena. The Director or any authorized ATF
officers shall at all reasonable times have access to, for the purpose
of examination, and the right to copy any documentary evidence of any
person, partnership, or corporation being investigated or proceeded
against; and the Director shall have the power to require by subpoena
the attendance and testimony of witnesses and the production of all
such documentary evidence relating to any matter under investigation.
(c) Reports required by the regional director (compliance).--(l)
General. When required in writing by the regional director
(compliance), an industry member shall submit a written report
containing information on sponsorships, advertisements, promotions, and
other activities pertaining to its business subject to the Act
conducted by, or on behalf of, or benefiting the industry member.
(2) Preparation. The report will be prepared by the industry member
in letter form, executed under the penalties of perjury, and will
contain the information specified by the regional director
(compliance).
(3) Filing. The report will be filed in accordance with the
instructions of the regional director (compliance). (27 U.S.C. 202(c)
and (d)).
Par. 6. Section 6.11 is amended by adding the definitions for ``ATF
officer,'' ``Director,'' ``brand'' and ``regional director
(compliance),'' and by revising the term ``retailer establishment'' to
read ``retail establishment''. as follows:
Sec. 6.11 Meaning of terms.
* * * * *
ATF officer. An officer or employee of the Bureau of Alcohol,
Tobacco and Firearms (ATF) authorized to perform any function relating
to the administration or enforcement of this part.
Brand. The term ``brand'' refers to differences in the brand name
of a product or in the nature of a product. Examples of different
brands are products having a different brand name; class, type, or kind
designation; appellation of origin (wine); vintage date (wine); age
(distilled spirits); or percentage of alcohol. Differences in packaging
such as difference in label design or color, or a different style, type
or size of container are not considered different brands.
Director. The Director, Bureau of Alcohol, Tobacco and Firearms,
the Department of the Treasury, Washington, DC.
* * * * *
Regional director (compliance). The principal ATF regional official
responsible for administering regulations in this part.
* * * * *
Retail establishment. * * *
Par. 7. Section 6.25 is revised to read as follows:
Sec. 6.25 General.
The act by an industry member of acquiring or holding any interest
in any license (State, county or municipal) with respect to the
premises of a retailer constitutes a means to induce within the meaning
of the Act.
Par. 8. Section 6.27 is amended by revising paragraph (a) to read
as follows:
Sec. 6.27 Proprietary interest.
(a) Complete ownership. Outright ownership of a retail business by
an industry member is not an interest which may result in a violation
of section 105(b)(1) of the Act.
* * * * *
Par. 9. Section 6.31 is revised to read as follows:
Sec. 6.31 General.
The act by an industry member of acquiring an interest in real or
personal property owned, occupied, or used by the retailer in the
conduct of business constitutes a means to induce within the meaning of
the Act.
Par. 10. Section 6.33 is amended by revising paragraph (a) to read
as follows:
Sec. 6.33 Proprietary interest.
(a) Complete ownership. Outright ownership of a retail business by
an industry member is not an interest that may result in a violation of
section 105(b)(2) of the Act.
* * * * *
Par. 11. Section 6.41 is revised to read as follows:
Sec. 6.41 General.
Subject to the exceptions listed in Subpart D, the act by an
industry member of furnishing, giving, renting, lending, or selling any
equipment, fixtures, signs, supplies, money, services, or other things
of value to a retailer constitutes a means to induce within the meaning
of the Act.
Par. 12. Section 6.42 is revised to read as follows:
Sec. 6.42 Indirect inducement through third party arrangements.
The furnishing, giving, renting, lending, or selling of equipment,
fixtures, signs, supplies, money, services, or other thing of value by
an industry member to a third party, where the benefits resulting from
such things of value flow to individual retailers, is the indirect
furnishing of a thing of value within the meaning of the Act. Indirect
furnishing of a thing of value includes, but is not limited to, making
payments for advertising to a retailer association or a display company
where the resulting benefits flow to individual retailers. Things which
may lawfully be furnished, given, rented, lent, or sold by industry
members to retailers under subpart D or E may also be furnished
directly by a third party to a retailer.
Par. 13. Section 6.43 is amended by removing the reference
``Secs. 6.88 and 6.89,'' where it appears in the first sentence and
replacing it with ``Sec. 6.88,''.
Par. 14. Sections 6.46 and 6.47 are removed and reserved.
Par. 15. Section 6.51 is revised to read as follows:
Sec. 6.51 General.
The act by an industry member of paying or crediting a retailer for
any advertising, display, or distribution service constitutes a means
to induce within the meaning of the Act, whether or not the
advertising, display, or distribution service received may be
commensurate with the cost paid or incurred by, or on behalf of, the
retailer.
Par. 16. Section 6.52 is revised to read as follows:
Sec. 6.52 Cooperative advertising.
An arrangement in which an industry member participates with a
retailer in paying for an advertisement constitutes paying the retailer
for advertising within the meaning of the Act unless excepted under
Sec. 6.98.
Par. 17. Section 6.61 is revised to read as follows:
Sec. 6.61 Guaranteeing loans.
The act by an industry member of guaranteeing any loan or the
repayment of any financial obligation by a retailer constitutes a means
to induce within the meaning of the Act.
Par. 18. Section 6.65 is revised to read as follows:
Sec. 6.65 General.
Extension of credit by an industry member to a retailer for a
period of time in excess of 30 days from the date of delivery
constitutes a means to induce within the meaning of the Act.
Par. 19. The text of Sec. 6.67 is added to read as follows:
Sec. 6.67 Sales to retailer whose account is in arrears.
An extension of credit by an industry member to a retailer does not
constitute a means to induce within the meaning of the Act so long as a
current order from a retailer whose account is in arrears is
accompanied with a payment equal to or greater than the value of such
current order, regardless of the manner in which the industry member
applies the payment in its records.
Par. 20. Section 6.71 is revised to read as follows:
Sec. 6.71 Quota sales.
The act by an industry member of requiring a retailer to take and
dispose of any quota of distilled spirits, wine, or malt beverages
constitutes a means to induce within the meaning of the Act.
Par. 21. Section 6.72 is revised to read as follows:
Sec. 6.72 ``Tie-in'' sales.
The act by an industry member of requiring that a retailer purchase
one product in order to obtain another constitutes a means to induce
within the meaning of the Act. This includes the requirement to take a
minimum quantity of a product in standard packaging in order to obtain
the same product in some type of premium package, i.e., a distinctive
decanter, or wooden or tin box. This also includes combination sales if
one or more products may be purchased only in combination with other
products and not individually. However, an industry member is not
precluded from selling two or more kinds or brands of products to a
retailer at a special combination price, provided (a) the retailer has
the option of purchasing either product at the usual price, and (b) the
retailer is not required to purchase any product it does not want.
Par. 22. Section 6.81 is amended by revising paragraph (a), by
removing the references to Secs. 6.85, 6.89, 6.90 in the first sentence
of paragraph (b), and by adding concluding text to the end of paragraph
(b), to read as follows:
Sec. 6.81 General.
(a) Application. Section 105(b)(3) of the Act enumerates means to
induce that may be unlawful under the subsection, subject to such
exceptions as are prescribed in regulations, having due regard for
public health, the quantity and value of articles involved, established
trade customs not contrary to the public interest, and the purposes of
that section. This subpart implements section 105(b)(3) and identifies
the practices that are exceptions to section 105(b)(3). An industry
member may furnish a retailer equipment, inside signs, supplies,
services, or other things of value, under the conditions and within the
limitations prescribed in this subpart.
(b) * * *
Failure to keep such records may result in loss of the exception
claimed. No separate recordkeeping violation is present.
* * * * *
Sec. 6.82 [Removed]
Par. 23. Section 6.82 is removed and reserved.
Par. 24. Section 6.83 is revised to read as follows:
Sec. 6.83 Product displays.
(a) General. The act by an industry member of giving or selling
product displays to a retailer does not constitute a means to induce
within the meaning of section 105(b)(3) of the Act provided that the
conditions prescribed in paragraph (c) of this section are met.
(b) Definition. ``Product display'' means any wine racks, bins,
barrels, casks, shelving, and similar items the primary function of
which is to hold and display consumer products.
(c) Conditions and limitations. (1) The total value of all product
displays furnished by an industry member under paragraph (a) of this
section may not exceed $500 per brand at any one time in any one retail
establishment. Industry members may not pool or combine dollar
limitations in order to provide a retailer a product display valued in
excess of $500 per brand. The value of a product display is the actual
cost to the industry member who initially purchased it. Transportation
and installation costs are excluded.
(2) All product displays must bear conspicuous and substantial
advertising matter on the product or the industry member which is
permanently inscribed or permanently affixed. The name and address of
the retailer may appear on the product displays.
(3) The giving or selling of such product displays may be
conditioned upon the purchase of the distilled spirits, wine, or malt
beverage product advertised on those displays in a quantity necessary
for the completion of such display or the use of such materials. No
other condition can be imposed by the industry member on the retailer
in order for the retailer to receive or obtain the product display.
Par. 25. Section 6.84 is revised to read as follows:
Sec. 6.84 Point of sale advertising and consumer advertising
specialties.
(a) General. The act by an industry member of giving or selling
point of sale advertising materials and consumer advertising
specialties to a retailer does not constitute a means to induce within
the meaning of section 105(b)(3) of the Act provided that the
conditions prescribed in paragraph (c) of this section are met.
(b) Definitions--(1) Point of sale advertising materials are items
designed to be used within a retail establishment to attract consumer
attention to the products of the industry member. Such materials
include, but are not limited to:
(i) Inside signs, such as posters, placards, designs, and window
decorations;
(ii) Retailer advertising specialties, such as trays, coasters,
mats, menu cards, meal checks, paper napkins, foam scrapers, back bar
mats, thermometers, clocks, and calendars; and
(iii) Lists or menus.
(2) Consumer advertising specialties are items that are designed to
be carried away by the consumer, such as trading stamps, nonalcoholic
mixers, pouring racks, ash trays, bottle or can openers, cork screws,
shopping bags, matches, printed recipes, pamphlets, cards, leaflets,
blotters, post cards, pencils, shirts, caps, and visors.
(c) Conditions and limitations. (1) All point of sale advertising
materials and consumer advertising specialties must bear conspicuous
and substantial advertising matter about the product or the industry
member which is permanently inscribed or permanently affixed. The name
and address of the retailer may appear on the point of sale advertising
materials.
(2) With respect to retailer and consumer advertising specialties,
the industry member may not directly or indirectly pay or credit the
retailer for using or distributing the advertising materials or for any
expense incidental to their use.
Par. 26. Section 6.85 is revised to read as follows:
Sec. 6.85 Temporary retailers.
(a) General. The furnishing of things of value to a temporary
retailer does not constitute a means to induce within the meaning of
section 105(b)(3) of the Act.
(b) Definition. A temporary retailer is a dealer who is not engaged
in business as a retailer for more than four consecutive days per
event, and for not more than five events in a calendar year.
Par. 27. Sections 6.86 and 6.87 are removed and reserved.
Par. 28. Section 6.88 is revised to read as follows:
Sec. 6.88 Equipment and supplies.
(a) General. The act by an industry member of selling equipment or
supplies to a retailer does not constitute a means to induce within the
meaning of section 105(b)(3) of the Act if the equipment or supplies
are sold at a price not less than the cost to the industry member who
initially purchased them, and if the price is collected within 30 days
of the date of the sale. The act by an industry member of installing
dispensing accessories at the retailer's establishment does not
constitute a means to induce within the meaning of the Act as long as
the retailer bears the cost of initial installation. The act by an
industry member of furnishing, giving, or selling coil cleaning service
to a retailer of distilled spirits, wine, or malt beverages does not
constitute a means to induce within the meaning of section 105(b)(3) of
the Act.
(b) Definition. Equipment and supplies means glassware (or similar
containers made of other material), dispensing accessories, carbon
dioxide (and other gasses used in dispensing equipment) or ice.
Dispensing accessories include items such as standards, faucets, cold
plates, rods, vents, taps, tap standards, hoses, washers, couplings,
gas gauges, vent tongues, shanks, and check valves.
Par. 29. Sections 6.89 and 6.90 are removed and reserved.
Par. 30. Section 6.91 is revised to read as follows:
Sec. 6.91 Samples.
The act by an industry member of furnishing or giving a sample of
distilled spirits, wine, or malt beverages to a retailer who has not
previously purchased the brand from that industry member does not
constitute a means to induce within the meaning of section 105(b)(3) of
the Act. For each retail establishment the industry member may give not
more than 3 gallons of any brand of malt beverage, and not more than 3
liters of any brand of wine or distilled spirits. Where a retailer owns
multiple retail establishments and purchasing decisions are made at a
central location, no more than four retail establishments owned by that
retailer may receive samples. If a particular product is not available
in a size within the quantity limitations of this section, an industry
member may furnish to a retailer the next larger size.
Par. 31. Section 6.92 is amended by removing the word ``loaned''
where it appears and replacing it with the word ``lent.''
Par. 32. Section 6.93 is revised to read as follows:
Sec. 6.93 Combination packaging.
The act by an industry member of packaging and distributing
distilled spirits, wine, or malt beverages in combination with other
(non-alcoholic) items does not constitute a means to induce within the
meaning of section 105(b)(3) of the Act.
Par. 33. Section 6.94 is amended by adding the phrase ``(such as
travel, lodging, and meals)'' before the period in the final sentence
of the section.
Par. 34. Section 6.96 is amended by revising paragraph (a) to read
as follows:
Sec. 6.96 Consumer promotions.
(a) Coupons. The act by an industry member of furnishing to
consumers coupons which are redeemable at a retail establishment does
not constitute a means to induce within the meaning of section
105(b)(3) of the Act, provided the following conditions are met: (1)
Redemption of such coupons may not be limited to a particular retailer
or group of retailers; and
(2) An industry member may not reimburse a retailer for more than
the face value of all coupons redeemed, plus a usual and customary
handling fee for the redemption of coupons.
* * * * *
Par. 35. Section 6.97 is removed and reserved.
Par. 36. Section 6.98 is revised to read as follows:
Sec. 6.98 Advertising service.
The listing of the names and addresses of two or more retailers
selling the products of an industry member in an advertisement of that
industry member does not constitute a means to induce within the
meaning of section 105(b)(3) of the Act, provided:
(a) The advertisement does not also contain the retail price of the
product (except where the exclusive retailer in the jurisdiction is a
State or local agency), and
(b) The listing is the only reference to the retailers in the
advertisement and is relatively inconspicuous in relation to the
advertisement as a whole, and
(c) The advertisement does not refer only to one retailer or only
to retail establishments controlled directly or indirectly by the same
retailer, except where the retailer is an agency of a State or a
political subdivision of a State.
Par 37. Section 6.99 is revised to read as follows:
Sec. 6.99 Stocking, rotation, and pricing service.
(a) General. Industry members may, at a retail establishment,
stock, rotate and affix the price to distilled spirits, wine, or malt
beverages which they sell, provided products of other industry members
are not altered or disturbed. The rearranging or resetting of all or
part of a store or liquor department is not hereby authorized.
(b) Shelf plan and shelf schematics. The act by an industry member
of providing a recommended shelf plan or shelf schematic for distilled
spirits, wine, or malt beverages does not constitute a means to induce
within the meaning of section 105(b)(3) of the Act.
Par 38. Section 6.100 is revised to read as follows:
Sec. 6.100 Participation in retailer association activities.
The following acts by an industry member participating in retailer
association activities do not constitute a means to induce within the
meaning of section 105(b)(3) of the Act:
(a) Displaying its products at a convention or trade show,
(b) Renting display booth space if the rental fee is the same as
paid by all exhibitors at the event,
(c) Providing its own hospitality which is independent from
association sponsored activities,
(d) Purchasing tickets to functions and paying registration fees if
the payments or fees are the same as paid by all exhibitors at the
event, and
(e) Making payments for advertisements in programs or brochures
issued by retailer associations at a convention or trade show if the
total payments made by an industry member for all such advertisements
do not exceed $500 per year for any retailer association.
Par. 39. Section 6.101 is revised to read as follows:
Sec. 6.101 Merchandise.
(a) General. The act by an industry member, who is also in business
as a bona fide vendor of other merchandise (for example, groceries or
pharmaceuticals), of selling that merchandise to a retailer does not
constitute a means to induce within the meaning of section 105(b)(3) of
the Act, provided:
(1) The merchandise is sold at its fair market value, and
(2) The merchandise is not sold in combination with distilled
spirits, wines, or malt beverages, and
(3) The industry member's acquisition costs of the merchandise
appears on the industry member's purchase invoices or other records,
and
(4) Merchandise and distilled spirits, wines, or malt beverages
sold in a single transaction are itemized separately on the same
invoice covering the sales transaction.
(b) Things of value covered in other sections of this part. The act
by an industry member of providing equipment, fixtures, signs,
glassware, supplies, services, and advertising specialties to retailers
does not constitute a means to induce within the meaning of section
105(b)(3) of the Act only as provided in other sections within this
part.
Par. 40. A new Sec. 6.102 is added to subpart D to read as follows:
Sec. 6.102 Outside signs.
(a) The act by an industry member of furnishing outside signs to a
retailer does not constitute a means to induce within the meaning of
section 105(b)(3) of the Act provided that:
(1) The retailer is not compensated, directly or indirectly such as
through a sign company, for displaying the signs, and
(2) The cost of the signs may not exceed $500.
Par. 41. Part 6 is amended by adding a new subpart E to read as
follows:
Subpart E--Exclusion
6.151 Exclusion, in general.
6.152 Practices which put retailer independence at risk.
6.153 Criteria for determining retailer independence.
Subpart E--Exclusion
Sec. 6.151 Exclusion, in general.
(a) Exclusion, in whole or in part occurs:
(1) When a practice by an industry member, whether direct,
indirect, or through an affiliate, places retailer independence at risk
by means of a tie or link between the industry member and retailer or
by any other means of industry member control over the retailer, and
(2) Such practice results in the retailer purchasing less than it
would have of a competitor's product.
(b) Section 6.152 lists practices that create a tie or link that
places retailer independence at risk. Section 6.153 lists the criteria
used for determining whether other practices can put retailer
independence at risk.
Sec. 6.152 Practices which put retailer independence at risk.
The practices specified in this section put retailer independence
at risk. The practices specified here are examples and do not
constitute a complete list of those practices that put retailer
independence at risk.
(a) The act by an industry member of resetting stock on a
retailer's premises (other than stock offered for sale by the industry
member).
(b) The act by an industry member of purchasing or renting specific
shelf space (e.g., slotting allowance) where such purchase reduces the
availability on other shelf space of the distilled spirits, wine or
malt beverages of another industry member.
(c) Ownership by an industry member of less than a 100 percent
interest in a retailer.
(d) The act by an industry member of requiring a retailer to
purchase one alcoholic beverage product in order to be allowed to
purchase another alcoholic beverage product at the same time.
Sec. 6.153 Criteria for determining retailer independence.
The criteria specified in this section are indications that a
particular practice, other than those in Sec. 6.152, places retailer
independence at risk. A practice need not meet all of the criteria
specified in this section in order to place retailer independence at
risk.
(a) The practice restricts or hampers the free economic choice of a
retailer to decide which products to purchase and the quantity in which
to purchase them for sale to consumers.
(b) The industry member obligates the retailer to participate in
the promotion to obtain the industry member's product.
(c) The retailer has a continuing obligation to purchase or
otherwise promote the industry member's product.
(d) The retailer has a commitment not to terminate its relationship
with the industry member with respect to purchase of the industry
member's products.
(e) The practice involves the industry member in the day-to-day
operations of the retailer. For example, the industry member controls
the retailer's decisions on which brand of products to purchase, the
pricing of products, or the manner in which the products will be
displayed on the retailer's premises.
(f) The practice is discriminatory in that it is not offered to all
retailers in the local market on the same terms without business
reasons present to justify the difference in treatment.
PART 8--EXCLUSIVE OUTLETS
Par. 42-43. The authority citation for part 8 is revised to read as
follows:
Authority: 15 U.S.C. 49-50; 27 U.S.C. 202 and 205; 44 U.S.C.
3504(h).
Par. 44. Section 8.1 is revised to read as follows:
Sec. 8.1 General.
The regulations in this part, issued pursuant to section 105 of the
Federal Alcohol Administration Act (27 U.S.C. 205), specify
arrangements which are exclusive outlets under section 105(a) and
criteria for determining whether a practice is a violation of section
105(a). This part does not attempt to enumerate all of the practices
prohibited by section 105(a) of the Act. Nothing in this part shall
operate to exempt any person from the requirements of any State law or
regulation.
Par. 45. Section 8.5 is added to subpart A to read as follows:
Sec. 8.5 Administrative provisions.
(a) General. The Act makes applicable the provisions including
penalties of sections 49 and 50 of Title 15, United States Code, to the
jurisdiction, powers and duties of the Director under this Act, and to
any person (whether or not a corporation) subject to the provisions of
law administered by the Director under this Act.
(b) Examination and subpoena. The Director or any authorized ATF
officers shall at all reasonable times have access to, for the purpose
of examination, and the right to copy any documentary evidence of any
person, partnership, or corporation being investigated or proceeded
against; and the Director shall have the power to require by subpoena
the attendance and testimony of witnesses and the production of all
such documentary evidence relating to any matter under investigation.
(c) Reports requested by the regional director (compliance)--(1)
General. When required in writing by the regional director
(compliance), an industry member shall submit a written report
containing information on sponsorships, advertisements, promotions, and
other activities pertaining to its business subject to the Act
conducted by, or on behalf of, or benefiting the industry member.
(2) Preparation. The report will be prepared by the industry member
in letter form, executed under the penalties of perjury, and will
contain the information specified by the regional director
(compliance).
(3) Filing. The report will be filed in accordance with the
instructions of the regional director (compliance). (27 U.S.C. 202(c)
and (d))
Par. 46. Section 8.11 is amended by removing the definition for the
term ``retail establishment'' and by adding definitions for ``ATF
officer,'' ``Director'' and ``regional director (compliance)'' as
follows:
Sec. 8.11 Meaning of terms.
* * * * *
ATF officer. An officer or employee of the Bureau of Alcohol,
Tobacco and Firearms (ATF) authorized to perform any function relating
to the administration or enforcement of this part.
Director. The Director, Bureau of Alcohol, Tobacco and Firearms,
the Department of the Treasury, Washington, DC.
* * * * *
Regional director (compliance). The principal ATF regional official
responsible for administering regulations in this part.
* * * * *
Par. 47. Section 8.23 is revised to read as follows:
Sec. 8.23 Third party arrangements.
Industry member requirements, by agreement or otherwise, with non-
retailers that result in a retailer being required to purchase the
industry member's products are within the exclusive outlet provisions.
These industry member requirements are covered whether the agreement or
other arrangement originates with the industry member or the third
party. For example, a supplier enters into a contractual agreement or
other arrangement with a third party. This agreement or arrangement
contains an industry member requirement as described above. The third
party, a ballclub, or municipal or private corporation, not acting as a
retailer, leases the concession rights and is able to control the
purchasing decisions of the retailer. The third party, as a result of
the requirement, by agreement or otherwise, with the industry member,
requires the retailer to purchase the industry member's products to the
exclusion, in whole or in part, of products sold or offered for sale by
other persons in interstate or foreign commerce. The business
arrangements entered into by the industry member and the third party
may consist of such things as sponsoring radio or television
broadcasting, paying for advertising, or providing other services or
things of value.
Par. 48. Part 8 is amended by adding a new Subpart D to read as
follows:
Subpart D--Exclusion
8.51 Exclusion, in general.
8.52 Practices which result in exclusion.
8.53 Practices not resulting in exclusion.
8.54 Criteria for determining retailer independence.
Subpart D--Exclusion
Sec. 8.51 Exclusion, in general.
(a) Exclusion, in whole or in part occurs:
(1) When a practice by an industry member, whether direct,
indirect, or through an affiliate, places retailer independence at risk
by means of a tie or link between the industry member and retailer or
by any other means of industry member control over the retailer, and
(2) Such practice results in the retailer purchasing less than it
would have of a competitor's product.
(b) Section 8.52 lists practices that result in exclusion. Section
8.53 lists practices not resulting in exclusion. Section 8.54 lists the
criteria used for determining whether other practices can put retailer
independence at risk.
Sec. 8.52 Practices which result in exclusion.
The practices specified in this section result in exclusion under
section 105(a) of the Act. The practices specified here are examples
and do not constitute a complete list of such practices:
(a) Purchases of distilled spirits, wine or malt beverages by a
retailer as a result, directly or indirectly, of a threat or act of
physical or economic harm by the selling industry member.
(b) Contracts between an industry member and a retailer which
require the retailer to purchase distilled spirits, wine, or malt
beverages from that industry member and expressly restrict the retailer
from purchasing, in whole or in part, such products from another
industry member.
Sec. 8.53 Practices not resulting in exclusion.
The practices specified in this section are deemed not to result in
exclusion under section 105(a) of the Act:
(a) A supply contract for one year or less between the industry
member and retailer under which the industry member agrees to sell
distilled spirits, wine, or malt beverages to the retailer on an ``as
needed'' basis provided that the retailer is not required to purchase
any minimum quantity of such product.
(b) [Reserved]
Sec. 8.54 Criteria for determining retailer independence.
The criteria specified in this section are indications that a
particular practice, other than those in Sec. 8.52 and 8.53, places
retailer independence at risk. A practice need not meet all of the
criteria specified in this section in order to place retailer
independence at risk.
(a) The practice restricts or hampers the free economic choice of a
retailer to decide which products to purchase and the quantity in which
to purchase them for sale to consumers.
(b) The industry member obligates the retailer to participate in
the promotion to obtain the industry member's product.
(c) The retailer has a continuing obligation to purchase or
otherwise promote the industry member's product.
(d) The retailer has a commitment not to terminate its relationship
with the industry member with respect to purchase of the industry
member's products.
(e) The practice involves the industry member in the day-to-day
operations of the retailer. For example, the industry member controls
the retailer's decisions on which brand of products to purchase, the
pricing of products, or the manner in which the products will be
displayed on the retailer's premises.
(f) The practice is discriminatory in that it is not offered to all
retailers in the local market on the same terms without business
reasons present to justify the difference in treatment.
PART 10--COMMERCIAL BRIBERY
Par. 49. The authority citation for part 10 is revised to read as
follows:
Authority: 15 U.S.C. 49-50; 27 U.S.C. 202 and 205; 44 U.S.C.
3504(h).
Par. 51. Section 10.1 is revised to read as follows:
Sec. 10.1 General.
The regulations in this part, issued pursuant to section 105 of the
Federal Alcohol Administration Act (27 U.S.C. 205), specify practices
which may result in violations of section 105(c) and criteria for
determining whether a practice is a violation of section 105(c). This
part does not attempt to enumerate all of the practices prohibited by
section 105(c) of the Act. Nothing in this part shall operate to exempt
any person from the requirements of any State law or regulation.
Par. 52. Section 10.4 is amended by revising paragraph (a)(1) of
the section to read as follows:
Sec. 10.4 Jurisdictional limits.
(a) General. * * *
(1) The industry member induces a trade buyer to purchase distilled
spirits, wine, or malt beverages from such industry member to the
exclusion, in whole or in part, of products sold or offered for sale by
other persons in interstate or foreign commerce; and
Par. 53. Section 10.5 is added to subpart 4 to read as follows:
Sec. 10.5 Administrative provisions.
(a) General. The Act makes applicable the provisions including
penalties of sections 49 and 50 of Title 15, United States Code, to the
jurisdiction, powers and duties of the Director under this Act, and to
any person (whether or not a corporation) subject to the provisions of
law administered by the Director under this Act.
(b) Examination and Subpoena. The Director or any authorized ATF
officers shall at all reasonable times have access to, for the purpose
of examination, and the right to copy any documentary evidence of any
person, partnership, or corporation being investigated or proceeded
against; and the Director shall have the power to require by subpoena
the attendance and testimony of witnesses and the production of all
such documentary evidence relating to any matter under investigation.
(c) Reports requested by the regional director (compliance)--(1)
General. When required in writing by the regional director
(compliance), an industry member shall submit a written report
containing information on sponsorships, advertisements, promotions, and
other activities pertaining to its business subject to the Act
conducted by, or on behalf of, or benefiting the industry member.
(2) Preparation. The report will be prepared by the industry member
in letter form, executed under the penalties of perjury, and will
contain the information specified by the regional director
(compliance).
(3) Filing. The report will be filed in accordance with the
instructions of the regional director (compliance). (27 U.S.C. 202 (c)
and (d))
Par. 54. Section 10.11 is amended by adding definitions for ``ATF
officer,'' ``Director,'' and ``regional director (compliance)'' as
follows:
Sec. 10.11 Meaning of terms.
* * * * *
ATF officer. An officer or employee of the Bureau of Alcohol,
Tobacco and Firearms (ATF) authorized to perform any function relating
to the administration or enforcement of this part.
Director. The Director, Bureau of Alcohol, Tobacco and Firearms,
the Department of the Treasury, Washington, DC.
* * * * *
Regional director (compliance). The principal ATF regional official
responsible for administering regulations in this part.
* * * * *
Par. 55. Part 10 is amended by adding a new Subpart D to read as
follows:
Subpart D--Exclusion
10.51 Exclusion, in general.
10.52 Practices which put trade buyer independence at risk.
10.53 Practices not resulting in exclusion. [Reserved]
10.54 Criteria for determining retailer independence.
Subpart D--Exclusion
Sec. 10.51 Exclusion, in general.
(a) Exclusion, in whole or in part occurs:
(1) When a practice by an industry member, whether direct,
indirect, or through an affiliate, places trade buyer independence at
risk by means of a tie or link between the industry member and trade
buyer or by any other means of industry member control over the trade
buyer, and
(2) Such practice results in the trade buyer purchasing less than
it would have of a competitor's product. Section 10.52 lists practices
that create a tie or link that places trade buyer independence at risk.
(b) Section 10.53 is reserved and will list practices not resulting
in exclusion. Section 10.54 lists the criteria used for determining
whether other practices can put trade buyer independence at risk.
Sec. 10.52 Practices which put trade buyer independence at risk.
The practice specified in this section is deemed to place trade
buyer independence at risk within the description of exclusion in
Sec. 10.51 of the regulations. The practice enumerated here is an
example and does not constitute a complete list of those situations
which result in such control.
(a) Industry member payments of money to the employee(s) of a trade
buyer without the knowledge or consent of the trade buyer-employer in
return for the employee agreeing to order distilled spirits, wine, or
malt beverages from the industry member.
(b) [Reserved]
Sec. 10.53 Practices not resulting in exclusion. [Reserved]
Sec. 10.54 Criteria for determining trade buyer independence.
The criteria specified in this section are indications that a
particular practice, other than those in section 10.52, places trade
buyer independence at risk. A practice need not meet all of the
criteria specified in this section in order to place trade buyer
independence at risk.
(a) The practice restricts or hampers the free economic choice of a
trade buyer to decide which products to purchase and the quantity in
which to purchase them for sale to retailers and consumers.
(b) The industry member obligates the trade buyer to participate in
the promotion to obtain the industry member's product.
(c) The trade buyer has a continuing obligation to purchase or
otherwise promote the industry member's product.
(d) The trade buyer has a commitment not to terminate its
relationship with the industry member with respect to purchase of the
industry member's products.
(e) The practice involves the industry member in the day-to-day
operations of the trade buyer. For example, the industry member
controls the trade buyer's decisions on which brand of products to
purchase, the pricing of products, or the manner in which the products
will be displayed on the trade buyer's premises.
(f) The practice is discriminatory in that it is not offered to all
trade buyers in the local market on the same terms without business
reasons present to justify the difference in treatment.
PART 11--CONSIGNMENT SALES
Par. 56-57. The authority citation for 27 CFR part 11 is revised to
read as follows:
Authority: 15 U.S.C. 49-50; 27 U.S.C. 202 and 205.
Par. 58. Section 11.1 is revised to read as follows:
Sec. 11.1 General.
The regulations in this part, issued pursuant to section 105 of the
Federal Alcohol Administration Act (27 U.S.C. 205), specify
arrangements which are consignment sales under section 105(d) of the
Act and contain guidelines concerning return of distilled spirits, wine
and malt beverages from a trade buyer. This part does not attempt to
enumerate all of the practices prohibited by section 105(d) of the Act.
Nothing in this part shall operate to exempt any person from the
requirements of any State law or regulation.
Par. 59. Section 11.5 is added to subpart A to read as follows:
Sec. 11.5 Administrative provisions.
(a) General. The Act makes applicable the provisions including
penalties of sections 49 and 50 of Title 15, United States Code, to the
jurisdiction, powers and duties of the Director under this Act, and to
any person (whether or not a corporation) subject to the provisions of
law administered by the Director under this Act.
(b) Examination and subpoena. The Director or any authorized ATF
officers shall at all reasonable times have access to, for the purpose
of examination, and the right to copy any documentary evidence of any
person, partnership, or corporation being investigated or proceeded
against; and the Director shall have the power to require by subpoena
the attendance and testimony of witnesses and the production of all
such documentary evidence relating to any matter under investigation.
(27 U.S.C. 202 (c))
Par. 60. Section 11.11 is amended by adding definitions for ``ATF
officer'' and ``Director'' as follows:
Sec. 11.11 Meaning of terms.
* * * * *
ATF officer. An officer or employee of the Bureau of Alcohol,
Tobacco and Firearms (ATF) authorized to perform any function relating
to the administration or enforcement of this part.
Director. The Director, Bureau of Alcohol, Tobacco and Firearms,
the Department of the Treasury, Washington, DC.
* * * * *
Par. 61. A new Sec. 11.24 is added to subpart C to read as follows:
Sec. 11.24 Other than a bona fide sale.
``Other than a bona fide sale'' includes, but is not limited to,
sales in connection with which the industry member purchases or rents
the trade buyer's shelf space to be occupied by such products.
Par. 62. Section 11.32 is revised to read as follows:
Sec. 11.32 Defective products.
Products which are unmarketable because of product deterioration,
leaking containers, or damaged labels may be exchanged for an equal
quantity of identical products or may be returned for cash or credit
against outstanding indebtedness.
Par. 63. Section 11.34 is revised to read as follows:
Sec. 11.34 Products which may no longer be lawfully sold.
Products which may no longer be lawfully sold may be returned for
cash or credit against outstanding indebtedness. This would include
situations where, due to a change in law or regulation over which the
trade buyer or an affiliate of the trade buyer has no control, a
particular size or brand is no longer permitted to be sold.
Par. 64. Section 11.35 is revised to read as follows:
Sec. 11.35 Termination of business.
Products on hand at the time a trade buyer terminates operations
may be returned for cash or credit against outstanding indebtedness.
This does not include a temporary seasonal shutdown (see Sec. 11.39).
Signed: April 15, 1994.
Daniel R. Black,
Acting Director.
Approved: April 18, 1994.
John P. Simpson,
Deputy Assistant Secretary (Tariff and Trade Enforcement).
[FR Doc. 94-10041 Filed 4-22-94; 8:49 am]
BILLING CODE 4810-31-U